COMFORT SYSTEMS USA INC

Previous wording

Approximately 90.7% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities. When competing for project business, we usually estimate the costs we will incur on a project, and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur to support our operations but which are not specific to the project. Typically, customers will seek pricing from competitors for a given project. While the criteria on which customers select a provider vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider.

Current wording

Approximately 91.1% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities. When competing for project business, we usually estimate the costs we will incur on a project, and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur to support our operations but which are not specific to the project. Typically, customers will seek pricing from competitors for a given project. While the criteria on which customers select a provider vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider.

Previous wording

As of March 31, 2024, we had 8,668 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $1.6 million. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration, together with typical retention terms as discussed above, generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we consider to be a well-diversified distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of our services to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings. The service work that we do, which is discussed further below, usually does not give rise to lien rights.

Current wording

As of June 30, 2024, we had 8,292 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $1.7 million. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration, together with typical retention terms as discussed above, generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we consider to be a well-diversified distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of our services to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings. The service work that we do, which is discussed further below, usually does not give rise to lien rights.

Previous wording

We also perform larger projects. Taken together, projects with contract prices of $2 million or more totaled $12.1 billion of aggregate contract value as of March 31, 2024, or approximately 88% of a total contract value for all projects in progress, totaling $13.7 billion. Generally, projects closer in size to $2 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length.

Current wording

We also perform larger projects. Taken together, projects with contract prices of $2 million or more totaled $12.56 billion of aggregate contract value as of June 30, 2024, or approximately 89% of a total contract value for all projects in progress, totaling $14.12 billion. Generally, projects closer in size to $2 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length.

Previous wording

In addition to project work, approximately 9.3% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide maintenance and repair service under ongoing contracts. Under these contracts, we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically are for one or more years and frequently contain thirty- to sixty-day cancellation notice periods.

Current wording

In addition to project work, approximately 8.9% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide maintenance and repair service under ongoing contracts. Under these contracts, we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically are for one or more years and frequently contain thirty- to sixty-day cancellation notice periods.

Previous wording

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. 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. 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. 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.

Current wording

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. We experienced increasing demand in 2022 and 2023, and we expect that the demand environment, especially for manufacturing and technology customers, will remain at high levels in 2024. 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. 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.

Previous wording

We have a credit facility in place with terms we believe are favorable that does not expire until July 2027. As of March 31, 2024, we had $768.8 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. 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

Current wording

We have a credit facility in place with terms we believe are favorable that does not expire until July 2027. As of June 30, 2024, we had $768.5 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. 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

Previous wording

We had 44 operating locations as of December 31, 2023. In the first quarter of 2024, we split one of our operating locations into two separate operating locations. Additionally, we completed the acquisitions of Summit Industrial Construction, LLC (“Summit”) and J & S Mechanical Contractors, Inc. (“J&S”), which both report as separate operating locations. We had 47 operating locations as of March 31, 2024. Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from 2024 to 2023, as described below, excludes Summit, which was acquired on February 1, 2024, J&S, which was acquired on February 1, 2024, DECCO, Inc. (“DECCO”), which was acquired on October 2, 2023, and one month of results for Eldeco, Inc (“Eldeco”), which was acquired on February 1, 2023. An operating location is included in the same-store comparison on the first day it has

Current wording

We had 44 operating locations as of December 31, 2023. In the first quarter of 2024, we split one of our operating locations into two separate operating locations. Additionally, we completed the acquisitions of Summit Industrial Construction, LLC (“Summit”) and J & S Mechanical Contractors, Inc. (“J&S”), which both report as separate operating locations. We had 47 operating locations as of June 30, 2024. Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from 2024 to 2023, as described below, excludes Summit, which was acquired on February 1, 2024, J&S, which was acquired on February 1, 2024, DECCO, Inc. (“DECCO”), which was acquired on October 2, 2023, and one month of results for Eldeco, Inc (“Eldeco”), which was acquired on February 1, 2023. 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.

Previous wording

Revenue—Revenue for the first quarter of 2024 increased $362.4 million, or 30.8%, to $1.54 billion compared to the same period in 2023. The increase included a 22.7% increase in revenue related to same-store activity and an 8.1% increase related to the Summit, J&S, DECCO, and Eldeco acquisitions. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been particularly strong in the technology and manufacturing sectors, particularly for data centers, chip plants, food and pharmaceuticals.

