Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2020 | Jul. 22, 2020 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Jun. 30, 2020 | |
Document Transition Report | false | |
Entity 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, $0.01 par value | |
Trading Symbol | FIX | |
Security Exchange Name | NYSE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 36,478,839 | |
Entity Central Index Key | 0001035983 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q2 | |
Current Fiscal Year End Date | --12-31 | |
Amendment Flag | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 53,253 | $ 50,788 |
Billed accounts receivable, less allowance for credit losses of $9,998 and $6,907, respectively | 624,526 | 619,037 |
Unbilled accounts receivable, less allowance for credit losses of $684 and $0, respectively | 47,654 | 55,542 |
Other receivables, less allowance for credit losses of $884 and $0, respectively | 20,892 | 37,632 |
Inventories | 12,212 | 10,053 |
Prepaid expenses and other | 10,453 | 14,396 |
Costs and estimated earnings in excess of billings, less allowance for credit losses of $79 and $0, respectively | 23,515 | 2,736 |
Total current assets | 792,505 | 790,184 |
PROPERTY AND EQUIPMENT, NET | 121,569 | 109,796 |
LEASE RIGHT-OF-USE ASSET | 97,586 | 84,073 |
GOODWILL | 420,782 | 332,447 |
IDENTIFIABLE INTANGIBLE ASSETS, NET | 210,164 | 159,974 |
DEFERRED TAX ASSETS | 25,833 | 21,923 |
OTHER NONCURRENT ASSETS | 7,004 | 6,615 |
Total assets | 1,675,443 | 1,505,012 |
CURRENT LIABILITIES: | ||
Current maturities of long-term debt | 85 | 20,817 |
Accounts payable | 202,075 | 196,195 |
Accrued compensation and benefits | 101,243 | 102,891 |
Billings in excess of costs and estimated earnings | 226,047 | 166,918 |
Accrued self-insurance | 46,099 | 39,546 |
Other current liabilities | 105,937 | 81,630 |
Total current liabilities | 681,486 | 607,997 |
LONG-TERM DEBT, NET | 231,442 | 205,318 |
LEASE LIABILITIES | 83,753 | 72,697 |
DEFERRED TAX LIABILITIES | 3,365 | 1,425 |
OTHER LONG-TERM LIABILITIES | 46,964 | 32,271 |
Total liabilities | 1,047,010 | 919,708 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' EQUITY: | ||
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding | ||
Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively | 411 | 411 |
Treasury stock, at cost, 4,620,071 and 4,465,448 shares, respectively | (112,104) | (103,960) |
Additional paid-in capital | 322,419 | 320,168 |
Retained earnings | 417,707 | 368,685 |
Total stockholders' equity | 628,433 | 585,304 |
Total liabilities and stockholders' equity | $ 1,675,443 | $ 1,505,012 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 6,907 | |
Billed accounts receivable, allowance for credit losses (in dollars) | $ 9,998 | |
Unbilled accounts receivable, allowance for credit losses (in dollars) | 684 | 0 |
Other receivables, allowance for credit losses (In dollars) | 884 | 0 |
Costs and estimated earnings in excess of billings, allowance for credit losses | $ 79 | $ 0 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 102,969,912 | 102,969,912 |
Common stock, shares issued | 41,123,365 | 41,123,365 |
Treasury stock, shares | 4,620,071 | 4,465,448 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
REVENUE | $ 743,468 | $ 650,302 | $ 1,443,599 | $ 1,188,775 |
COST OF SERVICES | 597,773 | 530,286 | 1,180,811 | 962,094 |
Gross profit | 145,695 | 120,016 | 262,788 | 226,681 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 85,045 | 84,506 | 177,969 | 163,411 |
GAIN ON SALE OF ASSETS | (312) | (192) | (866) | (411) |
Operating income | 60,962 | 35,702 | 85,685 | 63,681 |
OTHER INCOME (EXPENSE): | ||||
Interest income | 28 | 67 | 92 | 92 |
Interest expense | (2,554) | (3,050) | (5,171) | (4,112) |
Changes in the fair value of contingent earn-out obligations | (3,871) | (1,762) | (1,599) | (1,920) |
Other | 149 | 25 | 164 | |
Other income (expense) | (6,397) | (4,596) | (6,653) | (5,776) |
INCOME BEFORE INCOME TAXES | 54,565 | 31,106 | 79,032 | 57,905 |
PROVISION FOR INCOME TAXES | 15,070 | 6,933 | 21,821 | 13,866 |
NET INCOME | $ 39,495 | $ 24,173 | $ 57,211 | $ 44,039 |
INCOME PER SHARE: | ||||
Basic (in shares) | $ 1.08 | $ 0.65 | $ 1.56 | $ 1.19 |
Diluted (in shares) | $ 1.08 | $ 0.65 | $ 1.55 | $ 1.18 |
SHARES USED IN COMPUTING INCOME PER SHARE: | ||||
Basic (in shares) | 36,581 | 36,943 | 36,628 | 36,933 |
Diluted (in shares) | 36,737 | 37,223 | 36,821 | 37,228 |
DIVIDENDS PER SHARE (in dollars per share) | $ 0.105 | $ 0.100 | $ 0.210 | $ 0.195 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Total |
BALANCE at Dec. 31, 2018 | $ 411 | $ (87,747) | $ 316,479 | $ 268,904 | $ 498,047 |
BALANCE (in shares) at Dec. 31, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Dec. 31, 2018 | (4,229,653) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 19,866 | 19,866 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 861 | (61) | 800 | ||
Issuance of shares for options exercised (in shares) | 41,103 | ||||
Issuance of restricted stock & performance stock | $ 817 | 1,189 | 2,006 | ||
Issuance of restricted stock & performance stock (in shares) | 38,539 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (781) | (781) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (15,013) | ||||
Stock-based compensation | 2,084 | 2,084 | |||
Dividends | (3,506) | (3,506) | |||
Share repurchase | $ (3,321) | (3,321) | |||
Share repurchase (in shares) | (67,394) | ||||
BALANCE at Mar. 31, 2019 | $ 411 | $ (90,171) | 319,691 | 285,264 | 515,195 |
BALANCE (in shares) at Mar. 31, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2019 | (4,232,418) | ||||
BALANCE at Dec. 31, 2018 | $ 411 | $ (87,747) | 316,479 | 268,904 | 498,047 |
BALANCE (in shares) at Dec. 31, 2018 | 41,123,365 | ||||
BALANCE (in shares) at Dec. 31, 2018 | (4,229,653) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 44,039 | ||||
BALANCE at Jun. 30, 2019 | $ 411 | $ (93,947) | 319,879 | 305,745 | 532,088 |
BALANCE (in shares) at Jun. 30, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Jun. 30, 2019 | (4,268,984) | ||||
BALANCE at Mar. 31, 2019 | $ 411 | $ (90,171) | 319,691 | 285,264 | 515,195 |
BALANCE (in shares) at Mar. 31, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2019 | (4,232,418) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 24,173 | 24,173 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 31 | (11) | 20 | ||
Issuance of shares for options exercised (in shares) | 1,408 | ||||
Issuance of restricted stock & performance stock | $ 1,486 | (1,486) | |||
Issuance of restricted stock & performance stock (in shares) | 69,067 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (717) | (717) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (13,573) | ||||
Stock-based compensation | 1,685 | 1,685 | |||
Dividends | (3,692) | (3,692) | |||
Share repurchase | $ (4,576) | (4,576) | |||
Share repurchase (in shares) | (93,468) | ||||
BALANCE at Jun. 30, 2019 | $ 411 | $ (93,947) | 319,879 | 305,745 | 532,088 |
BALANCE (in shares) at Jun. 30, 2019 | 41,123,365 | ||||
BALANCE (in shares) at Jun. 30, 2019 | (4,268,984) | ||||
BALANCE at Dec. 31, 2019 | $ 411 | $ (103,960) | 320,168 | 368,685 | $ 585,304 |
BALANCE (in shares) at Dec. 31, 2019 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Dec. 31, 2019 | (4,465,448) | 4,465,448 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 17,716 | $ 17,716 | |||
Issuance of Stock: | |||||
Issuance of restricted stock & performance stock | $ 1,054 | 801 | 1,855 | ||
Issuance of restricted stock & performance stock (in shares) | 43,902 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (622) | (622) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (14,722) | ||||
Stock-based compensation | 2,134 | 2,134 | |||
Dividends | (3,844) | (3,844) | |||
Share repurchase | $ (8,985) | (8,985) | |||
Share repurchase (in shares) | (237,359) | ||||
BALANCE at Mar. 31, 2020 | $ 411 | $ (112,513) | 323,103 | 382,042 | 593,043 |
BALANCE (in shares) at Mar. 31, 2020 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2020 | (4,673,627) | ||||
BALANCE at Dec. 31, 2019 | $ 411 | $ (103,960) | 320,168 | 368,685 | $ 585,304 |
BALANCE (in shares) at Dec. 31, 2019 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Dec. 31, 2019 | (4,465,448) | 4,465,448 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | $ 57,211 | ||||
BALANCE at Jun. 30, 2020 | $ 411 | $ (112,104) | 322,419 | 417,707 | $ 628,433 |
BALANCE (in shares) at Jun. 30, 2020 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Jun. 30, 2020 | (4,620,071) | 4,620,071 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Cumulative-effect adjustment | (515) | $ (515) | |||
BALANCE at Mar. 31, 2020 | $ 411 | $ (112,513) | 323,103 | 382,042 | 593,043 |
BALANCE (in shares) at Mar. 31, 2020 | 41,123,365 | ||||
BALANCE (in shares) at Mar. 31, 2020 | (4,673,627) | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net income | 39,495 | 39,495 | |||
Issuance of Stock: | |||||
Issuance of shares for options exercised | $ 836 | (280) | 556 | ||
Issuance of shares for options exercised (in shares) | 34,562 | ||||
Issuance of restricted stock & performance stock | $ 2,048 | (2,048) | |||
Issuance of restricted stock & performance stock (in shares) | 84,987 | ||||
Shares received in lieu of tax withholding payment on vested restricted stock | $ (454) | (454) | |||
Shares received in lieu of tax withholding payment on vested restricted stock (in shares) | (13,002) | ||||
Stock-based compensation | 1,644 | 1,644 | |||
Dividends | (3,830) | (3,830) | |||
Share repurchase | $ (2,021) | (2,021) | |||
Share repurchase (in shares) | (52,991) | ||||
BALANCE at Jun. 30, 2020 | $ 411 | $ (112,104) | $ 322,419 | $ 417,707 | $ 628,433 |
BALANCE (in shares) at Jun. 30, 2020 | 41,123,365 | 41,123,365 | |||
BALANCE (in shares) at Jun. 30, 2020 | (4,620,071) | 4,620,071 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 57,211 | $ 44,039 |
Adjustments to reconcile net income to net cash provided by operating activities- | ||
Amortization of identifiable intangible assets | 17,141 | 13,006 |
Depreciation expense | 13,633 | 12,013 |
Change in right-of-use assets | 8,687 | 7,150 |
Bad debt expense | 4,593 | 784 |
Deferred tax provision (benefit) | (2,980) | 458 |
Amortization of debt financing costs | 270 | 191 |
Gain on sale of assets | (866) | (411) |
Changes in the fair value of contingent earn-out obligations | 1,599 | 1,920 |
Stock-based compensation | 5,188 | 4,679 |
(Increase) decrease in- | ||
Receivables, net | 30,258 | (13,081) |
Inventories | (220) | (197) |
Prepaid expenses and other current assets | 13,382 | (735) |
Costs and estimated earnings in excess of billings and unbilled accounts receivable | (6,185) | (3,070) |
Other noncurrent assets | (228) | (275) |
Increase (decrease) in- | ||
Accounts payable and accrued liabilities | (1,984) | (37,849) |
Billings in excess of costs and estimated earnings | 22,082 | 2,699 |
Other long-term liabilities | 2,205 | (4,721) |
Net cash provided by operating activities | 163,786 | 26,600 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (14,539) | (15,680) |
Proceeds from sales of property and equipment | 1,378 | 632 |
Cash paid for acquisitions, net of cash acquired | (101,998) | (196,298) |
Net cash used in investing activities | (115,159) | (211,346) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from revolving credit facility | 178,000 | 307,000 |
Payments on revolving credit facility | (151,000) | (111,000) |
Payments on term loan | (11,250) | |
Payments on other debt | (32,449) | (3,221) |
Payments of dividends to stockholders | (7,674) | (7,198) |
Share repurchase | (11,006) | (7,897) |
Shares received in lieu of tax withholding | (1,076) | (1,498) |
Proceeds from exercise of options | 556 | 820 |
Deferred acquisition payments | (400) | (500) |
Payments for contingent consideration arrangements | (9,865) | (593) |
Net cash provided by (used in) financing activities | (46,164) | 175,913 |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 2 | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,465 | (8,833) |
CASH AND CASH EQUIVALENTS, beginning of period | 50,788 | 45,620 |
CASH AND CASH EQUIVALENTS, end of period | $ 53,253 | $ 36,787 |
Business and Organization
Business and Organization | 6 Months Ended |
Jun. 30, 2020 | |
