Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

​
​		Page
Comfort Systems USA, Inc.	​	​
Management’s Report on Internal Control over Financial Reporting	​	45
Report of Independent Registered Public Accounting Firm	​	46
Report of Independent Registered Public Accounting Firm	​	48
Consolidated Balance Sheets	​	49
Consolidated Statements of Operations	​	50
Consolidated Statements of Stockholders’ Equity	​	51
Consolidated Statements of Cash Flows	​	52
Notes to Consolidated Financial Statements	​	53

​

​

​

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 framework). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein, has issued an attestation report auditing the effectiveness of our internal control over financial reporting as of December 31, 2020.

​

Report of Independent Registered Public Accounting Firm

​

To the Stockholders and the Board of Directors of Comfort Systems USA, Inc.

​

Opinion on the Financial Statements

​

We have audited the accompanying consolidated balance sheets of Comfort Systems USA, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

​

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 2021 expressed an unqualified opinion thereon.

​

Basis for Opinion

​

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

​

Critical Audit Matter

​

The critical audit matter communicated below was a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

​

​	​ ​
​	Revenue recognition using percentage of completion method ​
Description of the Matter	As disclosed in Note 3 to the consolidated financial statements, for fixed price agreements, the Company uses the percentage of completion (POC) method of accounting under which contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs. Estimating contract costs is subjective and certain projects require considerable judgment and could be impacted by changes in labor and materials/equipment. ​

	Auditing management’s estimates of total contract costs for certain longer-duration projects was challenging due to significant judgments made by management with respect to labor and materials/equipment costs as future results may vary significantly from past estimates due to changes in facts and circumstances as the project progresses to completion. ​
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the contract estimated cost at completion process. For example, we tested controls over management’s review of cost estimates for significant inputs such as labor and materials/equipment costs. ​ To evaluate the Company’s contract cost estimates, our audit procedures included selecting a sample of contracts and, among others procedures, reviewing the contracts and any associated amendments, conducting interviews with and reviewing questionnaires completed by project personnel, assessing blended labor rates used in the estimate to complete the project against blended labor rates actually incurred to date, agreeing estimated labor and materials/equipment costs to supporting documentation, and performing lookback analyses comparing gross margin over the life of the project to assess management’s ability to estimate. ​
​	​ ​

​

/s/ Ernst & Young LLP

​

We have served as the Company’s auditor since 2002.

​

Houston, Texas

​

February 25, 2021

​

​

Report of Independent Registered Public Accounting Firm

​

To the Stockholders and the Board of Directors of Comfort Systems USA, Inc.

​

Opinion on Internal Control over Financial Reporting

​

We have audited Comfort Systems USA, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Comfort Systems USA, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

​

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 25, 2021 expressed an unqualified opinion thereon.

​

Basis for Opinion

​

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

​

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

​

Definition and Limitations of Internal Control Over Financial Reporting

​

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

​

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

​

/s/ Ernst & Young LLP

​

Houston, Texas

​

February 25, 2021

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COMFORT SYSTEMS USA, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

