0001558370-24-013635 | 10-Q | XBRL Viewer

Leases

9 Months Ended

Sep. 30, 2024

8. Leases

We lease certain facilities, vehicles and equipment primarily under noncancelable operating leases. The most significant portion of these noncancelable operating leases is for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We do not separate lease components from their associated non-lease components pursuant to lease accounting guidance. We have certain leases with variable payments based on an index as well as short-term leases on equipment and facilities. Variable lease expense and short-term lease expense aggregated to $26.4 million and $17.0 million for the three months ended September 30, 2024 and 2023, respectively. Variable lease expense and short-term lease expense

aggregated to $67.1 million and $38.8 million in the first nine months of 2024 and 2023, respectively. These expenses were primarily related to short-term equipment rentals. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate for our operating leases as of September 30, 2024 and December 31, 2023 was 6.0% and 5.8%, respectively. We recognize operating lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Operating lease expense for the three months ended September 30, 2024 and 2023 was $37.1 million and $25.7 million, respectively. Operating lease expense for the nine months ended September 30, 2024 and 2023 was $98.6 million and $61.7 million, respectively.

The lease terms generally range from three to ten years. Some leases include one or more options to renew, which may be exercised to extend the lease term. We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion. In the third quarter of 2023, we commenced two large real estate leases to support our expected growth in off-site construction, with lease terms longer than our typical terms. The weighted average remaining lease term for our operating leases was 11.1 years at September 30, 2024 and 10.9 years at December 31, 2023.

A majority of the Company’s 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 September 30, 2024 and 2023 was approximately $2.4 million and $1.9 million, respectively. Rent paid to related parties for the nine months ended September 30, 2024 and 2023 was approximately $7.1 million and $5.6 million, respectively.

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.

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



	September 30, 2024		December 31, 2023
Operating lease right-of-use assets	$	225,301	$	205,712
Operating lease liabilities:
Other current liabilities	$	26,979	$	24,426
Long-term operating lease liabilities		208,268		188,136
Total operating lease liabilities	$	235,247	$	212,562

The maturities of operating lease liabilities are as follows (in thousands):


Year ending December 31—
2024 (excluding the nine months ended September 30, 2024)	$	10,146
2025		39,434
2026		35,646
2027		31,101
2028		27,234
Thereafter		189,877
Total lease payments		333,438
Less—present value discount		(98,191)
Present value of operating lease liabilities	$	235,247

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cash paid for amounts included in the measurement of operating lease liabilities	$	10,061	$	7,293	$	29,377	$	21,362
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	6,657	$	82,352	$	41,989	$	98,102

Acquisitions (Tables)

9 Months Ended

Sep. 30, 2024

Summit Texas

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):


Consideration transferred:
Cash paid at closing	$	267,500
Working capital adjustment		14,602
Notes issued to former owners		35,000
Estimated fair value of contingent earn-out payments		42,732
	$	359,834
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	171,027
Billed and unbilled accounts receivable		59,846
Prepaid expenses and other		1,476
Cost and estimated earnings in excess of billings		578
Property and equipment		2,528
Lease right-of-use asset		2,364
Goodwill		155,345
Identifiable intangible assets		170,100
Other noncurrent assets		136
Accounts payable		(15,130)
Billings in excess of costs and estimated earnings and deferred revenue		(179,895)
Current operating lease liabilities		(1,495)
Accrued expenses and other current liabilities		(6,293)
Long-term operating lease liabilities		(753)
	$	359,834

Schedule of acquired intangible assets

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


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

J&S Utah

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


Consideration transferred:
Cash paid at closing	$	100,000
Working capital adjustment		1,587
Notes issued to former owners		10,000
Estimated fair value of contingent earn-out payments		9,052
	$	120,639
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	14,802
Billed and unbilled accounts receivable		38,411
Inventory		230
Prepaid expenses and other		393
Costs and estimated earnings in excess of billings		728
Property and equipment		2,674
Lease right-of-use asset		4,552
Goodwill		40,706
Identifiable intangible assets		63,300
Other noncurrent assets		10
Accounts payable		(20,649)
Billings in excess of costs and estimated earnings and deferred revenue		(19,188)
Current operating lease liabilities		(133)
Accrued expenses and other current liabilities		(826)
Long-term debt		(59)
Long-term operating lease liabilities		(4,312)
	$	120,639

Schedule of acquired intangible assets

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


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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2024	Jun. 30, 2024	Mar. 31, 2024	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dividends (per share)	$ 0.30	$ 0.30	$ 0.25	$ 0.225	$ 0.20	$ 0.175

Summary of Significant Accounting Policies and Estimates (Policies)	9 Months Ended
	Sep. 30, 2024
Summary of Significant Accounting Policies and Estimates
Basis of Presentation	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, 2023 (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	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, accounting for income taxes, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing.
Recent Accounting Pronouncements	Recent Accounting Pronouncements Recent Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This standard requires entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief decision maker and included within each reported measure of segment profit and loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 will not have an impact on our consolidated financial position, results of operations or cash flows, but will affect our financial statement disclosures as discussed above. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This standard requires entities to disclose more detailed information in the reconciliation of their statutory tax rate to their effective tax rate. The standard also requires entities to make additional disclosures on income taxes paid as well as on certain income statement-related items. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. This standard will not have an impact on our consolidated financial position, results of operations or cash flows, but will affect our financial statement disclosures as discussed above.
Revenue Recognition	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 a cost-to-cost input method to measure our progress towards satisfaction of the performance obligation 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 input method, 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	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 contract assets. 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 nonresidential 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).
Unbilled Accounts Receivable	Unbilled Accounts Receivable Unbilled accounts receivable are amounts due to us that we have earned under a contract where our right to payment is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of the consideration is due.
Income Taxes	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 the federal and various state jurisdictions with differing 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, uncertain tax positions, and accounting for losses associated with underperforming operations. The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a corporate alternative minimum tax on adjusted financial statement income over $1 billion, which is effective for tax years beginning after December 31, 2022, and a 1% excise tax on net corporate stock repurchases after December 31, 2022. The impact of the excise tax is recorded in “Treasury Stock” within our Consolidated Balance Sheet. These provisions were not material to our current year overall financial results, financial position and cash flows. In early September 2023, the IRS issued interim guidance addressing, together with other topics, the treatment of research and experimental (“R&E”) expenditures for taxpayers using the percentage of completion method to account for taxable income from long-term contracts. We relied on such guidance for the 2022 tax year, and the resultant reduction in taxable revenue offsets the deferral of tax deductions for R&E expenditures pursuant to the Tax Cuts and Jobs Act (2017) for the 2022 tax year. We filed our 2022 federal tax return in October 2023 requesting a refund of our $107.1 million overpayment, which had not been received as of September 30, 2024.
Financial Instruments	Financial Instruments Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable and life insurance policies, for which we deem the carrying values approximate their fair values due to the short-term nature of these instruments, as well as notes to former owners and a revolving credit facility.
Investments	Investments We have a $6.1 million investment in a construction-focused technology fund with a fair value that is not readily determinable and is recorded at cost. This investment is included in “Other Noncurrent Assets” in our Consolidated Balance Sheet and is reviewed quarterly for impairment. We did not recognize any impairments in the current year related to this investment.
Leases	We lease certain facilities, vehicles and equipment primarily under noncancelable operating leases. The most significant portion of these noncancelable operating leases is for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheet. We do not separate lease components from their associated non-lease components pursuant to lease accounting guidance. We have certain leases with variable payments based on an index as well as short-term leases on equipment and facilities. Variable lease expense and short-term lease expense aggregated to $26.4 million and $17.0 million for the three months ended September 30, 2024 and 2023, respectively. Variable lease expense and short-term lease expense aggregated to $67.1 million and $38.8 million in the first nine months of 2024 and 2023, respectively. These expenses were primarily related to short-term equipment rentals. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate for our operating leases as of September 30, 2024 and December 31, 2023 was 6.0% and 5.8%, respectively. We recognize operating lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Operating lease expense for the three months ended September 30, 2024 and 2023 was $37.1 million and $25.7 million, respectively. Operating lease expense for the nine months ended September 30, 2024 and 2023 was $98.6 million and $61.7 million, respectively. The lease terms generally range from three to ten years. Some leases include one or more options to renew, which may be exercised to extend the lease term. We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion. In the third quarter of 2023, we commenced two large real estate leases to support our expected growth in off-site construction, with lease terms longer than our typical terms. The weighted average remaining lease term for our operating leases was 11.1 years at September 30, 2024 and 10.9 years at December 31, 2023. A majority of the Company’s 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 September 30, 2024 and 2023 was approximately $2.4 million and $1.9 million, respectively. Rent paid to related parties for the nine months ended September 30, 2024 and 2023 was approximately $7.1 million and $5.6 million, respectively. 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.