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 install, maintain, repair and replace products and systems throughout the United States. The terms “Comfort Systems,” “we,” “us,” or the “Company,” refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2020 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation These interim statements should be read in conjunction with the historical Consolidated Financial Statements and related notes of Comfort Systems included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2019 (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, the allowance for credit losses, self-insurance accruals, deferred tax assets, warranty accruals, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The standard requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. The standard requires us to accrue higher credit losses on financial assets compared to the legacy guidance on various items, such as contract assets and current receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. We adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, on January 1, 2020, and the impact was not material to our overall financial statements. The adoption of ASU No. 2016-13 resulted in an increase in Allowance for Credit Losses of $0.7 million, an increase to Deferred Tax Assets of $0.2 million and an impact of $0.5 million to Retained Earnings. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” This standard removes certain disclosure requirements including the valuation processes for Level 3 fair value measurements, the policy for timing of transfers between levels and the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The standard requires certain additional disclosures for public entities, including disclosure of the changes in unrealized gains and losses included in Other Comprehensive Income for Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Certain amendments, including the amendment on changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs, should be applied prospectively while other amendments should be applied retrospectively to all periods presented upon their effective date. We have modified our fair value disclosures to conform with the requirements of ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which we adopted on January 1, 2020. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within that year. Early adoption is permitted. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. In May 2020, the SEC issued a final rule to amend the financial statement requirements for business combinations and dispositions, including the related pro forma financial information. The rule revises the significance tests, including consideration of registrant’s market capitalization for the investment test and consideration of registrant’s revenue for the income test. The significance threshold for business dispositions is also increased from 10% to 20%. The rule further eliminates the potential requirement that registrants present a third year of audited financial statements of acquired businesses and modifies pro forma adjustments rules for items directly related to accounting for the transaction. The rule is effective January 1, 2021. Early adoption is permitted. The impact of this authoritative guidance on our consolidated financial statements will depend on future acquisitions and dispositions completed subsequent to adoption of this guidance. Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue. We provide mechanical and electrical contracting services. Our mechanical segment principally includes HVAC, plumbing, piping and controls, as well as off- site construction, monitoring and fire protection. Our electrical segment includes installation and servicing of electrical systems. We install, maintain, repair and replace products and systems throughout the United States. All of our revenue is recognized over time as we deliver goods and services to our customers. Revenue can be earned based on an agreed upon fixed price or based on actual costs incurred, marked up at an agreed upon percentage. We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we either have written authorization from the customer to proceed or an executed contract. We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they are capitalized and amortized on a percentage of completion basis over the life of the contract. We do not currently have any capitalized obtainment or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion (the process described below in more detail) is complex, subject to many variables and requires significant judgment. The consideration to which we are entitled on our long-term contracts may include both fixed and variable amounts. Variable amounts can either increase or decrease the transaction price. A common example of variable amounts that can either increase or decrease contract value are pending change orders that represent contract modifications for which a change in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. Other examples of positive variable revenue include amounts awarded upon achievement of certain performance metrics, program milestones or cost of completion date targets and can be based upon customer discretion. Variable amounts can result in a deduction from contract revenue if we fail to meet stated performance requirements, such as complying with the construction schedule. Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing performance obligation(s). The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis. We have a Company-wide policy requiring periodic review of the Estimate at Completion in which management reviews the progress and execution of our performance obligations and estimated remaining obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors, the availability and timing of funding from our customer, and overhead cost rates, among other variables. Based on this analysis, any adjustments to revenue, cost of services, and the related impact to operating income are recognized as necessary in the quarter when they become known. These adjustments may result from positive program performance if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities and may result in an increase in operating income during the performance of individual performance obligations. Likewise, if we determine we will not be successful in mitigating these risks or realizing related opportunities, these adjustments may result in a decrease in operating income. Changes in estimates of revenue, cost of services and the related impact to operating income are recognized quarterly on a cumulative catchup basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For projects in which estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined. In the first six months of 2020 and 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material. Disaggregation of Revenue Our consolidated 2020 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 9 – Segment Information for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and service provided, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the following tables (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, Revenue by Service Provided 2020 2019 2020 2019 Mechanical Services $ 622,700 83.8 % $ 553,031 85.0 % $ 1,188,164 82.3 % $ 1,087,616 91.5 % Electrical Services 120,768 16.2 % 97,271 15.0 % 255,435 17.7 % 101,159 8.5 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Type of Customer 2020 2019 2020 2019 Industrial $ 300,870 40.5 % $ 198,002 30.5 % $ 576,068 39.9 % $ 366,662 30.8 % Education 130,004 17.5 % 100,220 15.4 % 239,588 16.6 % 166,963 14.1 % Office Buildings 75,594 10.2 % 105,483 16.2 % 151,166 10.5 % 171,695 14.4 % Healthcare 96,050 12.9 % 87,878 13.5 % 195,309 13.5 % 179,901 15.1 % Government 39,832 5.4 % 44,443 6.8 % 78,813 5.5 % 76,722 6.5 % Retail, Restaurants and Entertainment 64,628 8.7 % 58,086 8.9 % 125,831 8.7 % 117,477 9.9 % Multi-Family and Residential 20,555 2.8 % 29,061 4.5 % 39,286 2.7 % 59,296 5.0 % Other 15,935 2.0 % 27,129 4.2 % 37,538 2.6 % 50,059 4.2 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Activity Type 2020 2019 2020 2019 New Construction $ 377,433 50.8 % $ 291,479 44.8 % $ 724,833 50.2 % $ 515,439 43.4 % Existing Building Construction 225,103 30.3 % 199,398 30.7 % 432,269 29.9 % 381,694 32.1 % Service Projects 58,378 7.8 % 58,808 9.0 % 110,026 7.6 % 109,192 9.2 % Service Calls, Maintenance and Monitoring 82,554 11.1 % 100,617 15.5 % 176,471 12.3 % 182,450 15.3 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Allowance for Credit Losses We are required to estimate and record the expected credit losses over the contractual life of our financial assets measured at amortized cost, including billed and unbilled accounts receivable, other receivables and costs and estimated earnings in excess of billings. Accounts receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. Our trade receivables are contractually due in less than a year. We estimate our credit losses using a loss-rate method for each of our identified portfolio segments. Our portfolio segments are construction, service and other. While our construction and service financial assets are often with the same subset of customers and industries, our construction financial assets will generally have a lower loss-rate than service financial assets due to lien rights, which we are more likely to have on construction jobs. These lien rights result in lower credit loss expenses on average compared to receivables that do not have lien rights. Financial assets classified as Other include receivables that are not related to our core revenue producing activities, such as receivables related to our acquisition activity from former owners, our vendor rebate program or receivables for estimated losses in excess of our insurance deductible, which are accrued with a corresponding accrued insurance liability. Loss rates for our portfolios are based on numerous factors, including our history of credit loss expense by portfolio, the financial strength of our customers and counterparties in each portfolio, the aging of our receivables, our expectation of likelihood of payment, macroeconomic trends in the U.S. and the current and forecasted non-residential construction market trends in the U.S. In addition to the loss-rate calculations discussed above, we also record allowance for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables, such as concerns about a specific customer going bankrupt and no longer being able to pay the receivables due to us. Starting in March 2020, we experienced negative impacts to our business due to the business disruption caused by Coronavirus Disease 2019 (“COVID-19”). In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of June 30, 2020. During the first six months of 2020, we increased our loss rates and increased our specific reserves primarily due to the economic disruption caused by COVID-19 which is reflected in our bad debt expense in the current year. This increase was primarily, but not exclusively, due to concern over collectability of receivables from customers more directly impacted by COVID-19. Activity in our allowance for credit losses consisted of the following (in thousands): Service Construction Other Total Balance at beginning of year $ 3,192 $ 3,400 $ 315 $ 6,907 Impact of new accounting standard 310 331 54 695 Bad debt expense (benefit) 2,384 2,219 (10) 4,593 Deductions for uncollectible receivables written off, net of recoveries (728) (81) — (809) Credit allowance of acquired companies on the acquisition date — 502 — 502 Purchase accounting adjustments — 72 — 72 Reclass to other current liabilities — — (315) (315) Balance at June 30, 2020 $ 5,158 $ 6,443 $ 44 $ 11,645 Contract Assets and Liabilities Project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. 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 generally classified as current. Contract liabilities consist of advance payments and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. We classify advance payments and billings in excess of revenue recognized as current. It is very unusual for us to have advanced payments with a term of greater than one year; therefore, our contract assets and liabilities are usually all current. If we have advanced payments with a term greater than one year, the noncurrent portion of advanced payments would be included in other long-term liabilities in our consolidated Balance Sheets. The following table presents the changes in contract assets and contract liabilities (in thousands): Six Months Ended June 30, Year Ended December 31, 2020 2019 Contract Contract Contract Contract Assets Liabilities Assets Liabilities Balance at beginning of period $ 2,736 $ 166,918 $ 10,213 $ 130,986 Change due to acquisitions / disposals 7,469 37,047 6,573 31,556 Change due to conditional versus unconditional 13,389 — (14,050) — Change in timing for performance obligation to be satisfied — 22,082 — 4,376 Change related to credit allowance (79) — — — Balance at end of period $ 23,515 $ 226,047 $ 2,736 $ 166,918 In the first six months of 2020 and 2019, we recognized revenue of $152.4 million and $109.7 million related to our contract liabilities at January 1, 2020 and January 1, 2019, respectively. We did not have any impairment losses recognized on our receivables or contract assets in the first six months of 2020 and 2019. 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 June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.53 billion. The Company expects to recognize revenue on approximately 80-85% 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 less than one year; therefore, we do not report unfulfilled performance obligations for service maintenance agreements. Leases We lease certain facilities, vehicles and equipment under noncancelable operating leases. The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. We account for lease components separately from the non-lease components. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense were not material to our financial statements and aggregated to $3.4 million and $4.2 million in the first six months of 2020 and 2019, respectively. 