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What changed in COMFORT SYSTEMS USA INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COMFORT SYSTEMS USA INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+205 added−212 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-22)

Top changes in COMFORT SYSTEMS USA INC's 2023 10-K

205 paragraphs added · 212 removed · 178 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeA stratification of projects in progress as of December 31, 2022, by contract price, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate ​ ​ ​ ​ Contract ​ ​ No. of ​ Price Value Contract Price of Project ​ Projects ​ (millions) Under $2 million 9,812 ​ $ 1,628.5 ​ $2 million - $10 million 610 ​ 2,698.6 ​ $10 million - $20 million 112 ​ 1,645.6 ​ $20 million - $40 million 82 ​ 2,345.3 ​ Greater than $40 million 20 ​ 985.2 ​ Total 10,636 ​ $ 9,303.2 ​ Develop and Adopt Leading Technologies —We are improving productivity by increasing use of innovative techniques in prefabrication, project design and planning, as well as in coordination and production methods.
Biggest changeDevelop and Adopt Leading Technologies —We are improving productivity by increasing use of innovative techniques in prefabrication, project design and planning, as well as in coordination and production methods. We have invested in the refinement and adoption of prefabrication practices.
If 9 Table of Contents we fail to comply with applicable regulations, we could be subject to substantial fines or revocation of our operating licenses. Many state and local regulations governing the MEP services trades require individuals to hold permits and licenses.
If we fail to comply with applicable regulations, we could be subject to substantial fines or revocation of our operating licenses. 9 Table of Contents Many state and local regulations governing the MEP services trades require individuals to hold permits and licenses.
We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
This average project size, when taken together with the approximately 13.0% of our revenue derived from maintenance and service, provides us with a broad base of work in the construction services sector.
This average project size, when taken together with the approximately 11.0% of our revenue derived from maintenance and service, provides us with a broad base of work in the construction services sector.
This level was 33% better than the most recently published OSHA rate for our industry. Diversity and Inclusion —We are an equal opportunity employer, and we welcome and celebrate our teams’ differences, experiences, and beliefs.
This level was 52% better than the most recently published OSHA rate for our industry. Diversity and Inclusion —We are an equal opportunity employer, and we welcome and celebrate our teams’ differences, experiences, and beliefs.
Our goal is to use our scale and strategic investments to maintain a leading position in design and modeling excellence, optimize productivity and quality, and ultimately position ourselves to capitalize from ongoing or future technological developments.
Our goal is to use our scale and strategic investments to maintain a leading position in design and modeling excellence, increase productivity and quality, and ultimately position ourselves to capitalize from ongoing or future technological developments.
In addition, certain business partners, such as consultants, agents, suppliers, contractors, and other third 7 Table of Contents parties, serve as an extension of the Company. They are expected to follow the spirit of our Code of Conduct, all applicable laws, and any applicable contractual provisions when working on our behalf.
In addition, certain business partners, such as consultants, agents, suppliers, contractors, and other third parties, serve as an extension of the Company. They are expected to follow the spirit of our Code of Conduct, all applicable laws, and any applicable contractual provisions when working on our behalf.
Recruiting and Training —Our continued success depends, in part, on our ability to continue to attract, retain and motivate qualified engineers, service technicians, field supervisors and project managers. We believe our success in retaining qualified employees will be based on the quality of our recruiting, training, compensation, employee benefits programs and opportunities for advancement.
Recruiting and Training —Our continued success depends, in part, on our ability to continue to attract, retain and motivate qualified craft workers, engineers, service technicians, field supervisors and project managers. We believe our success in retaining qualified employees will be based on the quality of our recruiting, training, compensation, employee benefits and opportunities for advancement.
Focus on Industrial, Commercial and Institutional Markets —We focus on the industrial, commercial, and institutional building markets, including construction, maintenance, repair, and replacement services. We believe that these complex markets are attractive because of their growth opportunities, large and diverse customer base, attractive margins, and potential for long-term relationships with building owners.
Focus on Industrial, Commercial and Institutional Markets —We focus on the industrial, commercial, and institutional building markets, including construction, maintenance, repair, and replacement services. We believe that 4 Table of Contents these complex markets are attractive because of their growth opportunities, large and diverse customer base, attractive margins, and potential for long-term relationships with building owners.
These values set the foundation for our Code of Conduct, which applies to all employees, officers, and directors of the Comfort Systems USA family of companies. The Code of Conduct is regularly reinforced to the Company’s employees and management through periodic ethics, equal opportunity employment, and anti-corruption trainings.
These values set the foundation for our Code of Conduct, which applies to all employees, officers, and directors of the Comfort Systems USA family of companies. The Code of Conduct is regularly reinforced to the Company’s employees and management through periodic ethics, equal opportunity employment, and anti-corruption 7 Table of Contents trainings.
Additionally, our employment screening process seeks to determine that prospective employees have requisite skills, sufficient background references and acceptable driving records, if applicable. Our rate of incidents recordable under the standards of the Occupational Safety and Health Administration (“OSHA”) per one hundred employees per year, also known as the OSHA recordable rate, was 1.01 during 2022.
Additionally, our employment screening process seeks to determine that prospective employees have requisite skills, sufficient background references and acceptable driving records, if applicable. Our rate of incidents recordable under the standards of the Occupational Safety and Health Administration (“OSHA”) per one hundred employees per year, also known as the OSHA recordable rate, was 1.10 during 2023.
Everyone at our Company shares a responsibility for doing business ethically and in a sustainable manner, preserving our good name. We ensure that this responsibility applies at every level in our organization, and everyone from corporate officers to members of our Board of Directors, to our field personnel is responsible for overseeing these efforts.
Everyone at our Company shares a responsibility for doing business ethically and in a sustainable manner, preserving our good name. We ensure that this responsibility applies at every level in our organization, and everyone from officers and directors to our field personnel is responsible for overseeing these efforts.
Finally, we have published a number of new policies and guidelines related to environmental, social and governance matters, including: a Supplier Diversity Policy, a Supplier Code of Conduct, an Environmental Policy and a Labor & Human Rights Policy.
Further, we have published a number of policies and guidelines related to environmental, social and governance matters, including: a Supplier Diversity Policy, a Supplier Code of Conduct, an Environmental Policy and a Labor & Human Rights Policy.
Service calls are coordinated by customer service representatives or dispatchers that use computer and communication technology to process orders, arrange service calls, dispatch technicians and communicate with and invoice customers. Service technicians work from service vehicles equipped with commonly used parts, supplies and tools to complete a variety of jobs. Optimal maintenance is crucial to energy efficient operations.
Service calls are coordinated by customer service representatives or dispatchers to process orders, arrange service calls, dispatch technicians and communicate with and invoice customers. Service technicians work from service vehicles equipped with commonly used parts, supplies and tools to complete a variety of jobs. Optimal maintenance is crucial to energy efficient operations.
Accordingly, we have invested in the experts, training, and internal and external knowledge transfer to ensure that we are properly scaling, achieving true buildability, and fundamentally and continuously improving our design capabilities to meet our customers’ evolving requirements.
Accordingly, we have invested in experts, training, and internal and external knowledge transfer to ensure that we are properly scaling, optimizing buildability, and fundamentally and continuously improving our design capabilities to meet our customers’ evolving requirements.
Our consolidated 2022 revenue was derived from the following service industries: ​ ​ ​ ​ ​ Percentage of Service Activity ​ Revenue Mechanical Services 76.8 % Electrical Services ​ 23.2 % Total 100.0 % Industry Overview We believe that commercial, industrial, and institutional mechanical and electrical contracting generate annual revenue in the United States of approximately $350 billion.
Our consolidated 2023 revenue was derived from the following service industries: ​ ​ ​ ​ ​ Percentage of Service Activity ​ Revenue Mechanical Services 75.8 % Electrical Services ​ 24.2 % Total 100.0 % Industry Overview We believe that commercial, industrial, and institutional mechanical and electrical contracting generate annual revenue in the United States of approximately $350 billion.
Amounts withheld under this practice are known as retention or retainage. Renovation, Expansion, Maintenance, Monitoring, Repair and Replacement Services for Existing Buildings —Our renovation, expansion, maintenance, monitoring, repair and replacement services in existing buildings comprised approximately 51.4% of our consolidated 2022 revenue. Maintenance and repair services are provided either in response to service calls or under a service agreement.
Amounts withheld under this practice are known as retention or retainage. Renovation, Expansion, Maintenance, Monitoring, Repair and Replacement Services for Existing Buildings —Our renovation, expansion, maintenance, monitoring, repair and replacement services in existing buildings comprised approximately 45.2% of our consolidated 2023 revenue. Maintenance and repair services are provided either in response to service calls or under a service agreement.
We build, install, maintain, repair and replace mechanical, electrical and plumbing (“MEP”) systems throughout our 42 operating units with 169 locations in 128 cities throughout the United States. We operate primarily in the commercial, industrial and institutional MEP markets and perform most of our services in industrial, healthcare, education, office, technology, retail and government facilities.
We build, install, maintain, repair and replace mechanical, electrical and plumbing (“MEP”) systems throughout our 44 operating units with 172 locations in 131 cities throughout the United States. We operate primarily in the commercial, industrial and institutional MEP markets and perform most of our services in manufacturing, healthcare, education, office, technology, retail and government facilities.
Human Capital Resources Employees —As of December 31, 2022, we had approximately 14,100 employees as compared to approximately 13,200 employees as of December 31, 2021. We have collective bargaining agreements covering 12 employees. We have not experienced and do not expect any significant strikes or work stoppages and believe our relations with employees covered by collective bargaining agreements are good.
Human Capital Resources Employees —As of December 31, 2023, we had approximately 15,800 employees as compared to approximately 14,100 employees as of December 31, 2022. We have collective bargaining agreements covering 7 employees. We have not experienced and do not expect any significant strikes or work stoppages and believe our relations with employees covered by collective bargaining agreements are good.
Construction and Installation Services for New Buildings —Our installation business related to newly constructed facilities, which comprised approximately 48.6% of our consolidated 2022 revenue, involves the design, engineering, integration, installation and start-up of MEP and related systems.
Construction and Installation Services for New Buildings —Our installation business related to newly constructed facilities, which comprised approximately 54.8% of our consolidated 2023 revenue, involves the design, engineering, integration, installation and start-up of MEP and related systems.
Sales and Marketing We have a diverse customer base, with our top customer representing 8% of consolidated 2022 revenue, and our largest customer often changes from year to year. Management and a dedicated sales force are responsible for developing and maintaining successful long-term relationships with key customers.
Sales and Marketing We have a diverse customer base, with our top customer representing 14% of consolidated 2023 revenue. Our largest customer can change from year to year. Management and a dedicated sales force are responsible for developing and maintaining successful long-term relationships with key customers.
Our distribution of revenue in 2022 by end-use sector was as follows: ​ ​ ​ ​ Industrial 47.7 % Healthcare 14.1 % Education 10.8 % Office Buildings 8.4 % Retail, Restaurants and Entertainment 7.5 % Government 6.2 % Multi-Family and Residential 3.0 % Other 2.3 % Total 100.0 % ​ Approximately 87.0% of our revenue is earned on a project basis for installation of systems in newly constructed or existing facilities.
Our distribution of revenue in 2023 by end-use sector was as follows: ​ ​ ​ ​ Manufacturing 33.6 % Technology ​ 21.4 % Healthcare 10.6 % Education 9.5 % Office Buildings 7.7 % Retail, Restaurants and Entertainment 6.0 % Government 5.8 % Multi-Family and Residential 3.5 % Other 1.9 % Total 100.0 % ​ Approximately 89.0% of our revenue is earned on a project basis for installation of systems in newly constructed or existing facilities.
We also provide remote monitoring of power usage, temperature, pressure, humidity and air flow for MEP and other building systems. 6 Table of Contents Sources of Supply The raw materials and components we use include MEP system components, ductwork, pipe, conduit, wire, electrical fixtures, steel, sheet metal and copper tubing and piping.
We also provide remote monitoring of power usage, temperature, pressure, humidity and air flow for MEP and other building systems. 6 Table of Contents Sources of Supply The raw materials and components we install and service include MEP system components such as ductwork, pipe, valves, fittings, electrical wire, conduit and fixtures, fabricated steel and sheet metal.
We expect all employees to be treated with dignity and respect in an environment free from discrimination and harassment regardless of race, color, religion, sex, sexual orientation, gender identity or expression, national origin, age, disability, veteran status, genetic information, or any other protected class.
We expect all employees to be treated with dignity and respect in an environment free from discrimination and harassment regardless of race, color, religion, sex, sexual orientation, gender identity or expression, national origin, age, disability, veteran status, genetic information, or any other protected class. We know that diversity is truly a competitive advantage that helps drive growth and innovation.
Substantially all of our consolidated 2022 revenue was derived from commercial, industrial and institutional customers and multi-family residential projects. Approximately 48.6% of our revenue was attributable to installation services in newly constructed facilities and 51.4% was attributable to renovation, expansion, maintenance, repair and replacement services in existing buildings.
Substantially all of our consolidated 2023 revenue was derived from commercial, industrial and institutional customers and multi-family residential projects. Approximately 54.8% of our revenue was attributable to installation services in newly constructed facilities and 45.2% was attributable to renovation, expansion, maintenance, repair and replacement services in existing buildings.