Revenue from Contracts with Customers - Contract Assets and Liabilities (Details) - USD ($)	9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023
Contract Assets
Costs and estimated earnings in excess of billings, less allowance for credit losses	$ 73,934,000		$ 28,084,000
Costs and estimated earnings in excess of billings, less allowance for credit losses, current	73,934,000		28,084,000
Contract Liabilities
Billings in excess of costs and estimated earnings and deferred revenue	1,197,532,000		$ 909,538,000
Impairment losses	0	$ 0
Revenue related to our contract liabilities	$ 767,300,000	$ 482,900,000

Segment Information

9 Months Ended

Sep. 30, 2024

Segment Information

Segment Information

11. Segment Information

Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. We aggregate our operating segments into two reportable segments, as the operating segments meet all of the aggregation criteria. The following tables present information about our reportable segments (in thousands):


	Three Months Ended September 30, 2024
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,438,617	$	373,749	$	—	$	1,812,366
Gross Profit	$	292,372	$	89,342	$	—	$	381,714

	Three Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,031,310	$	346,814	$	—	$	1,378,124
Gross Profit	$	210,147	$	67,352	$	—	$	277,499

	Nine Months Ended September 30, 2024
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	4,075,305	$	1,084,367	$	—	$	5,159,672
Gross Profit	$	789,056	$	253,617	$	—	$	1,042,673

	Nine Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	2,925,848	$	923,346	$	—	$	3,849,194
Gross Profit	$	547,695	$	163,129	$	—	$	710,824

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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+ Details

Goodwill and Identifiable Intangible Assets, Net - Identifiable Intangible Assets, Net (Details) $ in Thousands	Sep. 30, 2024 USD ($)
Future amortization expense of identifiable intangible assets
2024 (remainder of the year)	$ 22,042
2025	66,576
2026	55,961
2027	53,650
2028	52,103
Thereafter	206,127
Total	$ 456,459

Debt Obligations

9 Months Ended

Sep. 30, 2024

Debt Obligations

Debt Obligations

7. Debt Obligations

Debt obligations consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Revolving credit facility	$	—	$	—
Notes to former owners		67,593		44,070
Other debt		768		142
Total debt		68,361		44,212
Less—current portion		(6,046)		(4,867)
Total long-term portion of debt	$	62,315	$	39,345

Revolving Credit Facility

We have an $850.0 million senior credit facility (the “Facility”) provided by a syndicate of banks, which is composed of a revolving credit line guaranteed by certain of our subsidiaries. The Facility also provides for an accordion or increase option not to exceed the greater of (a) $250 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), as well as a sublimit of up to $175.0 million issuable in the form of letters of credit. The Facility expires in July 2027 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of, and assets held by, certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As of September 30, 2024, we had no outstanding borrowings on the revolving credit facility, $80.0 million in letters of credit outstanding and $770.0 million of credit available.

There are two interest rate options for borrowings under the Facility, the Base Rate Loan (as defined in the Facility) option and the Secured Overnight Financing Rate (“SOFR”) 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:


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

There were no outstanding borrowings on the revolving credit facility as of September 30, 2024 and December 31, 2023.

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

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

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. We were in compliance with all of our financial covenants as of September 30, 2024.

Notes to Former Owners

As part of the consideration used to acquire eight companies, we have outstanding notes to the former owners. Together, these notes had an outstanding balance of $67.6 million as of September 30, 2024. At September 30, 2024, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands):


	Balance at		Range of Stated
	September 30, 2024		Interest Rates
2025	$	5,968	2.3 - 2.5	%
2026		30,625	2.5 - 5.5	%
2027		26,000	5.5	%
2028		5,000	5.5	%
Total	$	67,593

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
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-URI https://asc.fasb.org/1943274/2147480678/235-10-S99-1

Reference 10: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 11: http://www.xbrl.org/2003/role/disclosureRef
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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Reference 13: http://www.xbrl.org/2003/role/disclosureRef
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Reference 14: http://www.xbrl.org/2003/role/disclosureRef
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Reference 15: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Summary of Significant Accounting Policies and Estimates - Income Taxes (Details) $ in Millions	1 Months Ended
	Sep. 30, 2023 USD ($)
Summary of Significant Accounting Policies and Estimates
Refund claim for overpayment	$ 107.1

Leases (Tables)

9 Months Ended

Sep. 30, 2024

Leases

Schedule of operating lease assets and liabilities

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



	September 30, 2024		December 31, 2023
Operating lease right-of-use assets	$	225,301	$	205,712
Operating lease liabilities:
Other current liabilities	$	26,979	$	24,426
Long-term operating lease liabilities		208,268		188,136
Total operating lease liabilities	$	235,247	$	212,562

Schedule of maturities of lease liabilities

The maturities of operating lease liabilities are as follows (in thousands):


Year ending December 31—
2024 (excluding the nine months ended September 30, 2024)	$	10,146
2025		39,434
2026		35,646
2027		31,101
2028		27,234
Thereafter		189,877
Total lease payments		333,438
Less—present value discount		(98,191)
Present value of operating lease liabilities	$	235,247

Schedule of supplemental information related to leases

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cash paid for amounts included in the measurement of operating lease liabilities	$	10,061	$	7,293	$	29,377	$	21,362
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	6,657	$	82,352	$	41,989	$	98,102

Summary of Significant Accounting Policies and Estimates

9 Months Ended

Sep. 30, 2024

Summary of Significant Accounting Policies and Estimates

Summary of Significant Accounting Policies and Estimates

2. Summary of Significant Accounting Policies and Estimates

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, 2023 (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, accounting for income taxes, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This standard requires entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief decision maker and included within each reported measure of segment profit and loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 will not have an impact on our consolidated financial position, results of operations or cash flows, but will affect our financial statement disclosures as discussed above.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This standard requires entities to disclose more detailed information in the reconciliation of their statutory

tax rate to their effective tax rate. The standard also requires entities to make additional disclosures on income taxes paid as well as on certain income statement-related items. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. This standard will not have an impact on our consolidated financial position, results of operations or cash flows, but will affect our financial statement disclosures as discussed above.

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 a cost-to-cost input method to measure our progress towards satisfaction of the performance obligation 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 input method, 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 contract assets. 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 nonresidential 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).

Unbilled Accounts Receivable

Unbilled accounts receivable are amounts due to us that we have earned under a contract where our right to payment is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of the consideration is due.

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 the federal and various state jurisdictions with differing 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, uncertain tax positions, and accounting for losses associated with underperforming operations.

The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a corporate alternative minimum tax on adjusted financial statement income over $1 billion, which is effective for tax years beginning after December 31, 2022, and a 1% excise tax on net corporate stock repurchases after December 31, 2022. The impact of the excise tax is recorded in “Treasury Stock” within our Consolidated Balance Sheet. These provisions were not material to our current year overall financial results, financial position and cash flows.

In early September 2023, the IRS issued interim guidance addressing, together with other topics, the treatment of research and experimental (“R&E”) expenditures for taxpayers using the percentage of completion method to account for taxable income from long-term contracts. We relied on such guidance for the 2022 tax year, and the resultant reduction in taxable revenue offsets the deferral of tax deductions for R&E expenditures pursuant to the Tax Cuts and Jobs Act (2017) for the 2022 tax year. We filed our 2022 federal tax return in October 2023 requesting a refund of our $107.1 million overpayment, which had not been received as of September 30, 2024.

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable and life insurance policies, for which we deem the carrying values approximate their fair values due to the short-term nature of these instruments, as well as notes to former owners and a revolving credit facility.

Investments

We have a $6.1 million investment in a construction-focused technology fund with a fair value that is not readily determinable and is recorded at cost. This investment is included in “Other Noncurrent Assets” in our Consolidated Balance Sheet and is reviewed quarterly for impairment. We did not recognize any impairments in the current year related to this investment.

Debt Obligations - Notes to Former Owners (Details) - Notes to Former Owners - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Future principal payments of long-term debt
Notes issued to former owners	$ 67,593	$ 44,070
2025
Future principal payments of long-term debt
Notes issued to former owners	$ 5,968
2025 \| Minimum
Future principal payments of long-term debt
Stated interest rate (as a percent)	2.30%
2025 \| Maximum
Future principal payments of long-term debt
Stated interest rate (as a percent)	2.50%
2026
Future principal payments of long-term debt
Notes issued to former owners	$ 30,625
2026 \| Minimum
Future principal payments of long-term debt
Stated interest rate (as a percent)	2.50%
2026 \| Maximum
Future principal payments of long-term debt
Stated interest rate (as a percent)	5.50%
2027
Future principal payments of long-term debt
Notes issued to former owners	$ 26,000
Stated interest rate (as a percent)	5.50%
2028
Future principal payments of long-term debt
Notes issued to former owners	$ 5,000
Stated interest rate (as a percent)	5.50%

Revenue from Contracts with Customers - Remaining Performance Obligations (Details) $ in Millions	9 Months Ended
	Sep. 30, 2024 USD ($)
Remaining Performance Obligations
The term of the renewable service maintenance agreements (in years)	1 year
Practical Expedient	true
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-04-01
Remaining Performance Obligations
Remaining performance obligations	$ 5,680
Expected timing of performance obligations	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-04-01 \| Minimum [Member]
Remaining Performance Obligations
Expected percentage of remaining performance obligations	65.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-04-01 \| Maximum [Member]
Remaining Performance Obligations
Expected percentage of remaining performance obligations	75.00%

Debt Obligations (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Debt Obligations
Other debt	$ 768	$ 142
Total debt	68,361	44,212
Less-current portion	(6,046)	(4,867)
Total long-term portion of debt	62,315	39,345
Notes to Former Owners
Debt Obligations
Notes to former owners	$ 67,593	$ 44,070

- Definition

Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.