Current wording

Revenue—Revenue for the second quarter of 2024 increased $513.9 million, or 39.6%, to $1.81 billion compared to the same period in 2023. The increase included a 29.5% increase in revenue related to same-store activity and a 10.1% increase related to the Summit, J&S, and DECCO acquisitions. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been particularly strong in the technology and manufacturing sectors, particularly for data centers, chip plants, food and pharmaceuticals.

Previous wording

Revenue for our mechanical segment increased $266.4 million, or 29.0%, to $1,185.0 million for the first quarter of 2024 compared to the same period in 2023. Of this increase, $87.5 million resulted from the acquisition of Summit, J&S, and DECCO, and $178.9 million was attributable to same-store activity. The same-store revenue increase primarily resulted from an increase in activity in the technology sector at one of our Texas operations ($44.0 million), at another one of our Texas operations ($41.2 million), at our North Carolina operation ($24.5 million) and in the Technology and Manufacturing sectors at one of our Virginia operations ($24.8 million).

Current wording

Revenue for our mechanical segment increased $742.2 million, or 39.2%, to $2.64 billion for the first six months of 2024 compared to the same period in 2023. Of this increase, $218.6 million resulted from the acquisition of Summit, J&S, and DECCO, and $523.6 million was attributable to same-store activity. The same-store increase primarily resulted from an increase in activity in the technology sector at two of our Texas operations ($191.5 million) and at one of our Virginia operations ($54.4 million), in the technology and manufacturing sectors at our North Carolina operation ($83.9 million) and in the retail, restaurants and entertainment sector at one of our Tennessee operations ($40.8 million).

Previous wording

Revenue for our electrical segment increased $96.0 million, or 37.5%, to $352.0 million for the first quarter of 2024 compared to the same period in 2023. The increase primarily resulted from an increase in activity in the technology sector at our Texas electrical operation ($38.8 million) and in the manufacturing sector at our North Carolina electrical operation ($29.9 million).

Current wording

Revenue for our electrical segment increased $134.1 million, or 23.3%, to $710.6 million for the first six months of 2024 compared to the same period in 2023. The increase primarily resulted from higher activity in the technology sector at our Texas electrical operation ($76.4 million) and in the manufacturing sector at our North Carolina electrical operation ($40.1 million).

Previous wording

Backlog as of March 31, 2024 was $5.91 billion, a 14.6% increase from December 31, 2023 backlog of $5.16 billion, and a 33.0% increase from March 31, 2023 backlog of $4.44 billion. The sequential backlog increase included the acquisitions of Summit ($440.9 million) and J&S ($171.7 million) as well as a same-store increase of $141.7 million, or 2.7%. The same-store sequential backlog increase was primarily a result of an increase in project bookings at our Texas electrical operation ($170.0 million). The sequential backlog increase was partially offset by completion of project work at one of our Texas operations ($136.1 million). The year-over-year backlog increase included the acquisitions of Summit ($440.9 million), J&S ($171.7 million) and DECCO ($52.1 million) as well as a same-store increase of $802.0 million, or 18.0%. Same-store year-over-year backlog growth was primarily attributable to increased project bookings at one of our Virginia operations ($185.0 million), our Texas electrical operation ($164.3

Current wording

Backlog as of June 30, 2024 was $5.77 billion, a 2.4% decrease from March 31, 2024 backlog of $5.91 billion, and a 37.9% increase from June 30, 2023 backlog of $4.19 billion. The sequential backlog decrease was primarily a result of the completion of project work at our North Carolina operations ($123.5 million) and at one of our Texas operations ($117.2 million). The sequential backlog decrease was partially offset by increased project bookings at our Mississippi operation ($129.3 million). The year-over-year backlog increase included the acquisitions of Summit ($370.5 million), J&S ($145.8 million) and DECCO ($40.1 million) as well as a same-store increase of $1.03 billion, or 24.6%. Same-store year-over-year backlog growth was broad-based, including increased project bookings at one of our Virginia operations ($230.5 million), our Texas electrical operation ($194.9 million) and our Mississippi operation ($169.6 million).

Previous wording

Gross Profit—Gross profit increased $92.0 million, or 44.8%, to $297.4 million for the first quarter of 2024 as compared to the same period in 2023. The increase included a $4.8 million, or 2.4%, increase related to the Summit, J&S, DECCO, and Eldeco acquisitions, as well as a 42.4% increase in same-store activity. The same-store increase in gross profit was driven by both higher revenues in the current year as well as improved execution in our operations. We had increased volumes at our North Carolina operations ($15.4 million) and we achieved improvements in project execution at our Texas electrical operation ($22.8 million) and another one of our Texas operations ($18.3 million). These increases were partially offset by an increase in the first quarter of 2023 of $6.6 million in gross profit related to positive developments on legal matters, which did not recur in 2024. As a percentage of revenue, gross profit for the first quarter increased from 17.5% in 2023 to 19.3% in 2024, primarily due to the factors discussed above and improvements in our electrical segment gross profit margin.