The mechanical and electrical contracting industries are also subject to seasonal variations. The demand for new installation and replacement is generally lower during the winter months (the first quarter of the year) due to reduced construction activity during inclement weather and less use of air conditioning during the colder months.
The demand for new installation and replacement is generally lower during the winter months (the first quarter of the year) due to reduced construction activity during inclement weather and less use of air conditioning during the colder months.
These raw materials and components are generally available from a variety of domestic or foreign suppliers at competitive prices. In ordinary times, delivery times are typically short for most raw materials and standard components, but during periods of peak demand, including as we continue to experience the effects of the pandemic, may extend to several months.
These raw materials and components are generally available from a variety of domestic or foreign suppliers at competitive prices. During ordinary times, delivery times are typically short for most raw materials and standard components. However, during periods of peak demand, including recent residual effects of the COVID-19 pandemic, lead-times for certain components may extend to several months.
Our average project takes six to nine months to complete, with an average contract price of approximately $875,000. We also perform larger project work, with 824 contracts in progress at December 31, 2022 with contract prices in excess of $2 million. Our largest project in progress at December 31, 2022 had a contract price of $74.5 million.
Our average project takes six to nine months to complete, with an average contract price of approximately $1.1 million. We also perform larger project work, with 1,004 contracts in progress at December 31, 2023 with contract prices in excess of $2 million. Our largest project in progress at December 31, 2023 had a contract price of $149.6 million.
Our industry can be broadly divided into two categories: ● construction of and installation in new buildings, which provided approximately 48.6% of our revenue in 2022, and ● renovation, expansion, maintenance, repair and replacement in existing buildings, which provided the remaining 51.4% of our 2022 revenue.
Our industry can be broadly divided into two categories: ● construction of and installation in new buildings, which provided approximately 54.8% of our revenue in 2023, and ● renovation, expansion, maintenance, repair and replacement in existing buildings, which provided the remaining 45.2% of our 2023 revenue.
Cyclicality and Seasonality The construction industry is subject to business cycle fluctuation. As a result, our volume of business, particularly in new construction projects and renovation, may be adversely affected by declines in new installation and replacement projects in various geographic regions of the United States during periods of economic weakness.
As a result, our volume of business, particularly in new construction projects and renovation, may be adversely affected by declines in new installation and replacement projects in various geographic regions of the United States during periods of economic weakness. The mechanical and electrical contracting industries are also subject to seasonal variations.
As of December 31, 2022, we had 10,636 projects in process with an aggregate contract value of approximately $9.3 billion. Our average project takes six to nine months to complete, with an average contract price of approximately $875,000.
As of December 31, 2023, we had 10,481 projects in process with an aggregate contract value of approximately $12.0 billion. Our average project takes six to nine months to complete, with an average contract price of approximately $1.1 million.
Accordingly, through our acquisitions, we have invested in that capability, and after acquisition we have further invested in improving and growing that service offering. This has led to meaningful growth in our ability to provide this expertise.
Accordingly, through our acquisitions, we have invested in that capability, and after acquisition we have further invested in improving and growing that service offering. This has led to meaningful growth in our ability to provide this expertise. Through recent and ongoing development and acquisitions, we plan to continue to improve our unmatched capability in mechanical off-site or modular construction.
We estimate that direct purchase of commodities and finished products comprises between 40% and 45% of our average project cost. We have procedures to reduce commodity cost exposure such as purchasing commodities early for projects, as well as selectively including time or market-based escalation and escape provisions in bids and contracts.
We have procedures to reduce commodity cost exposure such as purchasing commodities early for projects, as well as selectively including time or market-based escalation and escape provisions in bids and contracts.
Above all, we have concluded that as technology develops in our industry the fundamental prerequisite for leadership is adopting such opportunities in the quality, accuracy, and buildability of our designs.
We work to identify, develop, and implement new materials, products and methods that can achieve greater productivity and more efficient and sustainable outcomes. Above all, we have concluded that as technology develops in our industry, the fundamental prerequisite for leadership is adopting such opportunities in the quality, accuracy, and buildability of our designs.
Seek Growth through Acquisitions —We believe that we can further increase our cash flow and operating income by continuing to opportunistically enter new markets or service lines through acquisition.
In many locations we have added or upgraded our capability, and we believe our investments and efforts have provided customer value and stimulated growth in all aspects of our businesses. Seek Growth through Acquisitions —We believe that we can further increase our cash flow and operating income by continuing to opportunistically enter new markets or service lines through acquisition.
We retain the risk for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims resulting from uninsured deductibles per-incident or occurrence. Because we have very large per incident deductibles, the vast majority of our claims are paid by us, so as a practical matter we self-insure the great majority of these risks.
Because we have very large per incident deductibles, the vast majority of our claims are paid by us, so as a practical matter we self-insure the great majority of these risks.
Leverage Resources and Capabilities —We believe significant operating efficiencies can be achieved by leveraging resources among our operating locations. We have shifted certain fabrication activities to centralized locations to increase asset utilization.
Leverage Resources and Capabilities —We believe significant operating efficiencies can be achieved by leveraging resources among our operating locations. We have shifted certain fabrication activities to centralized locations to increase asset utilization. We opportunistically allocate our engineering, field, and supervisory labor from one operation to another to use our employee base more fully, meet our customers’ needs and share expertise.
Attract, Retain and Invest in our Employees —We seek to attract and retain quality employees by providing them an enhanced career path that offers a stable income, attractive benefits packages, and excellent growth opportunities.
We also use our combined spend to gain purchasing advantages on products and services such as MEP components, raw materials, services, vehicles, bonding, insurance, and employee benefits. Attract, Retain and Invest in our Employees —We seek to attract and retain quality employees by providing an enhanced career path that offers a stable income, attractive benefits, and excellent growth opportunities.
We believe that the work we perform to optimize and upgrade systems and to enable wise controls helps Comfort Systems USA to optimize energy use and fundamentally reduce our nation’s carbon footprint. Strategy We focus on strengthening core operating competencies, on leading in sustainability, efficiency and technological improvement, and on increasing profit margins.
We believe that the work we perform to optimize and upgrade systems and to enable wise controls helps Comfort Systems USA to optimize energy use and fundamentally reduce our nation’s carbon footprint. Strategy At Comfort Systems USA, Inc., our core purpose is to “Build Legacies” with our people, customers, and the companies who join us.
Through recent and ongoing development and acquisitions, we plan to continue to improve on our unmatched capability in mechanical off-site or modular construction. 5 Table of Contents Service Growth Initiative —Over the last several years we have made substantial investments to expand our service and maintenance revenue by increasing the value we can offer to service and maintenance customers.
Service Growth Initiative —Over the last several years, we have made substantial investments to expand our service and maintenance revenue by increasing the value we can offer to service and maintenance customers. We are actively concentrating managerial and sales resources on training and hiring experienced employees to sell and 5 Table of Contents profitably perform service work.
For example, in 2022, we received a silver medal as a result of our EcoVadis submission, and we published our second sustainability report (i) following the Task Force on Climate-related Financial Disclosures (“TCFD”) and the Sustainability Accounting Standard Board’s (“SASB”) standards for the Engineering and Construction Services industry, and (ii) in accordance with the Global Reporting Initiative (“GRI”) Standards: Core option.
In 2023, we continued our efforts to adhere to voluntary reporting standards by (i) submitting to CDP (formerly the Carbon Disclosure Project), wherein, among other things, we disclosed the results of our annual greenhouse gas emissions inventory, and (ii) publishing our 2022 sustainability report, which followed the Task Force on Climate-related Financial Disclosures and the Sustainability Accounting Standard Board’s standards for the Engineering and Construction Services industry and the Global Reporting Initiative Standards: Core option.
Our Board of Directors and Board committees provide oversight on certain human capital matters, including our diversity and inclusion strategy. Insurance and Litigation The primary insured risks in our operations are bodily injury, property damage and workers’ compensation injuries.
Diversity and inclusion are among our leadership’s key priorities, including steps to accelerate progress in outreach, representation, development, and advancement of underrepresented groups within our Company. Our Board of Directors and Board committees provide oversight on certain human capital matters, including our diversity and inclusion strategy.
The major suppliers of building automation control systems are Automated Logic, Cisco, Delta, Distech Controls, Honeywell, Johnson Controls, Rockwell Automation, Schneider Electric, Siemens, Trane, and York. The major suppliers of electrical switchgear and generators are Caterpillar, Cummins, Eaton and Schneider Electric. We do not have any significant contracts guaranteeing us a supply of raw materials or components.
The primary manufacturers of the major components in a commercial MEP system are: Trane, Carrier, York, Daikin (chillers and roof tops units), Baltimore Aircoil and SPX (cooling towers), Schneider Electric, Eaton, ABB (electrical switchgear), Caterpillar, Cummins, Kohler (power generators), Johnson Controls, Automated Logic and Siemens (building automation).
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We also use our combined spend to gain purchasing advantages on products and services such as MEP components, raw materials, services, vehicles, bonding, insurance, and employee benefits.
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To accomplish this purpose, we strive every day to be the best organization in the world (i) for a craft worker to build a successful career, (ii) for construction, service and administrative professionals to grow and thrive, (iii) for customers to meet their crucial building and service needs, and (iv) for any company in our industry to join with the assurance that their people will be respected and nurtured and that their legacy will be perpetuated and built upon.
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We opportunistically allocate our engineering, field, and supervisory labor from 4 Table of Contents one operation to another to use our employee base more fully, meet our customers’ needs and share expertise.
Added
We focus on strengthening core operating competencies, on leading in sustainability, efficiency, and technological improvement, and on being fairly compensated for the work we do and the risks we manage on behalf of our customers.
Removed
We have invested in the refinement and adoption of prefabrication practices. We work to identify, develop, and implement new materials, products and methods that can achieve greater productivity and more efficient and sustainable outcomes.
Added
We estimate that the direct purchase of commodities and finished products comprises between 40% and 45% of our average project cost. Orders for manufactured commercial HVAC equipment, electrical switch gear, and large application power generators have experienced the longest lead-times, and it is not uncommon for lead-times to be greater than six months.
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We are actively concentrating managerial and sales resources on training and hiring experienced employees to sell and profitably perform service work. In many locations we have added or upgraded our capability, and we believe our investments and efforts have provided customer value and stimulated growth in all aspects of our businesses.
Added
We do not have any significant contracts guaranteeing us a supply of raw materials or components. Cyclicality and Seasonality The construction industry is subject to business cycle fluctuation.
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Chillers, electrical switch gear and generators for large applications typically have the longest delivery time and frequently have lead times of six months or even longer. The major components of commercial MEP systems are compressors and chillers that are manufactured primarily by Carrier, Lennox, Daikin, Trane, and York.
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Insurance and Litigation The primary insured risks in our operations are bodily injury, property damage and workers’ compensation injuries. We retain the risk for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims resulting from uninsured deductibles per-incident or occurrence.
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We know that diversity is truly a competitive advantage that helps drive growth and innovation, and we have increasingly focused on diversity and inclusion programs within our Company. Diversity and inclusion are among our leadership team’s top priorities, with clearly outlined near-term actions to accelerate progress in outreach, representation, development, and advancement of underrepresented groups within our Company.
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Additionally, we have increased our voluntary reporting through a submission to CDP (formerly the Carbon Disclosure Project), wherein, among other things, we disclosed the results of our first annual greenhouse gas emissions inventory. Such additional reporting is a continuation of our efforts to adhere to voluntary reporting standards.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

48 edited+5 added−15 removed139 unchanged
Biggest changeCompliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies could increase the costs of projects for our customers or, in some cases, prevent a project from going forward, which could in turn have an adverse effect on our financial condition and results of operations.
Biggest changeCompliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could increase the costs of projects for our customers or, in some cases, prevent a project from going forward, which could in turn have an adverse effect on our financial condition and results of operations. 14 Table of Contents Continuing worldwide political and economic uncertainties may adversely affect our revenue and profitability. ​ The last several years have been periodically marked by political and economic concerns, including the COVID-19 pandemic, decreased consumer confidence, the effects of international conflicts such as the wars between Russia and Ukraine and between Israel and Hamas, tariffs, energy costs and inflation.
Our business may be affected by the work environment. ​ We may need to perform our work under a variety of conditions, including but not limited to, difficult terrain, difficult site conditions and busy urban centers where delivery of materials and availability of labor may be impacted, clean-room environments where strict procedures must be followed and sites that may have been exposed to harsh and hazardous conditions and outbreaks of infectious disease, such as the ongoing COVID-19 pandemic.
Our business may be affected by the work environment. ​ We may need to perform our work under a variety of conditions, including but not limited to, difficult terrain, difficult site conditions and busy urban centers where delivery of materials and availability of labor may be impacted, clean-room environments where strict procedures must be followed and sites that may have been exposed to harsh and hazardous conditions and outbreaks of infectious disease, such as the COVID-19 pandemic.
Labor shortages, including the current U.S. labor shortage, increased labor costs or the loss of key personnel may reduce our profitability and negatively impact our business. Further, our relationships with some customers could suffer if we are unable to retain the employees with whom those customers primarily work and have established relationships.