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 as of June 30, 2020 and December 31, 2019 was 4.2% and 3.9%, respectively. We recognize lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Lease expense for the three months ended June 30, 2020 and 2019 was $6.9 million and $6.2 million, respectively. Lease expense for the six months ended June 30, 2020 and 2019 was $13.4 million and $11.8 million, respectively. The lease terms generally range from three 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 June 30, 2020 and 2019 was approximately $1.6 million and $0.7 million, respectively. Rent paid to related parties for the six months ended June 30, 2020 and 2019 was approximately $2.5 million and $2.0 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 lease assets and liabilities included in the consolidated Balance Sheet as follows (in thousands): June 30, 2020 December 31, 2019 Lease right-of-use assets $ 97,586 $ 84,073 Lease liabilities: Other current liabilities 16,701 14,016 Long-term lease liabilities 83,753 72,697 Total lease liabilities $ 100,454 $ 86,713 The maturities of lease liabilities are as follows (in thousands): Year ending December 31— 2020 (excluding the six months ended June 30, 2020) $ 10,598 2021 19,113 2022 16,138 2023 13,767 2024 12,294 Thereafter 46,744 Total Lease Payments 118,654 Less—Present Value Discount (18,200) Present Value of Lease Liabilities $ 100,454 Supplemental information related to leases was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cash paid for amounts included in the measurement of lease liabilities $ 5,305 $ 4,095 $ 9,778 $ 7,873 Lease right-of-use assets obtained in exchange for lease liabilities $ 19,922 $ 14,223 $ 22,200 $ 14,397 Income Taxes We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in states with varying tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures, can impact our effective tax rate. These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, tax reserves for uncertain tax positions and accounting for losses associated with underperforming operations. Financial Instruments Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, life insurance policies, notes to former owners, a revolving credit facility and a term loan. We believe that the carrying values of these instruments on the accompanying Balance Sheets approximate their fair values. |
Fair Value Measurements
Fair Value Measurements | 6 Months Ended |
Jun. 30, 2020 | |
Fair Value Measurements | |
Fair Value Measurements | 3. Fair Value Measurements Interest Rate Risk Management and Derivative Instruments In April 2020, we entered into interest rate swap agreements to reduce our exposure to variable interest rates on our Term Loan and Revolving Credit Facility. The notional amount covered by these interest rate swaps was $215.0 million as of June 30, 2020 and gradually decreases to $80.0 million by November 30, 2021 until the termination date of September 30, 2022. We use derivative instruments to manage exposure to market risk, including interest rate risk. All of our current derivatives are designated and accounted for as economic hedges. Unsettled amounts under our economic hedges are recorded on the Balance Sheet at fair value in “Other Receivables” or “Other Current Liabilities.” Gains and losses on our interest rate swaps are recorded on the Income Statement in “Interest Expense.” For the three and six months ended June 30, 2020, we recognized a net loss of less than $0.1 million related to our interest rate swaps. We currently do not have any derivatives that are accounted for as hedges under ASC 815. Fair Value Measurements 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. The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands): Fair Value Measurements at June 30, 2020 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 53,253 $ — $ — $ 53,253 Life insurance—cash surrender value $ — $ 4,298 $ — $ 4,298 Contingent earn-out obligations $ — $ — $ 29,385 $ 29,385 Interest rate swaps $ — $ 62 $ — $ 62 Fair Value Measurements at December 31, 2019 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 50,788 $ — $ — $ 50,788 Life insurance—cash surrender value $ — $ 3,905 $ — $ 3,905 Contingent earn-out obligations $ — $ — $ 28,497 $ 28,497 Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity. The fair value for our interest rate swaps is based upon inputs corroborated by observable market data with similar tenors, which are considered Level 2 inputs. The Company’s outstanding term loan held by third-party financial institutions is carried at cost, adjusted for debt issuance costs. The Company’s term loan is not publicly traded and the carrying amount approximates fair value as the loan accrues interest at a variable rate. The carrying value of our borrowings associated with the Revolving Credit Facility approximate its fair value due to the variable rate on such debt. We have life insurance policies covering 74 employees with a combined face value of $54.2 million. The policies are invested in several investment vehicles, and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance. The cash surrender value of these policies was $4.3 million as of June 30, 2020 and $3.9 million as of December 31, 2019. These assets are 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, probabilities of achieving such future cash flows and a discount rate. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. Significant unobservable inputs that could impact the fair value measurement include our weighted average cost of capital and the forecasted level of operating income for each earn-out measurement. As of June 30, 2020, cash flows were discounted using a weighted average cost of capital ranging from 9.0% - 16.0%. 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): Six Months Ended Year Ended June 30, 2020 December 31, 2019 Balance at beginning of period $ 28,497 $ 7,375 Issuances 9,155 19,500 Settlements (9,866) (1,369) Adjustments to fair value 1,599 2,991 Balance at end of period $ 29,385 $ 28,497 We measure certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. We did not recognize any impairments in the current quarter on those assets required to be measured at fair value on a nonrecurring basis. |
Acquisitions
Acquisitions | 6 Months Ended |
Jun. 30, 2020 | |
Acquisitions | |
Acquisitions | 4. Acquisitions TAS Energy Inc. Acquisition On April 1, 2020, we consummated a merger through which TAS Energy Inc. (“TAS”) became a wholly owned subsidiary of the Company. TAS is headquartered in Houston, Texas and is a leading engineering, design and construction provider of modular construction systems serving the technology, power and industrial sectors. As a result of the acquisition, TAS is a wholly owned subsidiary of the Company reported in our mechanical services segment. The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands): Consideration transferred: Cash paid at closing $ 105,950 Working capital adjustment 39,715 Notes issued to former owners 14,000 Estimated fair value of contingent earn-out payments 9,100 $ 168,765 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 47,460 Billed and unbilled accounts receivable 18,702 Other current assets 15,634 Other long-term assets 935 Property and equipment 7,709 Goodwill 73,409 Identifiable intangible assets 53,400 Lease right-of-use asset 19,736 Accounts payable (16,453) Billings in excess of costs and estimated earnings (24,196) Current lease liabilities (2,337) Accrued expenses and other current liabilities (4,849) Long-term lease liabilities (17,398) Other long-term liabilities (2,987) $ 168,765 The allocation of the purchase price to the assets acquired and liabilities assumed is preliminary and, therefore, subject to change pending the completion of the final valuation of intangible assets and accrued liabilities. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recognized as a result of the TAS acquisition is not 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 15%-23.5 %. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class. As a result of the TAS acquisition, we acquired an estimated $55.5 million of federal net operating loss (“NOL”) carryforwards and $6.5 million of state NOL carryforwards. Our ability to utilize these NOL carryforwards to reduce taxable income in future years is subject to significant limitations under Section 382 of the Internal Revenue Code due to the ownership change in TAS on April 1, 2020. While we expect to fully utilize the federal NOL carryforwards before they begin to expire in 2031, a full valuation allowance was recorded against the state NOL carryforwards. We do not believe it is more-likely-than-not that we will have sufficient revenue-generating operations in those states in the future. The acquired intangible assets include the following (dollars in thousands): Valuation Method Estimated Useful Life Estimated Fair Value Backlog Excess earnings 1 year $ 5,200 Trade Name Relief-from-royalty 25 years 8,200 Customer Relationships Excess earnings 10 years 40,000 Total $ 53,400 The contingent earn-out obligation is associated with the achievement of two earnings milestones over a 27-month period, and the range of each estimated milestone payment is $1 million to $8 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using a 17.7% discount rate, 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 We completed the acquisition of the electrical contractor in North Carolina in the first quarter of 2020 with a total preliminary purchase price of $41.6 million. This acquisition is reported in our electrical services segment. We completed the acquisition of Walker, which is reported in our electrical services segment, in the second quarter of 2019 with a total purchase price of $235.4 million. In 2019, in addition to the Walker acquisition, we completed one acquisition in the first quarter of 2019 and one acquisition in the second quarter of 2019 with a total purchase price of $2.6 million. The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. Excluding the Walker and TAS acquisitions, 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 receive payment, then the earn-out is recorded as compensation expense over the period earned. |
Goodwill and Identifiable Intan
Goodwill and Identifiable Intangible Assets, Net | 6 Months Ended |
Jun. 30, 2020 | |
Goodwill and Identifiable Intangible Assets, Net | |
Goodwill and Identifiable Intangible Assets, Net | 5. Goodwill and Identifiable Intangible Assets, Net Goodwill The changes in the carrying amount of goodwill are as follows (in thousands): Mechanical Services Electrical Services Segment Segment Total Balance at December 31, 2018 $ 235,182 $ — $ 235,182 Acquisitions and purchase price adjustments (See Note 4) 579 96,686 97,265 Impact of segment reorganization (1,101) 1,101 — Balance at December 31, 2019 234,660 97,787 332,447 Acquisitions and purchase price adjustments (See Note 4) 73,409 14,926 88,335 Balance at June 30, 2020 $ 308,069 $ 112,713 $ 420,782 During the fourth quarter of 2019, the Company performed its annual goodwill impairment test resulting in no impairment charges, as the calculated fair values for the majority of the Company’s reporting units that have goodwill were significantly in excess (all greater than 80%) of the respective reporting unit’s carrying value, while two reporting units that were recently acquired had calculated fair values in excess of carrying value of at least 27%. During the first quarter of 2020, we considered the economic impacts of COVID-19 to be a triggering event for review of goodwill impairment at each of our reporting units. After performing a qualitative goodwill impairment assessment as of March 31, 2020, we determined that we did not have a goodwill impairment as of that date. We reassessed one reporting unit’s (Walker) fair value in the second quarter and determined that the fair value exceeded carrying value by approximately 29% as of June 30, 2020, up from 27% in our 2019 annual impairment test. As a result of uncertainty caused by COVID-19 and Walker’s smaller excess of fair value percentage, this reporting unit is more susceptible to impairment risk from additional adverse changes in its operating environment, including micro- and macroeconomic environment conditions that could negatively impact them. Such adverse changes could include worsening economic conditions in the locations or markets they primarily serve whether due to COVID-19 or other events and conditions. As of June 30, 2020, Walker had a goodwill balance of $96.8 million. Identifiable Intangible Assets, Net Identifiable intangible assets consist of the following (dollars in thousands): Estimated June 30, 2020 December 31, 2019 Useful Lives Gross Book Accumulated Gross Book Accumulated in Years Value Amortization Value Amortization Customer relationships 1 - 15 $ 231,492 $ (91,882) $ 183,061 $ (80,813) Backlog 1 - 2 12,600 (10,822) 7,400 (6,388) Tradenames 2 - 25 85,695 (16,919) 71,995 (15,281) Total $ 329,787 $ (119,623) $ 262,456 $ (102,482) The amounts attributable to customer relationships and tradenames are amortized to “Selling, General and Administrative Expenses” based upon the estimated consumption of their economic benefits, or a straight-line method over periods from one to twenty-five years if the pattern of economic benefit cannot otherwise be reliably estimated. The amounts attributable to backlog are being amortized to “Cost of Services” on a proportionate method over the remaining backlog period. Amortization expense for the three and six months ended June 30, 2020 was $10.9 million and $17.1 million, respectively. Amortization expense for the three and six months ended June 30, 2019 was $8.1 million and $13.0 million, respectively. At June 30, 2020, future amortization expense of identifiable intangible assets is as follows (in thousands): Year ended December 31— 2020 (remainder of the year) $ 15,557 2021 24,610 2022 21,989 2023 20,535 2024 19,185 Thereafter 108,288 Total $ 210,164 |
