Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2019 | Jul. 19, 2019 | |
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Jun. 30, 2019 | |
Entity Registrant Name | COMFORT SYSTEMS USA INC | |
Entity File Number | 1-13011 | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 76-0526487 | |
Entity Address, Address Line One | 675 Bering Drive | |
Entity Address, Address Line Two | SuiteĀ 400 | |
Entity Address, City or Town | Houston | |
Entity Address, State or Province | TX | |
Entity Address, Postal Zip Code | 77057 | |
City Area Code | 713 | |
Local Phone Number | 830-9600 | |
Entity Central Index Key | 0001035983 | |
Title of 12(b) Security | Common Stock, $0.01 par value | |
Trading Symbol | FIX | |
Security Exchange Name | NYSE | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 36,854,381 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 36,787 | $ 45,620 |
Billed accounts receivable, less allowance for doubtful accounts of $5,346 and $5,898, respectively | 587,082 | 481,366 |
Unbilled accounts receivable | 49,195 | 37,180 |
Other receivables | 25,313 | 16,361 |
Inventories | 12,734 | 12,416 |
Prepaid expenses and other | 7,250 | 6,544 |
Costs and estimated earnings in excess of billings | 8,221 | 10,213 |
Total current assets | 726,582 | 609,700 |
PROPERTY AND EQUIPMENT, NET | 108,343 | 99,618 |
LEASE RIGHT-OF-USE ASSET | 80,633 | |
GOODWILL | 332,562 | 235,182 |
IDENTIFIABLE INTANGIBLE ASSETS, NET | 173,996 | 95,275 |
DEFERRED TAX ASSETS | 17,176 | 17,634 |
OTHER NONCURRENT ASSETS | 5,304 | 5,155 |
Total assets | 1,444,596 | 1,062,564 |
CURRENT LIABILITIES: | ||
Current maturities of long-term debt | 10,380 | 3,279 |
Accounts payable | 165,119 | 176,167 |
Accrued compensation and benefits | 82,227 | 87,388 |
Billings in excess of costs and estimated earnings | 165,289 | 130,986 |
Accrued self-insurance | 39,000 | 36,386 |
Other current liabilities | 65,035 | 32,852 |
Total current liabilities | 527,050 | 467,058 |
LONG-TERM DEBT | 284,667 | 73,639 |
LEASE LIABILITIES | 70,095 | |
DEFERRED TAX LIABILITIES | 1,387 | 1,387 |
OTHER LONG-TERM LIABILITIES | 29,309 | 22,433 |
Total liabilities | 912,508 | 564,517 |
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, 4,268,984 and 4,229,653 shares, respectively | (93,947) | (87,747) |
Additional paid-in capital | 319,879 | 316,479 |
Retained earnings | 305,745 | 268,904 |
Total stockholders' equity | 532,088 | 498,047 |
Total liabilities and stockholders' equity | $ 1,444,596 | $ 1,062,564 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 5,346 | $ 5,898 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 102,969,912 | 102,969,912 |
Common stock, shares issued | 41,123,365 | 41,123,365 |
Treasury stock, shares | 4,268,984 | 4,229,653 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
REVENUE | $ 650,302 | $ 535,043 | $ 1,188,775 | $ 999,984 |
COST OF SERVICES | 530,286 | 423,860 | 962,094 | 799,748 |
Gross profit | 120,016 | 111,183 | 226,681 | 200,236 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 84,506 | 71,208 | 163,411 | 141,231 |
GAIN ON SALE OF ASSETS | (192) | (200) | (411) | (411) |
Operating income | 35,702 | 40,175 | 63,681 | 59,416 |
OTHER INCOME (EXPENSE): | ||||
Interest income | 67 | 14 | 92 | 28 |
Interest expense | (3,050) | (736) | (4,112) | (1,449) |
Changes in the fair value of contingent earn-out obligations | (1,762) | (94) | (1,920) | 59 |
Other | 149 | 3,985 | 164 | 4,023 |
Other income (expense) | (4,596) | 3,169 | (5,776) | 2,661 |
INCOME BEFORE INCOME TAXES | 31,106 | 43,344 | 57,905 | 62,077 |
PROVISION FOR INCOME TAXES | 6,933 | 10,797 | 13,866 | 12,871 |
NET INCOME | $ 24,173 | $ 32,547 | $ 44,039 | $ 49,206 |
INCOME PER SHARE: | ||||
Basic (in shares) | $ 0.65 | $ 0.87 | $ 1.19 | $ 1.32 |
Diluted (in shares) | $ 0.65 | $ 0.87 | $ 1.18 | $ 1.31 |
SHARES USED IN COMPUTING INCOME PER SHARE: | ||||
Basic (in shares) | 36,943 | 37,220 | 36,933 | 37,206 |
Diluted (in shares) | 37,223 | 37,605 | 37,228 | 37,617 |
DIVIDENDS PER SHARE (in dollars per share) | $ 0.100 | $ 0.080 | $ 0.195 | $ 0.155 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Total |
BALANCE at Dec. 31, 2017 | $ 411 | $ (63,519) | $ 312,784 | $ 168,269 | $ 417,945 |
BALANCE (in shares) at Dec. 31, 2017 | 41,123,365 | ||||
BALANCE (in shares) at Dec. 31, 2017 | (3,936,291) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 16,659 | 16,659 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 326 | (88) | 238 | ||
Issuance of shares for options exercised (in shares) | 19,124 | ||||
Issuance of restricted stock & performance stock | $ 892 | 1,331 | 2,223 | ||
Issuance of restricted stock & performance stock (in shares) | 52,306 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (846) | (846) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (19,921) | ||||
Stock-based compensation | 1,880 | 1,880 | |||
Dividends | (2,786) | (2,786) | |||
Share repurchase | $ (6,175) | (6,175) | |||
Share repurchase (in shares) | (150,481) | ||||
BALANCE at Mar. 31, 2018 | $ 411 | $ (69,323) | 315,907 | 182,142 | 429,138 |
BALANCE (in shares) at Mar. 31, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2018 | (4,035,263) | ||||
BALANCE at Dec. 31, 2017 | $ 411 | $ (63,519) | 312,784 | 168,269 | 417,945 |
BALANCE (in shares) at Dec. 31, 2017 | 41,123,365 | ||||
BALANCE (in shares) at Dec. 31, 2017 | (3,936,291) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 49,206 | ||||
BALANCE at Jun. 30, 2018 | $ 411 | $ (67,386) | 316,235 | 211,715 | 460,975 |
BALANCE (in shares) at Jun. 30, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Jun. 30, 2018 | (3,877,756) | ||||
BALANCE at Mar. 31, 2018 | $ 411 | $ (69,323) | 315,907 | 182,142 | 429,138 |
BALANCE (in shares) at Mar. 31, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2018 | (4,035,263) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 32,547 | 32,547 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 1,949 | (29) | 1,920 | ||
Issuance of shares for options exercised (in shares) | 112,616 | ||||
Issuance of restricted stock & performance stock | $ 1,335 | (1,335) | 0 | ||
Issuance of restricted stock & performance stock (in shares) | 77,263 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (693) | (693) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (17,046) | ||||
Stock-based compensation | 1,692 | 1,692 | |||
Dividends | (2,974) | (2,974) | |||
Share repurchase | $ (654) | (654) | |||
Share repurchase (in shares) | (15,326) | ||||
BALANCE at Jun. 30, 2018 | $ 411 | $ (67,386) | 316,235 | 211,715 | 460,975 |
BALANCE (in shares) at Jun. 30, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Jun. 30, 2018 | (3,877,756) | ||||
BALANCE at Dec. 31, 2018 | $ 411 | $ (87,747) | 316,479 | 268,904 | $ 498,047 |
BALANCE (in shares) at Dec. 31, 2018 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Dec. 31, 2018 | (4,229,653) | 4,229,653 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 19,866 | $ 19,866 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 861 | (61) | 800 | ||
Issuance of shares for options exercised (in shares) | 41,103 | ||||
Issuance of restricted stock & performance stock | $ 817 | 1,189 | 2,006 | ||
Issuance of restricted stock & performance stock (in shares) | 38,539 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (781) | (781) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (15,013) | ||||
Stock-based compensation | 2,084 | 2,084 | |||
Dividends | (3,506) | (3,506) | |||
Share repurchase | $ (3,321) | (3,321) | |||
Share repurchase (in shares) | (67,394) | ||||
BALANCE at Mar. 31, 2019 | $ 411 | $ (90,171) | 319,691 | 285,264 | 515,195 |
BALANCE (in shares) at Mar. 31, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2019 | (4,232,418) | ||||
BALANCE at Dec. 31, 2018 | $ 411 | $ (87,747) | 316,479 | 268,904 | $ 498,047 |
BALANCE (in shares) at Dec. 31, 2018 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Dec. 31, 2018 | (4,229,653) | 4,229,653 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | $ 44,039 | ||||
BALANCE at Jun. 30, 2019 | $ 411 | $ (93,947) | 319,879 | 305,745 | $ 532,088 |
BALANCE (in shares) at Jun. 30, 2019 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Jun. 30, 2019 | (4,268,984) | 4,268,984 | |||
BALANCE at Mar. 31, 2019 | $ 411 | $ (90,171) | 319,691 | 285,264 | $ 515,195 |
BALANCE (in shares) at Mar. 31, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2019 | (4,232,418) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 24,173 | 24,173 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 31 | (11) | 20 | ||
Issuance of shares for options exercised (in shares) | 1,408 | ||||
Issuance of restricted stock & performance stock | $ 1,486 | (1,486) | |||
Issuance of restricted stock & performance stock (in shares) | 69,067 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (717) | (717) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (13,573) | ||||
Stock-based compensation | 1,685 | 1,685 | |||
Dividends | (3,692) | (3,692) | |||
Share repurchase | $ (4,576) | (4,576) | |||
Share repurchase (in shares) | (93,468) | ||||
BALANCE at Jun. 30, 2019 | $ 411 | $ (93,947) | $ 319,879 | $ 305,745 | $ 532,088 |
BALANCE (in shares) at Jun. 30, 2019 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Jun. 30, 2019 | (4,268,984) | 4,268,984 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 44,039 | $ 49,206 |
Adjustments to reconcile net income to net cash provided by operating activities- | ||
Amortization of identifiable intangible assets | 13,006 | 8,753 |
Depreciation expense | 12,013 | 10,969 |
Bad debt expense | 784 | 1,186 |
Deferred tax provision | 458 | 8,400 |
Amortization of debt financing costs | 191 | 192 |
Gain on sale of assets | (411) | (411) |
Changes in the fair value of contingent earn-out obligations | 1,920 | (59) |
Stock-based compensation | 4,679 | 4,874 |
(Increase) decrease in- | ||
Receivables, net | (13,081) | (55,675) |
Inventories | (197) | (1,435) |
Prepaid expenses and other current assets | (735) | 4,549 |
Costs and estimated earnings in excess of billings and unbilled accounts receivable | (3,070) | (18,711) |
Other noncurrent assets | 6,875 | 61 |
Increase (decrease) in- | ||
Accounts payable and accrued liabilities | (37,849) | 9,470 |
Billings in excess of costs and estimated earnings | 2,699 | 24,831 |
Other long-term liabilities | (4,721) | (8,682) |
Net cash provided by operating activities | 26,600 | 37,518 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (15,680) | (14,123) |
Proceeds from sales of property and equipment | 632 | 661 |
Cash paid for acquisitions, net of cash acquired | (196,298) | (13,668) |
Net cash used in investing activities | (211,346) | (27,130) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from revolving line of credit | 307,000 | 34,000 |
Payments on revolving line of credit | (111,000) | (37,000) |
Payments on other debt | (3,221) | (1,069) |
Debt financing costs | (844) | |
Payments of dividends to stockholders | (7,198) | (5,760) |
Share repurchase | (7,897) | (6,830) |
Shares received in lieu of tax withholding | (1,498) | (1,540) |
Proceeds from exercise of options | 820 | 2,159 |
Deferred acquisition payments | (500) | |
Payments for contingent consideration arrangements | (593) | (2,045) |
Net cash provided by (used in) financing activities | 175,913 | (18,929) |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (8,833) | (8,541) |
CASH AND CASH EQUIVALENTS, beginning of period | 45,620 | 36,542 |
CASH AND CASH EQUIVALENTS, end of period | $ 36,787 | $ 28,001 |
Business and Organization
Business and Organization | 6 Months Ended |
Jun. 30, 2019 | |