​	​	​	​	​	​	​	​
​	​	December 31,					​
​		2020			2019		​
​	​	​	​	​	​	​	​
ASSETS	​	​	​	​	​	​	​
CURRENT ASSETS:	​	​	​	​	​	​	​
Cash and cash equivalents	​	$	54,896	​	$	50,788	​
Billed accounts receivable, less allowance for credit losses of $9,087 and $6,907, respectively	​		619,544	​		619,037	​
Unbilled accounts receivable, less allowance for credit losses of $784 and $0, respectively	​		45,596	​		55,542	​
Other receivables, less allowance for credit losses of $759 and $0, respectively	​		44,212	​		37,632	​
Inventories	​		13,472	​		10,053	​
Prepaid expenses and other	​		15,510	​		14,396	​
Costs and estimated earnings in excess of billings, less allowance for credit losses of $79 and $0, respectively	​		18,622	​		2,736	​
Total current assets	​		811,852	​		790,184	​
PROPERTY AND EQUIPMENT, NET	​		117,206	​		109,796	​
LEASE RIGHT-OF-USE ASSET	​	​	94,727	​	​	84,073	​
GOODWILL	​		464,392	​		332,447	​
IDENTIFIABLE INTANGIBLE ASSETS, NET	​		231,807	​		159,974	​
DEFERRED TAX ASSETS	​	​	29,401	​	​	21,923	​
OTHER NONCURRENT ASSETS	​		7,970	​		6,615	​
Total assets	​	$	1,757,355	​	$	1,505,012	​
LIABILITIES AND STOCKHOLDERS’ EQUITY	​	​	​	​	​	​	​
CURRENT LIABILITIES:	​	​	​	​	​	​	​
Current maturities of long-term debt	​	$	—	​	$	20,817	​
Accounts payable	​		204,145	​		196,195	​
Accrued compensation and benefits	​		121,864	​		102,891	​
Billings in excess of costs and estimated earnings	​		226,237	​		166,918	​
Accrued self-insurance	​		49,166	​		39,546	​
Other current liabilities	​		91,492	​		81,630	​
Total current liabilities	​		692,904	​		607,997	​
LONG-TERM DEBT, NET	​		235,733	​		205,318	​
LEASE LIABILITIES	​		80,576	​		72,697	​
DEFERRED TAX LIABILITIES	​		1,339	​		1,425	​
OTHER LONG-TERM LIABILITIES	​		50,374	​		32,271	​
Total liabilities	​		1,060,926	​		919,708	​
COMMITMENTS AND CONTINGENCIES	​	​	​	​	​	​	​
STOCKHOLDERS’ EQUITY:	​	​	​	​	​	​	​
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding	​		—	​		—	​
Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively	​		411	​		411	​
Treasury stock, at cost, 4,935,186 and 4,465,448 shares, respectively	​		(129,243)	​		(103,960)	​
Additional paid-in capital	​		322,451	​		320,168	​
Retained earnings	​		502,810	​		368,685	​
Total stockholders’ equity	​		696,429	​		585,304	​
Total liabilities and stockholders’ equity	​	$	1,757,355	​	$	1,505,012	​

​

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

​

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
​	​	​	Year Ended December 31,								​
​			2020			2019			2018
REVENUE	​	​	$	2,856,659	​	$	2,615,277	​	$	2,182,879	​
COST OF SERVICES	​	​		2,309,676	​		2,113,334	​		1,736,600	​
Gross profit	​	​		546,983	​		501,943	​		446,279	​
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	​	​		357,777	​		340,005	​		296,986	​
GAIN ON SALE OF ASSETS	​	​		(1,445)	​		(1,701)	​		(945)	​
Operating income	​	​		190,651	​		163,639	​		150,238	​
OTHER INCOME (EXPENSE):	​	​	​	​	​	​	​	​	​	​	​
Interest income	​	​		103	​		224	​		73	​
Interest expense	​	​		(8,385)	​		(9,317)	​		(3,710)	​
Changes in the fair value of contingent earn-out obligations	​	​		9,119	​		(2,991)	​		(2,066)	​
Other	​	​		52	​		187	​		4,141	​
Other income (expense)	​	​		889	​		(11,897)	​		(1,562)	​
INCOME BEFORE INCOME TAXES	​	​		191,540	​		151,742	​		148,676	​
PROVISION FOR INCOME TAXES	​	​		41,401	​		37,418	​		35,773	​
NET INCOME	​	​	$	150,139	​	$	114,324	​	$	112,903	​
​	​	​	​	​	​	​	​	​	​	​	​
INCOME PER SHARE:	​	​	​	​	​	​	​	​	​	​	​
Basic	​	​	$	4.11	​	$	3.10	​	$	3.03	​
Diluted	​	​	$	4.09	​	$	3.08	​	$	3.00	​
​	​	​	​	​	​	​	​	​	​	​	​
SHARES USED IN COMPUTING INCOME PER SHARE:	​	​	​	​	​	​	​	​	​	​	​
Basic	​	​		36,542	​		36,854	​		37,202	​
Diluted	​	​		36,738	​		37,131	​		37,592	​
DIVIDENDS PER SHARE	​	​	$	0.425	​	$	0.395	​	$	0.330	​

​

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

​

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Amounts)