Labor shortages, including the recent U.S. labor shortage, increased labor costs or the loss of key personnel may reduce our profitability and negatively impact our business. Further, our relationships with some customers could suffer if we are unable to retain the employees with whom those customers primarily work and have established relationships.
Our 169 locations are located in 27 states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to contractor licensing requirements. These laws and regulations govern many aspects of our business, and there are often different standards and requirements in different locations.
Our 172 locations are located in 27 states, which exposes us to a variety of different state and local laws and regulations, particularly those pertaining to contractor licensing requirements. These laws and regulations govern many aspects of our business, and there are often different standards and requirements in different locations.
The utilization of our workforce is impacted by numerous factors, including: ● our estimate of headcount requirements and our ability to manage attrition; ● efficiency in scheduling projects and our ability to minimize downtime between project assignments; and ● productivity. ​ 18 Table of Contents Increases and uncertainty in our health insurance costs could adversely impact our results of operations and cash flows.
The utilization of our workforce is impacted by numerous factors, including: ● our estimate of headcount requirements and our ability to manage attrition; ● efficiency in scheduling projects and our ability to minimize downtime between project assignments; and ● productivity. ​ Increases and uncertainty in our health insurance costs could adversely impact our results of operations and cash flows.
If our surety companies were to limit or eliminate our access to bonds, our alternatives would include seeking bonding capacity from other surety companies, increasing business with clients that do not require bonds and posting other forms of collateral for project performance, such as letters of credit or cash.
If our surety companies 13 Table of Contents were to limit or eliminate our access to bonds, our alternatives would include seeking bonding capacity from other surety companies, increasing business with clients that do not require bonds and posting other forms of collateral for project performance, such as letters of credit or cash.
Further, ongoing economic instability in the global markets, including from the ongoing COVID-19 pandemic, supply chain disruptions, rising inflation and interest rates and the war between Russia and Ukraine, could limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing business conditions or new opportunities.
Further, ongoing economic instability in the global markets, including from the COVID-19 pandemic, supply chain disruptions, rising inflation and interest rates and the wars between Russia and Ukraine and between Israel and Hamas, could limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing business conditions or new opportunities.
The implementation of new systems and information technology could adversely impact our operations by requiring substantial capital expenditures, diverting management’s attention, or causing delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated.
The implementation of new systems and information 16 Table of Contents technology could adversely impact our operations by requiring substantial capital expenditures, diverting management’s attention, or causing delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated.
An adverse outcome of such a review or examination could adversely affect our operating results and financial condition. Further, the results of tax examinations and audits could have a negative impact on our financial results and cash flows where the results differ from the liabilities recorded in our financial statements.
An adverse outcome of such a review or examination could adversely affect our operating results and 20 Table of Contents financial condition. Further, the results of tax examinations and audits could have a negative impact on our financial results and cash flows where the results differ from the liabilities recorded in our financial statements.
Smaller competitors are sometimes able to win bids for these 12 Table of Contents projects based on price alone due to their lower cost and financial return requirements. We expect competition to continue in our industry, presenting us with significant challenges in our ability to maintain strong growth rates and acceptable profit margins.
Smaller competitors are sometimes able to win bids for these projects based on price alone due to their lower cost and financial return requirements. We expect competition to continue in our industry, presenting us with significant challenges in our ability to maintain strong growth rates and acceptable profit margins.
Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business. 17 Table of Contents Our insurance policies against many potential liabilities require high deductibles, and our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks.
Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business. Our insurance policies against many potential liabilities require high deductibles, and our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks.
These hazards can cause personal injury and loss of life, severe damage to or destruction of 20 Table of Contents property and equipment and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability.
These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability.
A variety of events may cause the market price of our common stock to fluctuate significantly, including the following: (i) the risk factors described in this Annual Report on Form 10-K; (ii) a shortfall in operating revenue or net income from that expected by securities analysts and investors; (iii) quarterly fluctuations in our operating results; (iv) changes in securities analysts’ estimates of our financial performance or that of our competitors or companies in our industry generally; (v) general conditions in our customers’ industries, including as a result of the 21 Table of Contents ongoing COVID-19 pandemic; (vi) general conditions in the securities markets; (vii) our announcements of significant contracts, milestones and acquisitions; (viii) our relationship with other companies; (ix) our investors’ view of the sectors and markets in which we operate; and (x) additions or departures of key personnel.
A variety of events may cause the market price of our common stock to fluctuate significantly, including the following: (i) the risk factors described in this Annual Report on Form 10-K; (ii) a shortfall in operating revenue or net income from that expected by securities analysts and investors; (iii) quarterly fluctuations in our operating results; (iv) changes in securities analysts’ estimates of our financial performance or that of our competitors or companies in our industry generally; (v) general conditions in our customers’ industries; (vi) general conditions in the securities markets; (vii) our announcements of significant contracts, milestones and acquisitions; (viii) our relationship with other companies; (ix) our investors’ view of the sectors and markets in which we operate; and (x) additions or departures of key personnel.
If economic conditions remain uncertain or weaken, or government spending is reduced, our revenue and profitability could be adversely affected. ​ 15 Table of Contents Risks Related to Our Operations If we are unable to attract and retain qualified managers and employees, we will be unable to operate efficiently, which could reduce our profitability.
If economic conditions remain uncertain or weaken, or government spending is reduced, our revenue and profitability could be adversely affected. ​ Risks Related to Our Operations If we are unable to attract and retain qualified managers and employees, we will be unable to operate efficiently, which could reduce our profitability.
We typically negotiate contract language through which we are granted certain relief from force majeure events in private client contracts and review and attempt to mitigate force majeure events in both public and private client contracts.
We typically negotiate contract language through which we are granted certain relief from force majeure events in private client contracts and review and attempt to mitigate force majeure events in both public and private 21 Table of Contents client contracts.
To the extent we make acquisitions, a number of risks will result, including: ● the assumption of material liabilities (including for environmental-related costs); ● failure of due diligence to uncover situations that could result in legal exposure or to quantify the true liability exposure from known risks; ● the diversion of management’s attention from the management of daily operations to the integration of operations; ● difficulties in the assimilation and retention of employees, in the assimilation of different cultures and practices, in the assimilation of broad and geographically dispersed personnel and operations, and the retention of employees generally; ● the risk of additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls; and ● we may not be able to realize the cost savings or other financial benefits we anticipated prior to the acquisition. ​ The failure to successfully integrate acquisitions could have an adverse effect on our business, financial condition and results of operations.
To the extent we make acquisitions, a number of risks will result, including: ● the assumption of material liabilities (including for environmental-related costs); ● failure of due diligence to uncover situations that could result in legal exposure or to quantify the true liability exposure from known risks; ● the diversion of management’s attention from the management of daily operations to the integration of operations; ● difficulties in the assimilation and retention of employees, in the assimilation of different cultures and practices, in the assimilation of broad and geographically dispersed personnel and operations, and the retention of employees generally; ● the risk of additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls; and ● we may not be able to realize the cost savings or other financial benefits we anticipated prior to the acquisition. ​ The failure to successfully integrate acquisitions could have an adverse effect on our business, financial condition and results of operations. 12 Table of Contents Third parties contribute significantly to our completion of many projects and labor shortages or increased labor costs from third parties could adversely impact our results of operations.
Additionally, the adoption of new or revised accounting principles could require that we make significant changes to our systems, processes and controls. We cannot predict the effect of future changes to accounting principles, which could have a significant effect on our reported financial results and/or our results of operations, cash flows and liquidity. ITEM 1B. Unresolved Staff Comments None.
Additionally, the adoption of new or revised accounting principles could require that we make significant changes to our systems, processes and controls. We cannot predict the effect of future changes to accounting principles, which could have a significant effect on our reported financial results and/or our results of operations, cash flows and liquidity.
Additionally, because 6.2% of our revenue for the year ended December 31, 2022 was attributable to projects in the government sector, a reduction in federal, state, or local government spending in our industries and markets could result in decreased revenue and profit for us.
Additionally, because 5.8% of our revenue for the year ended December 31, 2023 was attributable to projects in the government sector, a reduction in federal, state, or local government spending in our industries and markets could result in decreased revenue and profit for us.
Because 6.2% of our revenue for the year ended December 31, 2022 was attributable to projects in the government sector, prohibitions against bidding on future government contracts could have an adverse effect on our financial condition and results of operations.
Because 5.8% of our revenue for the year ended December 31, 2023 was attributable to projects in the government sector, prohibitions against bidding on future government contracts could have an adverse effect on our financial condition and results of operations.
Consequently, during times when less overall bonding capacity is available in the market, surety terms have become more expensive and more restrictive. As such, we cannot guarantee our ability to maintain a sufficient level of bonding capacity in the future, which could preclude our ability to bid for certain contracts or successfully contract with some customers.
Consequently, during times when less overall bonding capacity is available in the market, surety terms have become more expensive and more restrictive. If we are not able to maintain a sufficient level of bonding capacity in the future, it could preclude our ability to bid for certain contracts or successfully contract with some customers.
Additionally, employees, contractors and the public could suffer substantial physical injury from acts of terrorism for which we could be liable. Governmental authorities may also impose security or other requirements that could make our operations more difficult or costly.
Additionally, employees, contractors and the public could suffer substantial physical injury from acts of terrorism for which we could be liable. Governmental authorities may also impose security or other requirements that could make our operations more difficult or costly. The consequences of any such actions could adversely affect our financial condition and results of operations.
Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Our backlog as of December 31, 2022 was $4.06 billion.
Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Our backlog as of December 31, 2023 was $5.16 billion.
If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us.
If we are unable to service our debt obligations or fund our other liquidity needs, we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy proceedings) or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial or total loss of their investment in us. 17 Table of Contents Our inability to properly utilize our workforce could have a negative impact on our profitability.
In addition, the current market conditions have caused volatility in the capital markets, which may increase our cost of capital or prevent us from raising capital if we desire or need to do so and may have adverse impacts on the mechanical and electrical services industry.
In addition, the current market conditions have caused volatility in the capital markets, which may increase our cost of capital or prevent us from raising capital if we desire or need to do so and may have adverse impacts on the mechanical and electrical services industry. Further, there are market concerns that the United States economy could experience a recession.
We have determined in the past and may again determine in the future that a significant impairment has occurred in the value of our unamortized intangible assets or fixed assets, which could require us to write off a portion of our assets and could adversely affect our financial condition or our reported results of operations. 13 Table of Contents Our use of the cost-to-cost input method of accounting could result in a reduction or reversal of previously recorded revenue or profits.
We have determined in the past and may again determine in the future that a significant impairment has occurred in the value of our unamortized intangible assets or fixed assets, which could require us to write off a portion of our assets and could adversely affect our financial condition or our reported results of operations.
Additionally, industries in which our customers or potential customers operate may be affected by new or changing environmental, safety, health or other regulatory requirements, leading to decreased demand for our services and potentially impacting our business, financial condition, results of operations, cash flows and ability to grow.
Additionally, industries in which our customers or potential customers operate may be affected by new or changing environmental, safety, health or other regulatory requirements, leading to decreased demand for our services and potentially impacting our business, financial condition, results of operations, cash flows and ability to grow. 19 Table of Contents Additionally, actual or perceived environmental, social and corporate governance (“ESG”) and other sustainability matters and our response to these matters could harm our business.
The consequences of any such actions could adversely affect our financial condition and results of operations. 22 Table of Contents We are required to assess and report on our internal controls each year. Findings of inadequate internal controls could reduce investor confidence in the reliability of our financial information.
We are required to assess and report on our internal controls each year. Findings of inadequate internal controls could reduce investor confidence in the reliability of our financial information.
In addition, in some circumstances, our customers may elect to repair or replace the warrantied item by using the services of another provider and require us to pay for the cost of the repair or replacement. Costs incurred as a result of warranty claims could adversely affect our operating results and financial condition.
In addition, in some circumstances, our customers may elect to repair or replace the warrantied item by using the services of another provider and require us to pay for the cost of the repair or replacement.
If our business resources become strained or over-burdensome, our earnings may be adversely affected, and we may be unable to increase revenue growth. Further, we may undertake contractual commitments that exceed our labor, managerial or other resources, which could also adversely affect our earnings and our ability to increase revenue growth and cause material reputational or other harm.
Further, we may undertake contractual commitments that exceed our labor, managerial or other resources, which could also adversely affect our earnings and our ability to increase revenue growth and cause material reputational or other harm. Information technology system failures, network disruptions or cybersecurity breaches could adversely affect our business.
Projects may remain in our backlog for an extended period of time, or project cancellations or scope adjustments may occur with respect to contracts reflected in our backlog.
Projects may remain in our backlog for an extended period of time, or project cancellations or scope adjustments may occur with respect to contracts reflected in our backlog. Such changes may adversely affect the revenues and profit we ultimately realize on these projects.
Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Costs incurred as a result of warranty claims could adversely affect our operating results and financial condition. 18 Table of Contents Misconduct by our employees, subcontractors or partners or our overall failure to comply with laws or regulations could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, lead to loss of the services of employees or members of management, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions. 19 Table of Contents We have subsidiary operations throughout the United States and are exposed to multiple state and local regulations, as well as federal laws and requirements applicable to government contractors.
Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our reputation, lead to loss of the services of employees or members of management, damage our relationships with customers, reduce our revenue and profits and subject us to criminal and civil enforcement actions.
Our business, financial condition, results of operations or cash flows could be adversely affected by the occurrence of any of these events, which could cause actual results to differ materially from expected and historical results, and the trading price of our common stock could decline. 10 Table of Contents Risks Related to Our Business Economic downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction activity.
Our business, financial condition, results of operations or cash flows could be adversely affected by the occurrence of any of these events, which could cause actual results to differ materially from expected and historical results, and the trading price of our common stock could decline.
On the other hand, overutilization of our workforce could negatively impact safety, employee satisfaction and project execution, leading to a potential decline in future project awards.
The extent to which we utilize our workforce affects our profitability. Underutilizing our workforce could result in lower gross margins and, consequently, a decrease in short-term profitability. On the other hand, overutilization of our workforce could negatively impact safety, employee satisfaction and project execution, leading to a potential decline in future project awards.
Extreme weather conditions (such as storms, droughts, extreme heat or cold, wildfires and floods) may limit the availability of resources, 14 Table of Contents increase our costs, or may cause projects to be cancelled.
Extreme weather conditions (such as storms, droughts, extreme heat or cold, wildfires and floods) may limit the availability of resources, increase our costs, or may cause projects to be cancelled. To the extent climate change results in an increase in extreme weather events and adverse weather conditions, the likelihood of a negative impact on our results of operations may increase.
The continuing and evolving threat of cyber-attacks has also resulted in increased regulatory focus on risk management and prevention. New cyber-related regulations or other requirements could require significant additional resources and cause us to incur significant costs, which could have an adverse effect on our results of operations and cash flows.
New cyber-related regulations, including the cybersecurity risk management, strategy, governance and incident disclosure rules adopted by the SEC in 2023, or other requirements could require significant additional resources and cause us to incur significant costs, which could have an adverse effect on our results of operations and cash flows.
In addition, we also rely on third-party software and information technology for certain of our critical accounting, project management and financial information systems.
We use and rely significantly on sophisticated information technology systems, networks, and infrastructure in conducting our day-to-day operations, providing services to certain customers and protecting sensitive Company information. In addition, we also rely on third-party software and information technology for certain of our critical accounting, project management and financial information systems.
Many of the projects we work on have long lifecycles from conception to completion, and the bulk of our performance generally occurs late in a construction project’s lifecycle.
Any period of economic recession affecting a market or industry in which we 10 Table of Contents transact business is likely to adversely impact our business. Many of the projects we work on have long lifecycles from conception to completion, and the bulk of our performance generally occurs late in a construction project’s lifecycle.
We also collect and retain information about our customers, stockholders, vendors and employees, with the expectation by such third parties being that we will adequately protect such information. 16 Table of Contents Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our operations by causing transaction errors, processing inefficiencies, the loss of customers, other business disruptions or the loss of employee or other third-party personal information.
Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our operations by causing transaction errors, processing inefficiencies, the loss of customers, other business disruptions or the loss of employee or other third-party personal information.
Even though the initial effects of the COVID-19 pandemic may have waned, our business, financial condition, results of operations or cash flows may continue to be adversely affected. ​ We could be adversely impacted by the effects of inflation, supply chain disruptions, capital market volatility and an economic recession or downturn. ​ The global economy is experiencing historically high rates of inflation and market and economic volatility, resulting from a number of factors, including the war between Russia and Ukraine and supply chain constraints.
We could be adversely impacted by the effects of inflation, supply chain disruptions, capital market volatility and an economic recession or downturn. The global economy has recently experienced high rates of inflation and market and economic volatility, resulting from a number of factors, including the war between Russia and Ukraine, the war between Israel and Hamas, and supply chain constraints.
We assess goodwill for impairment each year, and more frequently if circumstances suggest an impairment may have occurred.
Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses. We assess goodwill for impairment each year, and more frequently if circumstances suggest an impairment may have occurred.
The demand for our services is dependent upon the existence of construction projects and service requirements within the markets in which we operate. Any period of economic recession affecting a market or industry in which we transact business is likely to adversely impact our business.
Risks Related to Our Business Economic downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction activity. The demand for our services is dependent upon the existence of construction projects and service requirements within the markets in which we operate.
Rising inflation and/or interest rates may have an adverse effect on our business, financial condition and results of operations. In efforts to combat inflation, the U.S. Federal Reserve raised interest rates multiple times in 2022 and may continue to increase interest rates into 2023.
As a result, these conditions have, and they or any similar future conditions may continue to have, significant adverse impacts on our business, financial condition and results of operations. 11 Table of Contents Rising inflation and/or interest rates may have an adverse effect on our business, financial condition and results of operations. In efforts to combat inflation, the U.S.
While we take precautions to prevent and detect these activities, such precautions may not be effective and are subject to inherent limitations, including human error and fraud.
Examples of such misconduct include employee or subcontractor theft, personal misconduct and failure to comply with safety standards, laws and regulations, customer requirements, environmental laws and any other applicable laws or regulations. While we take precautions to prevent and detect these activities, such precautions may not be effective and are subject to inherent limitations, including human error and fraud.
If we are unable to retain qualified subcontractors or suppliers, or if our subcontractors or suppliers do not perform as anticipated for any reason, our execution, reputation and profitability could be harmed. Recent labor shortages may also lead to higher wages for employees and higher costs to purchase the services of third parties.
We hire third-party subcontractors to perform work and depend on third-party suppliers to provide equipment and materials necessary to complete our projects. If we are unable to retain qualified subcontractors or suppliers, or if our subcontractors or suppliers do not perform as anticipated for any reason, our execution, reputation and profitability could be harmed.
Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets. We carry a significant amount of goodwill and identifiable intangible assets on our consolidated Balance Sheets. Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses.
Increases in such labor costs for a prolonged period of time could have a material adverse effect on the company’s financial condition and results of operations. Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets. We carry a significant amount of goodwill and identifiable intangible assets on our consolidated Balance Sheets.
Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased overtime, reduce our profitability and that of our customers. Increases in such labor costs for a prolonged period of time could have a material adverse effect on the company’s financial condition and results of operations.
Recent labor shortages may also lead to higher wages for employees and higher costs to purchase the services of third parties. Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased overtime, reduce our profitability and that of our customers.
Economic factors, including inflation and fluctuations in interest rates, may have a negative impact on our business.
Federal Reserve raised interest rates multiple times in recent years and may do so again in 2024 (or may slow any rate reductions from what the market currently anticipates). Economic factors, including inflation and fluctuations in interest rates, may have a negative impact on our business.
Removed
Such changes may adversely affect the revenues and profit we ultimately realize on these projects. 11 Table of Contents The effects of the COVID-19 pandemic and related economic repercussions have materially affected how we and our customers, vendors, subcontractors, developers, and general contractors are operating our businesses, and the duration and extent to which this will negatively impact our future results of operations and overall financial performance remains uncertain. ​ The COVID-19 pandemic has negatively impacted the global economy, affected consumer spending and global supply chains, and created significant volatility and disruption of financial markets.
Added
Our use of the cost-to-cost input method of accounting could result in a reduction or reversal of previously recorded revenue or profits.
Removed
We have experienced resulting disruptions to our business operations. The COVID-19 pandemic continues to present potential risks to our business, particularly in light of new variants of the virus which have emerged, such as the Omicron variant and the more recent BA.4 and BA.5 sub-variants of the virus.
Added
If our business resources become strained or over-burdensome, our earnings may be adversely affected, and we may be unable to increase revenue 15 Table of Contents growth.
Removed
The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, depends on numerous evolving factors outside our control including: emergence of new variants of the virus and increased transmission rates; government, social, business and other actions that have been and will be taken in response to the COVID-19 pandemic; additional waves of COVID-19 infections; the efficacy of vaccines on new variants of the virus and overall vaccination rates; the effect of government or customer vaccine or testing requirements on employee retention and recruitment; and the effect of the COVID-19 pandemic on short- and long-term general economic conditions. ​ Even after the initial COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact.
Added
We also collect and retain information about our customers, stockholders, vendors and employees, with the expectation by such third parties being that we will adequately protect such information.
Removed
We continue to experience permitting, regulatory, and supply chain delays attributable to the COVID-19 pandemic. In addition to these current dynamics, the COVID-19 pandemic may create or exacerbate risks related to our operations and regulatory and compliance matters.
Added
The continuing and evolving threat of cyber-attacks has also resulted in increased regulatory focus on risk management and prevention.
Removed
Further, there are market concerns that the United States economy may be in or soon enter a recession. As a result, these conditions have, and they or any similar future conditions may continue to have, significant adverse impacts on our business, financial condition and results of operations.
Added
We have subsidiary operations throughout the United States and are exposed to multiple state and local regulations, as well as federal laws and requirements applicable to government contractors.
Removed
Third parties contribute significantly to our completion of many projects and labor shortages or increased labor costs from third parties could adversely impact our results of operations. We hire third-party subcontractors to perform work and depend on third-party suppliers to provide equipment and materials necessary to complete our projects.
Removed
To the extent climate change results in an increase in extreme weather events and adverse weather conditions, the likelihood of a negative impact on our results of operations may increase.
Removed
Continuing worldwide political and economic uncertainties may adversely affect our revenue and profitability. ​ The last several years have been periodically marked by political and economic concerns, including the ongoing COVID-19 pandemic, decreased consumer confidence, the effects of international conflicts such as the war between Russia and Ukraine, tariffs, energy costs and inflation.
Removed
Information technology system failures, network disruptions or cybersecurity breaches could adversely affect our business. We use and rely significantly on sophisticated information technology systems, networks, and infrastructure in conducting our day-to-day operations, providing services to certain customers and protecting sensitive Company information.
Removed
In addition, flexible working arrangements at our corporate offices increased as a result of the COVID-19 pandemic, and these arrangements have resulted in a higher extent of remote working.
Removed
This and other possible changing work practices may adversely impact our ability to maintain the security, proper function and availability of our information technology and systems since remote working by our employees could strain our technology resources and introduce operational risk, including heightened cybersecurity risk.
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Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that have sought, and may seek, to exploit remote working environments.
Removed
Our inability to properly utilize our workforce could have a negative impact on our profitability. The extent to which we utilize our workforce affects our profitability. Underutilizing our workforce could result in lower gross margins and, consequently, a decrease in short-term profitability.
Removed
Examples of such misconduct include employee or subcontractor theft, personal misconduct and failure to comply with safety standards, including regulatory, company or site-specific COVID-19 safety protocols, laws and regulations, customer requirements, environmental laws and any other applicable laws or regulations.
Removed
Additionally, actual or perceived environmental, social and corporate governance (“ESG”) and other sustainability matters and our response to these matters could harm our business.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeTo maximize available capital, we generally intend to continue to lease our properties, but may consider further purchases of property where we believe ownership would be more economical. We believe that our facilities are sufficient for our current needs. We lease our executive and administrative offices in Houston, Texas. 23 Table of Contents
Biggest changeTo maximize available capital, we generally intend to continue to lease our properties, but may consider further purchases of property where we believe ownership would be more economical. We believe that our facilities are sufficient for our current needs. We lease our executive and administrative offices in Houston, Texas.
To the extent we renew, enter into leases or otherwise change leases with current or former employees, we enter into such agreements on terms that reflect a fair market valuation for the properties. Leased premises range in size from approximately 1,000 square feet to 175,000 square feet.
To the extent we renew, enter into leases or otherwise change leases with current or former employees, we enter into such agreements on terms that reflect a fair market valuation for the properties. Leased premises range in size from approximately 1,000 square feet to 500,000 square feet.
ITEM 2. Properties As of December 31, 2022, we owned 15 properties. Other than these owned properties, we lease the real property and buildings from which we operate. Our facilities are located in 27 states and consist of offices, shops and fabrication, maintenance and warehouse facilities.
ITEM 2. Properties As of December 31, 2023, we owned 16 properties. Other than these owned properties, we lease the real property and buildings from which we operate. Our facilities are located in 27 states and consist of offices, shops and fabrication, maintenance and warehouse facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn 2022, we recorded a net gain of $5.1 million related to legal matters that merited changes to our assessments of the related accruals in the ordinary course of our business based on information received in 2022.
Biggest changeThe pre-tax gain of $6.8 million was recorded as an increase in gross profit of $6.6 million, a reduction in SG&A of $0.7 million, an increase in interest income of $1.3 million and an increase in the change in fair value of contingent earn-out obligations expense of $1.8 million in our Consolidated Statements of Operations. ​ In 2022, we recorded a net gain of $5.1 million related to legal matters that merited changes to our assessments of the related accruals in the ordinary course of our business based on information received in 2022.
The net gain of $5.1 million was recorded primarily as an increase in gross profit in our Consolidated Statements of Operations. ​ As of December 31, 2022, we recorded an accrual for unresolved matters, which is not material to our financial statements, based on our analysis of likely outcomes related to the respective matters; however, it is possible that the ultimate outcome and associated costs will deviate from our estimates and that, in the event of an unexpectedly adverse outcome, we may experience additional costs and expenses in future periods.