Business and Organization | 1. Business and Organization ā Comfort Systems USA, Inc., a Delaware corporation, provides comprehensive mechanical and electrical contracting services, which principally includes heating, ventilation and air conditioning (āHVACā), plumbing, electrical, piping and controls, as well as off-site construction, monitoring and fire protection. We install, maintain, repair and replace products and systems throughout the United States. The terms āComfort Systems,ā āwe,ā āus,ā or the āCompany,ā refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context. ā |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2019 | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies ā Basis of Presentation ā These interim statements should be read in conjunction with the historical Consolidated Financial Statements and related notes of Comfort Systems included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (āSECā) for the year ended December 31, 2018 (the āForm 10-Kā). ā The accompanying unaudited consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the SEC. Accordingly, these financial statements do not include all the footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Form 10-K. We believe all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year. ā Use of Estimates ā The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, revenue and expenses and disclosures regarding contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, the allowance for doubtful accounts, self-insurance accruals, deferred tax assets, warranty accruals, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing. ā Recent Accounting Pronouncements ā In February 2016, the FASB issued ASU No. 2016-02, āLeases (Topic 842)ā. The standard requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the balance sheet using a method referred to as the right-of-use asset approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Full retrospective application is prohibited. We adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019, using the transition method allowed by ASU No. 2018-11, āLeases (Topic 842) Targeted Improvementsā in which lessees apply the new lease standard on the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. adoption of ASU 2016-02 did not have a significant impact to our Statement of Operations or Cash Flows. The adoption of ASU 2016-02 resulted in the recording of right-of-use asset and lease liabilities of $75.9 million on our Balance Sheet as of January 1, 2019 but did not result in a cumulative-effect adjustment to retained earnings. ā In June 2016, the FASB issued ASU No. 2016-13, āFinancial Instruments ā Credit Losses (Topic 326).ā The standard requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Early adoption is permitted. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. ā In August 2018, the FASB issued ASU No. 2018-13, āFair Value Measurement (Topic 820): Disclosure Framework ā Changes to the Disclosure Requirements for Fair Value Measurement.ā This standard removes certain disclosure requirements including the valuation processes for Level 3 fair value measurements, the policy for timing of transfers between levels and the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The standard requires certain additional disclosures for public entities, including disclosure of the changes in unrealized gains and losses included in Other Comprehensive Income for Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Certain amendments, including the amendment on changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs, should be applied prospectively while other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. ā Revenue Recognition ā Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue. ā We provide comprehensive mechanical and electrical contracting services, which principally includes HVAC, plumbing, electrical, piping and controls, as well as off- site construction, monitoring and fire protection. We install, maintain, repair and replace products and systems throughout the United States. All of our revenue is recognized over time as we deliver goods and services to our customers. Revenue can be earned based on an agreed upon fixed price or based on actual costs incurred marked up at an agreed upon percentage. ā For fixed price agreements, we use the percentage of completion method of accounting under which contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs. More specifically, as part of the negotiation and bidding process to obtain installation contracts, we estimate our contract costs, which include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in our results of operations under the caption āCost of Services.ā Then, as we perform under those contracts, we measure costs incurred, compare them to total estimated costs to complete the contract and recognize a corresponding proportion of contract revenue. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed. Non-labor project costs consist of purchased equipment, prefabricated materials and other materials. Purchased equipment on our projects is substantially produced to job specifications and is a value-added element to our work. The costs are considered to be incurred when title is transferred to us, which typically is upon delivery to the work site. Prefabricated materials, such as ductwork and piping, are generally performed at our shops and recognized as contract costs when fabricated for the unique specifications of the job. Other materials costs are generally recorded when delivered to the work site. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments. ā We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we either have written authorization from the customer to proceed or an executed contract. ā Selling, marketing and estimation costs incurred in relation to selling contracts are expensed as incurred. On rare occasions, we may incur significant expenses related to selling a contract that we only incurred because we sold that contract. If this occurs, we capitalize that cost and amortize it on a percentage of completion basis over the life of the contract. We do not currently have any capitalized selling, marketing, or estimation costs on our Balance Sheet and did not incur any impairment loss in the current year. ā We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they are capitalized and amortized on a percentage of completion basis over the life of the contract. We do not currently have any capitalized obtaining or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year. ā Project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the Statement of Operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Balance Sheet under the caption āCosts and estimated earnings in excess of billings.ā Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our Balance Sheet under the caption āBillings in excess of costs and estimated earnings.ā We typically invoice our customers with payment terms of net due in 30 days . It is common in the construction industry for a contract to specify more lenient payment terms allowing the customer 45 to 60 days to make their payment. It is also common for the contract in the construction industry to specify that a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, we receive payment of our invoices between A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contractās transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. ā To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one performance obligation and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In such cases, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized, customer-specific solution, and in these cases, we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation. ā We recognize revenue over time for all of our services as we perform them because (i) control continuously transfers to that customer as work progresses, and (ii) we have the right to bill the customer as costs are incurred. The customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company. ā For the reasons listed above, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost to cost measure of progress for our contracts, as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts. Under the cost to cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including estimated fees or profits, is recorded proportionally as costs are incurred. Costs to fulfill include labor, materials and subcontractorsā costs, other direct costs and an allocation of indirect costs. ā For a small portion of our business in which our services are delivered in the form of service maintenance agreements for existing systems to be repaired and maintained, as opposed to constructed, our performance obligation is to maintain the customerās mechanical system for a specific period of time. Similar to jobs, we recognize revenue over time; however, for service maintenance agreements in which the full cost to provide services may not be known, we generally use an input method to recognize revenue, which is based on the amount of time we have provided our services out of the total time we have been contracted to perform those services. ā Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion (the process described below in more detail) is complex, subject to many variables and requires significant judgment. The consideration to which we are entitled on our long-term contracts may include both fixed and variable amounts. Variable amounts can either increase or decrease the transaction price. A common example of variable amounts that can either increase or decrease contract value are pending change orders that represent contract modifications for which a change in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. Other examples of positive variable revenue include amounts awarded upon achievement of certain performance metrics, program milestones or cost of completion date targets and can be based upon customer discretion. Variable amounts can result in a deduction from contract revenue if we fail to meet stated performance requirements, such as complying with the construction schedule. ā Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing performance obligation(s). The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis. ā We have a Company-wide policy requiring periodic review of the Estimate at Completion in which management reviews the progress and execution of our performance obligations and estimated remaining obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g. to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors, the availability and timing of funding from our customer, and overhead cost rates, among other variables. ā Based on this analysis, any adjustments to revenue, cost of services, and the related impact to operating income are recognized as necessary in the quarter in which they become known. These adjustments may result from positive program performance if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities and may result in an increase in operating income during the performance of individual performance obligations. Likewise, if we determine we will not be 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 catchup basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these 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 performance obligation is recognized in the period the loss is determined. ā The Company typically does not incur any returns, refunds, or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of the work or are included as a modification to revenue. The Company does offer an industry standard warranty on our work, which is most commonly for a one-year period. The vendors providing the equipment and materials are responsible for any failures in their product unless installed incorrectly. We include an estimated amount to cover estimated warranty expense in our Cost of Services and record a liability on our Balance Sheet to cover our current estimated outstanding warranty obligations. ā Prior to implementing ASC 606 on January 1, 2018, our methods for recognizing revenue were very similar to our current method under ASC 606. We used the actual cost as a percent of total expected cost at completion to estimate our percentage complete on fixed price jobs, a mark-up of costs for jobs in which revenue was based on time and materials incurred and elapsed time for those service maintenance contracts in which the full cost to provide the services cannot be reasonably estimated. Furthermore, our process for allocating transaction price to performance obligations is also substantially similar to prior years in which, in most cases, a contract is one performance obligation. In those cases in which a contract is determined to have more than one performance obligation, the contract price is allocated to each performance obligation based on its standalone sales price. ā In the first six months of 2018 and 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material. ā Disaggregation of Revenue ā Our consolidated 2019 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 9 ā Segment Information for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and contract type, as we believe it best depicts how the 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): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Service Provided ā 2019 ā ā 2018 ā ā 2019 ā ā 2018 ā HVAC and Plumbing ā $ 504,253 ā 77.5 % ā $ 484,011 ā 90.5 % ā $ 986,243 ā 83.0 % ā $ 908,028 ā 90.8 % Electrical Services ā ā 97,271 ā 15.0 % ā ā ā ā ā ā ā ā 101,159 ā 8.5 % ā ā ā ā ā ā Building Automation Control Systems ā ā 20,262 ā 3.1 % ā ā 26,261 ā 4.9 % ā ā 49,276 ā 4.1 % ā ā 46,306 ā 4.6 % Other ā ā 28,516 ā 4.4 % ā ā 24,771 ā 4.6 % ā ā 52,097 ā 4.4 % ā ā 45,650 ā 4.6 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Type of Customer 2019 ā 2018 2019 ā 2018 Industrial ā $ 198,002 30.5 % ā $ 114,077 21.3 % ā $ 366,662 30.8 % ā $ 214,177 21.4 % Education ā ā 100,220 ā 15.4 % ā ā 109,447 ā 20.5 % ā ā 166,963 ā 14.1 % ā ā 197,650 ā 19.8 % Office Buildings ā ā 105,483 ā 16.2 % ā ā 79,309 ā 14.8 % ā ā 171,695 ā 14.4 % ā ā 148,429 ā 14.9 % Healthcare ā ā 87,878 ā 13.5 % ā ā 71,930 ā 13.4 % ā ā 179,901 ā 