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	Additional		​	​		​	Total
​		Common Stock					Treasury Stock					Paid-In		​	Retained			Stockholders’
​		Shares		Amount			Shares		Amount			Capital			Earnings			Equity
BALANCE AT DECEMBER 31, 2017		41,123,365	​	$	411		(3,936,291)	​	$	(63,519)	​	$	312,784	​	$	168,269		$	417,945	​
Net income		—	​		—		—	​		—	​		—	​		112,903			112,903	​
Issuance of Stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Issuance of shares for options exercised		—	​		—		206,875	​		3,618	​		(513)	​		—			3,105	​
Issuance of restricted stock & performance stock		—	​		—		129,569	​		2,227	​		(4)	​		—			2,223	​
Shares received in lieu of tax withholding payment on vested restricted stock		—	​		—		(36,967)	​		(1,540)	​		—	​		—			(1,540)	​
Stock-based compensation		—	​		—		—	​		—	​		4,212	​		—			4,212	​
Dividends		—	​		—		—	​		—	​		—	​		(12,268)			(12,268)	​
Share repurchase		—	​		—		(592,839)	​		(28,533)	​		—	​		—			(28,533)	​
BALANCE AT DECEMBER 31, 2018		41,123,365	​	$	411		(4,229,653)	​	$	(87,747)	​	$	316,479	​	$	268,904		$	498,047	​
Net income	​	—	​	​	—	​	—	​	​	—	​	​	—	​	​	114,324	​	​	114,324	​
Issuance of Stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Issuance of shares for options exercised	​	—	​	​	—	​	114,125	​	​	2,532	​	​	(182)	​	​	—	​	​	2,350	​
Issuance of restricted stock & performance stock	​	—	​	​	—	​	107,606	​	​	2,303	​	​	(297)	​	​	—	​	​	2,006	​
Shares received in lieu of tax withholding payment on vested restricted stock	​	—	​	​	—	​	(28,586)	​	​	(1,498)	​	​	—	​	​	—	​	​	(1,498)	​
Stock-based compensation	​	—	​	​	—	​	—	​	​	—	​	​	4,168	​	​	—	​	​	4,168	​
Dividends	​	—	​	​	—	​	—	​	​	—	​	​	—	​	​	(14,543)	​	​	(14,543)	​
Share repurchase	​	—	​	​	—	​	(428,940)	​	​	(19,550)	​	​	—	​	​	—	​	​	(19,550)	​
BALANCE AT DECEMBER 31, 2019	​	41,123,365	​	$	411	​	(4,465,448)	​	$	(103,960)	​	$	320,168	​	$	368,685	​	$	585,304	​
Net income	​	—	​	​	—	​	—	​	​	—	​	​	—	​	​	150,139	​	​	150,139	​
Cumulative-effect adjustment (1)	​	—	​	​	—	​	—	​	​	—	​	​	—	​	​	(515)	​	​	(515)	​
Issuance of Stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Issuance of shares for options exercised	​	—	​	​	—	​	113,731	​	​	2,811	​	​	(667)	​	​	—	​	​	2,144	​
Issuance of restricted stock & performance stock	​	—	​	​	—	​	128,889	​	​	3,102	​	​	(1,247)	​	​	—	​	​	1,855	​
Shares received in lieu of tax withholding payment on vested restricted stock	​	—	​	​	—	​	(27,724)	​	​	(1,076)	​	​	—	​	​	—	​	​	(1,076)	​
Stock-based compensation	​	—	​	​	—	​	—	​	​	—	​	​	4,197	​	​	—	​	​	4,197	​
Dividends	​	—	​	​	—	​	—	​	​	—	​	​	—	​	​	(15,499)	​	​	(15,499)	​
Share repurchase	​	—	​	​	—	​	(684,634)	​	​	(30,120)	​	​	—	​	​	—	​	​	(30,120)	​
BALANCE AT DECEMBER 31, 2020	​	41,123,365	​	$	411	​	(4,935,186)	​	$	(129,243)	​	$	322,451	​	$	502,810	​	$	696,429	​

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	(1)	Represents the adjustment to Retained Earnings as a result of adopting Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” on January 1, 2020. See Note 2 for more information.