The net gain of $5.1 million was recorded primarily as an increase in gross profit in our Consolidated Statements of Operations. ​ As of December 31, 2023, we recorded an accrual for unresolved matters, which is not material to our financial statements, based on our analysis of likely outcomes related to the respective matters; however, it is possible that the ultimate outcome and associated costs will deviate from our estimates and that, in the event of an unexpectedly adverse outcome, we may experience additional costs and expenses in future periods.
The largest change resulted from favorable developments related to a dispute with a customer regarding the outcome of a completed project as well as the obligation to perform subcontract work under two executed letters of intent for subsequent projects that we believed were not enforceable.
The largest change resulted from favorable developments related to a dispute with a customer regarding the outcome of a completed project as well as the obligation to perform subcontract work under two executed letters of intent for subsequent projects that we 24 Table of Contents believed were not enforceable.
Added
In the first quarter of 2023, we recorded a pre-tax gain of $6.8 million from legal developments and settlements that primarily relate to disputes with customers regarding the outcome of completed projects as well as an obligation to perform subcontract work under two executed letters of intent for subsequent projects that we believed were not enforceable.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the year ended December 31, 2022, we repurchased 0.4 million shares for approximately $38.2 million at an average price of $86.45 per share. ​ 26 Table of Contents During the year ended December 31, 2022, we purchased our common shares in the following amounts at the following average prices: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of Shares Maximum Number of ​ ​ ​ ​ ​ ​ ​ Purchased as Part of ​ Shares that May Yet Be ​ ​ Total Number of ​ Average Price ​ Publicly Announced Plans ​ Purchased Under the Plans Period ​ Shares Purchased ​ Paid Per Share ​ or Programs (1) ​ or Programs January 1 - January 31 52,203 ​ $ 89.68 9,727,000 566,751 ​ February 1 - February 28 82,012 ​ $ 86.07 9,809,012 484,739 ​ March 1 - March 31 27,399 ​ $ 86.05 9,836,411 457,340 ​ April 1 - April 30 — ​ $ — 9,836,411 457,340 ​ May 1 - May 31 156,680 ​ $ 84.33 9,993,091 951,034 ​ June 1 - June 30 70,009 ​ $ 79.19 10,063,100 881,025 ​ July 1 - July 31 4,496 ​ $ 82.13 10,067,596 876,529 ​ August 1 - August 31 — ​ $ — 10,067,596 876,529 ​ September 1 - September 30 32,050 ​ $ 99.97 10,099,646 844,479 ​ October 1 - October 31 13,200 ​ $ 100.15 10,112,846 831,279 ​ November 1 - November 30 — ​ $ — 10,112,846 831,279 ​ December 1 - December 31 4,000 ​ $ 116.65 10,116,846 827,279 ​ ​ 442,049 ​ $ 86.45 10,116,846 827,279 ​ (1) Purchased as part of a program announced on March 29, 2007 under which, since the inception of this program, 10.9 million shares have been approved for repurchase. ​ Under our stock incentive plans, employees may elect to have us withhold common shares to satisfy statutory federal, state and local tax withholding obligations arising on the vesting of restricted stock awards and exercise of options.
Biggest changeDuring the year ended December 31, 2023, we repurchased 0.1 million shares for approximately $21.3 million at an average price of $152.75 per share. ​ 27 Table of Contents During the year ended December 31, 2023, we purchased our common shares in the following amounts at the following average prices: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of Shares Maximum Number of ​ ​ ​ ​ ​ ​ ​ Purchased as Part of ​ Shares that May Yet Be ​ ​ Total Number of ​ Average Price ​ Publicly Announced Plans ​ Purchased Under the Plans Period ​ Shares Purchased ​ Paid Per Share ​ or Programs (1) ​ or Programs January 1 - January 31 17,100 ​ $ 116.89 10,133,946 810,179 ​ February 1 - February 28 8,500 ​ $ 122.13 10,142,446 801,679 ​ March 1 - March 31 3,800 ​ $ 139.69 10,146,246 797,879 ​ April 1 - April 30 22,200 ​ $ 132.20 10,168,446 775,679 ​ May 1 - May 31 300 ​ $ 149.28 10,168,746 775,379 ​ June 1 - June 30 1,500 ​ $ 152.26 10,170,246 773,879 ​ July 1 - July 31 500 ​ $ 154.60 10,170,746 773,379 ​ August 1 - August 31 — ​ $ — 10,170,746 773,379 ​ September 1 - September 30 9,750 ​ $ 175.37 10,180,496 763,629 ​ October 1 - October 31 65,250 ​ $ 164.81 10,245,746 698,379 ​ November 1 - November 30 5,278 ​ $ 186.26 10,251,024 693,101 ​ December 1 - December 31 5,300 ​ $ 189.79 10,256,324 687,801 ​ ​ 139,478 ​ $ 152.75 10,256,324 687,801 ​ (1) Purchased as part of a program announced on March 29, 2007 under which, since the inception of this program, 10.9 million shares have been approved for repurchase. ​ Under our stock incentive plans, employees may elect to have us withhold common shares to satisfy statutory federal, state and local tax withholding obligations arising on the vesting of restricted stock awards and exercise of options.
In addition, our credit agreement may limit the amount of dividends we can pay at any time that our Net Leverage Ratio exceeds 2.75 to 1.00. 25 Table of Contents The following Corporate Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
In addition, our credit agreement may limit the amount of dividends we can pay at any time that our Net Leverage Ratio exceeds 2.75 to 1.00. 26 Table of Contents The following Corporate Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is traded under the symbol FIX on the New York Stock Exchange. As of February 16, 2023, there were approximately 285 stockholders of record of our Common Stock, and the last reported sale price on that date was $125.88 per share.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is traded under the symbol FIX on the New York Stock Exchange. As of February 16, 2024, there were approximately 262 stockholders of record of our Common Stock, and the last reported sale price on that date was $248.50 per share.
Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of December 31, 2022, we have repurchased a cumulative total of 10.1 million shares at an average price of $24.52 per share under the repurchase program.
Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of December 31, 2023, we have repurchased a cumulative total of 10.3 million shares at an average price of $26.27 per share under the repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

74 edited+15 added−12 removed77 unchanged
Biggest changeThe following is a reconciliation of Credit Facility Adjusted EBITDA to net income for 2022 (in thousands): ​ ​ ​ ​ ​ ​ Net income $ 245,947 Provision (benefit) for income taxes ​ (10,089) ​ Interest expense, net ​ 13,306 ​ Depreciation and amortization expense ​ 81,347 ​ Stock-based compensation ​ 10,532 ​ Pre-acquisition results of acquired companies, as defined under the Facility ​ 356 ​ Credit Facility Adjusted EBITDA ​ $ 341,399 ​ ​ The Facility’s principal financial covenants include: ​ Net Leverage Ratio —The Facility requires that the ratio of (a) our Consolidated Total Indebtedness (as defined in the Facility) minus unrestricted cash and cash equivalents up to $100,000,000, to (b) our Credit Facility Adjusted EBITDA not exceed 3.50 to 1.00 as of the end of each fiscal quarter. ​ Interest Coverage Ratio —The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA to (b) consolidated interest expense, defined as all interest paid or accrued on indebtedness during the period excluding amortization of debt incurrence expenses, original issue discount, and mark-to-market interest expense, be at least 3.00 to 1.00.
Biggest changeCovenant compliance is assessed as of each quarter end. ​ The Facility’s principal financial covenants include: ​ Net Leverage Ratio —The Facility requires that the ratio of (a) our Consolidated Total Indebtedness (as defined in the Facility) minus unrestricted cash and cash equivalents up to $100,000,000, to (b) our Credit Facility Adjusted EBITDA not exceed 3.50 to 1.00 as of the end of each fiscal quarter. ​ Interest Coverage Ratio —The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA to (b) consolidated interest expense, defined as all interest paid or accrued on indebtedness during the period excluding amortization of debt incurrence expenses, original issue discount, and mark-to-market interest expense, be at least 3.00 to 1.00.
Introduction and Overview We are a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services industries. We operate primarily in the commercial, industrial and institutional markets and perform most of our work in industrial, healthcare, education, office, technology, retail and government facilities.
Introduction and Overview We are a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services industries. We operate primarily in the commercial, industrial and institutional markets and perform most of our work in manufacturing, healthcare, education, office, technology, retail and government facilities.
Our average project duration, together with typical retention terms, generally allow us to complete the realization of revenue and earnings in cash within one year. 2022 Compared to 2021 Cash Provided by Operating Activities —Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide.
Our average project duration, together with typical retention terms, generally allow us to complete the realization of revenue and earnings in cash within one year. 2023 Compared to 2022 Cash Provided by Operating Activities —Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide.
Posting of letters of credit for this purpose is a common practice for entities that manage their self-insurance programs through third-party insurers as we do. While some of these letter of credit commitments expire in 2023, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.
Posting of letters of credit for this purpose is a common practice for entities that manage their self-insurance programs through third-party insurers as we do. While some of these letter of credit commitments expire in 2024, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.
With larger amounts of capital, 29 Table of Contents time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.
With larger amounts of capital, 30 Table of Contents time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.
We have generated positive free cash flow in each of the last twenty-four calendar years and will continue our emphasis in this area. We believe that the relative size and strength of our Balance Sheet and surety relationships, as compared to most companies in our industry, represent competitive advantages for us.
We have generated positive free cash flow in each of the last twenty-five calendar years and will continue our emphasis in this area. We believe that the relative size and strength of our Balance Sheet and surety relationships, as compared to most companies in our industry, represent competitive advantages for us.
We also perform electrical logistics services, electrical service work, and electrical construction and engineering services. 27 Table of Contents In both our mechanical and electrical business segments, our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing.
We also perform electrical logistics services, electrical service work, and electrical construction and engineering services. 28 Table of Contents In both our mechanical and electrical business segments, our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing.
We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications. Profile and Management of Our Operations We manage our 42 operating units based on a variety of factors.
We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications. Profile and Management of Our Operations We manage our 44 operating units based on a variety of factors.
Credit Facility Adjusted EBITDA and consolidated interest expense are calculated for purposes of this covenant for the four fiscal quarters ending as of any given quarterly covenant compliance measurement date. ​ Other Restrictions —The Facility (a) permits unlimited acquisitions when the Company’s Net Leverage Ratio is less than or equal to 3.25 to 1.00, (b) expands certain baskets for permitted indebtedness and 37 Table of Contents liens, and (c) permits unlimited distributions, stock repurchases, and investments when the Net Leverage Ratio is less than or equal to 2.75 to 1.00. ​ While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s Net Leverage Ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted. ​ We were in compliance with all of our financial covenants as of December 31, 2022. ​ Notes to Former Owners As part of the consideration used to acquire ten companies, we have outstanding notes to the former owners.
Credit Facility Adjusted EBITDA and consolidated interest expense are calculated for purposes of this covenant for the four fiscal quarters ending as of any given quarterly covenant compliance measurement date. ​ Other Restrictions —The Facility (a) permits unlimited acquisitions when the Company’s Net Leverage Ratio is less than or equal to 3.25 to 1.00, (b) expands certain baskets for permitted indebtedness and liens, and (c) permits unlimited distributions, stock repurchases, and investments when the Net Leverage Ratio is less than or equal to 2.75 to 1.00. ​ While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s Net Leverage Ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted. ​ We were in compliance with all of our financial covenants as of December 31, 2023. ​ Notes to Former Owners As part of the consideration used to acquire eight companies, we have outstanding notes to the former owners.
To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and we do not expect such losses to be incurred in the foreseeable future. 38 Table of Contents Under standard terms in the surety market, sureties issue bonds on a project-by-project basis, and can decline to issue bonds at any time.
To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and we do not expect such losses to be incurred in the foreseeable future. Under standard terms in the surety market, sureties issue bonds on a project-by-project basis, and can decline to issue bonds at any time.
However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly free cash flow should not be considered an alternative to operating income, net income, or amounts shown in our Consolidated Statements of Cash Flows as determined under generally accepted accounting principles.
However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly free cash flow should not be considered an 36 Table of Contents alternative to operating income, net income, or amounts shown in our Consolidated Statements of Cash Flows as determined under generally accepted accounting principles.
As discussed in Note 11 “Income Taxes,” included in our Consolidated Balance Sheet at December 31, 2022 is $11.5 million of liabilities for uncertain tax positions, or unrecognized tax benefits. We believe it is reasonably possible that a reduction of up to $5.3 million in unrecognized tax benefits could occur within the next twelve months.
As discussed in Note 11 “Income Taxes,” included in our Consolidated Balance Sheet at December 31, 2023 is $20.6 million of liabilities for uncertain tax positions, or unrecognized tax benefits. We believe it is reasonably possible that a reduction of up to $5.3 million in unrecognized tax benefits could occur within the next twelve months.
Approximately 87.0% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities.
Approximately 89.0% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities.
We record liabilities for uncertain tax positions when we determine whether it is more likely than not that the positions will be sustained based on their technical merits 30 Table of Contents and we recognize tax benefits that are more than 50 percent likely to be realized upon ultimate settlement with the relevant taxing authority.