15.1 % ā ā 135,113 ā 13.5 % Government ā ā 44,443 ā 6.8 % ā ā 37,285 ā 7.0 % ā ā 76,722 ā 6.5 % ā ā 73,432 ā 7.3 % Retail, Restaurants and Entertainment ā ā 58,086 ā 8.9 % ā ā 56,204 ā 10.5 % ā ā 117,477 ā 9.9 % ā ā 108,991 ā 10.9 % Multi-Family and Residential ā ā 29,061 ā 4.5 % ā ā 36,040 ā 6.7 % ā ā 59,296 ā 5.0 % ā ā 69,092 ā 6.9 % Other ā ā 27,129 ā 4.2 % ā ā 30,751 ā 5.8 % ā ā 50,059 ā 4.2 % ā ā 53,100 ā 5.3 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Activity Type 2019 ā ā 2018 2019 ā ā 2018 New Construction ā $ 291,479 ā 44.8 % ā $ 193,211 ā 36.1 % ā $ 515,439 ā 43.4 % ā $ 378,493 ā 37.9 % Existing Building Construction ā ā 199,398 ā 30.7 % ā ā 200,040 ā 37.4 % ā ā 381,694 ā 32.1 % ā ā 356,798 ā 35.7 % Service Projects ā ā 58,808 ā 9.0 % ā ā 51,900 ā 9.7 % ā ā 109,192 ā 9.2 % ā ā 94,333 ā 9.4 % Service Calls, Maintenance and Monitoring ā ā 100,617 ā 15.5 % ā ā 89,892 ā 16.8 % ā ā 182,450 ā 15.3 % ā ā 170,360 ā 17.0 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā Accounts Receivable ā Accounts Receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. ā Contract Assets and Liabilities ā 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, subject to completing a milestone, such as a phase of the project. Contract assets are generally classified as current. ā Contract liabilities consist of advance payments and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. We classify advance payments and billings in excess of revenue recognized as current. It is very unusual for us to have advanced payments with a term of greater than one year; therefore, our contract assets are usually all current. If we have advanced payments with a term greater than one year, the noncurrent portion of advanced payments would be included in other long-term liabilities in our consolidated Balance Sheets. ā The following table presents the changes in contract assets and contract liabilities (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended ā Year Ended ā June 30, 2019 ā December 31, 2018 ā Contract Contract ā Contract Contract ā Assets ā Liabilities ā Assets ā Liabilities Balance at beginning of period $ 10,213 ā $ 130,986 ā $ 30,116 ā $ 106,005 Change due to acquisitions ā 6,953 ā ā 31,604 ā ā 2,833 ā ā 8,195 Change due to conditional versus unconditional ā (8,945) ā ā ā ā ā 6,244 ā ā ā Reclassified to unbilled accounts receivable ā ā ā ā ā ā ā (28,980) ā ā ā Change in timing for performance obligation to be satisfied ā ā ā ā 2,699 ā ā ā ā ā 16,786 Balance at end of period $ 8,221 ā $ 165,289 ā $ 10,213 $ 130,986 ā In the first six months of 2019 and 2018, we recognized revenue of $109.7 million and $94.2 million related to our contract liabilities at January 1, 2019 and January 1, 2018, respectively. ā We did not have any impairment losses recognized on our receivables or contract assets in the first six months of 2019 and 2018. ā Remaining Performance Obligations ā Remaining construction performance obligations represent the remaining transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was the remaining recognized thereafter. Our service maintenance agreements are generally renewable agreements. We have adopted the practical expedient that allows us to not include service maintenance contracts one year or less, therefore we do not report unfulfilled performance obligations for service maintenance agreements. ā Leases ā We lease certain facilities, vehicles and equipment under noncancelable operating leases. The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. We account for lease components separately from the non-lease components. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense were not material to our financial statements and aggregated to ā The lease terms generally range from three to ten years. Some leases include one or more options to renew, with renewal terms that can extend the lease term. Our lease terms may include the exercise of lease renewal options when it is reasonably certain that we will exercise the option and it is at our sole discretion. The weighted average remaining lease term was 8.2 years at June 30, 2019. ā A majority of the Companyās real property leases are with individuals or entities with whom we have no other business relationship. However, in certain instances the Company enters into real property leases with current or former employees. Rent paid to related parties for the three months ended June 30, 2019 and 2018 was approximately $0.7 million and $1.1 million, respectively. Rent paid to related parties for the six months ended June 30, 2019 and 2018 was approximately $2.0 million and $2.2 million, respectively. ā 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. 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. ā The following table summarizes the lease asset and liabilities included in the consolidated Balance Sheet as follows (in thousands): ā ā ā ā ā June 30, 2019 Lease right-of-use assets $ 80,633 Lease liabilities: ā ā Other current liabilities ā 13,185 Long-term lease liabilities ā 70,095 Total lease liabilities $ 83,280 ā The maturities of lease liabilities are as follows (in thousands): ā ā ā ā ā Year ending December 31ā ā ā ā 2019 (excluding the six months ended June 30, 2019) ā $ 8,445 2020 ā ā 15,319 2021 ā ā 13,626 2022 ā ā 11,504 2023 ā ā 9,657 Thereafter ā ā 39,846 Total Lease Payments ā ā 98,397 LessāPresent Value Discount ā ā (15,117) Present Value of Lease Liabilities ā $ 83,280 ā Supplemental information related to leases was as follows (in thousands): ā ā ā ā ā ā ā ā Three Months Ended ā Six Months Ended ā June 30, 2019 June 30, 2019 Cash paid for amounts included in the measurement of lease liabilities $ 6,056 ā $ 11,960 Lease right-of-use assets obtained in exchange for lease liabilities $ 3,544 ā $ 3,718 ā Income Taxes ā We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in states with varying tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures, can impact our effective tax rate. These items can also 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. ā In the second quarter of 2019, our provision for income taxes was reduced by $1.4 million due to benefits from the expected filing of amended returns to claim the energy efficient commercial buildings deduction (the ā179D deductionā) allocated to us. ā Our provision for income taxes was reduced by $2.8 million in the first quarter of 2018 due to a decrease in unrecognized tax benefits from the filing of a federal income tax automatic accounting method change application. ā Other Income ā In April 2018, we entered into settlement agreements with British Petroleum (āBPā) related to two claims from one of our subsidiaries regarding the April 2010 BP Deepwater Horizon oil spill. We recorded a gain of million in the second quarter of 2018 as a result of these settlements. ā Financial Instruments ā Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, life insurance policies, notes to former owners, leases and a revolving credit facility. We believe that the carrying values of these instruments on the accompanying Balance Sheets approximate their fair values. |
Fair Value Measurements
Fair Value Measurements | 6 Months Ended |
Jun. 30, 2019 | |
Fair Value Measurements | 3. Fair Value Measurements ā We classify and disclose assets and liabilities carried at fair value in one of the following three categories: ā ā Level 1āquoted prices in active markets for identical assets and liabilities; ā Level 2āobservable market-based inputs or unobservable inputs that are corroborated by market data; and ā Level 3āsignificant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. ā The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of June 30, 2019 and December 31, 2018 (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Fair Value Measurements at June 30, 2019 ā Level 1 Level 2 Level 3 Total Cash and cash equivalents ā $ 36,787 ā $ ā ā $ ā ā $ 36,787 Life insuranceācash surrender value ā $ ā ā $ 3,506 ā $ ā ā $ 3,506 Contingent earn-out obligations ā $ ā ā $ ā ā $ 28,202 ā $ 28,202 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Fair Value Measurements at December 31, 2018 ā Level 1 Level 2 Level 3 Total Cash and cash equivalents ā $ 45,620 ā $ ā ā $ ā ā $ 45,620 Life insuranceācash surrender value ā $ ā ā $ 3,252 ā $ ā ā $ 3,252 Contingent earn-out obligations ā $ ā ā $ ā ā $ 7,375 ā $ 7,375 ā Cash and cash equivalents consist primarily of highly rated money market funds at a variety of 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 carrying value of our borrowings associated with the Revolving Credit Facility approximate its fair value due to the variable rate on such debt. ā We have life insurance policies covering 60 employees with a combined face value of $45.8 million. The policies are invested in 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 $3.5 million as of June 30, 2019 and $3.3 million as of December 31, 2018. These assets are included in āOther Noncurrent Assetsā in our consolidated Balance Sheets. ā 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, probabilities of achieving such future cash flows and a discount rate. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. ā 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). ā ā ā ā ā ā Balance at beginning of year $ 7,375 Issuances ā 19,500 ā Settlements ā ā (593) ā Adjustments to fair value ā 1,920 ā Balance at June 30, 2019 ā $ 28,202 ā ā 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. We did not recognize any impairments in the current quarter on those assets required to be measured at fair value on a nonrecurring basis. |
Acquisitions
Acquisitions | 6 Months Ended |
Jun. 30, 2019 | |
Acquisitions | ā 4. Acquisitions ā Walker Acquisition ā On April 1, 2019, we acquired all of the issued and outstanding equity interests of Walker TX Holding Company, LLC and each of its wholly owned subsidiaries (collectively āWalkerā). As a result of the acquisition, Walker is a wholly owned subsidiary of the Company and reports as a separate operating location. Walker is a full-service electrical contracting and network infrastructure engineering business serving commercial and industrial clients with headquarters in Irving, Texas and operations throughout the state of Texas. Revenue attributable to Walker for the three and six months ended June 30, 2019 was $92.6 million. ā 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): ā ā ā ā Consideration transferred: ā ā Cash paid at closing $ 178,000 Advance to former owners ā 20,500 Working capital adjustment ā (7,594) Notes issued to former owners ā 25,000 Tax equalization payment ā 202 Estimated fair value of contingent earn-out payments ā 19,500 ā $ 235,608 Recognized amounts of identifiable assets acquired and liabilities assumed: ā ā Cash and cash equivalents $ 4,312 Billed and unbilled accounts receivable ā 92,309 Other current assets ā 8,225 Other long-term assets ā 53 Property and equipment ā 4,970 Goodwill ā 96,801 Identifiable intangible assets ā 90,200 Lease right-of-use asset ā 10,495 Accounts payable ā (19,682) Accrued compensation and benefits ā (974) Billings in excess of costs and estimated earnings ā (31,553) Other current liabilities ā (11,278) Long-term lease liabilities ā (8,270) ā $ 235,608 ā 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 could not be individually identified and separately recognized. All of the goodwill recognized as a result of this transaction is tax deductible. ā 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 . Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class. ā The acquired intangible assets include the following (dollars in thousands): ā ā ā ā ā ā ā ā ā ā ā Valuation Method ā Estimated Useful Life ā ā Estimated Fair Value Backlog ā Excess earnings ā 2 years ā $ 4,600 Trade Names ā Relief-from-royalty ā 25 years ā ā 32,600 Customer Relationships ā Excess earnings ā 10 years ā ā 53,000 Total ā ā ā ā ā $ 90,200 ā The contingent earn-out obligation is associated with the achievement of specified earnings milestones over a five year period, and the range of estimated milestone payments is from $1 million to $11 million (undiscounted). 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 10.2% discount rate, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, we will measure the contingent earn-out obligation at fair value each reporting period. Future changes in the estimated fair value of the contingent payments will be recognized immediately in earnings. ā Pro Forma Impact of the Acquisition ā The following unaudited pro forma information presents the consolidated results of the Company and Walker for the three and six months ended June 30, 2019 and 2018, with adjustments to give effect to pro forma events that are directly attributable to the acquisition and have a continuing impact. The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations of future periods or the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results that the company will experience after the acquisition. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any operating efficiencies that may be associated with the acquisition. ā The unaudited pro forma consolidated results of operations, assuming the acquisition had occurred on January 1, 2018, are as follows (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā Six Months Ended June 30, ā 2019 2018 ā 2019 ā 2018 Revenue $ 650,302 ā $ 632,467 ā $ 1,277,136 ā $ 1,178,558 Pre-tax income $ 32,578 ā $ 48,737 ā $ 56,505 ā $ 65,418 ā Other Acquisitions ā In addition to the Walker acquisition, we completed one acquisition in the first quarter of 2019 and one acquisition in the second quarter of 2019 with a total purchase price of $2.6 million for the six months ended June 30, 2019. We completed two acquisitions in the first quarter of 2018, three acquisitions in the second quarter of 2018 and two acquisitions in the third quarter of 2018. One acquisition completed in the third quarter of 2018 reports as a separate operating location and the remainder were ātucked-inā with existing operations. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed pending the completion of the final valuation of intangible assets and accrued liabilities. ā The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. Excluding the Walker acquisition, the acquisitions completed in the current and prior year were not material, individually or in the aggregate. Additional contingent purchase price (āearn-outā) has been or will be paid if certain acquisitions achieve predetermined profitability targets. Such earn-outs, which 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 for which continued employment is a condition to receive payment, then the earn-out is recorded as compensation expense over the period earned. |