Debt Obligations
Debt Obligations | 6 Months Ended |
Jun. 30, 2020 | |
Debt Obligations | |
Debt Obligations | 6. Debt Obligations Debt obligations consist of the following (in thousands): June 30, December 31, 2020 2019 Revolving credit facility $ 55,000 $ 28,000 Term loan 138,750 150,000 Notes to former owners 38,050 48,483 Other debt 35 — Total principal amount 231,835 226,483 Less—unamortized debt issuance costs (308) (348) Total debt, net of unamortized debt issuance costs 231,527 226,135 Less—current portion (85) (20,817) Total long-term portion of debt, net $ 231,442 $ 205,318 Revolving Credit Facility and Term Loan In December 2019, we amended our senior credit facility (the “Facility”) provided by a syndicate of banks, increasing our borrowing capacity from $400.0 million to $600.0 million. As amended, the Facility is composed of a revolving credit line in the amount of $450.0 million and a $150.0 million term loan, and the Facility provides for a $150.0 million accordion or increase option for the revolving portion of the Facility. The amended Facility also includes a sublimit of up to $160.0 million issuable in the form of letters of credit. The Facility expires in January 2025 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and assets held by certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. In connection with the amendment in December 2019, we incurred approximately $1.4 million in financing and professional costs that are being amortized over the remaining term of the Facility. Of this amount, $0.4 million is attributable to the term loan and is being amortized using the effective interest method. The remaining $1.0 million is attributable to the revolving credit line, which combined with the previous unamortized costs of $1.3 million, is being amortized over the remaining term of the Facility on a straight-line basis as a non-cash charge to interest expense. For the term loan, we are required to make quarterly payments increasing over time from 1.25% to 3.75% of the original aggregate principal amount of the term loan, with the balance due in January 2025. As of June 30, 2020, we had $55.0 million of outstanding borrowings on the revolving credit facility, $55.6 million in letters of credit outstanding and $339.4 million of credit available. There are two interest rate options for borrowings under the Facility, the Base Rate Loan Option and the Eurodollar Rate Loan Option. These rates are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two rates. The following is a summary of the additional margins: Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA Less than 1.00 1.00 to 1.75 1.75 to 2.50 2.50 or greater Additional Per Annum Interest Margin Added Under: Base Rate Loan Option 0.25 % 0.50 % 0.75 % 1.00 % Eurodollar Rate Loan Option 1.25 % 1.50 % 1.75 % 2.00 % The weighted average interest rate applicable to the borrowings under the revolving credit facility was approximately 2.2% as of June 30, 2020. The weighted average interest rate applicable to the term loan was approximately 1.7% as of June 30, 2020. Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the Facility. We have never had a claim made against a letter of credit that resulted in payments by a lender or by us and believe such a claim is unlikely in the foreseeable future. The letter of credit fees range from 1.25% to 2.00% per annum, based on the ratio of Consolidated Total Indebtedness to “Credit Facility Adjusted EBITDA,” which shall mean Consolidated EBITDA as such term is defined in the credit agreement. Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from 0.20% to 0.35% per annum, based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement. The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. The Facility’s principal financial covenants include: Total Leverage Ratio Fixed Charge Coverage Ratio under the Facility for purposes of this covenant, to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of June 30, 2020 was 7.3. Other Restrictions While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders. We were in compliance with all of our financial covenants as of June 30, 2020. Notes to Former Owners As part of the consideration used to acquire five companies, we have outstanding notes to the former owners. These notes had an outstanding balance of $38.1 million as of June 30, 2020. In conjunction with the acquisition of TAS in the second quarter of 2020, we issued a promissory note to former owners with an outstanding balance of $14.0 million as of June 30, 2020 that bears interest, payable quarterly, at a stated interest rate of 3.5 %. The principal is due in April 2022. In conjunction with the acquisition of the electrical contractor in North Carolina in the first quarter of 2020, we issued a promissory note to former owners with an outstanding balance of $8.0 million as of June 30, 2020 that bears interest, payable quarterly, at a stated interest rate of 3.0%. The principal is due in equal installments in February 2023 and February 2024. In conjunction with the Walker acquisition in the second quarter of 2019, we issued a promissory note to former owners with an outstanding balance of $15.0 million as of June 30, 2020 that bears interest, payable quarterly, at a stated interest rate of 4.0%. Of the outstanding principal amount, $2.5 million is due in April 2022 and $12.5 million is due in April 2023. In conjunction with two immaterial acquisitions in 2018 and 2019, we issued notes to former owners with an outstanding balance of $1.1 million as of June 30, 2020 that bear interest, payable quarterly, at stated interest rates ranging from 3.0% - 3.5%. The principal amounts are due between July 2020 – July 2021. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2020 | |
Commitments and Contingencies | |
Commitments and Contingencies | 7. Commitments and Contingencies Claims and Lawsuits We are subject to certain legal and regulatory claims, including lawsuits arising in the normal course of business. We maintain various insurance coverages to minimize financial risk associated with these claims. We have estimated and provided accruals for probable losses and related legal fees associated with certain litigation in the accompanying consolidated financial statements. While we cannot predict the outcome of these proceedings, in management’s opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate will not have a material effect on our operating results, cash flows or financial condition, after giving effect to provisions already recorded. Surety Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf and do not expect such losses to be incurred in the foreseeable future. Current market conditions for surety markets and bonding capacity are adequate, with acceptable terms and conditions. Historically, approximately 15% to 25% 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. |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Jun. 30, 2020 | |
Stockholders' Equity | |
Stockholders' Equity. | 8. 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 less than 0.1 million anti-dilutive stock options excluded from the calculation of diluted EPS for the three and six months ended June 30, 2020 and 2019, respectively. 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 Six Months Ended June 30, June 30, 2020 2019 2020 2019 Common shares outstanding, end of period 36,503 36,854 36,503 36,854 Effect of using weighted average common shares outstanding 78 89 125 79 Shares used in computing earnings per share—basic 36,581 36,943 36,628 36,933 Effect of shares issuable under stock option plans based on the treasury stock method 99 221 124 226 Effect of restricted and contingently issuable shares 57 59 69 69 Shares used in computing earnings per share—diluted 36,737 37,223 36,821 37,228 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 November 19, 2019, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.8 million shares. Since the inception of the repurchase program, the Board has approved 9.5 million shares to be repurchased. As of June 30, 2020, we have repurchased a cumulative total of 8.9 million shares at an average price of $18.36 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. In an exercise of such discretion, we suspended share repurchases from March 27, 2020 to May 26, 2020 in response to the uncertainty surrounding the current COVID-19 pandemic, as more fully described in “Item 1A. Risk Factors” herein. The Board may modify, suspend, extend or terminate the program at any time. During the six months ended June 30, 2020, we repurchased 0.3 million shares for approximately $11.0 million at an average price of $37.91 per share. |
Segment Information
Segment Information | 6 Months Ended |
Jun. 30, 2020 | |
Segment Information | |
Segment Information | 9. Segment Information Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. We aggregate our operating segments into two reportable segments, as the operating segments meet all of the aggregation criteria. The following table presents information about our reportable segments (in thousands): Three Months Ended June 30, 2020 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 622,700 $ 120,768 $ — $ 743,468 Gross Profit $ 135,757 $ 9,938 $ — $ 145,695 Three Months Ended June 30, 2019 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 553,031 $ 97,271 $ — $ 650,302 Gross Profit $ 110,279 $ 9,737 $ — $ 120,016 Six Months Ended June 30, 2020 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 1,188,164 $ 255,435 $ — $ 1,443,599 Gross Profit $ 244,679 $ 18,109 $ — $ 262,788 Six Months Ended June 30, 2019 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 1,087,616 $ 101,159 $ — $ 1,188,775 Gross Profit $ 216,131 $ 10,550 $ — $ 226,681 |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2020 | |
Summary of Significant Accounting Policies | |
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, 2019 (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, the allowance for credit losses, self-insurance accruals, deferred tax assets, warranty accruals, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The standard requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. The standard requires us to accrue higher credit losses on financial assets compared to the legacy guidance on various items, such as contract assets and current receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. We adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, on January 1, 2020, and the impact was not material to our overall financial statements. The adoption of ASU No. 2016-13 resulted in an increase in Allowance for Credit Losses of $0.7 million, an increase to Deferred Tax Assets of $0.2 million and an impact of $0.5 million to Retained Earnings. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” This standard removes certain disclosure requirements including the valuation processes for Level 3 fair value measurements, the policy for timing of transfers between levels and the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The standard requires certain additional disclosures for public entities, including disclosure of the changes in unrealized gains and losses included in Other Comprehensive Income for Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Certain amendments, including the amendment on changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs, should be applied prospectively while other amendments should be applied retrospectively to all periods presented upon their effective date. We have modified our fair value disclosures to conform with the requirements of ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which we adopted on January 1, 2020. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within that year. Early adoption is permitted. We are currently evaluating the potential impact of this authoritative guidance on our consolidated financial statements. In May 2020, the SEC issued a final rule to amend the financial statement requirements for business combinations and dispositions, including the related pro forma financial information. The rule revises the significance tests, including consideration of registrant’s market capitalization for the investment test and consideration of registrant’s revenue for the income test. The significance threshold for business dispositions is also increased from 10% to 20%. The rule further eliminates the potential requirement that registrants present a third year of audited financial statements of acquired businesses and modifies pro forma adjustments rules for items directly related to accounting for the transaction. The rule is effective January 1, 2021. Early adoption is permitted. The impact of this authoritative guidance on our consolidated financial statements will depend on future acquisitions and dispositions completed subsequent to adoption of this guidance. |