Current wording

Gross profit increased $227.6 million, or 52.5%, to $661.0 million for the first six months of 2024 as compared to the same period in 2023. The increase included a 4.2% increase related to the Summit, J&S, DECCO, and Eldeco acquisitions, as well as a 48.3% increase in same-store activity. The same-store increase in gross profit was primarily driven by both higher revenues in the current year as well as improved execution in our operations, including increased volumes at our North Carolina operations ($34.1 million). Additionally, we achieved improvements in project execution at our Texas electrical operation ($48.3 million) and another one of our Texas operations ($33.8 million). These increases were partially offset by a benefit in the first quarter of 2023 of $6.6 million in gross profit related to positive developments on legal matters. As a percentage of revenue, gross profit for the six-month period increased from 17.5% in 2023 to 19.7% in 2024, primarily due to the factors discussed above and improvements in our electrical segment gross profit margin.

Previous wording

Selling, General and Administrative Expenses (“SG&A”)—SG&A increased $27.7 million, or 20.5%, to $162.7 million for the first quarter of 2024 as compared to 2023. On a same-store basis, excluding amortization expense, SG&A increased $18.7 million, or 14.9%. The same-store increase is primarily due to higher same-store revenue and increased compensation costs ($13.7 million), largely attributable to increased headcount. Amortization expense increased $3.3 million during the period, primarily as a result of the Summit, J&S, DECCO and Eldeco acquisitions. As a percentage of revenue, SG&A for the first quarter decreased from 11.5% in 2023 to 10.6% in 2024 due to leverage resulting from the increase in revenue.

Current wording

Selling, General and Administrative Expenses (“SG&A”)—SG&A increased $43.1 million, or 31.6%, to $179.5 million for the second quarter of 2024 as compared to 2023. On a same-store basis, excluding amortization expense, SG&A increased $32.1 million, or 25.3%. The same-store increase is primarily due to higher same-store revenue and increased compensation costs ($25.0 million), largely attributable to increased headcount. Amortization expense increased $4.7 million during the period, primarily as a result of the Summit, J&S, and DECCO acquisitions. As a percentage of revenue, SG&A for the second quarter decreased from 10.5% in 2023 to 9.9% in 2024 due to leverage resulting from the increase in revenue.

Previous wording

Interest Expense—Interest expense decreased $2.4 million, or 59.9%, to $1.6 million for the first quarter of 2024 as compared to the same period in 2023. The decrease in interest expense for the first quarter of 2024 is due to a decrease in our average outstanding debt balance compared to the prior year.

Current wording

Interest Expense—Interest expense decreased $2.2 million, or 56.4%, to $1.7 million for the second quarter of 2024 as compared to the same period in 2023. Interest expense decreased $4.7 million for the first six months of 2024 compared to the same period in 2023. The decrease in interest expense for the second quarter of 2024 and first six months of 2024 is due to a decrease in our average outstanding debt balance compared to the prior year.

Previous wording

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 for the first quarter of 2024 increased $10.1 million as compared to the same period in 2023. The increase in earn-out expense was primarily driven by higher actual and projected earning at Summit and J&S. 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.

Current wording

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 for the second quarter of 2024 increased $11.6 million as compared to the same period in 2023. The increase in earn-out expense was primarily driven by higher actual and projected earnings at Summit. Expense from changes in the fair value of contingent earn-out obligations for the first six months of 2024 increased $21.7 million as compared to the same period in 2023. The increase in earn-out expense was primarily driven by higher actual and projected earnings at Summit and J&S. 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 2024.

Previous wording

Provision for Income Taxes—Our provision for income taxes for the three months ended March 31, 2024 was $26.7 million with an effective tax rate of 21.7% as compared to a provision for income taxes of $8.6 million with an effective tax rate of 13.1% for the same period in 2023. The effective tax rate for 2024 was slightly higher than the 21% federal statutory rate primarily due to net state income taxes (3.7%) and nondeductible expenses (1.6%) partially offset by the credit for increasing research activities (the “R&D tax credit”) (4.4%). The effective tax rate for 2023 was lower than the 21% federal statutory rate primarily due to the R&D tax credit (9.7%) and an increase in the R&D tax credit for the 2022 tax year (5.1%). These R&D tax credit benefits were partially offset by net state income taxes (4.3%) and nondeductible expenses, including nondeductible expenses related to the TAS Energy Inc. acquisition (2.6%).