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+ Details

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2024

Stockholders' Equity

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):


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024	2023	2024	2023
Common shares outstanding, end of period	35,593	35,760	35,593	35,760
Effect of using weighted average common shares outstanding	76	60	125	59
Shares used in computing earnings per share—basic	35,669	35,820	35,718	35,819
Effect of shares issuable under stock option plans based on the treasury stock method	30	28	30	26
Effect of restricted and contingently issuable shares	56	69	56	65
Shares used in computing earnings per share—diluted	35,755	35,917	35,804	35,910

Acquisitions

9 Months Ended

Sep. 30, 2024

Acquisitions

Acquisitions

5. Acquisitions

Summit Industrial Construction, LLC Acquisition

On February 1, 2024, we acquired Summit Industrial Construction, LLC (“Summit”). Summit is headquartered in Houston, Texas, and is a specialty industrial contractor offering engineering, design-assist and turnkey, direct hire construction services of systems serving the advanced technology, power, and industrial sectors. As a result of the

acquisition, Summit is a wholly owned subsidiary of the Company reported in our mechanical segment. Revenue attributable to Summit was $256.2 million for the eight months from the acquisition date.


Consideration transferred:
Cash paid at closing	$	267,500
Working capital adjustment		14,602
Notes issued to former owners		35,000
Estimated fair value of contingent earn-out payments		42,732
	$	359,834
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	171,027
Billed and unbilled accounts receivable		59,846
Prepaid expenses and other		1,476
Cost and estimated earnings in excess of billings		578
Property and equipment		2,528
Lease right-of-use asset		2,364
Goodwill		155,345
Identifiable intangible assets		170,100
Other noncurrent assets		136
Accounts payable		(15,130)
Billings in excess of costs and estimated earnings and deferred revenue		(179,895)
Current operating lease liabilities		(1,495)
Accrued expenses and other current liabilities		(6,293)
Long-term operating lease liabilities		(753)
	$	359,834

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

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

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


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

The contingent earn-out obligation is associated with the achievement of four earnings milestones over a 47-month period, and the range of each estimated milestone payment is $2.6 million to $20.5 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using discount rates ranging from 18.2% to 19.5%, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is remeasured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

J & S Mechanical Contractors, Inc. Acquisition

On February 1, 2024, we acquired all of the issued and outstanding shares of capital stock of J & S Mechanical Contractors, Inc. (“J&S”). J&S is headquartered in West Jordan, Utah, and provides mechanical construction services to commercial and industrial sectors, specializing in data center HVAC systems and hospital medical gas systems. As a result of the acquisition, J&S is a wholly owned subsidiary of the Company reported in our mechanical segment. Revenue attributable to J&S was $106.3 million for the eight months from the acquisition date.


Consideration transferred:
Cash paid at closing	$	100,000
Working capital adjustment		1,587
Notes issued to former owners		10,000
Estimated fair value of contingent earn-out payments		9,052
	$	120,639
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	14,802
Billed and unbilled accounts receivable		38,411
Inventory		230
Prepaid expenses and other		393
Costs and estimated earnings in excess of billings		728
Property and equipment		2,674
Lease right-of-use asset		4,552
Goodwill		40,706
Identifiable intangible assets		63,300
Other noncurrent assets		10
Accounts payable		(20,649)
Billings in excess of costs and estimated earnings and deferred revenue		(19,188)
Current operating lease liabilities		(133)
Accrued expenses and other current liabilities		(826)
Long-term debt		(59)
Long-term operating lease liabilities		(4,312)
	$	120,639

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 15.5% to 17.0%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

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


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

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

Other Acquisitions

On May 1, 2024, we acquired all of the issued and outstanding membership interests of a plumbing service provider in North Carolina for a total preliminary purchase price of $39.9 million, which is reported in our mechanical segment.

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

On February 1, 2023, we acquired all of the issued and outstanding shares of capital stock of Eldeco, Inc. (“Eldeco”), headquartered in South Carolina, for a total purchase price of $74.0 million, which included $60.8 million of cash paid on the closing date, $8.0 million in notes payable to the former owners, an earn-out that will be paid if certain financial targets are met after the acquisition date and a working capital adjustment. Eldeco performs electrical design and construction services in the Southeastern region of the United States. As a result of the acquisition, Eldeco is a wholly owned subsidiary of the Company reported in our electrical segment.

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. The acquisitions completed in the current and prior year were not material, individually or in the aggregate. Additional contingent purchase price (“earn-out”) has been or will be paid if certain acquisitions achieve predetermined profitability targets. Such earn-outs, when they are not subject to the continued employment of the sellers, are estimated as of the purchase date and included as part of the consideration paid for the acquisition. If we have an earn-out under which continued employment is a condition to receipt of payment, then the earn-out is recorded as compensation expense over the period earned.

Summary of Significant Accounting Policies and Estimates - Investments (Details) $ in Millions	Sep. 30, 2024 USD ($)
Summary of Significant Accounting Policies and Estimates
Investment fair value	$ 6.1

Commitments and Contingencies (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Mar. 31, 2023	Sep. 30, 2024
Dispute With Customer
Commitments and Contingencies
Gain (loss) related to settlement agreements	$ 6.8
Surety \| Minimum
Surety
Percentage of business which has required bonds		10.00%
Surety \| Maximum
Surety
Percentage of business which has required bonds		20.00%
Gross Profit. \| Dispute With Customer
Commitments and Contingencies
Gain (loss) related to settlement agreements	6.6
Selling, General and Administrative Expenses \| Dispute With Customer
Commitments and Contingencies
Gain (loss) related to settlement agreements	(0.7)
Interest Income \| Dispute With Customer
Commitments and Contingencies
Gain (loss) related to settlement agreements	1.3
Change in Fair Value of Contingent Earn-Out Obligations \| Dispute With Customer
Commitments and Contingencies
Gain (loss) related to settlement agreements	$ (1.8)

Revenue from Contracts with Customers (Tables)

9 Months Ended

Sep. 30, 2024

Revenue from Contracts with Customers

Schedule of disaggregation of revenue

See details in the following tables (dollars in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Service Provided	2024				2023				2024				2023
Mechanical Segment	$	1,438,617	79.4	%	$	1,031,310	74.8	%	$	4,075,305	79.0	%	$	2,925,848	76.0	%
Electrical Segment		373,749	20.6	%		346,814	25.2	%		1,084,367	21.0	%		923,346	24.0	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Type of Customer	2024				2023				2024				2023
Technology	$	615,398	34.0	%	$	303,847	22.0	%	$	1,641,525	31.8	%	$	795,327	20.7	%
Manufacturing		452,157	24.9	%		469,173	34.0	%		1,439,772	27.9	%		1,271,348	33.0	%
Education		195,737	10.8	%		139,206	10.1	%		523,153	10.1	%		376,637	9.8	%
Healthcare		149,974	8.3	%		133,130	9.7	%		424,450	8.2	%		431,329	11.2	%
Office Buildings		109,233	6.0	%		104,937	7.6	%		326,137	6.3	%		299,103	7.8	%
Retail, Restaurants and Entertainment		114,572	6.3	%		77,802	5.6	%		309,658	6.0	%		234,779	6.1	%
Government		92,555	5.1	%		85,220	6.3	%		271,429	5.3	%		227,232	5.9	%
Multi-Family and Residential		33,838	1.9	%		45,523	3.3	%		110,870	2.2	%		136,825	3.5	%
Other		48,902	2.7	%		19,286	1.4	%		112,678	2.2	%		76,614	2.0	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Activity Type	2024				2023				2024				2023
New Construction	$	949,035	52.4	%	$	798,289	57.9	%	$	2,930,283	56.8	%	$	2,108,153	54.8	%
Existing Building Construction		570,288	31.5	%		305,795	22.2	%		1,407,231	27.3	%		974,085	25.3	%
Service Projects		125,249	6.9	%		117,202	8.5	%		355,643	6.9	%		335,053	8.7	%
Service Calls, Maintenance and Monitoring		167,794	9.2	%		156,838	11.4	%		466,515	9.0	%		431,903	11.2	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

Schedule of contract assets and liabilities

Contract assets and liabilities in the Consolidated Balance Sheet consisted of the following amounts as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Contract assets:
Costs and estimated earnings in excess of billings, less allowance for credit losses	$	73,934	$	28,084
Contract liabilities:
Billings in excess of costs and estimated earnings and deferred revenue	$	1,197,532	$	909,538

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
CONSOLIDATED BALANCE SHEETS
Billed accounts receivable, allowance for credit losses (in dollars)	$ 15,280	$ 11,926
Unbilled accounts receivable, allowance for credit losses (in dollars)	953	850
Other receivables, allowance for credit losses (in dollars)	515	522
Costs and estimated earnings in excess of billings, allowance for credit losses (in dollars)	$ 200	$ 79
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	5,530,807	5,438,625

Segment Information (Details) $ in Thousands	3 Months Ended		9 Months Ended
Segment Information (Details) $ in Thousands	Sep. 30, 2024 USD ($)	Sep. 30, 2023 USD ($)	Sep. 30, 2024 USD ($) segment	Sep. 30, 2023 USD ($)
Segment Information
Number of reportable segments \| segment			2
Revenue	$ 1,812,366	$ 1,378,124	$ 5,159,672	$ 3,849,194
Gross Profit	381,714	277,499	1,042,673	710,824
Operating Segments \| Mechanical Segment
Segment Information
Revenue	1,438,617	1,031,310	4,075,305	2,925,848
Gross Profit	292,372	210,147	789,056	547,695
Operating Segments \| Electrical Segment
Segment Information
Revenue	373,749	346,814	1,084,367	923,346
Gross Profit	$ 89,342	$ 67,352	$ 253,617	$ 163,129

- Definition

Aggregate revenue less cost of goods and services sold or operating expenses directly attributable to the revenue generation activity.