​

​

​

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

​

COMFORT SYSTEMS USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,								​
​		2020			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:	​	​	​	​	​	​	​	​	​	​
Net income	​	$	150,139	​	$	114,324	​	$	112,903	​
Adjustments to reconcile net income to net cash provided by operating activities—	​	​	​	​	​	​	​	​	​	​
Amortization of identifiable intangible assets	​		32,698	​		27,082	​		20,089	​
Depreciation expense	​		27,931	​		24,490	​		22,600	​
Change in right-of-use assets	​	​	16,692	​	​	16,887	​		—	​
Bad debt expense	​		5,253	​		2,978	​		3,562	​
Deferred tax provision (benefit)	​		(7,953)	​		(4,251)	​		4,456	​
Amortization of debt financing costs	​		544	​		387	​		383	​
Gain on sale of assets	​		(1,445)	​		(1,701)	​		(945)	​
Changes in the fair value of contingent earn-out obligations	​		(9,119)	​		2,991	​		2,066	​
Stock-based compensation	​		6,934	​		5,878	​		7,161	​
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—	​	​	​	​	​	​	​	​	​	​
(Increase) decrease in—	​	​	​	​	​	​	​	​	​	​
Receivables, net	​		38,486	​		(49,508)	​		(68,621)	​
Inventories	​		(1,457)	​		2,366	​		(1,538)	​
Prepaid expenses and other current assets	​		(4,855)	​		(15,519)	​		519	​
Costs and estimated earnings in excess of billings and unbilled accounts receivable	​		2,706	​		(4,312)	​		(14,444)	​
Other noncurrent assets	​		(1,373)	​		(735)	​		(114)	​
Increase (decrease) in—	​	​	​	​		​	​	​	​	​
Accounts payable and accrued liabilities	​		11,087	​		31,046	​		47,871	​
Billings in excess of costs and estimated earnings	​		19,434	​		4,376	​		16,786	​
Other long-term liabilities	​		808	​		(14,751)	​		(5,544)	​
Net cash provided by operating activities	​		286,510	​		142,028	​		147,190	​
CASH FLOWS FROM INVESTING ACTIVITIES:	​	​	​	​	​	​	​	​	​	​
Purchases of property and equipment	​		(24,131)	​		(31,750)	​		(27,268)	​
Proceeds from sales of property and equipment	​		2,270	​		2,159	​		1,698	​
Proceeds from sale of business	​	​	—	​	​	1,611	​	​	—	​
Cash paid for acquisitions, net of cash acquired	​		(185,941)	​		(196,470)	​		(70,140)	​
Net cash used in investing activities	​		(207,802)	​		(224,450)	​		(95,710)	​
CASH FLOWS FROM FINANCING ACTIVITIES:	​	​	​	​	​	​	​	​	​	​
Proceeds from revolving credit facility	​		268,000	​		356,000	​		124,000	​
Payments on revolving credit facility	​		(226,000)	​		(228,000)	​		(119,000)	​
Payments on term loan	​	​	(15,000)	​	​	—	​	​	—	​
Payments on other debt	​		(46,534)	​		(3,784)	​		(1,127)	​
Debt financing costs	​		—	​		(1,405)	​		(844)	​
Payments of dividends to stockholders	​		(15,499)	​		(14,543)	​		(12,268)	​
Share repurchase	​		(30,120)	​		(19,550)	​		(28,533)	​
Shares received in lieu of tax withholding	​		(1,076)	​		(1,498)	​		(1,540)	​
Proceeds from exercise of options	​		2,144	​		2,350	​		3,105	​
Deferred acquisition payments	​	​	(650)	​	​	(637)	​	​	(750)	​
Payments for contingent consideration arrangements	​		(9,865)	​		(1,343)	​		(5,445)	​
Net cash provided by (used in) financing activities	​		(74,600)	​		87,590	​		(42,402)	​
NET INCREASE IN CASH AND CASH EQUIVALENTS	​		4,108	​		5,168	​		9,078	​
CASH AND CASH EQUIVALENTS, beginning of period	​		50,788	​		45,620	​		36,542	​
CASH AND CASH EQUIVALENTS, end of period	​	$	54,896	​	$	50,788	​	$	45,620	​

​

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

COMFORT SYSTEMS USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

1. Business and Organization

Comfort Systems USA, Inc., a Delaware corporation, provides comprehensive mechanical and electrical contracting services, which principally includes heating, ventilation and air conditioning (“HVAC”), plumbing, electrical, piping and controls, as well as off-site construction, monitoring and fire protection. We install, maintain, repair and replace products and systems throughout the United States. Approximately 46.7% of our consolidated 2020 revenue is attributable to installation of systems in newly constructed facilities, with the remaining 53.3% attributable to maintenance, repair and replacement services. The terms “Comfort Systems,” “we,” “us,” or the “Company,” refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context.