Goodwill
Goodwill | 6 Months Ended |
Jun. 30, 2019 | |
Goodwill | 5. Goodwill ā The changes in the carrying amount of goodwill are as follows (in thousands): ā ā ā ā ā ā ā ā ā ā ā June 30, ā December 31, ā ā 2019 2018 Balance at beginning of year ā $ 235,182 ā $ 200,584 ā Additions (See Note 4) ā 97,380 ā 34,598 ā Impairment adjustment ā ā ā ā ā ā ā Balance at end of period ā $ 332,562 ā $ 235,182 ā ā |
Debt Obligations
Debt Obligations | 6 Months Ended |
Jun. 30, 2019 | |
Debt Obligations | 6. Debt Obligations ā Debt obligations consist of the following (in thousands): ā ā ā ā ā ā ā ā ā ā ā June 30, ā December 31, ā ā 2019 2018 Revolving credit facility ā $ 246,000 ā $ 50,000 ā Notes to former owners ā ā 48,983 ā 26,813 ā Other debt ā ā 64 ā ā 105 ā Total debt ā ā 295,047 ā 76,918 ā Lessācurrent portion ā ā (10,380) ā (3,279) ā Total long-term portion of debt ā $ 284,667 ā $ 73,639 ā ā Revolving Credit Facility ā In April 2018, we amended our senior credit facility (the āFacilityā) provided by a syndicate of banks, increasing our borrowing capacity from $325.0 million to $400.0 million, with a $100 million accordion option. The Facility, which is available for borrowings and letters of credit, expires in April 2023 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 assets held by certain unrestricted subsidiaries, and a second lien on our assets related to projects subject to surety bonds. As of June 30, 2019, we had $246.0 million of outstanding borrowings, $33.6 million in letters of credit outstanding and $120.4 million of credit available. ā There are two interest rate options for borrowings under the Facility, the Base Rate Loan Option and the Eurodollar Rate Loan 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. ā The following is a summary of the additional margins: ā ā ā ā ā ā ā ā ā ā ā ā ā Consolidated Total Indebtedness to ā ā Credit Facility Adjusted EBITDA ā Less than 1.00 1.00 to 1.75 1.75 to 2.50 2.50 or greater Additional Per Annum Interest Margin Added Under: ā ā ā ā ā ā ā ā ā Base Rate Loan Option ā 0.25 % 0.50 % 0.75 % 1.00 % Eurodollar Rate Loan Option ā 1.25 % 1.50 % 1.75 % 2.00 % ā The weighted average interest rate applicable to the borrowings under the Facility was approximately 3.7% as of June 30, 2019. ā 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. 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 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. ā 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. ā 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. ā The Facilityās principal financial covenants include: ā Total Leverage Ratio ā Fixed Charge Coverage Ratio ā Other Restrictions ā While the Facilityās 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 Facilityās leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders. ā We were in compliance with all of our financial covenants as of June 30, 2019. ā Notes to Former Owners ā As part of the consideration used to acquire seven companies, we have outstanding notes to the former owners. These notes had an outstanding balance of $49.0 million as of June 30, 2019. In conjunction with the Walker acquisition in the second quarter of 2019, we issued a promissory note to former owners with an outstanding balance of $25.0 million as of June 30, 2019 that bears interest, payable quarterly, at a stated interest rate of 4.0%. The principal is due in equal installments in April 2022 and April 2023. 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 June 30, 2019 that bears interest, payable quarterly, at a stated interest rate of 3.0% . The principal is due in equal installments in April 2020 and 2021. In conjunction with ā Other Debt ā 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 interest rate is the one month LIBOR rate plus 2.25%. As of June 30, 2019, $0.1 million of the note was outstanding, all of which was considered current. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies | 7. Commitments and Contingencies ā Claims and Lawsuits ā 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 managementās 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. ā Surety ā 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. ā Surety market conditions have seen some strengthening as the commercial construction markets have started to rebound. Bonding capacity remains adequate in the current market conditions along with acceptable terms and conditions. Historically, approximately 20% to 30% 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 suretiesā 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. ā Self-Insurance ā We are substantially self-insured for workersā compensation, employerās liability, auto liability, general liability and employee group health claims, in view of the relatively high 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 risks, such as workersā compensation, auto liability and general liability, are reviewed by a third-party actuary quarterly. ā |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Jun. 30, 2019 | |
Stockholders' Equity. | 8. Stockholdersā Equity ā Earnings Per Share ā Basic earnings per share (āEPSā) 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. 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. ā 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. ā There were less than 0.1 million anti-dilutive stock options excluded from the calculation of diluted EPS for the three and six months ended June 30, 2019 and 2018, respectively. ā 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): ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended ā Six Months Ended ā ā ā June 30, ā June 30, ā ā 2019 2018 2019 2018 Common shares outstanding, end of period ā 36,854 37,246 ā 36,854 37,246 ā Effect of using weighted average common shares outstanding ā 89 (26) ā 79 (40) ā Shares used in computing earnings per shareābasic ā 36,943 37,220 ā 36,933 37,206 ā Effect of shares issuable under stock option plans based on the treasury stock method ā 221 309 ā 226 341 ā Effect of restricted and contingently issuable shares ā 59 76 ā 69 70 ā Shares used in computing earnings per shareādiluted ā 37,223 37,605 ā 37,228 37,617 ā ā Share Repurchase Program ā On March 29, 2007, our Board of Directors (the āBoardā) 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. On August 10, 2018, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.7 million shares. Since the inception of the repurchase program, the Board has approved 8.8 million shares to be repurchased. As of June 30, 2019, we have repurchased a cumulative total of 8.4 million shares at an average price of $16.87 per share under the repurchase program. ā 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 six months ended June 30, 2019, we repurchased 0.2 million shares for approximately $7.9 million at an average price of $49.09 per share. |
Segment Information
Segment Information | 6 Months Ended |
Jun. 30, 2019 | |
Segment Information | |
Segment Information | 9. Segment Information Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. Each of our 36 operating locations represents an operating segment, and these segments have been aggregated into two reportable segments, as the operating locations meet all of the aggregation criteria. The following table presents information about our reportable segments (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, 2019 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 553,031 ā $ 97,271 ā $ ā ā $ 650,302 Gross Profit ā $ 110,279 ā $ 9,737 ā $ ā ā $ 120,016 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, 2018 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 535,043 ā $ ā ā $ ā ā $ 535,043 Gross Profit ā $ 111,183 ā $ ā ā $ ā ā $ 111,183 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended June 30, 2019 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 1,087,616 ā $ 101,159 ā $ ā ā $ 1,188,775 Gross Profit ā $ 216,131 ā $ 10,550 ā $ ā ā $ 226,681 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended June 30, 2018 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 999,984 ā $ ā ā $ ā ā $ 999,984 Gross Profit ā $ 200,236 ā $ ā ā $ ā ā $ 200,236 ā |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2019 | |
Basis of Presentation | ā Basis of Presentation ā These interim statements should be read in conjunction with the historical Consolidated Financial Statements and related notes of Comfort Systems included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (āSECā) for the year ended December 31, 2018 (the āForm 10-Kā). ā The accompanying unaudited consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the SEC. Accordingly, these financial statements do not include all the footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Form 10-K. We believe all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year. ā |
Use of Estimates | Use of Estimates ā The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, revenue and expenses and disclosures regarding contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, the allowance for doubtful accounts, self-insurance accruals, deferred tax assets, warranty accruals, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing. ā |
Recent Accounting Pronouncements | Recent Accounting Pronouncements ā In February 2016, the FASB issued ASU No. 2016-02, āLeases (Topic 842)ā. The standard requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the balance sheet using a method referred to as the right-of-use asset approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Full retrospective application is prohibited. We adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019, using the transition method allowed by ASU No. 2018-11, āLeases (Topic 842) Targeted Improvementsā in which lessees apply the new lease standard on the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. adoption of ASU 2016-02 did not have a significant impact to our Statement of Operations or Cash Flows. The adoption of ASU 2016-02 resulted in the recording of right-of-use asset and lease liabilities of $75.9 million on our Balance Sheet as of January 1, 2019 but did not result in a cumulative-effect adjustment to retained earnings. ā In June 2016, the FASB issued ASU No. 2016-13, āFinancial Instruments ā Credit Losses (Topic 326).ā The standard requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Early adoption is permitted. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. ā In August 2018, the FASB issued ASU No. 2018-13, āFair Value Measurement (Topic 820): Disclosure Framework ā Changes to the Disclosure Requirements for Fair Value Measurement.ā This standard removes certain disclosure requirements including the valuation processes for Level 3 fair value measurements, the policy for timing of transfers between levels and the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The standard requires certain additional disclosures for public entities, including disclosure of the changes in unrealized gains and losses included in Other Comprehensive Income for Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Certain amendments, including the amendment on changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs, should be applied prospectively while other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. ā |