Revenue Recognition | Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue. We provide mechanical and electrical contracting services. Our mechanical segment principally includes HVAC, plumbing, piping and controls, as well as off- site construction, monitoring and fire protection. Our electrical segment includes installation and servicing of electrical systems. We install, maintain, repair and replace products and systems throughout the United States. All of our revenue is recognized over time as we deliver goods and services to our customers. Revenue can be earned based on an agreed upon fixed price or based on actual costs incurred, marked up at an agreed upon percentage. We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we either have written authorization from the customer to proceed or an executed contract. We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they are capitalized and amortized on a percentage of completion basis over the life of the contract. We do not currently have any capitalized obtainment or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year. Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion (the process described below in more detail) is complex, subject to many variables and requires significant judgment. The consideration to which we are entitled on our long-term contracts may include both fixed and variable amounts. Variable amounts can either increase or decrease the transaction price. A common example of variable amounts that can either increase or decrease contract value are pending change orders that represent contract modifications for which a change in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. Other examples of positive variable revenue include amounts awarded upon achievement of certain performance metrics, program milestones or cost of completion date targets and can be based upon customer discretion. Variable amounts can result in a deduction from contract revenue if we fail to meet stated performance requirements, such as complying with the construction schedule. Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing performance obligation(s). The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis. We have a Company-wide policy requiring periodic review of the Estimate at Completion in which management reviews the progress and execution of our performance obligations and estimated remaining obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors, the availability and timing of funding from our customer, and overhead cost rates, among other variables. Based on this analysis, any adjustments to revenue, cost of services, and the related impact to operating income are recognized as necessary in the quarter when they become known. These adjustments may result from positive program performance if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities and may result in an increase in operating income during the performance of individual performance obligations. Likewise, if we determine we will not be successful in mitigating these risks or realizing related opportunities, these adjustments may result in a decrease in operating income. Changes in estimates of revenue, cost of services and the related impact to operating income are recognized quarterly on a cumulative catchup basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For projects in which estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined. In the first six months of 2020 and 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material. Disaggregation of Revenue Our consolidated 2020 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 9 – Segment Information for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and service provided, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the following tables (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, Revenue by Service Provided 2020 2019 2020 2019 Mechanical Services $ 622,700 83.8 % $ 553,031 85.0 % $ 1,188,164 82.3 % $ 1,087,616 91.5 % Electrical Services 120,768 16.2 % 97,271 15.0 % 255,435 17.7 % 101,159 8.5 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Type of Customer 2020 2019 2020 2019 Industrial $ 300,870 40.5 % $ 198,002 30.5 % $ 576,068 39.9 % $ 366,662 30.8 % Education 130,004 17.5 % 100,220 15.4 % 239,588 16.6 % 166,963 14.1 % Office Buildings 75,594 10.2 % 105,483 16.2 % 151,166 10.5 % 171,695 14.4 % Healthcare 96,050 12.9 % 87,878 13.5 % 195,309 13.5 % 179,901 15.1 % Government 39,832 5.4 % 44,443 6.8 % 78,813 5.5 % 76,722 6.5 % Retail, Restaurants and Entertainment 64,628 8.7 % 58,086 8.9 % 125,831 8.7 % 117,477 9.9 % Multi-Family and Residential 20,555 2.8 % 29,061 4.5 % 39,286 2.7 % 59,296 5.0 % Other 15,935 2.0 % 27,129 4.2 % 37,538 2.6 % 50,059 4.2 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Activity Type 2020 2019 2020 2019 New Construction $ 377,433 50.8 % $ 291,479 44.8 % $ 724,833 50.2 % $ 515,439 43.4 % Existing Building Construction 225,103 30.3 % 199,398 30.7 % 432,269 29.9 % 381,694 32.1 % Service Projects 58,378 7.8 % 58,808 9.0 % 110,026 7.6 % 109,192 9.2 % Service Calls, Maintenance and Monitoring 82,554 11.1 % 100,617 15.5 % 176,471 12.3 % 182,450 15.3 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Contract Assets and Liabilities Project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. 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 generally classified as current. Contract liabilities consist of advance payments and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. We classify advance payments and billings in excess of revenue recognized as current. It is very unusual for us to have advanced payments with a term of greater than one year; therefore, our contract assets and liabilities are usually all current. If we have advanced payments with a term greater than one year, the noncurrent portion of advanced payments would be included in other long-term liabilities in our consolidated Balance Sheets. The following table presents the changes in contract assets and contract liabilities (in thousands): Six Months Ended June 30, Year Ended December 31, 2020 2019 Contract Contract Contract Contract Assets Liabilities Assets Liabilities Balance at beginning of period $ 2,736 $ 166,918 $ 10,213 $ 130,986 Change due to acquisitions / disposals 7,469 37,047 6,573 31,556 Change due to conditional versus unconditional 13,389 — (14,050) — Change in timing for performance obligation to be satisfied — 22,082 — 4,376 Change related to credit allowance (79) — — — Balance at end of period $ 23,515 $ 226,047 $ 2,736 $ 166,918 In the first six months of 2020 and 2019, we recognized revenue of $152.4 million and $109.7 million related to our contract liabilities at January 1, 2020 and January 1, 2019, respectively. We did not have any impairment losses recognized on our receivables or contract assets in the first six months of 2020 and 2019. 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 June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.53 billion. The Company expects to recognize revenue on approximately 80-85% 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 less than one year; therefore, we do not report unfulfilled performance obligations for service maintenance agreements. |
Allowance for Credit Losses | Allowance for Credit Losses We are required to estimate and record the expected credit losses over the contractual life of our financial assets measured at amortized cost, including billed and unbilled accounts receivable, other receivables and costs and estimated earnings in excess of billings. Accounts receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. Our trade receivables are contractually due in less than a year. We estimate our credit losses using a loss-rate method for each of our identified portfolio segments. Our portfolio segments are construction, service and other. While our construction and service financial assets are often with the same subset of customers and industries, our construction financial assets will generally have a lower loss-rate than service financial assets due to lien rights, which we are more likely to have on construction jobs. These lien rights result in lower credit loss expenses on average compared to receivables that do not have lien rights. Financial assets classified as Other include receivables that are not related to our core revenue producing activities, such as receivables related to our acquisition activity from former owners, our vendor rebate program or receivables for estimated losses in excess of our insurance deductible, which are accrued with a corresponding accrued insurance liability. Loss rates for our portfolios are based on numerous factors, including our history of credit loss expense by portfolio, the financial strength of our customers and counterparties in each portfolio, the aging of our receivables, our expectation of likelihood of payment, macroeconomic trends in the U.S. and the current and forecasted non-residential construction market trends in the U.S. In addition to the loss-rate calculations discussed above, we also record allowance for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables, such as concerns about a specific customer going bankrupt and no longer being able to pay the receivables due to us. Starting in March 2020, we experienced negative impacts to our business due to the business disruption caused by Coronavirus Disease 2019 (“COVID-19”). In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of June 30, 2020. During the first six months of 2020, we increased our loss rates and increased our specific reserves primarily due to the economic disruption caused by COVID-19 which is reflected in our bad debt expense in the current year. This increase was primarily, but not exclusively, due to concern over collectability of receivables from customers more directly impacted by COVID-19. Activity in our allowance for credit losses consisted of the following (in thousands): Service Construction Other Total Balance at beginning of year $ 3,192 $ 3,400 $ 315 $ 6,907 Impact of new accounting standard 310 331 54 695 Bad debt expense (benefit) 2,384 2,219 (10) 4,593 Deductions for uncollectible receivables written off, net of recoveries (728) (81) — (809) Credit allowance of acquired companies on the acquisition date — 502 — 502 Purchase accounting adjustments — 72 — 72 Reclass to other current liabilities — — (315) (315) Balance at June 30, 2020 $ 5,158 $ 6,443 $ 44 $ 11,645 |
Leases | Leases We lease certain facilities, vehicles and equipment under noncancelable operating leases. The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. We account for lease components separately from the non-lease components. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense were not material to our financial statements and aggregated to $3.4 million and $4.2 million in the first six months of 2020 and 2019, respectively. 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 as of June 30, 2020 and December 31, 2019 was 4.2% and 3.9%, respectively. We recognize lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Lease expense for the three months ended June 30, 2020 and 2019 was $6.9 million and $6.2 million, respectively. Lease expense for the six months ended June 30, 2020 and 2019 was $13.4 million and $11.8 million, respectively. The lease terms generally range from three 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 June 30, 2020 and 2019 was approximately $1.6 million and $0.7 million, respectively. Rent paid to related parties for the six months ended June 30, 2020 and 2019 was approximately $2.5 million and $2.0 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 lease assets and liabilities included in the consolidated Balance Sheet as follows (in thousands): June 30, 2020 December 31, 2019 Lease right-of-use assets $ 97,586 $ 84,073 Lease liabilities: Other current liabilities 16,701 14,016 Long-term lease liabilities 83,753 72,697 Total lease liabilities $ 100,454 $ 86,713 The maturities of lease liabilities are as follows (in thousands): Year ending December 31— 2020 (excluding the six months ended June 30, 2020) $ 10,598 2021 19,113 2022 16,138 2023 13,767 2024 12,294 Thereafter 46,744 Total Lease Payments 118,654 Less—Present Value Discount (18,200) Present Value of Lease Liabilities $ 100,454 Supplemental information related to leases was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cash paid for amounts included in the measurement of lease liabilities $ 5,305 $ 4,095 $ 9,778 $ 7,873 Lease right-of-use assets obtained in exchange for lease liabilities $ 19,922 $ 14,223 $ 22,200 $ 14,397 |
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 states with varying tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures, can impact our effective tax rate. These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, tax reserves for uncertain tax positions and accounting for losses associated with underperforming operations. |
Financial Instruments | Financial Instruments Our financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, life insurance policies, notes to former owners, a revolving credit facility and a term loan. We believe that the carrying values of these instruments on the accompanying Balance Sheets approximate their fair values. |
