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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-13011

COMFORT SYSTEMS USA, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
Incorporation or Organization)

76-0526487
(I.R.S. Employer
Identification No.)

675 Bering Drive
Suite 400
Houston, Texas 77057
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (713830-9600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

FIX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No 

The number of shares outstanding of the issuer’s common stock as of July 23, 2021 was 36,305,194 (excluding treasury shares of 4,818,171).

Table of Contents

COMFORT SYSTEMS USA, INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

    

Page

Part I—Financial Information

2

Item 1—Financial Statements

2

Consolidated Balance Sheets

2

Consolidated Statements of Operations

3

Consolidated Statements of Stockholders’ Equity

4

Consolidated Statements of Cash Flows

5

Condensed Notes to Consolidated Financial Statements

6

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

20

Item 3—Quantitative and Qualitative Disclosures about Market Risk

30

Item 4—Controls and Procedures

31

Part II—Other Information

31

Item 1—Legal Proceedings

31

Item 1A—Risk Factors

32

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

32

Item 6—Exhibits

33

Signatures

34

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

COMFORT SYSTEMS USA, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

June 30,

December 31,

    

2021

    

2020

 

(Unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

53,659

$

54,896

Billed accounts receivable, less allowance for credit losses of $8,648 and $9,087, respectively

 

630,446

 

619,544

Unbilled accounts receivable, less allowance for credit losses of $815 and $784, respectively

 

53,624

 

45,596

Other receivables, less allowance for credit losses of $549 and $759, respectively

 

38,515

 

44,212

Inventories

 

18,837

 

13,472

Prepaid expenses and other

 

11,350

 

15,510

Costs and estimated earnings in excess of billings, less allowance for credit losses of $34 and $79, respectively

 

12,969

 

18,622

Total current assets

 

819,400

 

811,852

PROPERTY AND EQUIPMENT, NET

 

113,589

 

117,206

LEASE RIGHT-OF-USE ASSET

95,532

94,727

GOODWILL

 

472,046

 

464,392

IDENTIFIABLE INTANGIBLE ASSETS, NET

 

221,584

 

231,807

DEFERRED TAX ASSETS

23,952

29,401

OTHER NONCURRENT ASSETS

 

8,847

 

7,970

Total assets

$

1,754,950

$

1,757,355

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Current maturities of long-term debt

$

4,235

$

Accounts payable

207,453

204,145

Accrued compensation and benefits

 

115,797

 

121,864

Billings in excess of costs and estimated earnings

 

255,357

 

226,237

Accrued self-insurance

 

47,359

 

49,166

Other current liabilities

 

91,209

 

91,492

Total current liabilities

 

721,410

 

692,904

LONG-TERM DEBT, NET

 

156,272

 

235,733

LEASE LIABILITIES

81,060

 

80,576

DEFERRED TAX LIABILITIES

 

1,339

 

1,339

OTHER LONG-TERM LIABILITIES

 

42,857

 

50,374

Total liabilities

 

1,002,938

 

1,060,926

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, 4,774,785 and 4,935,186 shares, respectively

 

(128,503)

 

(129,243)

Additional paid-in capital

 

326,179

 

322,451

Retained earnings

 

553,925

 

502,810

Total stockholders’ equity

 

752,012

 

696,429

Total liabilities and stockholders’ equity

$

1,754,950

$

1,757,355

The accompanying notes are an integral part of these consolidated financial statements.

2

Table of Contents

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2021

    

2020

    

2021

    

2020

 

REVENUE

$

713,895

$

743,468

$

1,383,656

$

1,443,599

COST OF SERVICES

 

587,440

 

597,773

 

1,133,732

 

1,180,811

Gross profit

 

126,455

 

145,695

 

249,924

 

262,788

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

87,549

 

85,045

 

175,763

 

177,969

GAIN ON SALE OF ASSETS

 

(491)

 

(312)

 

(841)

 

(866)

Operating income

 

39,397

 

60,962

 

75,002

 

85,685

OTHER INCOME (EXPENSE):

Interest income

 

3

 

28

 

6

 

92

Interest expense

 

(1,360)

 

(2,554)

 

(2,857)

 

(5,171)

Changes in the fair value of contingent earn-out obligations

 

4,581

 

(3,871)

 

5,767

 

(1,599)

Other

 

161

 

 

92

 

25

Other income (expense)

 

3,385

 

(6,397)

 

3,008

 

(6,653)

INCOME BEFORE INCOME TAXES

 