Revenue Recognition | Revenue Recognition ā Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue. ā We provide comprehensive mechanical and electrical contracting services, which principally includes HVAC, plumbing, electrical, piping and controls, as well as off- site construction, monitoring and fire protection. We install, maintain, repair and replace products and systems throughout the United States. All of our revenue is recognized over time as we deliver goods and services to our customers. Revenue can be earned based on an agreed upon fixed price or based on actual costs incurred marked up at an agreed upon percentage. ā For fixed price agreements, we use the percentage of completion method of accounting under which contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs. More specifically, as part of the negotiation and bidding process to obtain installation contracts, we estimate our contract costs, which include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in our results of operations under the caption āCost of Services.ā Then, as we perform under those contracts, we measure costs incurred, compare them to total estimated costs to complete the contract and recognize a corresponding proportion of contract revenue. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed. Non-labor project costs consist of purchased equipment, prefabricated materials and other materials. Purchased equipment on our projects is substantially produced to job specifications and is a value-added element to our work. The costs are considered to be incurred when title is transferred to us, which typically is upon delivery to the work site. Prefabricated materials, such as ductwork and piping, are generally performed at our shops and recognized as contract costs when fabricated for the unique specifications of the job. Other materials costs are generally recorded when delivered to the work site. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments. ā We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we either have written authorization from the customer to proceed or an executed contract. ā Selling, marketing and estimation costs incurred in relation to selling contracts are expensed as incurred. On rare occasions, we may incur significant expenses related to selling a contract that we only incurred because we sold that contract. If this occurs, we capitalize that cost and amortize it on a percentage of completion basis over the life of the contract. We do not currently have any capitalized selling, marketing, or estimation costs on our Balance Sheet and did not incur any impairment loss in the current year. ā We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they are capitalized and amortized on a percentage of completion basis over the life of the contract. We do not currently have any capitalized obtaining or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year. ā Project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the Statement of Operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Balance Sheet under the caption āCosts and estimated earnings in excess of billings.ā Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our Balance Sheet under the caption āBillings in excess of costs and estimated earnings.ā We typically invoice our customers with payment terms of net due in 30 days . It is common in the construction industry for a contract to specify more lenient payment terms allowing the customer 45 to 60 days to make their payment. It is also common for the contract in the construction industry to specify that a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, we receive payment of our invoices between A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contractās transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. ā To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one performance obligation and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In such cases, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized, customer-specific solution, and in these cases, we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation. ā We recognize revenue over time for all of our services as we perform them because (i) control continuously transfers to that customer as work progresses, and (ii) we have the right to bill the customer as costs are incurred. The customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company. ā For the reasons listed above, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost to cost measure of progress for our contracts, as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts. Under the cost to cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including estimated fees or profits, is recorded proportionally as costs are incurred. Costs to fulfill include labor, materials and subcontractorsā costs, other direct costs and an allocation of indirect costs. ā For a small portion of our business in which our services are delivered in the form of service maintenance agreements for existing systems to be repaired and maintained, as opposed to constructed, our performance obligation is to maintain the customerās mechanical system for a specific period of time. Similar to jobs, we recognize revenue over time; however, for service maintenance agreements in which the full cost to provide services may not be known, we generally use an input method to recognize revenue, which is based on the amount of time we have provided our services out of the total time we have been contracted to perform those services. ā Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion (the process described below in more detail) is complex, subject to many variables and requires significant judgment. The consideration to which we are entitled on our long-term contracts may include both fixed and variable amounts. Variable amounts can either increase or decrease the transaction price. A common example of variable amounts that can either increase or decrease contract value are pending change orders that represent contract modifications for which a change in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. Other examples of positive variable revenue include amounts awarded upon achievement of certain performance metrics, program milestones or cost of completion date targets and can be based upon customer discretion. Variable amounts can result in a deduction from contract revenue if we fail to meet stated performance requirements, such as complying with the construction schedule. ā Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing performance obligation(s). The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis. ā We have a Company-wide policy requiring periodic review of the Estimate at Completion in which management reviews the progress and execution of our performance obligations and estimated remaining obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g. to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors, the availability and timing of funding from our customer, and overhead cost rates, among other variables. ā Based on this analysis, any adjustments to revenue, cost of services, and the related impact to operating income are recognized as necessary in the quarter in which they become known. These adjustments may result from positive program performance if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities and may result in an increase in operating income during the performance of individual performance obligations. Likewise, if we determine we will not be 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 catchup basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these 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 performance obligation is recognized in the period the loss is determined. ā The Company typically does not incur any returns, refunds, or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of the work or are included as a modification to revenue. The Company does offer an industry standard warranty on our work, which is most commonly for a one-year period. The vendors providing the equipment and materials are responsible for any failures in their product unless installed incorrectly. We include an estimated amount to cover estimated warranty expense in our Cost of Services and record a liability on our Balance Sheet to cover our current estimated outstanding warranty obligations. ā Prior to implementing ASC 606 on January 1, 2018, our methods for recognizing revenue were very similar to our current method under ASC 606. We used the actual cost as a percent of total expected cost at completion to estimate our percentage complete on fixed price jobs, a mark-up of costs for jobs in which revenue was based on time and materials incurred and elapsed time for those service maintenance contracts in which the full cost to provide the services cannot be reasonably estimated. Furthermore, our process for allocating transaction price to performance obligations is also substantially similar to prior years in which, in most cases, a contract is one performance obligation. In those cases in which a contract is determined to have more than one performance obligation, the contract price is allocated to each performance obligation based on its standalone sales price. ā In the first six months of 2018 and 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material. ā Disaggregation of Revenue ā Our consolidated 2019 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 9 ā Segment Information for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and contract type, as we believe it best depicts how the 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): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Service Provided ā 2019 ā ā 2018 ā ā 2019 ā ā 2018 ā HVAC and Plumbing ā $ 504,253 ā 77.5 % ā $ 484,011 ā 90.5 % ā $ 986,243 ā 83.0 % ā $ 908,028 ā 90.8 % Electrical Services ā ā 97,271 ā 15.0 % ā ā ā ā ā ā ā ā 101,159 ā 8.5 % ā ā ā ā ā ā Building Automation Control Systems ā ā 20,262 ā 3.1 % ā ā 26,261 ā 4.9 % ā ā 49,276 ā 4.1 % ā ā 46,306 ā 4.6 % Other ā ā 28,516 ā 4.4 % ā ā 24,771 ā 4.6 % ā ā 52,097 ā 4.4 % ā ā 45,650 ā 4.6 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Type of Customer 2019 ā 2018 2019 ā 2018 Industrial ā $ 198,002 30.5 % ā $ 114,077 21.3 % ā $ 366,662 30.8 % ā $ 214,177 21.4 % Education ā ā 100,220 ā 15.4 % ā ā 109,447 ā 20.5 % ā ā 166,963 ā 14.1 % ā ā 197,650 ā 19.8 % Office Buildings ā ā 105,483 ā 16.2 % ā ā 79,309 ā 14.8 % ā ā 171,695 ā 14.4 % ā ā 148,429 ā 14.9 % Healthcare ā ā 87,878 ā 13.5 % ā ā 71,930 ā 13.4 % ā ā 179,901 ā 15.1 % ā ā 135,113 ā 13.5 % Government ā ā 44,443 ā 6.8 % ā ā 37,285 ā 7.0 % ā ā 76,722 ā 6.5 % ā ā 73,432 ā 7.3 % Retail, Restaurants and Entertainment ā ā 58,086 ā 8.9 % ā ā 56,204 ā 10.5 % ā ā 117,477 ā 9.9 % ā ā 108,991 ā 10.9 % Multi-Family and Residential ā ā 29,061 ā 4.5 % ā ā 36,040 ā 6.7 % ā ā 59,296 ā 5.0 % ā ā 69,092 ā 6.9 % Other ā ā 27,129 ā 4.2 % ā ā 30,751 ā 5.8 % ā ā 50,059 ā 4.2 % ā ā 53,100 ā 5.3 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Activity Type 2019 ā ā 2018 2019 ā ā 2018 New Construction ā $ 291,479 ā 44.8 % ā $ 193,211 ā 36.1 % ā $ 515,439 ā 43.4 % ā $ 378,493 ā 37.9 % Existing Building Construction ā ā 199,398 ā 30.7 % ā ā 200,040 ā 37.4 % ā ā 381,694 ā 32.1 % ā ā 356,798 ā 35.7 % Service Projects ā ā 58,808 ā 9.0 % ā ā 51,900 ā 9.7 % ā ā 109,192 ā 9.2 % ā ā 94,333 ā 9.4 % Service Calls, Maintenance and Monitoring ā ā 100,617 ā 15.5 % ā ā 89,892 ā 16.8 % ā ā 182,450 ā 15.3 % ā ā 170,360 ā 17.0 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā Contract Assets and Liabilities ā 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, subject to completing a milestone, such as a phase of the project. Contract assets are generally classified as current. ā Contract liabilities consist of advance payments and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. We classify advance payments and billings in excess of revenue recognized as current. It is very unusual for us to have advanced payments with a term of greater than one year; therefore, our contract assets are usually all current. If we have advanced payments with a term greater than one year, the noncurrent portion of advanced payments would be included in other long-term liabilities in our consolidated Balance Sheets. ā The following table presents the changes in contract assets and contract liabilities (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended ā Year Ended ā June 30, 2019 ā December 31, 2018 ā Contract Contract ā Contract Contract ā Assets ā Liabilities ā Assets ā Liabilities Balance at beginning of period $ 10,213 ā $ 130,986 ā $ 30,116 ā $ 106,005 Change due to acquisitions ā 6,953 ā ā 31,604 ā ā 2,833 ā ā 8,195 Change due to conditional versus unconditional ā (8,945) ā ā ā ā ā 6,244 ā ā ā Reclassified to unbilled accounts receivable ā ā ā ā ā ā ā (28,980) ā ā ā Change in timing for performance obligation to be satisfied ā ā ā ā 2,699 ā ā ā ā ā 16,786 Balance at end of period $ 8,221 ā $ 165,289 ā $ 10,213 $ 130,986 ā In the first six months of 2019 and 2018, we recognized revenue of $109.7 million and $94.2 million related to our contract liabilities at January 1, 2019 and January 1, 2018, respectively. ā We did not have any impairment losses recognized on our receivables or contract assets in the first six months of 2019 and 2018. ā Remaining Performance Obligations ā Remaining construction performance obligations represent the remaining transaction price of firm orders for which work has not been performed and excludes unexercised contract options. As of June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was the remaining recognized thereafter. Our service maintenance agreements are generally renewable agreements. We have adopted the practical expedient that allows us to not include service maintenance contracts one year or less, therefore we do not report unfulfilled performance obligations for service maintenance agreements. |