+ References

Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef
-Topic 280
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 22
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482810/280-10-50-22

Reference 2: http://www.xbrl.org/2003/role/exampleRef
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-Name Accounting Standards Codification
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+ Details

- Definition

Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).

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+ Details

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Income Statement [Abstract]
REVENUE	$ 1,812,366	$ 1,378,124	$ 5,159,672	$ 3,849,194
COST OF SERVICES	1,430,652	1,100,625	4,116,999	3,138,370
Gross profit	381,714	277,499	1,042,673	710,824
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	180,177	142,935	522,437	414,397
GAIN ON SALE OF ASSETS	(1,347)	(579)	(2,778)	(1,683)
Operating income	202,884	135,143	523,014	298,110
OTHER INCOME (EXPENSE):
Interest income	3,825	952	6,692	2,441
Interest expense	(1,730)	(1,886)	(5,072)	(9,880)
Changes in the fair value of contingent earn-out obligations	(17,254)	(8,727)	(44,434)	(14,207)
Other	87	(44)	323	1
Other income (expense)	(15,072)	(9,705)	(42,491)	(21,645)
INCOME BEFORE INCOME TAXES	187,812	125,438	480,523	276,465
PROVISION FOR INCOME TAXES	41,577	20,313	103,960	44,648
NET INCOME	$ 146,235	$ 105,125	$ 376,563	$ 231,817
INCOME PER SHARE:
Basic	$ 4.10	$ 2.93	$ 10.54	$ 6.47
Diluted	$ 4.09	$ 2.93	$ 10.52	$ 6.46
SHARES USED IN COMPUTING INCOME PER SHARE:
Basic	35,669	35,820	35,718	35,819
Diluted	35,755	35,917	35,804	35,910

Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023
Maturities of lease liabilities:
2024 (excluding the nine months ended September 30, 2024)	$ 10,146		$ 10,146
2025	39,434		39,434
2026	35,646		35,646
2027	31,101		31,101
2028	27,234		27,234
Thereafter	189,877		189,877
Total Lease Payments	333,438		333,438
Less-Present Value Discount	(98,191)		(98,191)
Present Value of Operating Lease Liabilities	235,247		235,247		$ 212,562
Supplemental information related to leases:
Cash paid for amounts included in the measurement of operating lease liabilities	10,061	$ 7,293	29,377	$ 21,362
Operating lease right-of-use assets obtained in exchange for lease liabilities	$ 6,657	$ 82,352	$ 41,989	$ 98,102

Revenue from Contracts with Customers - Narratives (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Revenue from Contracts with Customers
Percentage impact on revenue from performance obligations satisfied in previous period	1.70%	0.80%	2.70%	1.30%

Acquisitions (Details) - USD ($) $ in Thousands		3 Months Ended		8 Months Ended	9 Months Ended
Acquisitions (Details) - USD ($) $ in Thousands	Feb. 01, 2024	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2024	Sep. 30, 2023	Dec. 31, 2023	Dec. 31, 2022
Consideration transferred:
Revenue		$ 1,812,366	$ 1,378,124		$ 5,159,672	$ 3,849,194
Recognized amounts of identifiable assets acquired and liabilities assumed:
Goodwill		$ 875,193		$ 875,193	$ 875,193		$ 666,834	$ 611,789
Summit Texas
Consideration transferred:
Cash paid at closing	$ 267,500
Working capital adjustment	14,602
Notes issued to former owners	35,000
Estimated fair value of contingent earn-out payments	42,732
Consideration transferred	359,834
Revenue				256,200
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	171,027
Billed and unbilled accounts receivable	59,846
Prepaid expenses and other	1,476
Cost and estimated earnings in excess of billings	578
Property and equipment	2,528
Lease right-of-use asset	2,364
Goodwill	155,345
Identifiable intangible assets	170,100
Other noncurrent assets	136
Accounts payable	(15,130)
Billings in excess of costs and estimated earnings	(179,895)
Current operating lease liabilities	(1,495)
Accrued expenses and other current liabilities	(6,293)
Long-term operating lease liabilities	(753)
Total assets acquired and liabilities assumed	359,834
J&S Utah
Consideration transferred:
Cash paid at closing	100,000
Working capital adjustment	1,587
Notes issued to former owners	10,000
Estimated fair value of contingent earn-out payments	9,052
Consideration transferred	120,639
Revenue				$ 106,300
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	14,802
Billed and unbilled accounts receivable	38,411
Inventory	230
Prepaid expenses and other	393
Cost and estimated earnings in excess of billings	728
Property and equipment	2,674
Lease right-of-use asset	4,552
Goodwill	40,706
Identifiable intangible assets	63,300
Other noncurrent assets	10
Accounts payable	(20,649)
Billings in excess of costs and estimated earnings	(19,188)
Current operating lease liabilities	(133)
Accrued expenses and other current liabilities	(826)
Long-term debt	(59)
Long-term operating lease liabilities	(4,312)
Total assets acquired and liabilities assumed	$ 120,639

Stockholders' Equity - Incentive and Other (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions	3 Months Ended		9 Months Ended		210 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Aug. 07, 2024	Mar. 29, 2007
Share Repurchase Program
Share repurchase			$ 42,024	$ 8,563
Anti-dilutive securities excluded from computation of earnings per share amount (in shares)	0.0	0.0	0.0	0.0
Stock Repurchase Program 2007
Share Repurchase Program
Number of shares of outstanding common stock authorized to be acquired under a stock repurchase program	11.4		11.4		11.4	0.4	1.0
Share repurchase (in shares)					10.4
Share repurchase			$ 42,300
Average price (in dollars per share)			$ 310.02		$ 29.99
Maximum \| Stock Repurchase Program 2007
Share Repurchase Program
Share repurchase (in shares)			0.1

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2024	Oct. 18, 2024
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2024
Document Transition Report	false
Securities Act File Number	1-13011
Entity Registrant Name	COMFORT SYSTEMS USA, INC.
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	Suite 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
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	FIX
Security Exchange Name	NYSE
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		35,592,558
Entity Central Index Key	0001035983
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Amendment Flag	false

Insider Trading Arrangements	3 Months Ended
Insider Trading Arrangements	Sep. 30, 2024
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false

Commitments and Contingencies

9 Months Ended

Sep. 30, 2024

Commitments and Contingencies

Commitments and Contingencies

9. Commitments and Contingencies

Claims and Lawsuits

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

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

As of September 30, 2024, we recorded an accrual for unresolved matters, which is not material to our financial statements, based on our analysis of likely outcomes related to the respective matters; however, it is possible that the ultimate outcome and associated costs will deviate from our estimates and that, in the event of an unexpectedly adverse outcome, we may experience additional costs and expenses in future periods.

Surety

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs.

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

Self-Insurance

We are substantially self-insured for workers’ compensation, employer’s 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 workers’ compensation, auto liability and general liability, are reviewed by a third-party actuary quarterly.

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2024

Fair Value Measurements

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 are included, for assets and liabilities measured on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):


	Fair Value Measurements at September 30, 2024
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	415,583	$	—	$	—	$	415,583
Contingent earn-out obligations	$	—	$	—	$	103,238	$	103,238

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

Schedule of reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3)

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):


	Nine Months Ended		Year Ended
	September 30, 2024		December 31, 2023
Balance at beginning of period	$	44,222	$	32,317
Issuances		51,784		4,315
Settlements		(37,202)		(16,017)
Adjustments to fair value		44,434		23,607
Balance at end of period	$	103,238	$	44,222

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References + Details

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 376,563	$ 231,817
Adjustments to reconcile net income to net cash provided by operating activities-
Amortization of identifiable intangible assets	75,224	32,273
Depreciation expense	35,377	27,717
Change in right-of-use assets	22,400	19,630
Bad debt expense	5,464	2,849
Deferred tax provision (benefit)	(32,511)	116,355
Amortization of debt financing costs	514	512
Gain on sale of assets	(2,778)	(1,683)
Changes in the fair value of contingent earn-out obligations	44,434	14,207
Stock-based compensation	12,129	9,128
(Increase) decrease in-
Receivables, net	(262,958)	(376,282)
Inventories	10,088	(18,272)
Prepaid expenses and other current assets	15,174	2,504
Costs and estimated earnings in excess of billings and unbilled accounts receivable	(58,473)	(5,326)
Other noncurrent assets	(1,882)	(247)
Increase (decrease) in-
Accounts payable and accrued liabilities	323,756	185,382
Billings in excess of costs and estimated earnings and deferred revenue	80,448	217,148
Other long-term liabilities	(4,375)	8,848
Net cash provided by operating activities	638,594	466,560
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(70,395)	(69,574)
Proceeds from sales of property and equipment	3,611	5,093
Cash paid for acquisitions, net of cash acquired	(235,466)	(53,404)
Payments for investments	(1,770)	(1,240)
Net cash used in investing activities	(304,020)	(119,125)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	182,000	285,000
Payments on revolving credit facility	(182,000)	(500,000)
Proceeds from other debt	640
Payments on other debt	(26,550)	(1,980)
Payments of dividends to stockholders	(30,322)	(21,455)
Share repurchases	(42,024)	(8,563)
Shares received in lieu of tax withholding	(7,292)	(4,725)
Proceeds from exercise of options	27	18
Deferred acquisition payments	(50)
Payments for contingent consideration arrangements	(18,570)	(15,321)
Net cash used in financing activities	(124,141)	(267,026)
NET INCREASE IN CASH AND CASH EQUIVALENTS	210,433	80,409
CASH AND CASH EQUIVALENTS, beginning of period	205,150	57,214
CASH AND CASH EQUIVALENTS, end of period	$ 415,583	$ 137,623