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2. Summary of Significant Accounting Policies

Principles of Consolidation

These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include our accounts and those of our subsidiaries in which we have a controlling interest. All significant intercompany accounts and transactions have been eliminated. Certain amounts in prior periods may have been reclassified to conform to the current period presentation. The effects of the reclassifications were not material to the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, revenue and expenses and disclosures regarding contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, self-insurance accruals, deferred tax assets, fair value accounting for acquisitions and the quantification of fair value for reporting units in connection with our goodwill impairment testing.

Cash Flow Information

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Cash paid (in thousands) for:

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019			2018
Interest	​	$	7,684	​	$	8,817	​	$	3,743	​
Income taxes, net of refunds	​	$	51,286	​	$	45,288	​	$	33,401	​

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The standard requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. The standard requires us to accrue higher credit losses on financial assets compared to the legacy guidance on various items, such as contract assets and current receivables. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. We adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” on January 1, 2020,

and the impact was not material to our overall financial statements. The adoption of ASU No. 2016-13 resulted in an increase in Allowance for Credit Losses of $0.7 million, an increase to Deferred Tax Assets of $0.2 million and an impact of $0.5 million to Retained Earnings.

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In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” This standard removes certain disclosure requirements including the valuation processes for Level 3 fair value measurements, the policy for timing of transfers between levels and the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The standard requires certain additional disclosures for public entities, including disclosure of the changes in unrealized gains and losses included in Other Comprehensive Income for Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those years. Certain amendments, including the amendment on changes in unrealized gains and losses and the range and weighted average of significant unobservable inputs, should be applied prospectively while other amendments should be applied retrospectively to all periods presented upon their effective date. We have modified our fair value disclosures to conform with the requirements of ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which we adopted on January 1, 2020.

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

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Revenue Recognition

We recognize revenue over time for all of our services as we perform them because (i) control continuously transfers to that customer as work progresses, and (ii) we have the right to bill the customer as costs are incurred. The customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company.

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For the reasons listed above, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost to cost measure of progress for our contracts, as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts. Under the cost to cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including estimated fees or profits, is recorded proportionally as costs are incurred. Costs to fulfill include labor, materials and subcontractors’ costs, other direct costs and an allocation of indirect costs.

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For a small portion of our business in which our services are delivered in the form of service maintenance agreements for existing systems to be repaired and maintained, as opposed to constructed, our performance obligation is to maintain the customer’s mechanical system for a specific period of time. Similar to jobs, we recognize revenue over time; however, for service maintenance agreements in which the full cost to provide services may not be known, we generally use an input method to recognize revenue, which is based on the amount of time we have provided our services out of the total time we have been contracted to perform those services. Our revenue recognition policy is further discussed in Note 3 “Revenue from Contracts with Customers.”

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Accounts Receivable and Allowance for Credit Losses

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We are required to estimate and record the expected credit losses over the contractual life of our financial assets measured at amortized cost, including billed and unbilled accounts receivable, other receivables and costs and estimated

earnings in excess of billings. Accounts receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers. Our trade receivables are contractually due in less than a year.

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

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

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

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Starting in March 2020, we experienced negative impacts to our business due to the disruption caused by Coronavirus Disease 2019 (“COVID-19”). In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of December 31, 2020.

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During the year ended December 31, 2020, we increased our loss rates and increased our specific reserves primarily due to the economic disruption caused by COVID-19, which is reflected in our bad debt expense in the current year. This increase was primarily, but not exclusively, due to concern over collectability of receivables from customers more directly impacted by COVID-19.