We record liabilities for uncertain tax positions when we determine whether it is more likely than not that the positions will be sustained based on their technical merits, and we recognize tax benefits that are more than 50 percent likely to be realized upon ultimate settlement with the relevant taxing authority.
The effective rate for 2022 was significantly lower than the 21% federal statutory rate due to a reduction in net unrecognized tax benefits primarily from settlement with the Internal Revenue Service (the “IRS”) for the 2016, 2017 and 2018 tax years (7.6%), the filing of returns to claim the R&D tax credit for the 2019, 2020 and 2021 tax years (15.1%) and inclusion of the 33 Table of Contents R&D tax credit for the current year 2022 (6.7%).
The effective rate for 2022 was significantly lower than the 21% federal statutory rate due to a reduction in net unrecognized tax benefits primarily from settlement with the Internal Revenue Service (the “IRS”) for 2016, 2017, and 2018 tax years (7.6%), the filing of returns to claim the R&D tax credit for 2019, 2020 and 2021 tax years (15.1%) and inclusion of the R&D tax credit for 2022 (6.7%).
The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers’ compensation, auto liability and general liability insurance program.
The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers’ 39 Table of Contents compensation, auto liability and general liability insurance program.
Significant judgments and estimates are required in the determination of our income taxes, including the ability to recover our deferred tax assets based on assumptions about future taxable income.
Significant judgments and estimates are required in the determination of our income taxes, including the ability to recover our 31 Table of Contents deferred tax assets based on assumptions about future taxable income.
As of December 31, 2022, we had $580.8 million of credit available to borrow under our credit facility. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are strong and benefit from our operating history and financial position.
As of December 31, 2023, we had $779.8 million of credit available to borrow under our credit facility. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are strong and benefit from our operating history and financial position.
These seasonal trends are sometimes offset by changes in the timing of major projects, which can be impacted by the weather, project delays or accelerations and other economic factors that may affect customer spending. We generated $301.5 million of cash flow from operating activities during 2022 compared with $180.2 million during 2021.
These seasonal trends are sometimes offset by changes in the timing of major projects, which can be impacted by the weather, project delays or accelerations and other economic factors that may affect customer spending. We generated $639.6 million of cash flow from operating activities during 2023 compared with $301.5 million during 2022.
Debt Revolving Credit Facility On May 25, 2022, we amended our senior credit facility (as amended, the “Facility”) arranged by Wells Fargo Bank, National Association, as administrative agent, and provided by a syndicate of banks, increasing our borrowing capacity from $562.5 million (of which $450 million was a revolving credit facility) to $850 million.
Debt Revolving Credit Facility On May 25, 2022, we amended our senior credit facility (as amended, the “Facility”) arranged by Wells Fargo Bank, National Association, as administrative agent, and provided by a syndicate of banks, increasing our borrowing capacity to $850 million.
These margins are frequently less than fixed-price contract margins because there is less risk of unrecoverable cost overruns in cost-plus or time and materials work. As of December 31, 2022, we had 10,636 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $875,000.
These margins are frequently less than fixed-price contract margins because there is less risk of unrecoverable cost overruns in cost-plus or time and materials work. As of December 31, 2023, we had 10,481 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $1.1 million.
We also continue to have significant borrowing capacity under our credit facility, and we maintain what we feel are reasonable cash balances.
We also continue to have significant borrowing capacity under our 38 Table of Contents credit facility, and we maintain what we feel are reasonable cash balances.
Changes in the Fair Value of Contingent Earn-out Obligations —The contingent earn-out obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. Expense from changes in the fair value of contingent earn-out obligations increased $12.6 million in 2022 compared to 2021.
Changes in the Fair Value of Contingent Earn-out Obligations —The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. Expense from changes in the fair value of contingent earn-out obligations increased $18.8 million in 2023 compared to 2022.
These fees range from 0.15% to 0.25% per annum, based on the Net Leverage Ratio. ​ Interest expense included the following primary elements (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Interest expense on notes to former owners ​ $ 1,139 ​ $ 1,052 ​ $ 1,354 ​ Interest expense on borrowings and unused commitment fees ​ 10,955 ​ 3,371 ​ 5,319 ​ Interest expense (income) on interest rate swaps ​ ​ (332) ​ ​ 499 ​ ​ 338 ​ Interest expense on finance leases ​ ​ 4 ​ ​ 57 ​ ​ — ​ Letter of credit fees ​ 800 ​ 679 ​ 830 ​ Amortization of debt financing costs ​ 786 ​ 538 ​ 544 ​ Total ​ $ 13,352 ​ $ 6,196 ​ $ 8,385 ​ ​ The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply.
These fees range from 0.15% to 0.25% per annum, based on the Net Leverage Ratio. ​ 37 Table of Contents Interest expense included the following primary elements (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Interest expense on notes to former owners ​ $ 1,365 ​ $ 1,139 ​ $ 1,052 ​ Interest expense on borrowings and unused commitment fees ​ 7,507 ​ 10,955 ​ 3,371 ​ Interest expense (income) on interest rate swaps ​ ​ — ​ ​ (332) ​ ​ 499 ​ Interest expense on finance leases ​ ​ — ​ ​ 4 ​ ​ 57 ​ Letter of credit fees ​ 724 ​ 800 ​ 679 ​ Amortization of debt financing costs ​ 685 ​ 786 ​ 538 ​ Total ​ $ 10,281 ​ $ 13,352 ​ $ 6,196 ​ ​ The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply.
We are recognizing these challenges in our job planning and pricing, and we are working to order materials earlier than usual and seeking to collaborate with customers to share supply risks and to mitigate the effects of these challenges. ​ We have a good pipeline of opportunities and potential backlog, and we have been generally successful in maintaining activity levels and productivity and in procuring needed materials despite ongoing challenges.
We are recognizing these challenges in our job planning and pricing, and we are ordering materials on an earlier timeline and seeking to collaborate with customers to share supply risks and to mitigate the effects of these challenges. ​ We have a good pipeline of opportunities and potential backlog, and we have been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.
Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of December 31, 2022, we have repurchased a cumulative total of 10.1 million shares at an average price of $24.52 per share under the repurchase program.
Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of December 31, 2023, we have repurchased a cumulative total of 10.3 million shares at an average price of $26.27 per share under the repurchase program.
The $276.4 million increase in 35 Table of Contents cash used is primarily due to higher net repayments on debt in the current year driven by strong operating cash flows, as well as due to an increase in share repurchases in 2022. 2021 Compared to 2020 For a discussion of the period-to-period comparison of 2021 to 2020, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—2021 Compared to 2020” in our Annual Report on Form 10-K for the year ended December 31, 2021.
The $92.7 million increase in cash used is primarily due to higher net repayments on debt in the current year driven by strong operating cash flows. 2022 Compared to 2021 For a discussion of the period-to-period comparison of 2022 to 2021, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—2022 Compared to 2021” in our Annual Report on Form 10-K for the year ended December 31, 2022.
An operating location is included in the same-store comparison on the first day it has comparable prior year operating data, except for immaterial acquisitions that are often absorbed and integrated with existing operations. 31 Table of Contents Revenue —Revenue increased $1.07 billion, or 34.7%, to $4.14 billion in 2022 compared to 2021.
An operating location is included in the same-store comparison on the first day it has comparable prior year operating data, except for immaterial acquisitions that are often absorbed and integrated with existing operations. 32 Table of Contents Revenue —Revenue increased $1.07 billion, or 25.8%, to $5.21 billion in 2023 compared to 2022.
Taken together, projects with contract prices of $2 million or more totaled $7.7 billion of aggregate contract value as of December 31, 2022, or approximately 82%, out of a total contract value for all projects in progress of $9.3 billion. Generally, projects closer in size to $2 million will be completed in one year or less.
Taken together, projects with contract prices of $2 million or more totaled $10.2 billion of aggregate contract value as of December 31, 2023, or approximately 86%, out of a total contract value for all projects in progress of $12.0 billion. Generally, projects closer in size to $2 million will be completed in one year or less.
As of December 31, 2022, we had $215.0 million of outstanding borrowings on the revolving credit facility, $54.2 million in letters of credit and $580.8 million of credit available. ​ 36 Table of Contents There are two interest rate options for borrowings under the Facility, the Base Rate Loan (as defined in the Facility) option and the Secured Overnight Financing Rate (“SOFR”) Loan option.
As of December 31, 2023, we had no outstanding borrowings on the revolving credit facility, $70.2 million in letters of credit and $779.8 million of credit available. ​ There are two interest rate options for borrowings under the Facility, the Base Rate Loan (as defined in the Facility) option and the Secured Overnight Financing Rate (“SOFR”) Loan option.
Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances or their useful lives. ​ Results of Operations (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 2021 2020 ​ Revenue ​ $ 4,140,364 100.0 % $ 3,073,636 100.0 % $ 2,856,659 100.0 % Cost of services ​ 3,398,756 82.1 % 2,510,429 81.7 % 2,309,676 80.9 % Gross profit ​ 741,608 17.9 % 563,207 18.3 % 546,983 19.1 % Selling, general and administrative expenses ​ 489,344 11.8 % 376,309 12.2 % 357,777 12.5 % Gain on sale of assets ​ (1,585) — ​ (1,540) (0.1) % (1,445) (0.1) % Operating income ​ 253,849 6.1 % 188,438 6.1 % 190,651 6.7 % Interest income ​ 46 — ​ 24 — ​ 103 — ​ Interest expense ​ (13,352) (0.3) % (6,196) (0.2) % (8,385) (0.3) % Changes in the fair value of contingent earn-out obligations ​ (4,819) (0.1) % 7,820 0.3 % 9,119 0.3 % Other income (expense) ​ 134 — ​ 188 — ​ 52 — ​ Income before income taxes ​ 235,858 5.7 % 190,274 6.2 % 191,540 6.7 % Provision (benefit) for income taxes ​ (10,089) ​ ​ ​ 46,926 ​ ​ ​ 41,401 ​ ​ ​ Net income ​ $ 245,947 ​ ​ ​ $ 143,348 ​ ​ ​ $ 150,139 ​ ​ ​ ​ 2022 Compared to 2021 We had 41 operating locations as of December 31, 2021.
Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances or their useful lives. ​ Results of Operations (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2023 2022 2021 ​ Revenue ​ $ 5,206,760 100.0 % $ 4,140,364 100.0 % $ 3,073,636 100.0 % Cost of services ​ 4,216,251 81.0 % 3,398,756 82.1 % 2,510,429 81.7 % Gross profit ​ 990,509 19.0 % 741,608 17.9 % 563,207 18.3 % Selling, general and administrative expenses ​ 574,423 11.0 % 489,344 11.8 % 376,309 12.2 % Gain on sale of assets ​ (2,302) — ​ (1,585) — ​ (1,540) (0.1) % Operating income ​ 418,388 8.0 % 253,849 6.1 % 188,438 6.1 % Interest income ​ 3,492 0.1 % 46 — ​ 24 — ​ Interest expense ​ (10,281) (0.2) % (13,352) (0.3) % (6,196) (0.2) % Changes in the fair value of contingent earn-out obligations ​ (23,607) (0.5) % (4,819) (0.1) % 7,820 0.3 % Other income ​ 202 — ​ 134 — ​ 188 — ​ Income before income taxes ​ 388,194 7.5 % 235,858 5.7 % 190,274 6.2 % Provision (benefit) for income taxes ​ 64,796 ​ ​ ​ (10,089) ​ ​ ​ 46,926 ​ ​ ​ Net income ​ $ 323,398 ​ ​ ​ $ 245,947 ​ ​ ​ $ 143,348 ​ ​ ​ ​ 2023 Compared to 2022 We had 42 operating locations as of December 31, 2022.
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. Such letters of credit are issued under the Facility for a fee.
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.
Our benefit for income taxes for 2022 was $10.1 million with a negative effective tax rate of 4.3%, as compared to the provision for income taxes of $46.9 million with an effective tax rate of 24.7% for 2021.
Our provision for income taxes for 2023 was $64.8 million with an effective tax rate of 16.7%, as compared to a benefit for income taxes of $10.1 million with a negative effective tax rate of 4.3% for 2022.
At December 31, 2022, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at ​ Range of Stated ​ December 31, 2022 ​ Interest Rates 2023 ​ $ 9,000 ​ 2.5 % 2024 ​ 7,200 ​ 2.5 - 3.0 % 2025 ​ 22,215 ​ 2.3 - 3.0 % 2026 ​ 2,625 ​ 2.5 % Total ​ $ 41,040 ​ ​ ​ ​ Outlook We have generated positive net free cash flow for the last twenty-four calendar years, much of which occurred during challenging economic and industry conditions.
At December 31, 2023, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at ​ Range of Stated ​ December 31, 2023 ​ Interest Rates 2024 ​ $ 4,800 ​ 2.5 % 2025 ​ 21,645 ​ 2.3 - 3.0 % 2026 ​ 14,125 ​ 2.5 - 5.5 % 2027 ​ ​ 3,500 ​ 5.5 % Total ​ $ 44,070 ​ ​ ​ ​ Outlook We have generated positive net free cash flow for the last twenty-five calendar years, much of which occurred during challenging economic and industry conditions.