Stockholders' Equity - Number of Shares (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
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	35,593	35,760	35,593	35,760
Effect of using weighted average common shares outstanding	76	60	125	59
Shares used in computing earnings per share-basic	35,669	35,820	35,718	35,819
Effect of shares issuable under stock option plans based on the treasury stock method	30	28	30	26
Effect of restricted and contingently issuable shares	56	69	56	65
Shares used in computing earnings per share-diluted	35,755	35,917	35,804	35,910

- Definition

Additional shares included in the calculation of diluted EPS as a result of the potentially dilutive effect of contingently issuable shares. Contingently issuable shares are those shares that are issuable for little or no cash contingent on certain conditions being met.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482662/260-10-50-1

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 23
-Subparagraph (c)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-23

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 26
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-26

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 44
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-44

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 51
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-51

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 52
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-52

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 53
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-53

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 54
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-54

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 48
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-48

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 260
-SubTopic 10
-Name Accounting Standards Codification
-Section 45
-Paragraph 48
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482689/260-10-45-48

+ Details

Leases (Details) $ in Millions	3 Months Ended		9 Months Ended
Leases (Details) $ in Millions	Sep. 30, 2024 USD ($)	Sep. 30, 2023 USD ($) lease	Sep. 30, 2024 USD ($) Option	Sep. 30, 2023 USD ($) lease	Dec. 31, 2023
Leases
Variable lease expense and short-term lease expenses	$ 26.4	$ 17.0	$ 67.1	$ 38.8
Weighted average discount rate for operating leases	6.00%		6.00%		5.80%
Operating lease expense	$ 37.1	25.7	$ 98.6	61.7
Weighted average remaining lease term	11 years 1 month 6 days		11 years 1 month 6 days		10 years 10 months 24 days
Rent paid to related parties	$ 2.4	$ 1.9	$ 7.1	$ 5.6
Existence of option to extend			true
Number of off-site construction real estate leases commenced \| lease		2		2
Minimum
Leases
Lease term for operating lease	3 years		3 years
Number of options to renew \| Option			1
Maximum
Leases
Lease term for operating lease	10 years		10 years

Fair Value Measurements (Details) $ in Thousands	9 Months Ended	12 Months Ended
Fair Value Measurements (Details) $ in Thousands	Sep. 30, 2024 USD ($)	Dec. 31, 2023 USD ($) employee
Fair Value Measurements
Number of employees covered under life insurance policies \| employee		131
Combined face value of life insurance policies		$ 87,800
Minimum
Fair Value Measurements
Weighted average cost of capital	16.00%
Maximum
Fair Value Measurements
Weighted average cost of capital	19.00%
Contingent earn-out obligations
Fair Value Measurements
Contingent earn-out obligations	$ 103,238	44,222
Reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3)
Balance at beginning of period	44,222	32,317
Issuances	51,784	4,315
Settlements	(37,202)	(16,017)
Adjustments to fair value	44,434	23,607
Balance at end of period	103,238	44,222
Recurring basis \| Total
Fair Value Measurements
Cash and cash equivalents	415,583	205,150
Life insurance-cash surrender value		7,473
Contingent earn-out obligations	103,238	44,222
Reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3)
Balance at beginning of period	44,222
Balance at end of period	103,238	44,222
Recurring basis \| Quoted Market Prices In Active Markets for Identical Assets (Level 1)
Fair Value Measurements
Cash and cash equivalents	415,583	205,150
Recurring basis \| Significant Other Observable Inputs (Level 2)
Fair Value Measurements
Life insurance-cash surrender value		7,473
Recurring basis \| Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Contingent earn-out obligations	103,238	44,222
Reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3)
Balance at beginning of period	44,222
Balance at end of period	$ 103,238	$ 44,222

Revenue from Contracts with Customers - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Disaggregation of Revenue
Revenue	$ 1,812,366	$ 1,378,124	$ 5,159,672	$ 3,849,194
Percentage of revenue from contract with customer (as a percent)	100.00%	100.00%	100.00%	100.00%
New Construction
Disaggregation of Revenue
Revenue	$ 949,035	$ 798,289	$ 2,930,283	$ 2,108,153
Percentage of revenue from contract with customer (as a percent)	52.40%	57.90%	56.80%	54.80%
Existing Building Construction
Disaggregation of Revenue
Revenue	$ 570,288	$ 305,795	$ 1,407,231	$ 974,085
Percentage of revenue from contract with customer (as a percent)	31.50%	22.20%	27.30%	25.30%
Service Projects
Disaggregation of Revenue
Revenue	$ 125,249	$ 117,202	$ 355,643	$ 335,053
Percentage of revenue from contract with customer (as a percent)	6.90%	8.50%	6.90%	8.70%
Service Calls, Maintenance and Monitoring
Disaggregation of Revenue
Revenue	$ 167,794	$ 156,838	$ 466,515	$ 431,903
Percentage of revenue from contract with customer (as a percent)	9.20%	11.40%	9.00%	11.20%
Technology
Disaggregation of Revenue
Revenue	$ 615,398	$ 303,847	$ 1,641,525	$ 795,327
Percentage of revenue from contract with customer (as a percent)	34.00%	22.00%	31.80%	20.70%
Manufacturing
Disaggregation of Revenue
Revenue	$ 452,157	$ 469,173	$ 1,439,772	$ 1,271,348
Percentage of revenue from contract with customer (as a percent)	24.90%	34.00%	27.90%	33.00%
Education
Disaggregation of Revenue
Revenue	$ 195,737	$ 139,206	$ 523,153	$ 376,637
Percentage of revenue from contract with customer (as a percent)	10.80%	10.10%	10.10%	9.80%
Healthcare
Disaggregation of Revenue
Revenue	$ 149,974	$ 133,130	$ 424,450	$ 431,329
Percentage of revenue from contract with customer (as a percent)	8.30%	9.70%	8.20%	11.20%
Office Buildings
Disaggregation of Revenue
Revenue	$ 109,233	$ 104,937	$ 326,137	$ 299,103
Percentage of revenue from contract with customer (as a percent)	6.00%	7.60%	6.30%	7.80%
Retail, Restaurants and Entertainment
Disaggregation of Revenue
Revenue	$ 114,572	$ 77,802	$ 309,658	$ 234,779
Percentage of revenue from contract with customer (as a percent)	6.30%	5.60%	6.00%	6.10%
Government
Disaggregation of Revenue
Revenue	$ 92,555	$ 85,220	$ 271,429	$ 227,232
Percentage of revenue from contract with customer (as a percent)	5.10%	6.30%	5.30%	5.90%
Multi-Family and Residential
Disaggregation of Revenue
Revenue	$ 33,838	$ 45,523	$ 110,870	$ 136,825
Percentage of revenue from contract with customer (as a percent)	1.90%	3.30%	2.20%	3.50%
Other Customer
Disaggregation of Revenue
Revenue	$ 48,902	$ 19,286	$ 112,678	$ 76,614
Percentage of revenue from contract with customer (as a percent)	2.70%	1.40%	2.20%	2.00%
Mechanical Segment
Disaggregation of Revenue
Revenue	$ 1,438,617	$ 1,031,310	$ 4,075,305	$ 2,925,848
Percentage of revenue from contract with customer (as a percent)	79.40%	74.80%	79.00%	76.00%
Electrical Segment
Disaggregation of Revenue
Revenue	$ 373,749	$ 346,814	$ 1,084,367	$ 923,346
Percentage of revenue from contract with customer (as a percent)	20.60%	25.20%	21.00%	24.00%

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
CURRENT ASSETS:
Cash and cash equivalents	$ 415,583	$ 205,150
Billed accounts receivable, less allowance for credit losses of $15,280 and $11,926, respectively	1,730,960	1,318,926
Unbilled accounts receivable, less allowance for credit losses of $953 and $850, respectively	89,332	72,774
Other receivables, less allowance for credit losses of $515 and $522, respectively	135,323	166,319
Inventories	55,680	65,538
Prepaid expenses and other	36,087	54,309
Costs and estimated earnings in excess of billings, less allowance for credit losses of $200 and $79, respectively	73,934	28,084
Total current assets	2,536,899	1,911,100
PROPERTY AND EQUIPMENT, NET	250,150	208,568
LEASE RIGHT-OF-USE ASSET	225,301	205,712
GOODWILL	875,193	666,834
IDENTIFIABLE INTANGIBLE ASSETS, NET	456,459	280,397
DEFERRED TAX ASSETS	50,234	17,723
OTHER NONCURRENT ASSETS	18,529	15,245
Total assets	4,412,765	3,305,579
CURRENT LIABILITIES:
Current maturities of long-term debt	6,046	4,867
Accounts payable	603,546	419,962
Accrued compensation and benefits	258,174	169,136
Billings in excess of costs and estimated earnings and deferred revenue	1,197,532	909,538
Accrued self-insurance	36,924	27,774
Other current liabilities	326,921	189,928
Total current liabilities	2,429,143	1,721,205
LONG-TERM DEBT	62,315	39,345
LEASE LIABILITIES	208,268	188,136
DEFERRED TAX LIABILITIES	1,120	1,120
OTHER LONG-TERM LIABILITIES	124,197	77,944
Total liabilities	2,825,043	2,027,750
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, 5,530,807 and 5,438,625 shares, respectively	(256,775)	(209,807)
Additional paid-in capital	350,182	339,562
Retained earnings	1,493,904	1,147,663
Total stockholders' equity	1,587,722	1,277,829
Total liabilities and stockholders' equity	$ 4,412,765	$ 3,305,579