Leases | Leases ā We lease certain facilities, vehicles and equipment under noncancelable operating leases. The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. We account for lease components separately from the non-lease components. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense were not material to our financial statements and aggregated to ā The lease terms generally range from three to ten years. Some leases include one or more options to renew, with renewal terms that can extend the lease term. Our lease terms may include the exercise of lease renewal options when it is reasonably certain that we will exercise the option and it is at our sole discretion. The weighted average remaining lease term was 8.2 years at June 30, 2019. ā A majority of the Companyās real property leases are with individuals or entities with whom we have no other business relationship. However, in certain instances the Company enters into real property leases with current or former employees. Rent paid to related parties for the three months ended June 30, 2019 and 2018 was approximately $0.7 million and $1.1 million, respectively. Rent paid to related parties for the six months ended June 30, 2019 and 2018 was approximately $2.0 million and $2.2 million, respectively. ā 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. 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. ā The following table summarizes the lease asset and liabilities included in the consolidated Balance Sheet as follows (in thousands): ā ā ā ā ā June 30, 2019 Lease right-of-use assets $ 80,633 Lease liabilities: ā ā Other current liabilities ā 13,185 Long-term lease liabilities ā 70,095 Total lease liabilities $ 83,280 ā The maturities of lease liabilities are as follows (in thousands): ā ā ā ā ā Year ending December 31ā ā ā ā 2019 (excluding the six months ended June 30, 2019) ā $ 8,445 2020 ā ā 15,319 2021 ā ā 13,626 2022 ā ā 11,504 2023 ā ā 9,657 Thereafter ā ā 39,846 Total Lease Payments ā ā 98,397 LessāPresent Value Discount ā ā (15,117) Present Value of Lease Liabilities ā $ 83,280 ā Supplemental information related to leases was as follows (in thousands): ā ā ā ā ā ā ā ā Three Months Ended ā Six Months Ended ā June 30, 2019 June 30, 2019 Cash paid for amounts included in the measurement of lease liabilities $ 6,056 ā $ 11,960 Lease right-of-use assets obtained in exchange for lease liabilities $ 3,544 ā $ 3,718 |
Accounts Receivable | Accounts Receivable ā Accounts Receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. |
Income Taxes | Income Taxes ā We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in states with varying tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures, can impact our effective tax rate. These items can also 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. ā In the second quarter of 2019, our provision for income taxes was reduced by $1.4 million due to benefits from the expected filing of amended returns to claim the energy efficient commercial buildings deduction (the ā179D deductionā) allocated to us. ā Our provision for income taxes was reduced by $2.8 million in the first quarter of 2018 due to a decrease in unrecognized tax benefits from the filing of a federal income tax automatic accounting method change application. |
Other Income | Other Income ā In April 2018, we entered into settlement agreements with British Petroleum (āBPā) related to two claims from one of our subsidiaries regarding the April 2010 BP Deepwater Horizon oil spill. We recorded a gain of million in the second quarter of 2018 as a result of these settlements. |
Financial Instruments | Financial Instruments ā Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, life insurance policies, notes to former owners, leases and a revolving credit facility. We believe that the carrying values of these instruments on the accompanying Balance Sheets approximate their fair values. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of disaggregation or revenue | ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Service Provided ā 2019 ā ā 2018 ā ā 2019 ā ā 2018 ā HVAC and Plumbing ā $ 504,253 ā 77.5 % ā $ 484,011 ā 90.5 % ā $ 986,243 ā 83.0 % ā $ 908,028 ā 90.8 % Electrical Services ā ā 97,271 ā 15.0 % ā ā ā ā ā ā ā ā 101,159 ā 8.5 % ā ā ā ā ā ā Building Automation Control Systems ā ā 20,262 ā 3.1 % ā ā 26,261 ā 4.9 % ā ā 49,276 ā 4.1 % ā ā 46,306 ā 4.6 % Other ā ā 28,516 ā 4.4 % ā ā 24,771 ā 4.6 % ā ā 52,097 ā 4.4 % ā ā 45,650 ā 4.6 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Type of Customer 2019 ā 2018 2019 ā 2018 Industrial ā $ 198,002 30.5 % ā $ 114,077 21.3 % ā $ 366,662 30.8 % ā $ 214,177 21.4 % Education ā ā 100,220 ā 15.4 % ā ā 109,447 ā 20.5 % ā ā 166,963 ā 14.1 % ā ā 197,650 ā 19.8 % Office Buildings ā ā 105,483 ā 16.2 % ā ā 79,309 ā 14.8 % ā ā 171,695 ā 14.4 % ā ā 148,429 ā 14.9 % Healthcare ā ā 87,878 ā 13.5 % ā ā 71,930 ā 13.4 % ā ā 179,901 ā 15.1 % ā ā 135,113 ā 13.5 % Government ā ā 44,443 ā 6.8 % ā ā 37,285 ā 7.0 % ā ā 76,722 ā 6.5 % ā ā 73,432 ā 7.3 % Retail, Restaurants and Entertainment ā ā 58,086 ā 8.9 % ā ā 56,204 ā 10.5 % ā ā 117,477 ā 9.9 % ā ā 108,991 ā 10.9 % Multi-Family and Residential ā ā 29,061 ā 4.5 % ā ā 36,040 ā 6.7 % ā ā 59,296 ā 5.0 % ā ā 69,092 ā 6.9 % Other ā ā 27,129 ā 4.2 % ā ā 30,751 ā 5.8 % ā ā 50,059 ā 4.2 % ā ā 53,100 ā 5.3 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā ā Six Months Ended June 30, Revenue by Activity Type 2019 ā ā 2018 2019 ā ā 2018 New Construction ā $ 291,479 ā 44.8 % ā $ 193,211 ā 36.1 % ā $ 515,439 ā 43.4 % ā $ 378,493 ā 37.9 % Existing Building Construction ā ā 199,398 ā 30.7 % ā ā 200,040 ā 37.4 % ā ā 381,694 ā 32.1 % ā ā 356,798 ā 35.7 % Service Projects ā ā 58,808 ā 9.0 % ā ā 51,900 ā 9.7 % ā ā 109,192 ā 9.2 % ā ā 94,333 ā 9.4 % Service Calls, Maintenance and Monitoring ā ā 100,617 ā 15.5 % ā ā 89,892 ā 16.8 % ā ā 182,450 ā 15.3 % ā ā 170,360 ā 17.0 % Total ā $ 650,302 ā 100.0 % ā $ 535,043 ā 100.0 % ā $ 1,188,775 ā 100.0 % ā $ 999,984 ā 100.0 % |
Schedule of contract assets and liabilities | The following table presents the changes in contract assets and contract liabilities (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended ā Year Ended ā June 30, 2019 ā December 31, 2018 ā Contract Contract ā Contract Contract ā Assets ā Liabilities ā Assets ā Liabilities Balance at beginning of period $ 10,213 ā $ 130,986 ā $ 30,116 ā $ 106,005 Change due to acquisitions ā 6,953 ā ā 31,604 ā ā 2,833 ā ā 8,195 Change due to conditional versus unconditional ā (8,945) ā ā ā ā ā 6,244 ā ā ā Reclassified to unbilled accounts receivable ā ā ā ā ā ā ā (28,980) ā ā ā Change in timing for performance obligation to be satisfied ā ā ā ā 2,699 ā ā ā ā ā 16,786 Balance at end of period $ 8,221 ā $ 165,289 ā $ 10,213 $ 130,986 ā |
Schedule of lease asset and liabilities | The following table summarizes the lease asset and liabilities included in the consolidated Balance Sheet as follows (in thousands): ā ā ā ā ā June 30, 2019 Lease right-of-use assets $ 80,633 Lease liabilities: ā ā Other current liabilities ā 13,185 Long-term lease liabilities ā 70,095 Total lease liabilities $ 83,280 |
Schedule of maturities of lease liabilities | The maturities of lease liabilities are as follows (in thousands): ā ā ā ā ā Year ending December 31ā ā ā ā 2019 (excluding the six months ended June 30, 2019) ā $ 8,445 2020 ā ā 15,319 2021 ā ā 13,626 2022 ā ā 11,504 2023 ā ā 9,657 Thereafter ā ā 39,846 Total Lease Payments ā ā 98,397 LessāPresent Value Discount ā ā (15,117) Present Value of Lease Liabilities ā $ 83,280 |
Schedule of supplemental information related to leases | Supplemental information related to leases was as follows (in thousands): ā ā ā ā ā ā ā ā Three Months Ended ā Six Months Ended ā June 30, 2019 June 30, 2019 Cash paid for amounts included in the measurement of lease liabilities $ 6,056 ā $ 11,960 Lease right-of-use assets obtained in exchange for lease liabilities $ 3,544 ā $ 3,718 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Summary of fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets and liabilities measured on a recurring basis | The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of June 30, 2019 and December 31, 2018 (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Fair Value Measurements at June 30, 2019 ā Level 1 Level 2 Level 3 Total Cash and cash equivalents ā $ 36,787 ā $ ā ā $ ā ā $ 36,787 Life insuranceācash surrender value ā $ ā ā $ 3,506 ā $ ā ā $ 3,506 Contingent earn-out obligations ā $ ā ā $ ā ā $ 28,202 ā $ 28,202 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Fair Value Measurements at December 31, 2018 ā Level 1 Level 2 Level 3 Total Cash and cash equivalents ā $ 45,620 ā $ ā ā $ ā ā $ 45,620 Life insuranceācash surrender value ā $ ā ā $ 3,252 ā $ ā ā $ 3,252 Contingent earn-out obligations ā $ ā ā $ ā ā $ 7,375 ā $ 7,375 ā |
Schedule of reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3) | ā ā ā ā ā ā Balance at beginning of year $ 7,375 Issuances ā 19,500 ā Settlements ā ā (593) ā Adjustments to fair value ā 1,920 ā Balance at June 30, 2019 ā $ 28,202 ā ā |
Acquisitions (Tables)
Acquisitions (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Acquisitions | |
Schedule of 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 | 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): ā ā ā ā Consideration transferred: ā ā Cash paid at closing $ 178,000 Advance to former owners ā 20,500 Working capital adjustment ā (7,594) Notes issued to former owners ā 25,000 Tax equalization payment ā 202 Estimated fair value of contingent earn-out payments ā 19,500 ā $ 235,608 Recognized amounts of identifiable assets acquired and liabilities assumed: ā ā Cash and cash equivalents $ 4,312 Billed and unbilled accounts receivable ā 92,309 Other current assets ā 8,225 Other long-term assets ā 53 Property and equipment ā 4,970 Goodwill ā 96,801 Identifiable intangible assets ā 90,200 Lease right-of-use asset ā 10,495 Accounts payable ā (19,682) Accrued compensation and benefits ā (974) Billings in excess of costs and estimated earnings ā (31,553) Other current liabilities ā (11,278) Long-term lease liabilities ā (8,270) ā $ 235,608 |
Schedule of acquired intangible assets | The acquired intangible assets include the following (dollars in thousands): ā ā ā ā ā ā ā ā ā ā ā Valuation Method ā Estimated Useful Life ā ā Estimated Fair Value Backlog ā Excess earnings ā 2 years ā $ 4,600 Trade Names ā Relief-from-royalty ā 25 years ā ā 32,600 Customer Relationships ā Excess earnings ā 10 years ā ā 53,000 Total ā ā ā ā ā $ 90,200 |
Schedule of unaudited pro forma consolidated results of operations | The unaudited pro forma consolidated results of operations, assuming the acquisition had occurred on January 1, 2018, are as follows (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, ā Six Months Ended June 30, ā 2019 2018 ā 2019 ā 2018 Revenue $ 650,302 ā $ 632,467 ā $ 1,277,136 ā $ 1,178,558 Pre-tax income $ 32,578 ā $ 48,737 ā $ 56,505 ā $ 65,418 |
Goodwill (Tables)
Goodwill (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of changes in the carrying amount of goodwill | The changes in the carrying amount of goodwill are as follows (in thousands): ā ā ā ā ā ā ā ā ā ā ā June 30, ā December 31, ā ā 2019 2018 Balance at beginning of year ā $ 235,182 ā $ 200,584 ā Additions (See Note 4) ā 97,380 ā 34,598 ā Impairment adjustment ā ā ā ā ā ā ā Balance at end of period ā $ 332,562 ā $ 235,182 ā ā |
Debt Obligations (Tables)