Current wording

Provision for Income Taxes—Our provision for income taxes for the six months ended June 30, 2024 was $62.4 million with an effective tax rate of 21.3% as compared to a provision for income taxes of $24.3 million with an effective tax rate of 16.1% for the same period in 2023. The effective tax rate for 2024 is slightly higher than the 21% federal statutory rate primarily due to net state income taxes (3.6%) and nondeductible expenses (1.4%) partially offset by the credit for increasing research activities (the “R&D tax credit”) (3.9%) and stock-based compensation deduction (0.7%). The effective tax rate for 2023 was lower than the 21% federal statutory rate primarily due to the R&D tax credit (8.2%) and an increase in the R&D tax credit for the 2022 tax year (2.2%). These R&D tax credit benefits were partially offset by net state income taxes (4.1%) and nondeductible expenses (1.5%).

Previous wording

As a result of conforming amendments made to the R&D tax credit in connection with the deferral of tax deductions for research and experimental (“R&E”) expenditures pursuant to the Tax Cuts and Jobs Act (2017), our provision for income taxes for the three months ended March 31, 2024 benefited from a $1.1 million increase in the R&D tax credit.

Current wording

As a result of conforming amendments made to the R&D tax credit in connection with the deferral of tax deductions for research and experimental (“R&E”) expenditures pursuant to the Tax Cuts and Jobs Act (2017), our provision for income taxes for the six months ended June 30, 2024 benefited from a $2.4 million increase in the R&D tax credit.

Previous wording

We experienced strong ongoing demand in the first quarter of 2024, 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. 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 been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.

Current wording

We experienced strong ongoing demand in the first six months of 2024, 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. 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 been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.

Previous wording

We have a good pipeline of opportunities and potential backlog. Considering our substantial advance bookings, we currently anticipate solid earnings and cash flow for 2024. 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 throughout 2024.

Current wording

We have a good pipeline of opportunities and potential backlog. Considering our substantial advance bookings, we currently anticipate solid earnings and cash flow for 2024. 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 manufacturing and technology customers, are likely to continue throughout 2024.

Previous wording

Cash Provided (Used in) 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. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily associated with labor, equipment and subcontractors, are required to be paid before the receivables resulting from the work performed are billed and collected. Working capital needs are generally higher during the late winter and spring months as we prepare and plan for the increased project demand when favorable weather conditions exist in the summer and fall months. Conversely, working capital assets are typically converted to cash during the late summer and fall months as project completion is underway. 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.

Current wording

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. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily associated with labor, equipment and subcontractors, are required to be paid before the receivables resulting from the work performed are billed and collected. Working capital needs are generally higher during the late winter and spring months as we prepare and plan for the increased project demand when favorable weather conditions exist in the summer and fall months. Conversely, working capital assets are typically converted to cash during the late summer and fall months as project completion is underway. 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.

Previous wording

Cash provided by operating activities was $146.6 million during the first three months of 2024 compared to $126.9 million during the same period in 2023. The $19.6 million increase in cash provided was primarily driven by higher pre-tax income and a $90.1 million benefit from increases in accounts payable and accrued liabilities driven by the size and timing of payments. This increase was partially offset by a $135.8 million change in billing in excess of costs and deferred revenue due to more advance payments received in the prior year. We have received large advanced payments in the current and prior year that will reverse when project costs are incurred, except to the extent that additional advanced payments are received.

Current wording

Cash provided by operating activities was $336.4 million during the first six months of 2024 compared to $252.3 million during the same period in 2023. The $84.1 million increase in cash provided was primarily driven by higher earnings before non-cash expenses such as amortization of intangible assets and a $143.7 million benefit from increases in accounts payable and accrued liabilities driven by the size and timing of payments. This increase was partially offset by a $119.4 million increase in accounts receivables, net driven by higher revenues as compared to the prior year and a $105.4 million change in billing in excess of costs and deferred revenue due to more advance payments received in the prior year. We have received large advanced payments in the current and prior years that will reverse when project costs are incurred, except to the extent that additional advanced payments are received.