42,782

 

54,565

 

78,010

 

79,032

PROVISION FOR INCOME TAXES

 

9,817

 

15,070

 

18,554

 

21,821

NET INCOME

$

32,965

$

39,495

$

59,456

$

57,211

INCOME PER SHARE:

Basic

$

0.91

$

1.08

$

1.64

$

1.56

Diluted

$

0.90

$

1.08

$

1.63

$

1.55

SHARES USED IN COMPUTING INCOME PER SHARE:

Basic

 

36,403

 

36,581

 

36,345

 

36,628

Diluted

 

36,566

 

36,737

 

36,533

 

36,821

DIVIDENDS PER SHARE

$

0.115

$

0.105

$

0.230

$

0.210

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Amounts)

(Unaudited)

Six Months Ended

June 30, 2020

Additional

Total

 

    

Common Stock

    

Treasury Stock

    

Paid-In

Retained

    

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Equity

 

BALANCE AT DECEMBER 31, 2019

 

41,123,365

$

411

 

(4,465,448)

$

(103,960)

$

320,168

$

368,685

 

$

585,304

Net income

 

17,716

 

17,716

Cumulative-effect adjustment (1)

(515)

(515)

Issuance of Stock:

Issuance of shares for options exercised

 

 

Issuance of restricted stock & performance stock

 

43,902

1,054

801

 

1,855

Shares received in lieu of tax withholding payment on vested restricted stock

 

(14,722)

(622)

 

(622)

Stock-based compensation

 

2,134

 

2,134

Dividends

 

(3,844)

 

(3,844)

Share repurchase

 

(237,359)

(8,985)

 

(8,985)

BALANCE AT MARCH 31, 2020

41,123,365

411

(4,673,627)

(112,513)

323,103

382,042

593,043

Net income

 

39,495

 

39,495

Issuance of Stock:

Issuance of shares for options exercised

 

34,562

836

(280)

 

556

Issuance of restricted stock & performance stock

 

84,987

2,048

(2,048)

 

Shares received in lieu of tax withholding payment on vested restricted stock

 

(13,002)

(454)

 

(454)

Stock-based compensation

 

1,644

 

1,644

Dividends

 

(3,830)

 

(3,830)

Share repurchase

 

(52,991)

(2,021)

 

(2,021)

BALANCE AT JUNE 30, 2020

41,123,365

$

411

(4,620,071)

$

(112,104)

$

322,419

$

417,707

$

628,433

Six Months Ended

June 30, 2021

Additional

Total

    

Common Stock

    

Treasury Stock

    

Paid-In

Retained

    

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Equity

 

BALANCE AT DECEMBER 31, 2020

 

41,123,365

$

411

(4,935,186)

$

(129,243)

$

322,451

$

502,810

$

696,429

Net income

 

26,491

 

26,491

Issuance of Stock:

Issuance of shares for options exercised

 

61,454

1,616

(211)

 

1,405

Issuance of restricted stock & performance stock

 

29,544

777

1,431

 

2,208

Shares received in lieu of tax withholding payment on vested restricted stock

 

(11,424)

(854)

 

(854)

Stock-based compensation

 

2,472

 

2,472

Dividends

 

(4,163)

 

(4,163)

Share repurchase

 

(13,250)

(885)

 

(885)

BALANCE AT MARCH 31, 2021

 

41,123,365

411

 

(4,868,862)

(128,589)

326,143

525,138

723,103

Net income

32,965

32,965

Issuance of Stock:

Issuance of shares for options exercised

69,342

1,853

191

2,044

Issuance of restricted stock & performance stock

71,816

1,904

(1,904)

Shares received in lieu of tax withholding payment on vested restricted stock

(19,989)

(1,509)

(1,509)

Stock-based compensation

1,749

1,749

Dividends

(4,178)

(4,178)

Share repurchase

(27,092)

(2,162)

(2,162)

BALANCE AT JUNE 30, 2021

41,123,365

$

411

(4,774,785)

$

(128,503)

$

326,179

$

553,925

$

752,012

________________________________________

(1)Represents the adjustment to Retained Earnings as a result of adopting Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” on January 1, 2020.

The accompanying notes are an integral part of these consolidated financial statements.