Debt Obligations (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Schedule of components of debt obligations | Debt obligations consist of the following (in thousands): ā ā ā ā ā ā ā ā ā ā ā June 30, ā December 31, ā ā 2019 2018 Revolving credit facility ā $ 246,000 ā $ 50,000 ā Notes to former owners ā ā 48,983 ā 26,813 ā Other debt ā ā 64 ā ā 105 ā Total debt ā ā 295,047 ā 76,918 ā Lessācurrent portion ā ā (10,380) ā (3,279) ā Total long-term portion of debt ā $ 284,667 ā $ 73,639 ā ā |
Summary of additional margins | ā ā ā ā ā ā ā ā ā ā ā ā ā Consolidated Total Indebtedness to ā ā Credit Facility Adjusted EBITDA ā Less than 1.00 1.00 to 1.75 1.75 to 2.50 2.50 or greater Additional Per Annum Interest Margin Added Under: ā ā ā ā ā ā ā ā ā Base Rate Loan Option ā 0.25 % 0.50 % 0.75 % 1.00 % Eurodollar Rate Loan Option ā 1.25 % 1.50 % 1.75 % 2.00 % |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Reconciliation of number of shares outstanding with the number of shares used in computing basic and diluted earnings per share | 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): ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended ā Six Months Ended ā ā ā June 30, ā June 30, ā ā 2019 2018 2019 2018 Common shares outstanding, end of period ā 36,854 37,246 ā 36,854 37,246 ā Effect of using weighted average common shares outstanding ā 89 (26) ā 79 (40) ā Shares used in computing earnings per shareābasic ā 36,943 37,220 ā 36,933 37,206 ā Effect of shares issuable under stock option plans based on the treasury stock method ā 221 309 ā 226 341 ā Effect of restricted and contingently issuable shares ā 59 76 ā 69 70 ā Shares used in computing earnings per shareādiluted ā 37,223 37,605 ā 37,228 37,617 ā ā |
Segment Information (Tables)
Segment Information (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Segment Information | |
Summary of information about reportable segments | Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. Each of our 36 operating locations represents an operating segment, and these segments have been aggregated into two reportable segments, as the operating locations meet all of the aggregation criteria. The following table presents information about our reportable segments (in thousands): ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, 2019 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 553,031 ā $ 97,271 ā $ ā ā $ 650,302 Gross Profit ā $ 110,279 ā $ 9,737 ā $ ā ā $ 120,016 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Three Months Ended June 30, 2018 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 535,043 ā $ ā ā $ ā ā $ 535,043 Gross Profit ā $ 111,183 ā $ ā ā $ ā ā $ 111,183 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended June 30, 2019 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 1,087,616 ā $ 101,159 ā $ ā ā $ 1,188,775 Gross Profit ā $ 216,131 ā $ 10,550 ā $ ā ā $ 226,681 ā ā ā ā ā ā ā ā ā ā ā ā ā ā ā Six Months Ended June 30, 2018 ā Mechanical Services Electrical Services Corporate & Eliminations Consolidated Revenue ā $ 999,984 ā $ ā ā $ ā ā $ 999,984 Gross Profit ā $ 200,236 ā $ ā ā $ ā ā $ 200,236 ā |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands | Jun. 30, 2019 | Jan. 01, 2019 |
New Accounting Pronouncements or Change in Accounting Principle | ||
Lease right-of-use assets | $ 80,633 | |
Operating lease liability | $ 83,280 | |
ASU 2016-02 | ||
New Accounting Pronouncements or Change in Accounting Principle | ||
Lease right-of-use assets | $ 75,900 | |
Operating lease liability | $ 75,900 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Disaggregation of Revenue | ||||
Revenue, Performance Obligation, Description of Payment Terms | We typically invoice our customers with payment terms of net due in 30 days | |||
Receivable payment terms (in days) | 30 days | |||
Revenue | $ 650,302 | $ 535,043 | $ 1,188,775 | $ 999,984 |
Percentage of revenue from contract with customer (as a percent) | 100.00% | 100.00% | 100.00% | 100.00% |
Industrial | ||||
Disaggregation of Revenue | ||||
Revenue | $ 198,002 | $ 114,077 | $ 366,662 | $ 214,177 |
Percentage of revenue from contract with customer (as a percent) | 30.50% | 21.30% | 30.80% | 21.40% |
Education | ||||
Disaggregation of Revenue | ||||
Revenue | $ 100,220 | $ 109,447 | $ 166,963 | $ 197,650 |
Percentage of revenue from contract with customer (as a percent) | 15.40% | 20.50% | 14.10% | 19.80% |
Office Buildings | ||||
Disaggregation of Revenue | ||||
Revenue | $ 105,483 | $ 79,309 | $ 171,695 | $ 148,429 |
Percentage of revenue from contract with customer (as a percent) | 16.20% | 14.80% | 14.40% | 14.90% |
Healthcare | ||||
Disaggregation of Revenue | ||||
Revenue | $ 87,878 | $ 71,930 | $ 179,901 | $ 135,113 |
Percentage of revenue from contract with customer (as a percent) | 13.50% | 13.40% | 15.10% | 13.50% |
Government | ||||
Disaggregation of Revenue | ||||
Revenue | $ 44,443 | $ 37,285 | $ 76,722 | $ 73,432 |
Percentage of revenue from contract with customer (as a percent) | 6.80% | 7.00% | 6.50% | 7.30% |
Retail, Restaurants and Entertainment | ||||
Disaggregation of Revenue | ||||
Revenue | $ 58,086 | $ 56,204 | $ 117,477 | $ 108,991 |
Percentage of revenue from contract with customer (as a percent) | 8.90% | 10.50% | 9.90% | 10.90% |
Multi-Family and Residential | ||||
Disaggregation of Revenue | ||||
Revenue | $ 29,061 | $ 36,040 | $ 59,296 | $ 69,092 |
Percentage of revenue from contract with customer (as a percent) | 4.50% | 6.70% | 5.00% | 6.90% |
Other | ||||
Disaggregation of Revenue | ||||
Revenue | $ 27,129 | $ 30,751 | $ 50,059 | $ 53,100 |
Percentage of revenue from contract with customer (as a percent) | 4.20% | 5.80% | 4.20% | 5.30% |
New Construction | ||||
Disaggregation of Revenue | ||||
Revenue | $ 291,479 | $ 193,211 | $ 515,439 | $ 378,493 |
Percentage of revenue from contract with customer (as a percent) | 44.80% | 36.10% | 43.40% | 37.90% |
Existing Building Construction | ||||
Disaggregation of Revenue | ||||
Revenue | $ 199,398 | $ 200,040 | $ 381,694 | $ 356,798 |
Percentage of revenue from contract with customer (as a percent) | 30.70% | 37.40% | 32.10% | 35.70% |
Service Projects | ||||
Disaggregation of Revenue | ||||
Revenue | $ 58,808 | $ 51,900 | $ 109,192 | $ 94,333 |
Percentage of revenue from contract with customer (as a percent) | 9.00% | 9.70% | 9.20% | 9.40% |
Service Calls, Maintenance and Monitoring | ||||
Disaggregation of Revenue | ||||
Revenue | $ 100,617 | $ 89,892 | $ 182,450 | $ 170,360 |
Percentage of revenue from contract with customer (as a percent) | 15.50% | 16.80% | 15.30% | 17.00% |
HVAC and Plumbing | ||||
Disaggregation of Revenue | ||||
Revenue | $ 504,253 | $ 484,011 | $ 986,243 | $ 908,028 |
Percentage of revenue from contract with customer (as a percent) | 77.50% | 90.50% | 83.00% | 90.80% |
Electrical Services | ||||
Disaggregation of Revenue | ||||
Revenue | $ 97,271 | $ 101,159 | ||
Percentage of revenue from contract with customer (as a percent) | 15.00% | 8.50% | ||
Building Automation Control Systems | ||||
Disaggregation of Revenue | ||||
Revenue | $ 20,262 | $ 26,261 | $ 49,276 | $ 46,306 |
Percentage of revenue from contract with customer (as a percent) | 3.10% | 4.90% | 4.10% | 4.60% |
Other. | ||||
Disaggregation of Revenue | ||||
Revenue | $ 28,516 | $ 24,771 | $ 52,097 | $ 45,650 |
Percentage of revenue from contract with customer (as a percent) | 4.40% | 4.60% | 4.40% | 4.60% |
Minimum | ||||
Disaggregation of Revenue | ||||
Payments received term (in days) | 30 days | |||
Maximum | ||||
Disaggregation of Revenue | ||||
Payments received term (in days) | 90 days |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Contract Assets | |||
Balance at beginning of period | $ 10,213 | $ 30,116 | $ 30,116 |
Change due to acquisitions | 6,953 | 2,833 | |
Change due to conditional versus unconditional | 8,945 | (6,244) | |
Reclassified to unbilled accounts receivable | (28,980) | ||
Balance at end of period | 8,221 | 10,213 | |
Contract Liabilities | |||
Balance at beginning of period | 130,986 | 106,005 | 106,005 |
Change due to acquisitions | 31,604 | 8,195 | |
Change in timing for performance obligation to be satisfied | 2,699 | 16,786 | |
Balance at end of period | 165,289 | $ 130,986 | |
Increase (Decrease) In Income Taxes Abstract | |||
Revenue related to our contract liabilities | 109,700 | ||
Impairment losses | $ 0 | 0 | |
Calculated under Revenue Guidance in Effect before Topic 606 [Member] | |||
Increase (Decrease) In Income Taxes Abstract | |||
Revenue related to our contract liabilities | $ 94,200 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Remaining Performance Obligations (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-04-01 $ in Millions | Jun. 30, 2019USD ($) |
Remaining Performance Obligations | |
Remaining performance obligations | $ 1,500 |
Expected timing of performance obligations | 12 months |
Minimum | |
Remaining Performance Obligations | |
Expected percentage of remaining performance obligations | 80.00% |
Maximum | |
Remaining Performance Obligations | |
Expected percentage of remaining performance obligations | 85.00% |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies - Service Maintenance Agreements (Details) | 6 Months Ended |
Jun. 30, 2019 | |
Summary of Significant Accounting Policies | |
The term of the renewable service maintenance agreements (in years) | 1 year |
Summary of Significant Accoun_9
Summary of Significant Accounting Policies - Leases (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)Option | Jun. 30, 2018USD ($) | |
Lessee, Lease, Description [Line Items] | ||||
Variable lease expense and short-term lease expenses | $ 4,200 | |||
Weighted average discount rate | 4.00% | 4.00% | ||
Lease expense | $ 6,200 | $ 5,800 | $ 11,800 | $ 11,100 |
Weighted average remaining lease term | 8 years 2 months 12 days | 8 years 2 months 12 days | ||
Rent paid to related parties | $ 700 | $ 1,100 | $ 2,000 | $ 2,200 |
Existence of option to extend | true | |||
Summary of lease asset and liabilities | ||||
Lease right-of-use assets | 80,633 | $ 80,633 | ||
Lease Liabilities | ||||
Other current liabilities | $ 13,185 | $ 13,185 | ||
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List] | Other Liabilities, Current | Other Liabilities, Current | ||
Long-term lease liabilities | $ 70,095 | $ 70,095 | ||
Present Value of Lease Liabilities | $ 83,280 | $ 83,280 | ||
Minimum | ||||
Lessee, Lease, Description [Line Items] | ||||
Lease term | 3 years | 3 years | ||
Number of options to renew | Option | 1 | |||
Maximum | ||||
Lessee, Lease, Description [Line Items] | ||||
Lease term | 10 years | 10 years |
Summary of Significant Accou_10
Summary of Significant Accounting Policies - Maturities of Lease Liabilities (Details) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2019USD ($) | Jun. 30, 2019USD ($) | |
Maturities of lease liabilities: | ||
2019 (excluding the six months ended June 30, 2019) | $ 8,445 | $ 8,445 |
2020 | 15,319 | 15,319 |
2021 | 13,626 | 13,626 |
2022 | 11,504 | 11,504 |
2023 | 9,657 | 9,657 |
Thereafter | 39,846 | 39,846 |
Total Lease Payments | 98,397 | 98,397 |
Less-Present Value Discount | (15,117) | (15,117) |
Present Value of Lease Liabilities | 83,280 | 83,280 |
Supplemental information related to leases: | ||
Cash paid for amounts included in the measurement of lease liabilities | 6,056 | 11,960 |
Lease right-of-use assets obtained in exchange for lease liabilities | $ (3,544) | $ (3,718) |
Summary of Significant Accou_11
Summary of Significant Accounting Policies - Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | |
Jun. 30, 2019 | Mar. 31, 2018 | |
Summary of Significant Accounting Policies | ||
Provision for income taxes | $ (1.4) | $ (2.8) |
Summary of Significant Accou_12
Summary of Significant Accounting Policies - Other Income (Details) - British Petroleum $ in Millions | 1 Months Ended | 3 Months Ended |
Apr. 30, 2018claim | Jun. 30, 2018USD ($) | |
Loss Contingencies [Line Items] | ||
Number of claims settled | claim | 2 | |
Gain related to settlement agreements | $ | $ 4 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) $ in Thousands | 6 Months Ended | |
Jun. 30, 2019USD ($)item | Dec. 31, 2018USD ($) | |
Fair Value Measurements | ||
Number of employees covered under life insurance policies | item | 60 | |
Combined face value of life insurance policies | $ 45,800 | |
Cash surrender value | 3,500 | $ 3,300 |
Contingent earn-out obligations | ||
Reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3) | ||
Balance at beginning of year | 7,375 | |
Issuances | 19,500 | |
Settlements | (593) | |
Adjustments to fair value | 1,920 | |
Balance at end of period | 28,202 | |
Recurring basis | Total | ||
Fair Value Measurements | ||
Cash and cash equivalents | 36,787 | 45,620 |
Life insurance-cash surrender value | 3,506 | 3,252 |
Contingent earn-out obligations | 28,202 | 7,375 |
Recurring basis | Quoted Market Prices In Active Markets for Identical Assets (Level 1) | ||
Fair Value Measurements | ||
Cash and cash equivalents | 36,787 | 45,620 |
Recurring basis | Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2) | ||
Fair Value Measurements | ||