Goodwill | During the fourth quarter of 2019, the Company performed its annual goodwill impairment test resulting in no impairment charges, as the calculated fair values for the majority of the Company’s reporting units that have goodwill were significantly in excess (all greater than 80%) of the respective reporting unit’s carrying value, while two reporting units that were recently acquired had calculated fair values in excess of carrying value of at least 27%. During the first quarter of 2020, we considered the economic impacts of COVID-19 to be a triggering event for review of goodwill impairment at each of our reporting units. After performing a qualitative goodwill impairment assessment as of March 31, 2020, we determined that we did not have a goodwill impairment as of that date. We reassessed one reporting unit’s (Walker) fair value in the second quarter and determined that the fair value exceeded carrying value by approximately 29% as of June 30, 2020, up from 27% in our 2019 annual impairment test. As a result of uncertainty caused by COVID-19 and Walker’s smaller excess of fair value percentage, this reporting unit is more susceptible to impairment risk from additional adverse changes in its operating environment, including micro- and macroeconomic environment conditions that could negatively impact them. Such adverse changes could include worsening economic conditions in the locations or markets they primarily serve whether due to COVID-19 or other events and conditions. As of June 30, 2020, Walker had a goodwill balance of $96.8 million. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Summary of Significant Accounting Policies | |
Schedule of disaggregation of revenue | Three Months Ended June 30, Six Months Ended June 30, Revenue by Service Provided 2020 2019 2020 2019 Mechanical Services $ 622,700 83.8 % $ 553,031 85.0 % $ 1,188,164 82.3 % $ 1,087,616 91.5 % Electrical Services 120,768 16.2 % 97,271 15.0 % 255,435 17.7 % 101,159 8.5 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Type of Customer 2020 2019 2020 2019 Industrial $ 300,870 40.5 % $ 198,002 30.5 % $ 576,068 39.9 % $ 366,662 30.8 % Education 130,004 17.5 % 100,220 15.4 % 239,588 16.6 % 166,963 14.1 % Office Buildings 75,594 10.2 % 105,483 16.2 % 151,166 10.5 % 171,695 14.4 % Healthcare 96,050 12.9 % 87,878 13.5 % 195,309 13.5 % 179,901 15.1 % Government 39,832 5.4 % 44,443 6.8 % 78,813 5.5 % 76,722 6.5 % Retail, Restaurants and Entertainment 64,628 8.7 % 58,086 8.9 % 125,831 8.7 % 117,477 9.9 % Multi-Family and Residential 20,555 2.8 % 29,061 4.5 % 39,286 2.7 % 59,296 5.0 % Other 15,935 2.0 % 27,129 4.2 % 37,538 2.6 % 50,059 4.2 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % Three Months Ended June 30, Six Months Ended June 30, Revenue by Activity Type 2020 2019 2020 2019 New Construction $ 377,433 50.8 % $ 291,479 44.8 % $ 724,833 50.2 % $ 515,439 43.4 % Existing Building Construction 225,103 30.3 % 199,398 30.7 % 432,269 29.9 % 381,694 32.1 % Service Projects 58,378 7.8 % 58,808 9.0 % 110,026 7.6 % 109,192 9.2 % Service Calls, Maintenance and Monitoring 82,554 11.1 % 100,617 15.5 % 176,471 12.3 % 182,450 15.3 % Total $ 743,468 100.0 % $ 650,302 100.0 % $ 1,443,599 100.0 % $ 1,188,775 100.0 % |
Schedule of activity in allowance for credit losses | Activity in our allowance for credit losses consisted of the following (in thousands): Service Construction Other Total Balance at beginning of year $ 3,192 $ 3,400 $ 315 $ 6,907 Impact of new accounting standard 310 331 54 695 Bad debt expense (benefit) 2,384 2,219 (10) 4,593 Deductions for uncollectible receivables written off, net of recoveries (728) (81) — (809) Credit allowance of acquired companies on the acquisition date — 502 — 502 Purchase accounting adjustments — 72 — 72 Reclass to other current liabilities — — (315) (315) Balance at June 30, 2020 $ 5,158 $ 6,443 $ 44 $ 11,645 |
Schedule of contract assets and liabilities | The following table presents the changes in contract assets and contract liabilities (in thousands): Six Months Ended June 30, Year Ended December 31, 2020 2019 Contract Contract Contract Contract Assets Liabilities Assets Liabilities Balance at beginning of period $ 2,736 $ 166,918 $ 10,213 $ 130,986 Change due to acquisitions / disposals 7,469 37,047 6,573 31,556 Change due to conditional versus unconditional 13,389 — (14,050) — Change in timing for performance obligation to be satisfied — 22,082 — 4,376 Change related to credit allowance (79) — — — Balance at end of period $ 23,515 $ 226,047 $ 2,736 $ 166,918 |
Schedule of lease assets and liabilities | The following table summarizes the lease assets and liabilities included in the consolidated Balance Sheet as follows (in thousands): June 30, 2020 December 31, 2019 Lease right-of-use assets $ 97,586 $ 84,073 Lease liabilities: Other current liabilities 16,701 14,016 Long-term lease liabilities 83,753 72,697 Total lease liabilities $ 100,454 $ 86,713 |
Schedule of maturities of lease liabilities | The maturities of lease liabilities are as follows (in thousands): Year ending December 31— 2020 (excluding the six months ended June 30, 2020) $ 10,598 2021 19,113 2022 16,138 2023 13,767 2024 12,294 Thereafter 46,744 Total Lease Payments 118,654 Less—Present Value Discount (18,200) Present Value of Lease Liabilities $ 100,454 |
Schedule of supplemental information related to leases | Supplemental information related to leases was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cash paid for amounts included in the measurement of lease liabilities $ 5,305 $ 4,095 $ 9,778 $ 7,873 Lease right-of-use assets obtained in exchange for lease liabilities $ 19,922 $ 14,223 $ 22,200 $ 14,397 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 fall, for assets and liabilities measured on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands): Fair Value Measurements at June 30, 2020 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 53,253 $ — $ — $ 53,253 Life insurance—cash surrender value $ — $ 4,298 $ — $ 4,298 Contingent earn-out obligations $ — $ — $ 29,385 $ 29,385 Interest rate swaps $ — $ 62 $ — $ 62 Fair Value Measurements at December 31, 2019 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 50,788 $ — $ — $ 50,788 Life insurance—cash surrender value $ — $ 3,905 $ — $ 3,905 Contingent earn-out obligations $ — $ — $ 28,497 $ 28,497 |
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): Six Months Ended Year Ended June 30, 2020 December 31, 2019 Balance at beginning of period $ 28,497 $ 7,375 Issuances 9,155 19,500 Settlements (9,866) (1,369) Adjustments to fair value 1,599 2,991 Balance at end of period $ 29,385 $ 28,497 |
Acquisitions (Tables)
Acquisitions (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 $ 105,950 Working capital adjustment 39,715 Notes issued to former owners 14,000 Estimated fair value of contingent earn-out payments 9,100 $ 168,765 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 47,460 Billed and unbilled accounts receivable 18,702 Other current assets 15,634 Other long-term assets 935 Property and equipment 7,709 Goodwill 73,409 Identifiable intangible assets 53,400 Lease right-of-use asset 19,736 Accounts payable (16,453) Billings in excess of costs and estimated earnings (24,196) Current lease liabilities (2,337) Accrued expenses and other current liabilities (4,849) Long-term lease liabilities (17,398) Other long-term liabilities (2,987) $ 168,765 |
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 year $ 5,200 Trade Name Relief-from-royalty 25 years 8,200 Customer Relationships Excess earnings 10 years 40,000 Total $ 53,400 |
Goodwill and Identifiable Int_2
Goodwill and Identifiable Intangible Assets, Net (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 Services Electrical Services Segment Segment Total Balance at December 31, 2018 $ 235,182 $ — $ 235,182 Acquisitions and purchase price adjustments (See Note 4) 579 96,686 97,265 Impact of segment reorganization (1,101) 1,101 — Balance at December 31, 2019 234,660 97,787 332,447 Acquisitions and purchase price adjustments (See Note 4) 73,409 14,926 88,335 Balance at June 30, 2020 $ 308,069 $ 112,713 $ 420,782 |
Schedule of components of identifiable intangible assets | Identifiable intangible assets consist of the following (dollars in thousands): Estimated June 30, 2020 December 31, 2019 Useful Lives Gross Book Accumulated Gross Book Accumulated in Years Value Amortization Value Amortization Customer relationships 1 - 15 $ 231,492 $ (91,882) $ 183,061 $ (80,813) Backlog 1 - 2 12,600 (10,822) 7,400 (6,388) Tradenames 2 - 25 85,695 (16,919) 71,995 (15,281) Total $ 329,787 $ (119,623) $ 262,456 $ (102,482) |
Schedule of future amortization expense of identifiable intangible assets | At June 30, 2020, future amortization expense of identifiable intangible assets is as follows (in thousands): Year ended December 31— 2020 (remainder of the year) $ 15,557 2021 24,610 2022 21,989 2023 20,535 2024 19,185 Thereafter 108,288 Total $ 210,164 |
Debt Obligations (Tables)
Debt Obligations (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Debt Obligations | |
Schedule of components of debt obligations | Debt obligations consist of the following (in thousands): June 30, December 31, 2020 2019 Revolving credit facility $ 55,000 $ 28,000 Term loan 138,750 150,000 Notes to former owners 38,050 48,483 Other debt 35 — Total principal amount 231,835 226,483 Less—unamortized debt issuance costs (308) (348) Total debt, net of unamortized debt issuance costs 231,527 226,135 Less—current portion (85) (20,817) Total long-term portion of debt, net $ 231,442 $ 205,318 |
Summary of additional margins | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA Less than 1.00 1.00 to 1.75 1.75 to 2.50 2.50 or greater Additional Per Annum Interest Margin Added Under: Base Rate Loan Option 0.25 % 0.50 % 0.75 % 1.00 % Eurodollar Rate Loan Option 1.25 % 1.50 % 1.75 % 2.00 % |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 Six Months Ended June 30, June 30, 2020 2019 2020 2019 Common shares outstanding, end of period 36,503 36,854 36,503 36,854 Effect of using weighted average common shares outstanding 78 89 125 79 Shares used in computing earnings per share—basic 36,581 36,943 36,628 36,933 Effect of shares issuable under stock option plans based on the treasury stock method 99 221 124 226 Effect of restricted and contingently issuable shares 57 59 69 69 Shares used in computing earnings per share—diluted 36,737 37,223 36,821 37,228 |
Segment Information (Tables)
Segment Information (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Segment Information | |
Summary of information about reportable segments | Three Months Ended June 30, 2020 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 622,700 $ 120,768 $ — $ 743,468 Gross Profit $ 135,757 $ 9,938 $ — $ 145,695 Three Months Ended June 30, 2019 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 553,031 $ 97,271 $ — $ 650,302 Gross Profit $ 110,279 $ 9,737 $ — $ 120,016 Six Months Ended June 30, 2020 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 1,188,164 $ 255,435 $ — $ 1,443,599 Gross Profit $ 244,679 $ 18,109 $ — $ 262,788 Six Months Ended June 30, 2019 Mechanical Services Electrical Services Corporate Consolidated Revenue $ 1,087,616 $ 101,159 $ — $ 1,188,775 Gross Profit $ 216,131 $ 10,550 $ — $ 226,681 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands | Jan. 01, 2020 | Jun. 30, 2020 | Mar. 31, 2020 | Dec. 31, 2019 |
New Accounting Pronouncements or Change in Accounting Principle | ||||
Impact to Retained Earnings | $ (515) | |||
Lease right-of-use assets | $ 97,586 | $ 84,073 | ||
Operating lease liability | $ 100,454 | $ 86,713 | ||
Adjustments | ASU 2016-13 | ||||
New Accounting Pronouncements or Change in Accounting Principle | ||||
Increase in allowance for doubtful accounts | $ 700 | |||
Increase to Deferred Tax Assets | 200 | |||
Impact to Retained Earnings | $ 500 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Disaggregation of Revenue | ||||
Revenue | $ 743,468 | $ 650,302 | $ 1,443,599 | $ 1,188,775 |
Percentage of revenue from contract with customer (as a percent) | 100.00% | 100.00% | 100.00% | 100.00% |
Industrial | ||||
Disaggregation of Revenue | ||||
Revenue | $ 300,870 | $ 198,002 | $ 576,068 | $ 366,662 |
Percentage of revenue from contract with customer (as a percent) | 40.50% | 30.50% | 39.90% | 30.80% |
Education | ||||
Disaggregation of Revenue | ||||
Revenue | $ 130,004 | $ 100,220 | $ 239,588 | $ 166,963 |
Percentage of revenue from contract with customer (as a percent) | 17.50% | 15.40% | 16.60% | 14.10% |
Office Buildings | ||||
Disaggregation of Revenue | ||||
Revenue | $ 75,594 | $ 105,483 | $ 151,166 | $ 171,695 |
Percentage of revenue from contract with customer (as a percent) | 10.20% | 16.20% | 10.50% | 14.40% |
Healthcare | ||||
Disaggregation of Revenue | ||||
Revenue | $ 96,050 | $ 87,878 | $ 195,309 | $ 179,901 |
Percentage of revenue from contract with customer (as a percent) | 12.90% | 13.50% | 13.50% | 15.10% |
Government | ||||
Disaggregation of Revenue | ||||
Revenue | $ 39,832 | $ 44,443 | $ 78,813 | $ 76,722 |
Percentage of revenue from contract with customer (as a percent) | 5.40% | 6.80% | 5.50% | 6.50% |
Retail, Restaurants and Entertainment | ||||
Disaggregation of Revenue | ||||
Revenue | $ 64,628 | $ 58,086 | $ 125,831 | $ 117,477 |