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COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Six Months Ended

June 30,

    

2021

    

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

59,456

$

57,211

Adjustments to reconcile net income to net cash provided by operating activities—

Amortization of identifiable intangible assets

 

17,749

 

17,141

Depreciation expense

 

13,925

 

13,633

Change in right-of-use assets

8,554

8,687

Bad debt expense (benefit)

 

(429)

 

4,593

Deferred tax provision (benefit)

 

5,449

 

(2,980)

Amortization of debt financing costs

 

267

 

270

Gain on sale of assets

 

(841)

 

(866)

Changes in the fair value of contingent earn-out obligations

 

(5,767)

 

1,599

Stock-based compensation

 

6,860

 

5,188

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—

(Increase) decrease in—

Receivables, net

 

(6,841)

 

30,258

Inventories

 

(5,365)

 

(220)

Prepaid expenses and other current assets

 

13,037

 

13,382

Costs and estimated earnings in excess of billings and unbilled accounts receivable

 

(2,752)

 

(6,185)

Other noncurrent assets

 

(1,105)

 

(228)

Increase (decrease) in—

Accounts payable and accrued liabilities

 

(10,964)

 

(1,984)

Billings in excess of costs and estimated earnings

 

27,510

 

22,082

Other long-term liabilities

 

(8,674)

 

2,205

Net cash provided by operating activities

 

110,069

 

163,786

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

 

(10,762)

 

(14,539)

Proceeds from sales of property and equipment

 

1,530

 

1,378

Cash paid for acquisitions, net of cash acquired

 

(11,742)

 

(101,998)

Net cash used in investing activities

 

(20,974)

 

(115,159)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

 

25,000

 

178,000

Payments on revolving credit facility

 

(80,000)

 

(151,000)

Payments on term loan

(15,000)

(11,250)

Payments on other debt

 

(8,765)

 

(32,449)

Payments of dividends to stockholders

 

(8,341)

 

(7,674)

Share repurchase

 

(3,047)

 

(11,006)

Shares received in lieu of tax withholding

 

(2,363)

 

(1,076)

Proceeds from exercise of options

 

3,449

 

556

Deferred acquisition payments

(400)

(400)

Payments for contingent consideration arrangements

 

(865)

 

(9,863)

Net cash used in financing activities

 

(90,332)

 

(46,162)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(1,237)

 

2,465

CASH AND CASH EQUIVALENTS, beginning of period

 

54,896

 

50,788

CASH AND CASH EQUIVALENTS, end of period

$

53,659

$

53,253

The accompanying notes are an integral part of these consolidated financial statements.

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COMFORT SYSTEMS USA, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(Unaudited)

1. Business and Organization

Comfort Systems USA, Inc., a Delaware corporation, provides comprehensive mechanical and electrical contracting services, which principally includes heating, ventilation and air conditioning (“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. The terms “Comfort Systems,” “we,” “us,” or the “Company,” refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context.

2. Summary of Significant Accounting Policies

Basis of Presentation

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 (“SEC”) for the year ended December 31, 2020 (the “Form 10-K”).

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.

Use of Estimates

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, self-insurance accruals, deferred tax assets, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within that year. We adopted ASU No. 2019-12 on January 1, 2021, and the impact was not material to our overall financial statements.

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Revenue Recognition

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, for delivery of products or services that do not have an alternative use to the Company.

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, subcontractors’ costs, other direct costs and an allocation of indirect costs.

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 customer’s mechanical system for a specific period of time. Similar to construction 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. Our revenue recognition policy is further discussed in Note 3 “Revenue from Contracts with Customers.”

Accounts Receivable and Allowance for Credit Losses

We are required to estimate and record the expected credit losses over the contractual life of our financial assets measured at amortized cost, including billed and unbilled accounts receivable, other receivables and costs and estimated earnings in excess of billings. Accounts receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. Our trade receivables are contractually due in less than a year.

We estimate our credit losses using a loss-rate method for each of our identified portfolio segments. Our portfolio segments are construction, service and other. While our construction and service financial assets are often with the same subset of customers and industries, our construction financial assets will generally have a lower loss-rate than service financial assets due to lien rights, which we are more likely to have on construction jobs. These lien rights result in lower credit loss expenses on average compared to receivables that do not have lien rights. Financial assets classified as Other include receivables that are not related to our core revenue producing activities, such as receivables related to our acquisition activity from former owners, our vendor rebate program or receivables for estimated losses in excess of our insurance deductible, which are accrued with a corresponding accrued insurance liability.

Loss rates for our portfolios are based on numerous factors, including our history of credit loss expense by portfolio, the financial strength of our customers and counterparties in each portfolio, the aging of our receivables, our expectation of likelihood of payment, macroeconomic trends in the U.S. and the current and forecasted non-residential construction market trends in the U.S.