Life insurance-cash surrender value | 3,506 | 3,252 |
Recurring basis | Significant Unobservable Inputs (Level 3) | ||
Fair Value Measurements | ||
Contingent earn-out obligations | $ 28,202 | $ 7,375 |
Acquisitions (Details)
Acquisitions (Details) - USD ($) $ in Thousands | Apr. 01, 2019 | Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2017 |
Acquisitions | |||||||
Revenues | $ 650,302 | $ 535,043 | $ 1,188,775 | $ 999,984 | |||
Consideration transferred: | |||||||
Total consideration transferred | 2,600 | ||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||
Goodwill | 332,562 | 332,562 | $ 235,182 | $ 200,584 | |||
Walker | |||||||
Acquisitions | |||||||
Revenues | $ 92,600 | $ 92,600 | |||||
Consideration transferred: | |||||||
Cash paid at closing | $ 178,000 | ||||||
Advance to former owners | 20,500 | ||||||
Working capital adjustment | (7,594) | ||||||
Notes issued to former owners | 25,000 | ||||||
Tax equalization payment | 202 | ||||||
Estimated fair value of contingent earn-out payments | 19,500 | ||||||
Total consideration transferred | 235,608 | ||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||
Cash and cash equivalents | 4,312 | ||||||
Billed and unbilled accounts receivable | 92,309 | ||||||
Other current assets | 8,225 | ||||||
Other long-term assets | 53 | ||||||
Property and equipment | 4,970 | ||||||
Goodwill | 96,801 | ||||||
Identifiable intangible assets | 90,200 | ||||||
Lease right-of-use asset | (10,495) | ||||||
Accounts payable | (19,682) | ||||||
Accrued compensation and benefits | (974) | ||||||
Billings in excess of costs and estimated earnings | (31,553) | ||||||
Other current liabilities | (11,278) | ||||||
Long-term lease liabilities | (8,270) | ||||||
Total assets acquired and liabilities assumed | $ 235,608 | ||||||
Cash flow discount rate | 10.20% | ||||||
Walker | Minimum | |||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||
Cash flow discount rate | 8.50% | ||||||
Walker | Maximum | |||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||
Cash flow discount rate | 11.50% |
Acquisitions - Acquired intangi
Acquisitions - Acquired intangible assets (Details) - Walker $ in Thousands | Apr. 01, 2019USD ($) |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Fair Value | $ 90,200 |
Backlog | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 2 years |
Estimated Fair Value | $ 4,600 |
Trade Names | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 25 years |
Estimated Fair Value | $ 32,600 |
Customer Relationships | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 10 years |
Estimated Fair Value | $ 53,000 |
Acquisitions - Contingent earn-
Acquisitions - Contingent earn-out obligation (Details) - Walker $ in Millions | Apr. 01, 2019USD ($) |
Business Acquisition [Line Items] | |
Contingent earn-out period | 5 years |
Contingent earn-out estimated milestone payment, minimum | $ 1 |
Contingent earn-out estimated milestone payment, maximum | $ 11 |
Cash flow discount rate | 10.20% |
Acquisitions - Pro Forma (Detai
Acquisitions - Pro Forma (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Business Acquisition [Line Items] | ||||
Revenue | $ 650,302 | $ 632,467 | $ 1,277,136 | $ 1,178,558 |
Pre-tax income | $ 32,578 | $ 48,737 | $ 56,505 | $ 65,418 |
Acquisitions - Other acquisitio
Acquisitions - Other acquisitions (Details) $ in Millions | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2019item | Mar. 31, 2019item | Sep. 30, 2018item | Jun. 30, 2018item | Mar. 31, 2018item | Jun. 30, 2019USD ($) | |
Acquisitions | ||||||
Number of acquisitions | 1 | 1 | 2 | 3 | 2 | |
Total purchase price | $ | $ 2.6 | |||||
Number of acquisitions reported as separate operating location | 1 |
Goodwill (Details)
Goodwill (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2019 | Dec. 31, 2018 | |
Changes in the carrying amount of goodwill | ||
Balance at beginning of year | $ 235,182 | $ 200,584 |
Additions (See Note 4) | 97,380 | 34,598 |
Balance at end of period | $ 332,562 | $ 235,182 |
Debt Obligations (Details)
Debt Obligations (Details) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Debt Obligations | ||
Total debt | $ 295,047 | $ 76,918 |
Less-current portion | (10,380) | (3,279) |
Total long-term portion of debt | 284,667 | 73,639 |
Revolving credit facility | ||
Debt Obligations | ||
Total debt | 246,000 | 50,000 |
Notes to former owners | ||
Debt Obligations | ||
Outstanding balance | 48,983 | 26,813 |
Other debt | ||
Debt Obligations | ||
Total debt | $ 64 | $ 105 |
Debt Obligations - Other (Detai
Debt Obligations - Other (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
Jun. 30, 2019USD ($)item | Mar. 31, 2019USD ($)item | Sep. 30, 2018item | Jun. 30, 2018USD ($)item | Mar. 31, 2018USD ($)item | Jun. 30, 2019USD ($)item | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($)item | Apr. 30, 2018USD ($) | |
Reconciliation of Credit Facility Adjusted EBITDA to net income | |||||||||
Net income | $ 24,173 | $ 19,866 | $ 32,547 | $ 16,659 | $ 44,039 | $ 49,206 | |||
Provision for income taxes | $ 6,933 | $ 10,797 | 13,866 | 12,871 | |||||
Stock-based compensation | 4,679 | $ 4,874 | |||||||
Other disclosures | |||||||||
Number of acquisitions | item | 1 | 1 | 2 | 3 | 2 | ||||
Outstanding balance | $ 284,667 | 284,667 | $ 73,639 | ||||||
Shoffner | |||||||||
Other disclosures | |||||||||
Outstanding balance | 100 | 100 | |||||||
Acquired debt | 400 | $ 400 | |||||||
London Interbank Offered Rate (LIBOR) | Shoffner | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 2.25% | ||||||||
Revolving credit facility | |||||||||
Debt Obligations | |||||||||
Outstanding borrowings | 246,000 | $ 246,000 | |||||||
Letters of credit amount outstanding | 33,600 | 33,600 | |||||||
Credit available | $ 120,400 | $ 120,400 | |||||||
Principal financial covenants | |||||||||
Number of interest rate options | item | 2 | ||||||||
Leverage ratio | 1.4 | 1.4 | |||||||
Fixed charge coverage ratio | 8.7 | 8.7 | |||||||
Number of quarters of capital expenditures, tax provision, dividends and stock repurchase payments used for calculation of fixed charge coverage ratio | item | 4 | ||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 3.70% | 3.70% | |||||||
Revolving credit facility | Through maturity | |||||||||
Principal financial covenants | |||||||||
Leverage ratio | 3 | 3 | |||||||
Revolving credit facility | Minimum | |||||||||
Principal financial covenants | |||||||||
Fixed charge coverage ratio | 2 | 2 | |||||||
Additional per annum interest margin added under: | |||||||||
Letter of credit fees (as a percent) | 1.25% | ||||||||
Commitment fees payable on unused portion of the facility (as a percent) | 0.20% | ||||||||
Revolving credit facility | Minimum | Covenant Requirement | |||||||||
Principal financial covenants | |||||||||
Net leverage ratio used as basis for other restrictions | 2 | 2 | |||||||
Revolving credit facility | Maximum | |||||||||
Principal financial covenants | |||||||||
Net leverage ratio after giving effect to stock repurchases for calculation of the fixed charge coverage ratio | 1.75 | 1.75 | |||||||
Permitted amount of acquisitions per transaction | $ 40,000 | $ 40,000 | |||||||
Aggregate purchase price of current acquisition and acquisitions in the preceding 12 month period for determining permitted amount of acquisition per transaction | $ 80,000 | $ 80,000 | |||||||
Additional per annum interest margin added under: | |||||||||
Letter of credit fees (as a percent) | 2.00% | ||||||||
Commitment fees payable on unused portion of the facility (as a percent) | 0.35% | ||||||||
Revolving credit facility | Maximum | Covenant Requirement | |||||||||
Principal financial covenants | |||||||||
Net leverage ratio used to determine exclusion of stock repurchases and the payment of dividends for calculation of the fixed charge coverage ratio | 1.75 | 1.75 | |||||||
Revolving credit facility | Maximum | Stock Repurchases After February 22, 2016 And On Or Before December 31, 2017 | |||||||||
Principal financial covenants | |||||||||
Amount of stock repurchases to maintain maximum net leverage ratio | $ 30,000 | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.25% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to 1.75 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.50% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to 2.50 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.75% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 or greater | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.00% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.25% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to 1.75 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.50% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to 2.50 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.75% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 or greater | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 2.00% | ||||||||
Amended senior revolving credit facility | |||||||||
Debt Obligations | |||||||||
Borrowing capacity | $ 325,000 | $ 400,000 | |||||||
Line of credit borrowing capacity accordion option | $ 100,000 | $ 100,000 | |||||||
Notes to former owners | |||||||||
Other disclosures | |||||||||
Cumulative number of companies acquired | item | 7 | 7 | |||||||
Outstanding balance | $ 48,983 | $ 48,983 | $ 26,813 | ||||||
Promissory note | Walker | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 25,000 | $ 25,000 | |||||||
Weighted average interest rate (as a percent) | 4.00% | 4.00% | |||||||
Promissory note | BCH | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 14,300 | $ 14,300 | |||||||
Weighted average interest rate (as a percent) | 3.00% | 3.00% | |||||||
Promissory note | Five Immaterial Acquisition | |||||||||
Other disclosures | |||||||||
Number of acquisitions | item | 5 | 5 | |||||||
Outstanding balance | $ 9,700 | $ 9,700 | |||||||
Promissory note | Minimum | Five Immaterial Acquisition | |||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 2.90% | 2.90% | |||||||
Promissory note | Maximum | Five Immaterial Acquisition | |||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 3.50% | 3.50% |
Commitments and Contingencies -
Commitments and Contingencies - Other and Bonds (Details) - Surety | 6 Months Ended |
Jun. 30, 2019 | |
Minimum | |
Surety | |
Percentage of business which has required bonds | 20.00% |
Maximum | |
Surety | |
Percentage of business which has required bonds | 30.00% |
Stockholders' Equity - Incentiv
Stockholders' Equity - Incentive and Other (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions | 6 Months Ended | 147 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Aug. 10, 2018 | Mar. 29, 2007 | |
Share Repurchase Program | |||||
Share repurchase | $ 7,897 | $ 6,830 | |||
Stock Repurchase Program 2007 | |||||
Share Repurchase Program | |||||
Number of shares of outstanding common stock authorized to be acquired under a stock repurchase program | 8.8 | 8.8 | 0.7 | 1 | |
Share repurchase (in shares) | 0.2 | 8.4 | |||
Average price (in dollars per share) | $ 49.09 | $ 16.87 | |||
Share repurchase | $ 7,900 |
Stockholders' Equity - Anti-Dil
Stockholders' Equity - Anti-Dilutive Stock Options (Details) - shares shares in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Stock Options | Maximum | ||||
Earnings Per Share | ||||
Anti-dilutive securities excluded from computation of earnings per share amount (in shares) | 0.1 | 0.1 | 0.1 | 0.1 |
Stockholders' Equity - Number o
Stockholders' Equity - Number of Shares (Details) - shares shares in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Reconciliation of the number of shares outstanding with the number of shares used in computing basic and diluted earnings per share | ||||
Common shares outstanding, end of period | 36,854 | 37,246 | 36,854 | 37,246 |
Effect of using weighted average common shares outstanding | 89 | (26) | 79 | (40) |
Shares used in computing earnings per share-basic | 36,943 | 37,220 | 36,933 | 37,206 |
Effect of shares issuable under stock option plans based on the treasury stock method | 221 | 309 | 226 | 341 |
Effect of restricted and contingently issuable shares | 59 | 76 | 69 | 70 |
Shares used in computing earnings per share-diluted | 37,223 | 37,605 | 37,228 | 37,617 |
Segment Information (Details)
Segment Information (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)locationsegment | Jun. 30, 2018USD ($) | |
Segment Information | ||||
Number of reportable segments | segment | 2 | |||
Number or operating locations | location | 36 | |||
Revenues | $ 650,302 | $ 535,043 | $ 1,188,775 | $ 999,984 |
Gross profit | 120,016 | 111,183 | 226,681 | 200,236 |
Operating | Mechanical Services | ||||
Segment Information | ||||
Revenues | 553,031 | 535,043 | 1,087,616 | 999,984 |
Gross profit | 110,279 | $ 111,183 | 216,131 | $ 200,236 |
Operating | Electrical Services | ||||
Segment Information | ||||
Revenues | 97,271 | 101,159 | ||
Gross profit | $ 9,737 | $ 10,550 |