These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, uncertain tax positions, and accounting for losses associated with underperforming operations.
In addition, discrete items, such as tax law changes, judgments and legal structures can impact our effective tax rate. These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, uncertain tax positions, and accounting for losses associated with underperforming operations.
The same-store increase in gross 32 Table of Contents profit was broad-based and was primarily driven by higher revenues in the current year including increased volumes at our Texas electrical operation ($20.5 million) and our North Carolina operation ($15.2 million).
The same-store increase in gross profit was broad-based and was primarily driven by higher revenues in the current year including increased volumes at one of our Texas operations ($40.8 million), our North Carolina operation ($29.5 million) and our Texas electrical operation ($25.9 million).
The increase in interest expense is due to an increase in our average interest rate on our outstanding borrowings in 2022 compared to the prior year as well as a higher average outstanding debt balance as compared to the prior year.
The decrease in interest expense is primarily due to a decrease in our average outstanding balance, partially offset by an increase in our average interest rate on our borrowings in 2023 as compared to the prior year.
We continue to prepare for a wide range of challenges and economic circumstances, including a potential recession; however, despite challenges, we currently expect supportive conditions for our industry are likely to continue in 2023. ​ 34 Table of Contents Liquidity and Capital Resources ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 2021 2020 ​ ​ (in thousands) ​ Cash provided by (used in): ​ ​ ​ ​ ​ Operating activities ​ $ 301,531 ​ $ 180,151 ​ $ 286,510 ​ Investing activities ​ (97,178) ​ (246,722) ​ (207,802) ​ Financing activities ​ (205,915) ​ 70,451 ​ (74,600) ​ Net increase (decrease) in cash and cash equivalents ​ $ (1,562) ​ $ 3,880 ​ $ 4,108 ​ Free cash flow: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash provided by operating activities ​ $ 301,531 ​ $ 180,151 ​ $ 286,510 ​ Purchases of property and equipment ​ (48,359) ​ (22,330) ​ (24,131) ​ Proceeds from sales of property and equipment ​ 2,858 ​ 3,101 ​ 2,270 ​ Free cash flow ​ $ 256,030 ​ $ 160,922 ​ $ 264,649 ​ Cash Flow Our business does not require significant amounts of investment in long-term fixed assets.
Although we are preparing for a wide range of challenges and economic circumstances, including an eventual recession, we currently expect that supportive conditions for our industry, especially for our industrial and technology customers, are likely to continue in 2024. ​ Liquidity and Capital Resources ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Cash provided by (used in): ​ ​ ​ ​ ​ Operating activities ​ $ 639,568 ​ $ 301,531 ​ $ 180,151 ​ Investing activities ​ (193,008) ​ (97,178) ​ (246,722) ​ Financing activities ​ (298,624) ​ (205,915) ​ 70,451 ​ Net increase (decrease) in cash and cash equivalents ​ $ 147,936 ​ $ (1,562) ​ $ 3,880 ​ Free cash flow: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash provided by operating activities ​ $ 639,568 ​ $ 301,531 ​ $ 180,151 ​ Purchases of property and equipment ​ (94,838) ​ (48,359) ​ (22,330) ​ Proceeds from sales of property and equipment ​ 5,951 ​ 2,858 ​ 3,101 ​ Free cash flow ​ $ 550,681 ​ $ 256,030 ​ $ 160,922 ​ Cash Flow Our business does not require significant amounts of investment in long-term fixed assets.
Together, these notes had an outstanding balance of $41.0 million as of December 31, 2022.
Together, these notes had an outstanding balance of $44.1 million as of December 31, 2023.
It is unusual for us to work on a project that exceeds two years in length. 28 Table of Contents A stratification of projects in progress as of December 31, 2022, by contract price, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate ​ ​ ​ ​ Contract ​ ​ No. of ​ Price Value Contract Price of Project ​ Projects ​ (millions) Under $2 million 9,812 ​ $ 1,628.5 ​ $2 million - $10 million 610 ​ 2,698.6 ​ $10 million - $20 million 112 ​ 1,645.6 ​ $20 million - $40 million 82 ​ 2,345.3 ​ Greater than $40 million 20 ​ 985.2 ​ Total 10,636 ​ $ 9,303.2 ​ ​ In addition to project work, approximately 13.0% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems.
It is unusual for us to work on a project that exceeds two years in length. 29 Table of Contents A stratification of projects in progress as of December 31, 2023, by contract price, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate ​ ​ ​ ​ Contract ​ ​ No. of ​ Price Value Contract Price of Project ​ Projects ​ (millions) Under $2 million 9,477 ​ $ 1,722.1 ​ $2 million - $10 million 743 ​ 3,346.2 ​ $10 million - $20 million 125 ​ 1,761.0 ​ $20 million - $40 million 96 ​ 2,688.2 ​ Greater than $40 million 40 ​ 2,448.7 ​ Total 10,481 ​ $ 11,966.2 ​ ​ In addition to project work, approximately 11.0% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems.
Service agreement revenue, service work and short duration projects, which are generally billed as performed, do not flow through backlog. Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months.
Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months.
Operating Environment and Management Emphasis During the five-year period from 2015 to 2019, there was an increase in nonresidential building construction and renovation activity levels. In 2020, the advent of a global pandemic led to some delays in service and construction, including delayed project starts and air pockets or pauses during 2020 and 2021.
Operating Environment and Management Emphasis In 2020, the advent of a global pandemic led to some delays in service and construction, including delayed project starts and air pockets or pauses during 2020 and 2021.
However, same-store SG&A, excluding amortization, is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly, should not be considered an alternative to SG&A as shown in our Consolidated Statements of Operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 2021 ​ (in thousands) ​ SG&A ​ $ 489,344 ​ $ 376,309 ​ Less: SG&A from companies acquired ​ (51,181) ​ — ​ Less: Amortization expense ​ (36,426) ​ (30,214) ​ Same-store SG&A, excluding amortization expense ​ $ 401,737 ​ $ 346,095 ​ Interest Expense —Interest expense increased $7.2 million, or 115.5%, in 2022.
However, same-store SG&A, excluding amortization, is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly, should not be considered an alternative to SG&A as shown in our Consolidated Statements of Operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 ​ (in thousands) ​ SG&A ​ $ 574,423 ​ $ 489,344 ​ Less: SG&A from companies acquired ​ (15,989) ​ — ​ Less: Amortization expense ​ (38,234) ​ (36,426) ​ Same-store SG&A, excluding amortization expense ​ $ 520,200 ​ $ 452,918 ​ Interest Income —Interest income increased $3.4 million in 2023 as compared to 2022.
The same-store revenue increase of $198.5 million was primarily attributable to an increase in activity in the industrial sector at our Texas electrical operation ($172.5 million). ​ Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Project work generally lasts less than one year.
The same-store revenue increase of $176.6 million was primarily attributable to an increase in activity in the technology sector at our Texas electrical operation ($96.3 million) and in the manufacturing sector at our North Carolina electrical operation ($49.4 million). ​ Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work.
The following table presents our operating segment backlog (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ December 31, ​ 2022 ​ 2021 Backlog: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mechanical Services ​ $ 3,299,630 81.2 % ​ $ 1,753,340 75.8 % Electrical Services ​ 764,113 18.8 % ​ 558,544 24.2 % Total ​ $ 4,063,743 100.0 % ​ $ 2,311,884 100.0 % ​ Backlog as of December 31, 2022 was $4.06 billion, a 25.0% increase from September 30, 2022 backlog of $3.25 billion and a 75.8% increase from December 31, 2021 backlog of $2.31 billion.
The following table presents our operating segment backlog (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 Backlog: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mechanical Segment ​ $ 4,027,927 78.1 % ​ $ 3,299,630 81.2 % Electrical Segment ​ 1,129,449 21.9 % ​ 764,113 18.8 % Total ​ $ 5,157,376 100.0 % ​ $ 4,063,743 100.0 % ​ Backlog as of December 31, 2023 was $5.16 billion, a 20.3% increase from September 30, 2023 backlog of $4.29 billion and a 26.9% increase from December 31, 2022 backlog of $4.06 billion.
During the year ended December 31, 2022, we repurchased 0.4 million shares for approximately $38.2 million at an average price of $86.45 per share.
During the year ended December 31, 2023, we repurchased 0.1 million shares for approximately $21.3 million at an average price of $152.75 per share.
The Joint Committee on Taxation approved such refunds in late January 2022. 2021 Compared to 2020 For a discussion of the period-to-period comparison of 2021 to 2020, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—2021 Compared to 2020” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Of the $10.0 million increase, $4.9 million related to the R&D tax credit for the 2022 tax year. 2022 Compared to 2021 For a discussion of the period-to-period comparison of 2022 to 2021, please refer to “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—2022 Compared to 2021” in our Annual Report on Form 10-K for the year ended December 31, 2022.
The following table presents our operating segment revenue (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ 2021 Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mechanical Services ​ $ 3,178,475 76.8 % ​ $ 2,542,623 82.7 % Electrical Services ​ 961,889 23.2 % ​ 531,013 17.3 % Total ​ $ 4,140,364 100.0 % ​ $ 3,073,636 100.0 % ​ Revenue for our mechanical services segment increased $635.9 million, or 25.0%, to $3.18 billion in 2022 compared to 2021.
The following table presents our operating segment revenue (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 ​ 2022 Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mechanical Segment ​ $ 3,946,022 75.8 % ​ $ 3,178,475 76.8 % Electrical Segment ​ 1,260,738 24.2 % ​ 961,889 23.2 % Total ​ $ 5,206,760 100.0 % ​ $ 4,140,364 100.0 % ​ Revenue for our mechanical segment increased $767.5 million, or 24.1%, to $3.95 billion in 2023 compared to 2022.
The $149.5 million decrease in cash used primarily relates to a decrease in cash paid (net of cash acquired) for acquisitions, partially offset by higher purchases of property and equipment in the current year compared to 2021. ​ Cash Provided by (Used in) Financing Activities —Cash used in financing activities was $205.9 million for 2022 compared to cash provided by financing activities of $70.5 million during 2021.
The $95.8 million increase in cash used primarily relates to an increase in cash paid (net of cash acquired) for acquisitions and higher purchases of property and equipment to support the growth in our business in the current year compared to 2022. ​ Cash Used in Financing Activities —Cash used in financing activities was $298.6 million for 2023 compared to $205.9 million during 2022.
These payments were partially offset by $33.3 million of income tax refunds received in early 2022. These benefits were also partially offset by a $165.1 million change in receivables, net driven by the increase in revenue compared to the prior year.
These increases were partially offset by a $158.4 million increase in receivables, net driven by higher revenue as compared to the prior year, a $107.1 million federal tax receivable, discussed further below, and $33.3 million of tax refunds received in 2022.
We believe that delays and air pockets have now substantially abated; however, we expect to continue to experience supply chain constraints and reduced labor availability during 2023. We have a credit facility in place with terms we believe are favorable that does not expire until July 2027.
We expect that constraints and delays will continue to abate in 2024; however, we anticipate that pressure on cost and availability, especially for skilled labor, will continue throughout 2024. We have a credit facility in place with terms we believe are favorable that does not expire until July 2027.
The increase primarily resulted from an additional seven months of revenue related to the Amteck acquisition ($110.2 million), as well as the acquisitions of MEP Holdings ($90.6 million) and Atlantic ($31.6 million).
The increase primarily resulted from the acquisition of Eldeco ($115.5 million), as well as an additional three months of revenue related to the Atlantic acquisition ($6.7 million).
The same-store increase is primarily due to higher same-store revenue, an increase in consulting fees and other expenses of $4.7 million related to the credit for increasing research activities (the “R&D tax credit”) for prior tax years and increased compensation costs attributable to increased headcount ($33.1 million), as well as an increase in travel-related expenses ($4.4 million), which were lower in the prior year due to the impacts of COVID-19 on travel.
The same-store increase is primarily due to higher same-store revenue and increased compensation costs ($59.9 million), largely attributable to increased headcount. This increase was partially offset by a decrease in professional fees of $3.3 million as compared to the prior year related to the credit for increasing research activities (the “R&D tax credit”) for prior tax years.
As a percentage of revenue, SG&A decreased from 12.2% in 2021 to 11.8% in 2022 due to the factors discussed above. We have included same-store SG&A, excluding amortization, because we believe it is an effective measure of comparative results of operations.
We have included same-store SG&A, excluding amortization, because we believe it is an effective measure of comparative results of operations.
The $121.4 million increase in cash provided was primarily driven by higher earnings in the current year, a $108.6 million benefit from billings in excess of costs, attributable to the timing of billings and various project work and a $72.8 million increase in deferred revenue liabilities driven by large advance payments received in 2022.
The $338.1 million increase in cash provided by operating activities was primarily driven by higher pre-tax income in the current year, a $123.1 million benefit from billings in excess of costs and deferred revenue, attributable to the timing of billings and various project work due to favorable payment terms and timely payments, and a $43.4 million benefit from increases in accounts payable and accrued liabilities driven by the size and timing of payments.
The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment deployed in project work until our customer pays us. Customary terms in our industry allow customers to withhold a small portion of the contract price until after we have completed the work, typically for six months.
The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment 35 Table of Contents deployed in project work until our customer pays us.