In addition to the loss-rate calculations discussed above, we also record allowance for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables (e.g., when we hold concerns about a specific customer going bankrupt and no longer being able to pay the receivables due to us).

Income Taxes

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

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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 and accounting for losses associated with underperforming operations.

In early October 2020, we filed amended federal returns for 2016, 2017 and 2018 to claim the credit for increasing research activities (the “R&D tax credit”) and energy efficient commercial buildings deduction (the “179D deduction”) and recorded tax benefits of $6.1 million, $8.5 million and $11.9 million, respectively. The $26.5 million of tax benefits have been offset by additions to unrecognized tax benefits of $26.4 million due to the uncertainty of the outcome of our current Internal Revenue Service examination. The R&D tax credit and 179D deduction for 2016, 2017 and 2018, therefore, had no material impact on our effective tax rates. At this time, we cannot reasonably estimate the R&D tax credit for years after 2018 or 179D deduction for years after 2017.

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, interest rate swaps, life insurance policies, notes to former owners, a revolving credit facility and a term loan. We believe that the carrying values of these instruments in the accompanying Balance Sheets approximate their fair values.

3. Revenue from Contracts with Customers

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.

We provide mechanical and electrical contracting services. Our mechanical segment principally includes HVAC, plumbing, piping and controls, as well as off-site construction, monitoring and fire protection. Our electrical segment includes installation and servicing of electrical systems. 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.

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.

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 obtainment or fulfillment costs on our Balance Sheet and have not incurred any impairment loss on such costs in the current year.

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.

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

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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.

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.

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 when 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.

In the first six months of 2021 and 2020, net revenue recognized from our performance obligations satisfied in previous periods was not material.

Disaggregation of Revenue

Our consolidated 2021 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 11 – Segment Information for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and service provided, 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):

Three Months Ended June 30,

Six Months Ended June 30,

Revenue by Service Provided

   

2021

   

2020

   

2021

   

2020

Mechanical Services

$

611,796

   

85.7

%

$

626,706

   

84.3

%

$

1,177,416

   

85.1

%

$

1,197,457

   

82.9

%

Electrical Services

102,099

14.3

%

116,762

15.7

%

206,240

14.9

%

246,142

17.1

%

Total

$

713,895

100.0

%

$

743,468

100.0

%

$

1,383,656

100.0

%

$

1,443,599

100.0

%

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Three Months Ended June 30,

Six Months Ended June 30,

Revenue by Type of Customer

2021

2020

 

2021

2020

 

Industrial

$

311,075

43.6

%

$

300,870

40.5

%

$

580,658

42.0

%

$

576,068

39.9

%

Education

92,381

12.9

%

130,004

17.5

%

184,838

13.4

%

239,588

16.6

%

Office Buildings

73,014

10.2

%

75,594

10.2

%

152,010

11.0

%

151,166

10.5

%

Healthcare

96,004

13.4

%

96,050

12.9

%

191,095

13.8

%

195,309

13.5

%

Government

42,506

6.0

%

39,832

5.4

%

85,671

6.2

%

78,813

5.5

%

Retail, Restaurants and Entertainment

48,933

6.9

%

64,628

8.7

%

93,509

6.7

%

125,831

8.7

%

Multi-Family and Residential

28,341

4.0

%

20,555

2.8

%

53,001

3.8

%

39,286

2.7

%

Other

21,641

3.0

%

15,935

2.0

%

42,874

3.1

%

37,538

2.6

%

Total

$

713,895

100.0

%

$

743,468

100.0

%

$

1,383,656

100.0

%

$

1,443,599

100.0

%

Three Months Ended June 30,

Six Months Ended June 30,

Revenue by Activity Type

2021

2020

 

2021

2020

 

New Construction

$

329,890

46.2

%

$

377,433

50.8

%

$

631,951

45.7

%

$

724,833

50.2

%

Existing Building Construction

215,317

30.2

%

225,103

30.3

%

431,918

31.2

%

432,269

29.9

%

Service Projects

66,263

9.3

%

58,378

7.8

%

126,323

9.1

%

110,026

7.6

%

Service Calls, Maintenance and Monitoring

102,425

14.3

%

82,554

11.1

%

193,464

14.0

%

176,471

12.3

%

Total

$

713,895

100.0

%

$

743,468

100.0

%

$

1,383,656

100.0

%

$

1,443,599

100.0

%