Debt Obligations - Other (Details) $ in Thousands	9 Months Ended
Debt Obligations - Other (Details) $ in Thousands	Sep. 30, 2024 USD ($) item	Jun. 30, 2024 USD ($)	Dec. 31, 2023 USD ($)
Notes to Former Owners
Other disclosures
Cumulative number of companies acquired \| item	8
Notes to former owners	$ 67,593		$ 44,070
Letter of Credit \| Minimum
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.00%
Letter of Credit \| Maximum
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	2.00%
Revolving Credit Facility [Member]
Debt Obligations
Outstanding borrowings	$ 0	$ 0	$ 0
Revolving Credit Facility [Member] \| Minimum
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Commitment fees payable on unused portion of the facility (as a percent)	0.15%
Revolving Credit Facility [Member] \| Maximum
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Commitment fees payable on unused portion of the facility (as a percent)	0.25%
Revolving Credit Facility [Member] \| SOFR \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.00%
Revolving Credit Facility [Member] \| SOFR \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to less than 1.75
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.25%
Revolving Credit Facility [Member] \| SOFR \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to less than 2.50
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.50%
Revolving Credit Facility [Member] \| SOFR \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 to less than 3.00
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.75%
Revolving Credit Facility [Member] \| SOFR \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 3.00 or Greater
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	2.00%
Revolving Credit Facility [Member] \| Base Rate \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	0.00%
Revolving Credit Facility [Member] \| Base Rate \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to less than 1.75
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	0.25%
Revolving Credit Facility [Member] \| Base Rate \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to less than 2.50
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	0.50%
Revolving Credit Facility [Member] \| Base Rate \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 to less than 3.00
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	0.75%
Revolving Credit Facility [Member] \| Base Rate \| Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 3.00 or Greater
Debt Instrument, Interest Rate, Effective Percentage [Abstract]
Additional per annum interest margin (as a percent)	1.00%
Revolving Credit Facility [Member] \| Senior Revolving Credit Facility
Debt Obligations
Borrowing capacity	$ 850,000
Outstanding borrowings	0
Letters of credit amount outstanding	80,000
Credit available	770,000
Revolving Credit Facility [Member] \| Senior Revolving Credit Facility \| Maximum
Debt Obligations
Line of credit borrowing capacity accordion option	250,000
Revolving Credit Facility [Member] \| Letter of Credit
Debt Obligations
Borrowing capacity	$ 175,000

Acquisitions - Acquired Intangible Assets (Details) $ in Thousands	Feb. 01, 2024 USD ($) Milestone
Summit Texas
Acquisitions
Estimated Fair Value	$ 170,100
Summit Texas \| Minimum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	18.50%
Summit Texas \| Maximum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	20.50%
Summit Texas \| Contingent earn-out obligations
Acquisitions
Number of earnings milestones \| Milestone	4
Term of earnings milestones	47 months
Estimated milestone payment, upper range	$ 20,500
Estimated milestone payment, lower range	$ 2,600
Summit Texas \| Contingent earn-out obligations \| Minimum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	18.20%
Summit Texas \| Contingent earn-out obligations \| Maximum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	19.50%
Summit Texas \| Backlog
Acquisitions
Estimated Useful Life	1 year 9 months 18 days
Estimated Fair Value	$ 35,800
Summit Texas \| Trade Name
Acquisitions
Estimated Useful Life	22 years 10 months 24 days
Estimated Fair Value	$ 11,300
Summit Texas \| Customer Relationships
Acquisitions
Estimated Useful Life	10 years
Estimated Fair Value	$ 123,000
J&S Utah
Acquisitions
Estimated Fair Value	$ 63,300
J&S Utah \| Minimum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	15.50%
J&S Utah \| Maximum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	17.00%
J&S Utah \| Contingent earn-out obligations
Acquisitions
Number of earnings milestones \| Milestone	3
Term of earnings milestones	35 months
Estimated milestone payment, upper range	$ 4,700
Estimated milestone payment, lower range	$ 1,100
J&S Utah \| Contingent earn-out obligations \| Minimum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	15.40%
J&S Utah \| Contingent earn-out obligations \| Maximum \| Measurement Input, Inception Discount Rate
Acquisitions
Cash flow discount rate	16.50%
J&S Utah \| Backlog
Acquisitions
Estimated Useful Life	1 year 9 months 18 days
Estimated Fair Value	$ 12,900
J&S Utah \| Trade Name
Acquisitions
Estimated Useful Life	22 years
Estimated Fair Value	$ 10,600
J&S Utah \| Customer Relationships
Acquisitions
Estimated Useful Life	9 years
Estimated Fair Value	$ 39,800

Leases - Summary of Operating Lease Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2024	Dec. 31, 2023
Summary of lease asset and liabilities
Operating lease right-of-use assets	$ 225,301	$ 205,712
Operating lease liabilities:
Other current liabilities	$ 26,979	$ 24,426
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration]	Other Liabilities, Current	Other Liabilities, Current
Long-term operating lease liabilities	$ 208,268	$ 188,136
Total operating lease liabilities	$ 235,247	$ 212,562

Goodwill and Identifiable Intangible Assets, Net

9 Months Ended

Sep. 30, 2024

Goodwill and Identifiable Intangible Assets, Net

Goodwill and Identifiable Intangible Assets, Net

6. Goodwill and Identifiable Intangible Assets, Net

Goodwill

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


	Mechanical Segment		Electrical Segment		Total
Balance at December 31, 2022	$	363,929	$	247,860	$	611,789
Acquisitions and purchase price adjustments (See Note 5)		29,347		25,698		55,045
Balance at December 31, 2023		393,276		273,558		666,834
Acquisitions and purchase price adjustments (See Note 5)		208,159		200		208,359
Balance at September 30, 2024	$	601,435	$	273,758	$	875,193

Identifiable Intangible Assets, Net

At September 30, 2024, future amortization expense of identifiable intangible assets is as follows (in thousands):


Year ending December 31—
2024 (remainder of the year)	$	22,042
2025		66,576
2026		55,961
2027		53,650
2028		52,103
Thereafter		206,127
Total	$	456,459

Debt Obligations (Tables)

9 Months Ended

Sep. 30, 2024

Schedule of components of debt obligations

Debt obligations consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Revolving credit facility	$	—	$	—
Notes to former owners		67,593		44,070
Other debt		768		142
Total debt		68,361		44,212
Less—current portion		(6,046)		(4,867)
Total long-term portion of debt	$	62,315	$	39,345

Summary of additional margins


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

Notes to Former Owners

Schedule of future principal payments of notes to former owners

At September 30, 2024, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands):


	Balance at		Range of Stated
	September 30, 2024		Interest Rates
2025	$	5,968	2.3 - 2.5	%
2026		30,625	2.5 - 5.5	%
2027		26,000	5.5	%
2028		5,000	5.5	%
Total	$	67,593

Acquisitions - Other Acquisitions (Details) - USD ($) $ in Millions	May 01, 2024	Oct. 02, 2023	Feb. 01, 2023
DECCO
Acquisitions
Fair value of consideration transferred		$ 59.8
Cash paid at closing		48.8
Notes issued to former owners		$ 7.0
Eldeco Inc
Acquisitions
Fair value of consideration transferred			$ 74.0
Cash paid at closing			60.8
Notes issued to former owners			$ 8.0
Mechanical Contractor North Carolina
Acquisitions
Fair value of consideration transferred	$ 39.9

Goodwill and Identifiable Intangible Assets, Net - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2024	Dec. 31, 2023
Changes in the carrying amount of goodwill
Balance at beginning of year	$ 666,834	$ 611,789
Acquisitions and purchase price adjustments (See Note 5)	208,359	55,045
Balance at end of period	875,193	666,834
Mechanical Segment
Changes in the carrying amount of goodwill
Balance at beginning of year	393,276	363,929
Acquisitions and purchase price adjustments (See Note 5)	208,159	29,347
Balance at end of period	601,435	393,276
Electrical Segment
Changes in the carrying amount of goodwill
Balance at beginning of year	273,558	247,860
Acquisitions and purchase price adjustments (See Note 5)	200	25,698
Balance at end of period	$ 273,758	$ 273,558

- Definition

Amount, after accumulated impairment loss, of asset representing future economic benefit arising from other asset acquired in business combination or from joint venture formation or both, that is not individually identified and separately recognized.