These benefits were partially offset by net state income taxes (4.0%) and nondeductible expenses, including nondeductible expenses related to TAS Energy Inc. (“TAS”) (1.7%).
These benefits were partially offset by net state income taxes (4.0%) and nondeductible expenses related to TAS Energy Inc. (1.7%). Refer to Note 11 in the Consolidated Financial Statements for a reconciliation of the federal statutory rates to the effective tax rates reflected in our financial statements.
Same-store year-over-year backlog was broad-based, and increased primarily due to increased project bookings at one of our Texas operations ($649.0 million), our North Carolina operation ($432.7 million), our Indiana operation ($109.7 million), our Texas electrical operation ($104.1 million) and our Utah operation ($64.2 million). ​ Gross Profit —Gross profit increased $178.4 million, or 31.7%, to $741.6 million in 2022 as compared to 2021.
Same-store year-over-year backlog was broad-based, and increased primarily due to increased project bookings in the healthcare and office building sectors at one of our Virginia operations ($271.5 million), in the manufacturing sector at our North Carolina operation ($202.9 million) and in the technology sector at our Texas electrical operation ($84.0 million). ​ 33 Table of Contents Gross Profit —Gross profit increased $248.9 million, or 33.6%, to $990.5 million in 2023 as compared to 2022.
The sequential backlog increase was primarily a result of increased project bookings at one of our Texas operations ($540.7 million), our North Carolina operation ($310.6 million) and our Indiana operation ($50.5 million). The sequential backlog increase was partially offset by completion of project work at one of our Virginia operations ($70.0 million).
The same-store sequential backlog increase was primarily a result of increased project bookings in the manufacturing sector at our North Carolina operation ($268.2 million), in the technology sector at one of our Texas operations ($266.9 million) and in the healthcare sector at one of our Virginia operations ($203.6 million).
The increase included a $68.4 million, or 12.1%, increase related to the Amteck, Ivey, MEP Holdings and Atlantic acquisitions, as well as a $110.0 million, or 19.6%, increase on a same-store basis.
The increase included a $14.2 million, or 1.9%, increase related to the Eldeco, DECCO and Atlantic acquisitions, as well as a $234.7 million, or 31.7%, increase on a same-store basis.
Of this increase, $164.9 million resulted from an additional eleven months of revenue related to the Ivey acquisition, and $471.0 million was attributable to same-store activity.
Of this increase, $12.8 million resulted from the acquisition of DECCO, and $754.7 million was attributable to same-store activity.
Our effective tax rate changes based upon our relative profitability, or lack thereof, in the federal and various state jurisdictions with differing tax rates and rules. In addition, discrete items, such as tax law changes, judgments and legal structures can impact our effective tax rate.
Provision (Benefit) for Income Taxes —We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in the federal and various state jurisdictions with differing tax rates and rules.
The year-over-year backlog increase included the acquisition of Atlantic ($30.2 million) as well as a same-store increase of $1.72 billion, or 74.5%.
The sequential backlog increase included the acquisition of DECCO ($29.7 million) as well as a same-store increase of $840.1 million, or 19.6%.
The same-store revenue increase was broad-based and included an increase in activity in the industrial sector at our North Carolina operation ($79.5 million) and one of our Texas operations ($32.7 million), in the retail, restaurants and entertainment sector at one of our Florida operations ($35.0 million) and our Arizona operation ($26.0 million), and in the healthcare sector at another one of our Texas operations ($26.4 million). ​ Revenue for our electrical services segment increased $430.9 million, or 81.1%, to $961.9 million in 2022 compared to 2021.
The same-store revenue increase primarily resulted from an increase in activity in the technology sector at one of our Texas operations ($260.0 million) and our North Carolina operation ($158.0 million), and in the manufacturing sector at one of our Indiana operations ($92.4 million) and another one of our Texas operations ($49.2 million). ​ Revenue for our electrical segment increased $298.8 million, or 31.1%, to $1.26 billion in 2023 compared to 2022.
Outlook We experienced strong demand in 2022, and we believe that we have largely recovered from negative impacts to industry demand in our business due to the business disruption caused by COVID-19. We are seeing fewer instances of delayed starts of new construction work; however, we continue to experience increased labor costs.
Outlook We experienced strong ongoing demand in 2023, and, although we have largely recovered from negative impacts caused by the COVID-19 pandemic, we continue to experience increased labor costs, supply constraints, and delays in delivery of various materials and equipment.
Considering all these factors, we currently anticipate solid earnings and cash flow in 2023.
Considering our substantial advance bookings, we currently anticipate solid earnings and cash flow for 2024.
The table below summarizes current and long-term material cash requirements as of December 31, 2022, which we expect to fund primarily with operating cash flows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2023 2024 2025 2026 2027 Thereafter Total Revolving credit facility $ — $ — $ — $ — $ 215,000 $ — $ 215,000 ​ Notes to former owners ​ 9,000 ​ 7,200 ​ 22,215 ​ ​ 2,625 ​ — ​ — ​ 41,040 ​ Other debt ​ ​ — ​ 132 ​ 54 ​ 19 ​ — ​ — ​ 205 ​ Interest payable ​ 13,189 ​ 12,859 ​ 12,414 ​ ​ 12,213 ​ 6,302 ​ — ​ 56,977 ​ Operating lease obligations ​ 26,275 ​ 23,743 ​ 22,471 ​ 19,172 ​ 14,914 ​ 51,638 ​ 158,213 ​ Total ​ $ 48,464 ​ $ 43,934 ​ $ 57,154 ​ $ 34,029 ​ $ 236,216 ​ $ 51,638 ​ $ 471,435 ​ As of December 31, 2022, we have $54.2 million in letter of credit commitments, of which $28.9 million will expire in 2023 and $25.3 million will expire in 2024.
The table below summarizes current and long-term material cash requirements as of December 31, 2023, which we expect to fund primarily with operating cash flows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2024 2025 2026 2027 2028 Thereafter Total Notes to former owners ​ $ 4,800 ​ $ 21,645 ​ $ 14,125 ​ $ 3,500 ​ $ — ​ $ — ​ $ 44,070 ​ Other debt ​ ​ 67 ​ 56 ​ 19 ​ — ​ — ​ — ​ 142 ​ Interest payable ​ 1,329 ​ 899 ​ 378 ​ ​ 145 ​ — ​ — ​ 2,751 ​ Operating lease obligations ​ 35,653 ​ 33,968 ​ 30,348 ​ 26,158 ​ 22,448 ​ 148,371 ​ 296,946 ​ Total ​ $ 41,849 ​ $ 56,568 ​ $ 44,870 ​ $ 29,803 ​ $ 22,448 ​ $ 148,371 ​ $ 343,909 ​ As of December 31, 2023, we have $70.2 million in letter of credit commitments, of which $44.8 million will expire in 2024, $25.3 million will expire in 2025, and $0.1 million will expire in 2026.
The increase included a 12.9% increase primarily related to the Amteck, Ivey, MEP Holdings and Atlantic acquisitions, as well as a 21.8% increase in revenue related to same-store activity.
The increase included a 3.3% increase related to the Eldeco, DECCO and Atlantic acquisitions, as well as a 22.5% increase in revenue related to same-store activity. The same-store revenue growth was largely driven by strong market conditions.
In the second quarter of 2022, we completed the acquisition of Atlantic Electric, LLC (“Atlantic”), which reports as a separate operating location. We had 42 operating locations as of December 31, 2022. Acquisitions are included in our results of operations from the respective acquisition date.
In the first quarter of 2023, we completed the acquisition of Eldeco, Inc. (“Eldeco”), which reports as a separate operating location. In the fourth quarter of 2023, we completed the acquisition of DECCO, Inc. (“DECCO”), which reports as a separate operating location. We had 44 operating locations as of December 31, 2023.
The benefit from the advance payments received in 2022 will reverse in 2023, except to the extent that additional advanced payments are received in 2023. We made income tax payments of $52.6 million during 2022 related to the capitalization of research and experimental expenditures pursuant to the Tax Cuts and Jobs Act (2017).
The benefit from these advance payments received in 2023 will reverse when project costs are incurred, except to the extent that additional advanced payments are received.
The same-store comparison from 2022 to 2021, as described below, excludes Atlantic, which was acquired on April 1, 2022, MEP Holding Co., Inc.
Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from 2023 to 2022, as described below, excludes Eldeco, which was acquired on February 1, 2023, DECCO, which was acquired on October 2, 2023, and three months of results for Atlantic Electric, LLC (“Atlantic”), which was acquired on April 1, 2022.
This increase was primarily caused by higher expenses at our Texas electrical operation and Ivey, driven by stronger actual current earnings and forecasted results. Provision (Benefit) for Income Taxes —We conduct business throughout the United States in virtually all fifty states.
This increase was primarily caused by higher expenses at our Kentucky electrical operation and Eldeco, driven by stronger actual current earnings and forecasted results. Expense or income from changes in earn-out valuations may be more volatile in future periods due to large earn-out agreements for acquisitions that closed in the first quarter of 2024.
Additionally, we achieved improvements in project execution at one of our Texas operations ($12.0 million) and our Arizona operation ($10.7 million). Furthermore, we recorded an increase of $4.9 million in gross profit related to positive developments on legal matters in 2022.
Additionally, we achieved improvements in project execution at our Kentucky electrical operation ($30.0 million) and another one of our Texas operations ($23.6 million). As a percentage of revenue, gross profit increased from 17.9% in 2022 to 19.0% in 2023, primarily due to the factors discussed above and improvements in our electrical segment gross profit margin.
We also are experiencing supply constraints and cost increases, reduced availability, and delays in delivery of various materials and equipment.
Although we have largely recovered from negative impacts caused by the COVID-19 pandemic, we continue to experience increased labor costs, supply constraints and cost increases, and delays in delivery of various materials and equipment.
Removed
(“MEP Holdings”), which was acquired on December 31, 2021, eleven months of results for Ivey Mechanical Company, LLC (“Ivey”), which was acquired on December 1, 2021, and seven months of results for Amteck Holdco LLC (“Amteck”), which was acquired on August 1, 2021.
Added
We experienced increasing demand in 2022 and 2023, and we expect that the demand environment, especially for industrial and technology customers, will remain at high levels in 2024.
Removed
As a percentage of revenue, gross profit decreased from 18.3% in 2021 to 17.9% in 2022 primarily due to a higher percentage of electrical segment revenue and new construction revenue in the current year, as well as materials and equipment being a higher percentage of our costs in the current year. ​ Selling, General and Administrative Expenses (“SG&A”) —SG&A increased $113.0 million, or 30.0%, to $489.3 million for 2022 as compared to 2021.
Added
The increase in demand has been particularly strong in the technology and manufacturing sectors such as data centers, chip plants, food, pet food and pharmaceuticals.
Removed
On a same-store basis, excluding amortization expense, SG&A increased $55.6 million, or 16.1%.
Added
Project work generally lasts less than one year. Service agreement revenue, service work and short duration projects, which are generally billed as performed, do not flow through backlog.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+1 added−0 removed3 unchanged
Biggest changeOur debt with fixed interest rates consists of notes to former owners of acquired companies and acquired notes payable. 39 Table of Contents The following table presents principal amounts (stated in thousands) and related average interest rates by year of maturity for our debt obligations at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2023 2024 2025 2026 2027 Thereafter Total Fixed Rate Debt ​ $ 9,000 ​ $ 7,332 ​ $ 22,269 ​ $ 2,644 ​ $ — ​ $ — ​ $ 41,245 ​ Average Interest Rate ​ 2.5% ​ 2.5% ​ 2.5% ​ 2.5% ​ — ​ — ​ 2.5% ​ Variable Rate Debt ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 215,000 ​ $ — ​ $ 215,000 ​ The weighted average interest rate applicable to the borrowings under the revolving credit facility was approximately 5.7% as of December 31, 2022 and 1.4% as of December 31, 2021.
Biggest changeThe following table presents principal amounts (stated in thousands) and related average interest rates by year of maturity for our debt obligations at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twelve Months Ending December 31, ​ ​ ​ ​ ​ ​ ​ ​ 2024 2025 2026 2027 2028 Thereafter Total Fixed Rate Debt ​ $ 4,867 ​ $ 21,701 ​ $ 14,144 ​ $ 3,500 ​ $ — ​ $ — ​ $ 44,212 ​ Average Interest Rate ​ 3.2% ​ 3.3% ​ 4.3% ​ 5.5% ​ — ​ — ​ 3.8% ​ The weighted average interest rate applicable to the borrowings under the revolving credit facility was approximately 5.7% as of December 31, 2022.
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 year on those assets required to be measured at fair value on a nonrecurring basis.
There were no outstanding borrowings on the revolving credit facility as of December 31, 2023. 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.
The valuation of the Company’s contingent earn-out payments is determined using a probability weighted discounted cash flow method.
We did not recognize any impairments in the current year on those assets required to be measured at fair value on a nonrecurring basis. The valuation of the Company’s contingent earn-out payments is determined using a probability weighted discounted cash flow method.
Added
Our debt with fixed interest rates consists of notes to former owners of acquired companies and acquired notes payable.

Other FIX 10-K year-over-year comparisons