Previous wording

Cash Provided by (Used in) Investing Activities—During the first three months of 2024, cash used in investing activities was $221.6 million compared to $68.9 million during the same period in 2023. The $152.7 million increase in cash used primarily relates to an increase in cash paid (net of cash acquired) for acquisitions in the current year compared to the same period in 2023.

Current wording

Cash Used in Investing Activities—During the first six months of 2024, cash used in investing activities was $282.4 million compared to $93.6 million during the same period in 2023. The $188.8 million increase in cash used primarily relates to an increase in cash paid (net of cash acquired) for acquisitions in the current year compared to the same period in 2023.

Previous wording

Cash Provided by (Used in) Financing Activities—Cash used in financing activities was $29.3 million for the first three months of 2024 compared to cash used of $66.6 million during the same period in 2023. The $37.4 million decrease in cash used is primarily due to higher repayments of debt in the prior year as operating cash flows were used to pay down outstanding debt. This decrease was partially offset by $18.6 million payments for contingent consideration related to acquisitions in the current year.

Current wording

Cash Used in Financing Activities—Cash used in financing activities was $59.7 million for the first six months of 2024 compared to $155.9 million during the same period in 2023. The $96.2 million decrease in cash used is primarily due to higher net repayments of debt in the prior year as operating cash flows were used to pay down outstanding debt.

Previous wording

On March 29, 2007, our Board of Directors (the “Board”) approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of March 31, 2024, we have repurchased a cumulative total of 10.3 million shares at an average price of $26.29 per share under the repurchase program.

Current wording

On March 29, 2007, our Board of Directors (the “Board”) approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. Since the inception of the repurchase program, the Board has approved 10.9 million shares to be repurchased. As of June 30, 2024, we have repurchased a cumulative total of 10.3 million shares at an average price of $27.25 per share under the repurchase program.

Previous wording

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the three months ended March 31, 2024, we repurchased less than 0.1 million shares for approximately $0.3 million at an average price of $196.89 per share.

Current wording

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the six months ended June 30, 2024, we repurchased less than 0.1 million shares for approximately $11.1 million at an average price of $305.23 per share.

Previous wording

We have an $850.0 million senior credit facility (the “Facility”) provided by a syndicate of banks, which is composed of a revolving credit line guaranteed by certain of our subsidiaries. The Facility also provides for an accordion or increase option not to exceed the greater of (a) $250 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), as well as a sublimit of up to $175.0 million issuable in the form of letters of credit. The Facility expires in July 2027 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of, and assets held by, certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As of March 31,

Current wording

We have an $850.0 million senior credit facility (the “Facility”) provided by a syndicate of banks, which is composed of a revolving credit line guaranteed by certain of our subsidiaries. The Facility also provides for an accordion or increase option not to exceed the greater of (a) $250 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), as well as a sublimit of up to $175.0 million issuable in the form of letters of credit. The Facility expires in July 2027 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of, and assets held by, certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As of June 30, 2024, we had no outstanding borrowings on the revolving credit facility, $81.5 million in letters of credit outstanding and $768.5 million of credit available.

Previous wording

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

Current wording

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the Facility. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the lenders for amounts they fund to honor the letter of

Previous wording

As of March 31, 2024, we have $81.2 million in letter of credit commitments, of which $55.1 million will expire in 2024, $26.0 million will expire in 2025 and $0.1 million will expire in 2026. 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. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. 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 the next twelve months, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

Current wording

As of June 30, 2024, we have $81.5 million in letter of credit commitments, of which $55.0 million will expire in 2024, $26.3 million will expire in 2025 and $0.2 million will expire in 2026. 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. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. 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 the next twelve months, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

Previous wording

As part of the consideration used to acquire ten companies, we have outstanding notes to the former owners. Together, these notes had an outstanding balance of $89.1 million as of March 31, 2024. At March 31, 2024, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands):

Current wording

As part of the consideration used to acquire eleven companies, we have outstanding notes to the former owners. Together, these notes had an outstanding balance of $90.3 million as of June 30, 2024. At June 30, 2024, future principal payments of notes to former owners by maturity year are as follows (dollars in thousands):

Previous wording

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. We also continue to have significant borrowing capacity under our

Current wording

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. We also continue to have significant borrowing capacity under our credit facility, and we maintain what we feel are reasonable cash balances. We believe these factors will provide us with sufficient liquidity to fund our operations for the foreseeable future.

Previous wording

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

Current wording

assessment of our operating and financial risk could cause our sureties to decline to issue bonds for our work. If that were to occur, our alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance, such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.