Percentage of revenue from contract with customer (as a percent) | 8.70% | 8.90% | 8.70% | 9.90% |
Multi-Family and Residential | ||||
Disaggregation of Revenue | ||||
Revenue | $ 20,555 | $ 29,061 | $ 39,286 | $ 59,296 |
Percentage of revenue from contract with customer (as a percent) | 2.80% | 4.50% | 2.70% | 5.00% |
Other | ||||
Disaggregation of Revenue | ||||
Revenue | $ 15,935 | $ 27,129 | $ 37,538 | $ 50,059 |
Percentage of revenue from contract with customer (as a percent) | 2.00% | 4.20% | 2.60% | 4.20% |
New Construction | ||||
Disaggregation of Revenue | ||||
Revenue | $ 377,433 | $ 291,479 | $ 724,833 | $ 515,439 |
Percentage of revenue from contract with customer (as a percent) | 50.80% | 44.80% | 50.20% | 43.40% |
Existing Building Construction | ||||
Disaggregation of Revenue | ||||
Revenue | $ 225,103 | $ 199,398 | $ 432,269 | $ 381,694 |
Percentage of revenue from contract with customer (as a percent) | 30.30% | 30.70% | 29.90% | 32.10% |
Service Projects | ||||
Disaggregation of Revenue | ||||
Revenue | $ 58,378 | $ 58,808 | $ 110,026 | $ 109,192 |
Percentage of revenue from contract with customer (as a percent) | 7.80% | 9.00% | 7.60% | 9.20% |
Service Calls, Maintenance and Monitoring | ||||
Disaggregation of Revenue | ||||
Revenue | $ 82,554 | $ 100,617 | $ 176,471 | $ 182,450 |
Percentage of revenue from contract with customer (as a percent) | 11.10% | 15.50% | 12.30% | 15.30% |
Mechanical Services | ||||
Disaggregation of Revenue | ||||
Revenue | $ 622,700 | $ 553,031 | $ 1,188,164 | $ 1,087,616 |
Percentage of revenue from contract with customer (as a percent) | 83.80% | 85.00% | 82.30% | 91.50% |
Electrical Services | ||||
Disaggregation of Revenue | ||||
Revenue | $ 120,768 | $ 97,271 | $ 255,435 | $ 101,159 |
Percentage of revenue from contract with customer (as a percent) | 16.20% | 15.00% | 17.70% | 8.50% |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Allowance for Credit Losses (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Allowance for Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of year | $ 6,907 | |
Impact of new accounting standard | 695 | |
Bad debt expense (benefit) | 4,593 | $ 784 |
Deductions for uncollectible receivables written off, net of recoveries | (809) | |
Credit allowance of acquired companies on the acquisition date | 502 | |
Purchase accounting adjustments | 72 | |
Reclass to other current liabilities | (315) | |
Balance at March 31, 2020 | 11,645 | |
Service | ||
Allowance for Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of year | 3,192 | |
Impact of new accounting standard | 310 | |
Bad debt expense (benefit) | 2,384 | |
Deductions for uncollectible receivables written off, net of recoveries | (728) | |
Balance at March 31, 2020 | 5,158 | |
Construction | ||
Allowance for Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of year | 3,400 | |
Impact of new accounting standard | 331 | |
Bad debt expense (benefit) | 2,219 | |
Deductions for uncollectible receivables written off, net of recoveries | (81) | |
Credit allowance of acquired companies on the acquisition date | 502 | |
Purchase accounting adjustments | 72 | |
Balance at March 31, 2020 | 6,443 | |
Other. | ||
Allowance for Doubtful Accounts Receivable [Roll Forward] | ||
Balance at beginning of year | 315 | |
Impact of new accounting standard | 54 | |
Bad debt expense (benefit) | (10) | |
Reclass to other current liabilities | (315) | |
Balance at March 31, 2020 | $ 44 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 | |
Contract Assets | |||
Balance at beginning of period | $ 2,736 | $ 10,213 | $ 10,213 |
Change due to acquisitions / disposals | 7,469 | 6,573 | |
Change due to conditional versus unconditional | 13,389 | (14,050) | |
Change related to credit allowance | (79) | ||
Balance at end of period | 23,515 | 2,736 | |
Contract Liabilities | |||
Balance at beginning of period | 166,918 | 130,986 | 130,986 |
Change due to acquisitions / disposals | 37,047 | 31,556 | |
Change in timing for performance obligation to be satisfied | 22,082 | 4,376 | |
Balance at end of period | 226,047 | $ 166,918 | |
Revenue related to our contract liabilities | $ 152,400 | ||
Calculated under Revenue Guidance in Effect before Topic 606 [Member] | |||
Contract Liabilities | |||
Revenue related to our contract liabilities | $ 109,700 |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies - Remaining Performance Obligations (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2020USD ($) | |
Remaining Performance Obligations | |
The term of the renewable service maintenance agreements (in years) | 1 year |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-04-01 | |
Remaining Performance Obligations | |
Remaining performance obligations | $ 1,530 |
Expected timing of performance obligations | 12 months |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-04-01 | Minimum | |
Remaining Performance Obligations | |
Expected percentage of remaining performance obligations | 80.00% |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-04-01 | Maximum | |
Remaining Performance Obligations | |
Expected percentage of remaining performance obligations | 85.00% |
Summary of Significant Accoun_9
Summary of Significant Accounting Policies - Service Maintenance Agreements (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Summary of Significant Accounting Policies | |
The term of the renewable service maintenance agreements (in years) | 1 year |
Summary of Significant Accou_10
Summary of Significant Accounting Policies - Leases (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2020USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2020USD ($)Option | Jun. 30, 2019USD ($) | Dec. 31, 2019USD ($) | |
Lessee, Lease, Description [Line Items] | |||||
Variable lease expense and short-term lease expenses | $ 3,400 | $ 4,200 | |||
Weighted average discount rate | 4.20% | 4.20% | 3.90% | ||
Lease expense | $ 6,900 | $ 6,200 | $ 13,400 | 11,800 | |
Weighted average remaining lease term | 7 years 8 months 12 days | 7 years 8 months 12 days | 8 years 1 month 6 days | ||
Rent paid to related parties | $ 1,600 | $ 700 | $ 2,500 | $ 2,000 | |
Existence of option to extend | true | ||||
Summary of lease asset and liabilities | |||||
Lease right-of-use assets | 97,586 | $ 97,586 | $ 84,073 | ||
Lease Liabilities | |||||
Other current liabilities | $ 16,701 | $ 16,701 | 14,016 | ||
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List] | Other Liabilities, Current | Other Liabilities, Current | |||
Long-term lease liabilities | $ 83,753 | $ 83,753 | 72,697 | ||
Present Value of Lease Liabilities | $ 100,454 | $ 100,454 | $ 86,713 | ||
Minimum | |||||
Lessee, Lease, Description [Line Items] | |||||
Lease term | 3 years | 3 years | |||
Number of options to renew | Option | 1 | ||||
Maximum | |||||
Lessee, Lease, Description [Line Items] | |||||
Lease term | 10 years | 10 years |
Summary of Significant Accou_11
Summary of Significant Accounting Policies - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 | |
Maturities of lease liabilities: | |||||
2020 (excluding the six months ended June 30, 2020) | $ 10,598 | $ 10,598 | |||
2021 | 19,113 | 19,113 | |||
2022 | 16,138 | 16,138 | |||
2023 | 13,767 | 13,767 | |||
2024 | 12,294 | 12,294 | |||
Thereafter | 46,744 | 46,744 | |||
Total Lease Payments | 118,654 | 118,654 | |||
Less-Present Value Discount | (18,200) | (18,200) | |||
Present Value of Lease Liabilities | 100,454 | 100,454 | $ 86,713 | ||
Supplemental information related to leases: | |||||
Cash paid for amounts included in the measurement of lease liabilities | 5,305 | $ 4,095 | 9,778 | $ 7,873 | |
Lease right-of-use assets obtained in exchange for lease liabilities | $ 19,922 | $ 14,223 | $ 22,200 | $ 14,397 |
Summary of Significant Accou_12
Summary of Significant Accounting Policies - Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | |
Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Summary of Significant Accounting Policies | |||
Provision for income taxes | $ 2.2 | ||
Additions based on tax positions related to prior years | $ 4.6 | $ 2.7 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2020USD ($)item | Jun. 30, 2020USD ($)item | Dec. 31, 2019USD ($) | Nov. 30, 2021USD ($) | |
Fair Value Measurements | ||||
Number of employees covered under life insurance policies | item | 74 | 74 | ||
Combined face value of life insurance policies | $ 54,200 | $ 54,200 | ||
Cash surrender value | 4,300 | $ 4,300 | $ 3,900 | |
Minimum | ||||
Fair Value Measurements | ||||
Weighted average cost of capital | 9.00% | |||
Maximum | ||||
Fair Value Measurements | ||||
Weighted average cost of capital | 16.00% | |||
Contingent earn-out obligations | ||||
Reconciliation of the fair value of contingent earn-out obligations that use significant unobservable inputs (Level 3) | ||||
Balance at beginning of year | $ 28,497 | 7,375 | ||
Issuances | 9,155 | 19,500 | ||
Settlements | (9,866) | (1,369) | ||
Adjustments to fair value | 1,599 | 2,991 | ||
Balance at end of period | 29,385 | 29,385 | 28,497 | |
Recurring basis | Total | ||||
Fair Value Measurements | ||||
Cash and cash equivalents | 53,253 | 53,253 | 50,788 | |
Life insurance-cash surrender value | 4,298 | 4,298 | 3,905 | |
Contingent earn-out obligations | 29,385 | 29,385 | 28,497 | |
Recurring basis | Quoted Market Prices In Active Markets for Identical Assets (Level 1) | ||||
Fair Value Measurements | ||||
Cash and cash equivalents | 53,253 | 53,253 | 50,788 | |
Recurring basis | Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2) | ||||
Fair Value Measurements | ||||
Life insurance-cash surrender value | 4,298 | 4,298 | 3,905 | |
Recurring basis | Significant Unobservable Inputs (Level 3) | ||||
Fair Value Measurements | ||||
Contingent earn-out obligations | 29,385 | 29,385 | $ 28,497 | |
Interest Rate Swap | ||||
Fair Value Measurements | ||||
Net loss on derivative | 100 | 100 | ||
Interest Rate Swap | Not Designated as Hedging Instrument, Economic Hedge [Member] | ||||
Fair Value Measurements | ||||
Notional amount | 215,000 | 215,000 | $ 80,000 | |
Interest Rate Swap | Recurring basis | Total | Not Designated as Hedging Instrument, Economic Hedge [Member] | ||||
Fair Value Measurements | ||||
Interest rate swaps | 62 | 62 | ||
Interest Rate Swap | Recurring basis | Fair Value Measurements at Reporting Date Using Significant Other Observable Inputs (Level 2) | Not Designated as Hedging Instrument, Economic Hedge [Member] | ||||
Fair Value Measurements | ||||
Interest rate swaps | $ 62 | $ 62 |
Acquisitions (Details)
Acquisitions (Details) - USD ($) $ in Thousands | Apr. 01, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Dec. 31, 2019 | Dec. 31, 2018 |
Consideration transferred: | |||||
Total consideration transferred | $ 2,600 | ||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||
Goodwill | $ 420,782 | $ 332,447 | $ 235,182 | ||
TAS Energy | |||||
Consideration transferred: | |||||
Cash paid at closing | $ 105,950 | ||||
Working capital adjustment | 39,715 | ||||
Notes issued to former owners | 14,000 | ||||
Estimated fair value of contingent earn-out payments | 9,100 | ||||
Total consideration transferred | 168,765 | ||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||
Cash and cash equivalents | 47,460 | ||||
Billed and unbilled accounts receivable | 18,702 | ||||
Other current assets | 15,634 | ||||
Other long-term assets | 935 | ||||
Property and equipment | 7,709 | ||||
Goodwill | 73,409 | ||||
Identifiable intangible assets | 53,400 | ||||
Lease right-of-use asset | 19,736 | ||||
Accounts payable | (16,453) | ||||
Billings in excess of costs and estimated earnings | (24,196) | ||||
Current lease liabilities | (2,337) | ||||
Accrued expenses and other current liabilities | (4,849) | ||||
Long-term lease liabilities | (17,398) | ||||
Other long-term liabilities | (2,987) | ||||
Total assets acquired and liabilities assumed | $ 168,765 |
Acquisitions - Acquired Intangi
Acquisitions - Acquired Intangible Assets (Details) - TAS Energy $ in Thousands | Apr. 01, 2020USD ($) |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Fair Value | $ 53,400 |
Backlog | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 1 year |
Estimated Fair Value | $ 5,200 |
Trade Name | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 25 years |
Estimated Fair Value | $ 8,200 |
Customer Relationships | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 10 years |
Estimated Fair Value | $ 40,000 |
Acquisitions - Contingent Earn-
Acquisitions - Contingent Earn-out Obligation (Details) - TAS Energy $ in Millions | Apr. 01, 2020USD ($) |
Business Acquisition [Line Items] | |
Contingent earn-out period | 27 months |
Contingent earn-out estimated milestone payment, minimum | $ 1 |
Contingent earn-out estimated milestone payment, maximum | $ 8 |
Cash flow discount rate | 17.70% |
Federal | |
Business Acquisition [Line Items] | |
Net operating loss carryforwards | $ 55.5 |
State | |
Business Acquisition [Line Items] | |
Net operating loss carryforwards | $ 6.5 |
Minimum | |
Business Acquisition [Line Items] | |
Cash flow discount rate | 15.00% |
Maximum | |
Business Acquisition [Line Items] | |
Cash flow discount rate | 23.50% |
Acquisitions - Other Acquisitio
Acquisitions - Other Acquisitions (Details) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020USD ($) | Jun. 30, 2019USD ($)item | Mar. 31, 2019item | Jun. 30, 2019USD ($) | |