+ References

Reference 1: http://www.xbrl.org/2003/role/exampleRef
-Topic 280
-SubTopic 10
-Name Accounting Standards Codification
-Section 55
-Paragraph 49
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482785/280-10-55-49

Reference 2: http://www.xbrl.org/2003/role/exampleRef
-Topic 350
-SubTopic 20
-Name Accounting Standards Codification
-Section 55
-Paragraph 24
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482548/350-20-55-24

Reference 3: http://www.xbrl.org/2003/role/exampleRef
-Topic 820
-SubTopic 10
-Name Accounting Standards Codification
-Section 55
-Paragraph 100
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482078/820-10-55-100

Reference 4: http://www.xbrl.org/2003/role/exampleRef
-Topic 852
-SubTopic 10
-Name Accounting Standards Codification
-Section 55
-Paragraph 10
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147481372/852-10-55-10

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 210
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02(15))
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480566/210-10-S99-1

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 350
-SubTopic 20
-Name Accounting Standards Codification
-Section 45
-Paragraph 1
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+ Details

Business and Organization

9 Months Ended

Sep. 30, 2024

Business and Organization

Business and Organization

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 build, install, maintain, repair and replace mechanical, electrical and plumbing (“MEP”) 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.

Goodwill and Identifiable Intangible Assets, Net (Tables)

9 Months Ended

Sep. 30, 2024

Goodwill and Identifiable Intangible Assets, Net

Schedule of changes in the carrying amount of goodwill

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


	Mechanical Segment		Electrical Segment		Total
Balance at December 31, 2022	$	363,929	$	247,860	$	611,789
Acquisitions and purchase price adjustments (See Note 5)		29,347		25,698		55,045
Balance at December 31, 2023		393,276		273,558		666,834
Acquisitions and purchase price adjustments (See Note 5)		208,159		200		208,359
Balance at September 30, 2024	$	601,435	$	273,758	$	875,193

Schedule of future amortization expense of identifiable intangible assets

At September 30, 2024, future amortization expense of identifiable intangible assets is as follows (in thousands):


Year ending December 31—
2024 (remainder of the year)	$	22,042
2025		66,576
2026		55,961
2027		53,650
2028		52,103
Thereafter		206,127
Total	$	456,459

- Definition

Tabular disclosure of goodwill by reportable segment and in total which includes a rollforward schedule.

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+ Details

Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Pay vs Performance Disclosure - USD ($) $ in Thousands	Sep. 30, 2024	Sep. 30, 2023	Sep. 30, 2024	Sep. 30, 2023
Pay vs Performance Disclosure
Net Income (Loss)	$ 146,235	$ 105,125	$ 376,563	$ 231,817

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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+ Details

Segment Information (Tables)

9 Months Ended

Sep. 30, 2024

Segment Information

Summary of information about reportable segments

The following tables present information about our reportable segments (in thousands):


	Three Months Ended September 30, 2024
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,438,617	$	373,749	$	—	$	1,812,366
Gross Profit	$	292,372	$	89,342	$	—	$	381,714

	Three Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,031,310	$	346,814	$	—	$	1,378,124
Gross Profit	$	210,147	$	67,352	$	—	$	277,499

	Nine Months Ended September 30, 2024
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	4,075,305	$	1,084,367	$	—	$	5,159,672
Gross Profit	$	789,056	$	253,617	$	—	$	1,042,673

	Nine Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	2,925,848	$	923,346	$	—	$	3,849,194
Gross Profit	$	547,695	$	163,129	$	—	$	710,824

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Treasury Stock	Additional Paid-In Capital	Retained Earnings	Total
BALANCE at Dec. 31, 2022	$ 411	$ (187,212)	$ 332,080	$ 854,644	$ 999,923
BALANCE (in shares) at Dec. 31, 2022	41,123,365
BALANCE (in shares) at Dec. 31, 2022		(5,362,224)
Increase (Decrease) in Stockholders' Equity
Net income				57,216	57,216
Issuance of Stock:
Issuance of shares for options exercised		$ 36	(18)		18
Issuance of shares for options exercised (in shares)		1,000
Issuance of restricted stock & performance stock		$ 1,131	3,384		4,515
Issuance of restricted stock & performance stock (in shares)		31,960
Shares received in lieu of tax withholding on vested stock		$ (1,798)			(1,798)
Shares received in lieu of tax withholding on vested stock (in shares)		(12,728)
Stock-based compensation			3,438		3,438
Dividends				(6,254)	(6,254)
Share repurchase		$ (3,568)			(3,568)
Share repurchase (in shares)		(29,400)
BALANCE at Mar. 31, 2023	$ 411	$ (191,411)	338,884	905,606	1,053,490
BALANCE (in shares) at Mar. 31, 2023	41,123,365
BALANCE (in shares) at Mar. 31, 2023		(5,371,392)
BALANCE at Dec. 31, 2022	$ 411	$ (187,212)	332,080	854,644	999,923
BALANCE (in shares) at Dec. 31, 2022	41,123,365
BALANCE (in shares) at Dec. 31, 2022		(5,362,224)
Increase (Decrease) in Stockholders' Equity
Net income					231,817
BALANCE at Sep. 30, 2023	$ 411	$ (197,085)	338,830	1,065,006	1,207,162
BALANCE (in shares) at Sep. 30, 2023	41,123,365
BALANCE (in shares) at Sep. 30, 2023		(5,363,300)
BALANCE at Mar. 31, 2023	$ 411	$ (191,411)	338,884	905,606	1,053,490
BALANCE (in shares) at Mar. 31, 2023	41,123,365
BALANCE (in shares) at Mar. 31, 2023		(5,371,392)
Increase (Decrease) in Stockholders' Equity
Net income				69,476	69,476
Issuance of Stock:
Issuance of restricted stock & performance stock		$ 2,220	(2,220)
Issuance of restricted stock & performance stock (in shares)		61,505
Shares received in lieu of tax withholding on vested stock		$ (2,891)			(2,891)
Shares received in lieu of tax withholding on vested stock (in shares)		(19,739)
Stock-based compensation			1,749		1,749
Dividends				(7,152)	(7,152)
Share repurchase		$ (3,208)			(3,208)
Share repurchase (in shares)		(24,000)
BALANCE at Jun. 30, 2023	$ 411	$ (195,290)	338,413	967,930	1,111,464
BALANCE (in shares) at Jun. 30, 2023	41,123,365
BALANCE (in shares) at Jun. 30, 2023		(5,353,626)
Increase (Decrease) in Stockholders' Equity
Net income				105,125	105,125
Issuance of Stock:
Issuance of restricted stock & performance stock		$ 28	(28)
Issuance of restricted stock & performance stock (in shares)		761
Shares received in lieu of tax withholding on vested stock		$ (36)			(36)
Shares received in lieu of tax withholding on vested stock (in shares)		(185)
Stock-based compensation			445		445
Dividends				(8,049)	(8,049)
Share repurchase		$ (1,787)			(1,787)
Share repurchase (in shares)		(10,250)
BALANCE at Sep. 30, 2023	$ 411	$ (197,085)	338,830	1,065,006	1,207,162
BALANCE (in shares) at Sep. 30, 2023	41,123,365
BALANCE (in shares) at Sep. 30, 2023		(5,363,300)
BALANCE at Dec. 31, 2023	$ 411	$ (209,807)	339,562	1,147,663	$ 1,277,829
BALANCE (in shares) at Dec. 31, 2023	41,123,365				41,123,365
BALANCE (in shares) at Dec. 31, 2023		(5,438,625)			5,438,625
Increase (Decrease) in Stockholders' Equity
Net income				96,319	$ 96,319
Issuance of Stock:
Issuance of shares for options exercised		$ 53	(26)		27
Issuance of shares for options exercised (in shares)		1,369
Issuance of restricted stock & performance stock		$ 657	4,696		5,353
Issuance of restricted stock & performance stock (in shares)		17,018
Shares received in lieu of tax withholding on vested stock		$ (2,126)			(2,126)
Shares received in lieu of tax withholding on vested stock (in shares)		(6,763)
Stock-based compensation			4,350		4,350
Dividends				(8,921)	(8,921)
Share repurchase		$ (295)			(295)
Share repurchase (in shares)		(1,500)
BALANCE at Mar. 31, 2024	$ 411	$ (211,518)	348,582	1,235,061	1,372,536
BALANCE (in shares) at Mar. 31, 2024	41,123,365
BALANCE (in shares) at Mar. 31, 2024		(5,428,501)
BALANCE at Dec. 31, 2023	$ 411	$ (209,807)	339,562	1,147,663	$ 1,277,829
BALANCE (in shares) at Dec. 31, 2023	41,123,365				41,123,365
BALANCE (in shares) at Dec. 31, 2023		(5,438,625)			5,438,625
Increase (Decrease) in Stockholders' Equity
Net income					$ 376,563
BALANCE at Sep. 30, 2024	$ 411	$ (256,775)	350,182	1,493,904	$ 1,587,722
BALANCE (in shares) at Sep. 30, 2024	41,123,365				41,123,365
BALANCE (in shares) at Sep. 30, 2024		(5,530,807)			5,530,807
BALANCE at Mar. 31, 2024	$ 411	$ (211,518)	348,582	1,235,061	$ 1,372,536
BALANCE (in shares) at Mar. 31, 2024	41,123,365
BALANCE (in shares) at Mar. 31, 2024		(5,428,501)
Increase (Decrease) in Stockholders' Equity
Net income				134,009	134,009
Issuance of Stock:
Issuance of restricted stock & performance stock		$ 1,851	(1,851)
Issuance of restricted stock & performance stock (in shares)		47,344
Shares received in lieu of tax withholding on vested stock		$ (5,062)			(5,062)
Shares received in lieu of tax withholding on vested stock (in shares)		(15,817)
Stock-based compensation			2,368		2,368
Dividends				(10,713)	(10,713)
Share repurchase		$ (10,844)			(10,844)
Share repurchase (in shares)		(34,997)
BALANCE at Jun. 30, 2024	$ 411	$ (225,573)	349,099	1,358,357	1,482,294
BALANCE (in shares) at Jun. 30, 2024	41,123,365
BALANCE (in shares) at Jun. 30, 2024		(5,431,971)
Increase (Decrease) in Stockholders' Equity
Net income				146,235	146,235
Issuance of Stock:
Issuance of restricted stock & performance stock		$ 66	(66)
Issuance of restricted stock & performance stock (in shares)		1,434
Shares received in lieu of tax withholding on vested stock		$ (104)			(104)
Shares received in lieu of tax withholding on vested stock (in shares)		(309)
Stock-based compensation			1,149		1,149
Dividends				(10,688)	(10,688)
Share repurchase		$ (31,164)			(31,164)
Share repurchase (in shares)		(99,961)
BALANCE at Sep. 30, 2024	$ 411	$ (256,775)	$ 350,182	$ 1,493,904	$ 1,587,722
BALANCE (in shares) at Sep. 30, 2024	41,123,365				41,123,365
BALANCE (in shares) at Sep. 30, 2024		(5,530,807)			5,530,807

Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2024

Revenue from Contracts with Customers

Revenue from Contracts with Customers

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 build, 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 over the life of the contract using a cost-to-cost input method to measure progress towards contract completion. We do not currently have any capitalized obtainment or fulfillment costs in our Consolidated 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.

We include estimated amounts of variable consideration in the contract price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the contract price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We reassess the amount of variable consideration each accounting period until the uncertainty associated with the variable consideration is resolved. Changes in the assessed amount of variable consideration are accounted for prospectively as a cumulative adjustment to revenue recognized in the current period.

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 catch-up 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 catch-up basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on our progress towards complete satisfaction of a performance obligation. A significant change in one or more of these 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.

During the three months ended September 30, 2024 and 2023, net revenue recognized from our performance obligations partially satisfied in the previous period positively impacted revenue by 1.7% and 0.8%, respectively, as a result of changes in estimates associated with performance obligations on contracts. During the nine months ended September 30, 2024 and 2023, net revenue recognized from our performance obligations partially satisfied in the previous period positively impacted revenue by 2.7% and 1.3%, respectively, as a result of changes in estimates associated with performance obligations on contracts.

Disaggregation of Revenue

Our consolidated 2024 revenue was derived from contracts to provide service activities in the mechanical and electrical 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 September 30,								Nine Months Ended September 30,
Revenue by Service Provided	2024				2023				2024				2023
Mechanical Segment	$	1,438,617	79.4	%	$	1,031,310	74.8	%	$	4,075,305	79.0	%	$	2,925,848	76.0	%
Electrical Segment		373,749	20.6	%		346,814	25.2	%		1,084,367	21.0	%		923,346	24.0	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Type of Customer	2024				2023				2024				2023
Technology	$	615,398	34.0	%	$	303,847	22.0	%	$	1,641,525	31.8	%	$	795,327	20.7	%
Manufacturing		452,157	24.9	%		469,173	34.0	%		1,439,772	27.9	%		1,271,348	33.0	%
Education		195,737	10.8	%		139,206	10.1	%		523,153	10.1	%		376,637	9.8	%
Healthcare		149,974	8.3	%		133,130	9.7	%		424,450	8.2	%		431,329	11.2	%
Office Buildings		109,233	6.0	%		104,937	7.6	%		326,137	6.3	%		299,103	7.8	%
Retail, Restaurants and Entertainment		114,572	6.3	%		77,802	5.6	%		309,658	6.0	%		234,779	6.1	%
Government		92,555	5.1	%		85,220	6.3	%		271,429	5.3	%		227,232	5.9	%
Multi-Family and Residential		33,838	1.9	%		45,523	3.3	%		110,870	2.2	%		136,825	3.5	%
Other		48,902	2.7	%		19,286	1.4	%		112,678	2.2	%		76,614	2.0	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Activity Type	2024				2023				2024				2023
New Construction	$	949,035	52.4	%	$	798,289	57.9	%	$	2,930,283	56.8	%	$	2,108,153	54.8	%
Existing Building Construction		570,288	31.5	%		305,795	22.2	%		1,407,231	27.3	%		974,085	25.3	%
Service Projects		125,249	6.9	%		117,202	8.5	%		355,643	6.9	%		335,053	8.7	%
Service Calls, Maintenance and Monitoring		167,794	9.2	%		156,838	11.4	%		466,515	9.0	%		431,903	11.2	%
Total	$	1,812,366	100.0	%	$	1,378,124	100.0	%	$	5,159,672	100.0	%	$	3,849,194	100.0	%

Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from sales under long term contracts when the cost-to-cost method of revenue recognition is used, revenue recognized exceeds the amount billed to the customer and right to

payment is conditional or subject to completing a milestone, such as a phase of the project. Contract assets are not considered to have a significant financing component, as they are intended to protect the customer in the event that we do not perform our obligations under the contract.

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

Contract assets and liabilities in the Consolidated Balance Sheet consisted of the following amounts as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Contract assets:
Costs and estimated earnings in excess of billings, less allowance for credit losses	$	73,934	$	28,084
Contract liabilities:
Billings in excess of costs and estimated earnings and deferred revenue	$	1,197,532	$	909,538

In the first nine months of 2024 and 2023, we recognized revenue of $767.3 million and $482.9 million related to our contract liabilities at January 1, 2024 and January 1, 2023, respectively.

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

Remaining Performance Obligations

Remaining construction performance obligations represent the remaining transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $5.68 billion. The Company expects to recognize revenue on approximately 65-75% of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter. Our service maintenance agreements are generally one-year renewable agreements. We have adopted the practical expedient that allows us to not include service maintenance contracts with a total term of one year or less; therefore, we do not report unfulfilled performance obligations for service maintenance agreements.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
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-Paragraph 9
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-URI https://asc.fasb.org/1943274/2147479806/606-10-50-9

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Stockholders' Equity

9 Months Ended

Sep. 30, 2024

Stockholders' Equity

Stockholders' Equity

10. Stockholders’ Equity

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted EPS is computed considering the dilutive effect of stock options, restricted stock, restricted stock units and performance stock units. The vesting of unvested, contingently issuable performance stock units is based on the achievement of certain earnings per share targets and total shareholder return. These shares are considered contingently issuable shares for purposes of calculating diluted earnings per share. These shares are not included in the diluted earnings per share denominator until the performance criteria are met, if it is assumed that the end of the reporting period was the end of the contingency period.

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

There were zero anti-dilutive stock options excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2024 and 2023.

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


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024	2023	2024	2023
Common shares outstanding, end of period	35,593	35,760	35,593	35,760
Effect of using weighted average common shares outstanding	76	60	125	59
Shares used in computing earnings per share—basic	35,669	35,820	35,718	35,819
Effect of shares issuable under stock option plans based on the treasury stock method	30	28	30	26
Effect of restricted and contingently issuable shares	56	69	56	65
Shares used in computing earnings per share—diluted	35,755	35,917	35,804	35,910

Share Repurchase Program

On March 29, 2007, our Board of Directors (the “Board”) approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. On August 7, 2024, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.4 million shares. Since the inception of the repurchase program, the Board has approved 11.4 million shares to be repurchased. As of September 30, 2024, we have repurchased a cumulative total of 10.4 million shares at an average price of $29.99 per share under the repurchase program.

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the nine months ended September 30, 2024, we repurchased 0.1 million shares for approximately $42.3 million at an average price of $310.02 per share.

- Definition

The entire disclosure for equity.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 505
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-Section 50
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Fair Value Measurements

9 Months Ended

Sep. 30, 2024

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

Interest Rate Risk Management and Derivative Instruments

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

Fair Value Measurement

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

●

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

●

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

●

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


	Fair Value Measurements at September 30, 2024
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	415,583	$	—	$	—	$	415,583
Contingent earn-out obligations	$	—	$	—	$	103,238	$	103,238

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

Cash and cash equivalents consist primarily of deposit accounts and 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. We believe the carrying value of our debt associated with our revolving credit facility approximates its fair value due to the variable rate on such debt. We believe the carrying values of our notes to former owners approximate their fair values due to the relatively short remaining terms on these notes.

As of December 31, 2023, we had life insurance policies covering 131 employees with a combined face value of $87.8 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 is included in “Other Noncurrent Assets” in our Consolidated Balance Sheets.

We value contingent earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows and operating income, probabilities of achieving such future cash flows and operating income and a weighted average cost of capital. Significant changes in any of these assumptions could result in a significantly higher or lower potential liability. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. As of September 30, 2024, cash flows were discounted using a weighted average cost of capital ranging from 16.0% to 19.0%.

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


	Nine Months Ended		Year Ended
	September 30, 2024		December 31, 2023
Balance at beginning of period	$	44,222	$	32,317
Issuances		51,784		4,315
Settlements		(37,202)		(16,017)
Adjustments to fair value		44,434		23,607
Balance at end of period	$	103,238	$	44,222

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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+ Details