Acquisitions | ||||
Number of acquisitions | item | 1 | 1 | ||
Total purchase price | $ 2.6 | |||
Walker | ||||
Acquisitions | ||||
Total purchase price | $ 235.4 | |||
Starr | ||||
Acquisitions | ||||
Total purchase price | $ 41.6 |
Goodwill and Identifiable Int_3
Goodwill and Identifiable Intangible Assets, Net - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 30, 2020 | Dec. 31, 2019 | |
Changes in the carrying amount of goodwill | ||
Balance at beginning of year | $ 332,447 | $ 235,182 |
Acquisitions and purchase price adjustments (See Note 4) | 88,335 | 97,265 |
Balance at end of period | 420,782 | 332,447 |
Mechanical Services Segment | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of year | 234,660 | 235,182 |
Acquisitions and purchase price adjustments (See Note 4) | 73,409 | 579 |
Impact of segment reorganization | (1,101) | |
Balance at end of period | 308,069 | 234,660 |
Electrical Services | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of year | 97,787 | |
Acquisitions and purchase price adjustments (See Note 4) | 14,926 | 96,686 |
Impact of segment reorganization | 1,101 | |
Balance at end of period | $ 112,713 | $ 97,787 |
Goodwill and Identifiable Int_4
Goodwill and Identifiable Intangible Assets, Net - Identifiable Intangible Assets, Net (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 | |
Identifiable Intangible Assets, Net | |||||
Gross Book Value | $ 329,787 | $ 329,787 | $ 262,456 | ||
Accumulated Amortization | (119,623) | (119,623) | (102,482) | ||
Amortization of identifiable intangible assets | 10,900 | $ 8,100 | 17,141 | $ 13,006 | |
Future amortization expense of identifiable intangible assets | |||||
2020 (remainder of the year) | 15,557 | 15,557 | |||
2021 | 24,610 | 24,610 | |||
2022 | 21,989 | 21,989 | |||
2023 | 20,535 | 20,535 | |||
2024 | 19,185 | 19,185 | |||
Thereafter | 108,288 | 108,288 | |||
Total | 210,164 | 210,164 | |||
Customer Relationships | |||||
Identifiable Intangible Assets, Net | |||||
Gross Book Value | 231,492 | 231,492 | 183,061 | ||
Accumulated Amortization | (91,882) | $ (91,882) | (80,813) | ||
Customer Relationships | Minimum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 1 year | ||||
Customer Relationships | Maximum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 15 years | ||||
Backlog | |||||
Identifiable Intangible Assets, Net | |||||
Gross Book Value | 12,600 | $ 12,600 | 7,400 | ||
Accumulated Amortization | (10,822) | $ (10,822) | (6,388) | ||
Backlog | Minimum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 1 year | ||||
Backlog | Maximum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 2 years | ||||
Trade Name | |||||
Identifiable Intangible Assets, Net | |||||
Gross Book Value | 85,695 | $ 85,695 | 71,995 | ||
Accumulated Amortization | $ (16,919) | $ (16,919) | $ (15,281) | ||
Trade Name | Minimum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 2 years | ||||
Trade Name | Maximum | |||||
Identifiable Intangible Assets, Net | |||||
Estimated Useful Lives in Years | 25 years |
Goodwill and Identifiable Int_5
Goodwill and Identifiable Intangible Assets, Net - Additional Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |
Dec. 31, 2019 | Jun. 30, 2020 | Dec. 31, 2018 | |
Goodwill | |||
Goodwill | $ 332,447 | $ 420,782 | $ 235,182 |
Walker | |||
Goodwill | |||
Percentage of fair values in excess of carrying value of two acquired reporting units | 27.00% | ||
Percentage of fair values in excess of carrying value for Walker reporting unit | 27.00% | 29.00% | |
Goodwill | $ 96,800 |
Debt Obligations (Details)
Debt Obligations (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Debt Obligations | ||
Total principal amount | $ 231,835 | $ 226,483 |
Less-unamortized debt issuance costs | (308) | (348) |
Total long-term portion of debt | 231,527 | 226,135 |
Less-current portion | 85 | 20,817 |
Total long-term portion of debt, net | 231,442 | 205,318 |
Revolving credit facility | ||
Debt Obligations | ||
Total principal amount | 55,000 | 28,000 |
Term loan | ||
Debt Obligations | ||
Total principal amount | 138,750 | 150,000 |
Notes to former owners | ||
Debt Obligations | ||
Outstanding balance | 38,050 | $ 48,483 |
Other debt | ||
Debt Obligations | ||
Acquired debt | $ 35 |
Debt Obligations - Other (Detai
Debt Obligations - Other (Details) $ in Thousands | Dec. 31, 2019USD ($) | Dec. 20, 2019 | Dec. 19, 2019USD ($) | Jun. 30, 2020USD ($)item | Mar. 31, 2020USD ($) | Jun. 30, 2019USD ($) | Mar. 31, 2019USD ($) | Jun. 30, 2020USD ($)item | Jun. 30, 2019USD ($) |
Debt Obligations | |||||||||
Outstanding balance | $ 226,483 | $ 231,835 | $ 231,835 | ||||||
Reconciliation of Credit Facility Adjusted EBITDA to net income | |||||||||
Net income | 39,495 | $ 17,716 | $ 24,173 | $ 19,866 | 57,211 | $ 44,039 | |||
Provision for income taxes | $ 15,070 | $ 6,933 | 21,821 | 13,866 | |||||
Stock-based compensation | $ 5,188 | $ 4,679 | |||||||
Principal financial covenants | |||||||||
Fixed charge coverage ratio | 2 | 2 | |||||||
Revolving credit facility | |||||||||
Debt Obligations | |||||||||
Borrowing capacity | 450,000 | ||||||||
Payments of financing costs line of credit arrangements | 1,000 | ||||||||
Outstanding borrowings | $ 55,000 | $ 55,000 | |||||||
Outstanding balance | 28,000 | 55,000 | 55,000 | ||||||
Letters of credit amount outstanding | 55,600 | 55,600 | |||||||
Credit available | $ 339,400 | $ 339,400 | |||||||
Principal financial covenants | |||||||||
Number of interest rate options | item | 2 | ||||||||
Leverage ratio | 0.9 | 0.9 | |||||||
Fixed charge coverage ratio | 7.3 | 7.3 | |||||||
Number of quarters of capital expenditures, tax provision, dividends and stock repurchase payments used for calculation of fixed charge coverage ratio | item | 4 | ||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 2.20% | 2.20% | |||||||
Revolving credit facility | Through maturity | |||||||||
Principal financial covenants | |||||||||
Leverage ratio | 3 | 3 | |||||||
Revolving credit facility | Minimum | |||||||||
Principal financial covenants | |||||||||
Fixed charge coverage ratio | 1.50 | 1.50 | |||||||
Additional per annum interest margin added under: | |||||||||
Letter of credit fees (as a percent) | 1.25% | ||||||||
Commitment fees payable on unused portion of the facility (as a percent) | 0.20% | ||||||||
Revolving credit facility | Minimum | Covenant Requirement | |||||||||
Principal financial covenants | |||||||||
Net leverage ratio used as basis for other restrictions | 2.50 | 2.50 | |||||||
Revolving credit facility | Maximum | |||||||||
Principal financial covenants | |||||||||
Permitted amount of acquisitions per transaction | $ 5,000 | $ 5,000 | |||||||
Aggregate purchase price of current acquisition and acquisitions in the preceding 12 month period for determining permitted amount of acquisition per transaction | 10,000 | $ 10,000 | |||||||
Additional per annum interest margin added under: | |||||||||
Letter of credit fees (as a percent) | 2.00% | ||||||||
Commitment fees payable on unused portion of the facility (as a percent) | 0.35% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.25% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to 1.75 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.50% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to 2.50 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 0.75% | ||||||||
Revolving credit facility | Base Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 or greater | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.00% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: Less than 1.00 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.25% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.00 to 1.75 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.50% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 1.75 to 2.50 | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 1.75% | ||||||||
Revolving credit facility | Eurodollar Rate | Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA: 2.50 or greater | |||||||||
Additional per annum interest margin added under: | |||||||||
Additional per annum interest margin (as a percent) | 2.00% | ||||||||
Amended senior revolving credit facility | |||||||||
Debt Obligations | |||||||||
Borrowing capacity | 600,000 | $ 400,000 | |||||||
Repayment in terms of percentage of original aggregate principal amount | 3.75% | 1.25% | |||||||
Line of credit borrowing capacity accordion option | 150,000 | ||||||||
Financing and professional cost | 1,400 | ||||||||
Unamortized costs | $ 1,300 | ||||||||
Term loan | |||||||||
Debt Obligations | |||||||||
Borrowing capacity | 150,000 | ||||||||
Payments of financing costs term loan | 400 | ||||||||
Outstanding balance | 150,000 | $ 138,750 | $ 138,750 | ||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 1.70% | 1.70% | |||||||
Notes to former owners | |||||||||
Other disclosures | |||||||||
Cumulative number of companies acquired | item | 5 | 5 | |||||||
Outstanding balance | 48,483 | $ 38,050 | $ 38,050 | ||||||
Promissory note | Walker | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 15,000 | $ 15,000 | |||||||
Weighted average interest rate (as a percent) | 4.00% | 4.00% | |||||||
Amount due in 2022 | $ 2,500 | $ 2,500 | |||||||
Amount due in 2023 | 12,500 | 12,500 | |||||||
Promissory note | TAS Energy | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 14,000 | $ 14,000 | |||||||
Weighted average interest rate (as a percent) | 3.50% | 3.50% | |||||||
Promissory note | Electrical Contractor North Carolina | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 8,000 | $ 8,000 | |||||||
Weighted average interest rate (as a percent) | 3.00% | 3.00% | |||||||
Promissory note | Two Immaterial Acquisitions | |||||||||
Other disclosures | |||||||||
Outstanding balance | $ 1,100 | $ 1,100 | |||||||
Promissory note | Minimum | Two Immaterial Acquisitions | |||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 3.00% | 3.00% | |||||||
Promissory note | Maximum | Two Immaterial Acquisitions | |||||||||
Other disclosures | |||||||||
Weighted average interest rate (as a percent) | 3.50% | 3.50% | |||||||
Letter of Credit | |||||||||
Debt Obligations | |||||||||
Borrowing capacity | $ 160,000 | ||||||||
Other debt | |||||||||
Other disclosures | |||||||||
Acquired debt | $ 35 | $ 35 |
Commitments and Contingencies -
Commitments and Contingencies - Other and Bonds (Details) - Surety | 6 Months Ended |
Jun. 30, 2020 | |
Minimum | |
Surety | |
Percentage of business which has required bonds | 15.00% |
Maximum | |
Surety | |
Percentage of business which has required bonds | 25.00% |
Stockholders' Equity - Incentiv
Stockholders' Equity - Incentive and Other (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions | 6 Months Ended | 159 Months Ended | |||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Nov. 19, 2019 | Mar. 29, 2007 | |
Share Repurchase Program | |||||
Share repurchase | $ 11,006 | $ 7,897 | |||
Stock Repurchase Program 2007 | |||||
Share Repurchase Program | |||||
Number of shares of outstanding common stock authorized to be acquired under a stock repurchase program | 9.5 | 9.5 | 0.8 | 1 | |
Share repurchase (in shares) | 0.3 | 8.9 | |||
Average price (in dollars per share) | $ 37.91 | $ 18.36 | |||
Share repurchase | $ 11,000 |
Stockholders' Equity - Anti-Dil
Stockholders' Equity - Anti-Dilutive Stock Options (Details) - shares shares in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Stock Options | Maximum | ||||
Earnings Per Share | ||||
Anti-dilutive securities excluded from computation of earnings per share amount (in shares) | 0.1 | 0.1 | 0.1 | 0.1 |
Stockholders' Equity - Number o
Stockholders' Equity - Number of Shares (Details) - shares shares in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Reconciliation of the number of shares outstanding with the number of shares used in computing basic and diluted earnings per share | ||||
Common shares outstanding, end of period | 36,503 | 36,854 | 36,503 | 36,854 |
Effect of using weighted average common shares outstanding | 78 | 89 | 125 | 79 |
Shares used in computing earnings per share-basic | 36,581 | 36,943 | 36,628 | 36,933 |
Effect of shares issuable under stock option plans based on the treasury stock method | 99 | 221 | 124 | 226 |
Effect of restricted and contingently issuable shares | 57 | 59 | 69 | 69 |
Shares used in computing earnings per share-diluted | 36,737 | 37,223 | 36,821 | 37,228 |
Segment Information (Details)
Segment Information (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2020USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2020USD ($)segment | Jun. 30, 2019USD ($) | Dec. 31, 2019USD ($) | |
Segment Information | |||||
Number of reportable segments | segment | 2 | ||||
Revenue | $ 743,468 | $ 650,302 | $ 1,443,599 | $ 1,188,775 | |
Gross Profit | 145,695 | 120,016 | 262,788 | 226,681 | |
Capital Expenditures | 14,539 | 15,680 | |||
Total Assets | 1,675,443 | 1,675,443 | $ 1,505,012 | ||
Operating | Mechanical Services Segment | |||||
Segment Information | |||||
Revenue | 622,700 | 553,031 | 1,188,164 | 1,087,616 | |
Gross Profit | 135,757 | 110,279 | 244,679 | 216,131 | |
Operating | Electrical Services | |||||
Segment Information | |||||
Revenue | 120,768 | 97,271 | 255,435 | 101,159 | |
Gross Profit | $ 9,938 | $ 9,737 | $ 18,109 | $ 10,550 |