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Activity in our allowance for credit losses consisted of the following (in thousands):

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​	​	​	​	​	​	​	​	​	​	​	​
​	Year Ended December 31,
​	2020
​	Service		​	Construction		​	Other		​	Total
Balance at beginning of year	$	3,192	​	$	3,400	​	$	315	​	$	6,907
Impact of new accounting standard	​	310	​	​	331	​	​	54	​	​	695
Bad debt expense (benefit)	​	2,566	​	​	2,697	​	​	(10)	​	​	5,253
Deductions for uncollectible receivables written off, net of recoveries	​	(1,431)	​	​	(735)	​	​	—	​	​	(2,166)
Credit allowance of acquired companies on the acquisition date	​	—	​	​	335	​	​	—	​	​	335
Reclass to other current liabilities	​	—	​	​	—	​	​	(315)	​	​	(315)
Balance at December 31, 2020	$	4,637	​	$	6,028	​	$	44	​	$	10,709

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​	​	​	​	​
​	​	Year Ended December 31,		​
​		2019
Balance at beginning of year	​	$	5,898	​
Bad debt expense (benefit)	​		2,978	​
Deductions for uncollectible receivables written off, net of recoveries	​		(3,924)	​
Credit allowance of acquired companies on the acquisition date	​		1,955	​
Balance at December 31, 2019	​	$	6,907	​

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Inventories

Inventories consist of parts and supplies that we purchase and hold for use in the ordinary course of business and are stated at the lower of cost or net realizable value using the average-cost method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the expected life of the lease or the estimated useful life of the asset.

Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the remaining useful life of the equipment. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in “Gain on sale of assets” in the Statement of Operations.

Recoverability of Goodwill and Identifiable Intangible Assets

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.

When the carrying value of a given reporting unit exceeds its fair value, a goodwill impairment loss is recorded for this difference, not to exceed the carrying amount of goodwill. The requirements for assessing whether goodwill has been impaired involve market-based information. This information, and its use in assessing goodwill, entails some degree of subjective assessment.

We perform our annual impairment testing as of October 1, and any impairment charges resulting from this process are reported in the fourth quarter. We segregate our operations into reporting units based on the degree of operating and financial independence of each unit and our related management of them. We perform our annual goodwill impairment testing at the reporting unit level. We perform a goodwill impairment review for each of our operating units, as we have determined that each of our operating units are reporting units.

In the evaluation of goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying value. If, after completing such assessment, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then there is no need to perform any further testing. If we conclude otherwise, or if we elect to perform a quantitative assessment, then we calculate the fair value of the reporting unit and compare the fair value with the carrying value of the reporting unit.

We estimate the fair value of the reporting unit based on a market approach and an income approach, which utilizes discounted future cash flows. Assumptions critical to the fair value estimates under the discounted cash flow model include discount rates, cash flow projections, projected long-term growth rates and the determination of terminal values. The market approach utilizes market multiples of invested capital from comparable publicly traded companies (“public company approach”). The market multiples from invested capital include revenue, book equity plus debt and earnings before interest, provision for income taxes, depreciation and amortization (“EBITDA”).

We amortize identifiable intangible assets with finite lives over their useful lives. Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances or their useful lives.

Long-Lived Assets

Long-lived assets are comprised principally of goodwill, identifiable intangible assets, property and equipment, and deferred tax assets. We periodically evaluate whether events and circumstances have occurred that indicate that the remaining balances of these assets may not be recoverable. We use estimates of future income from operations and cash flows, as well as other economic and business factors, to assess the recoverability of these assets.

Acquisitions

We recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, based on fair value estimates as of the date of acquisition.

Contingent Consideration—In certain acquisitions, we agree to pay additional amounts to sellers contingent upon achievement by the acquired businesses of certain predetermined profitability targets. We have recognized liabilities for these contingent obligations based on their estimated fair value at the date of acquisition with any differences between the acquisition date fair value and the ultimate settlement of the obligations being recognized in income from operations.

Contingent Assets and Liabilities—Assets and liabilities arising from contingencies are recognized at their acquisition date fair value when their respective fair values are determinable. Acquisition date fair value estimates are revised as necessary if, and when, additional information regarding these contingencies becomes available to further define and quantify assets acquired and liabilities assumed.

Self-Insurance Liabilities

We are substantially self-insured for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims, in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses are estimated and accrued based upon known facts, historical trends and industry averages. Estimated losses in excess of our deductible, which have not already been paid, are included in our accrual with a corresponding receivable from our insurance carrier. Loss estimates associated with the larger and longer-developing risks—workers’ compensation, auto liability and general liability—are reviewed by a third-party actuary quarterly. Our self-insurance arrangements are further discussed in Note 13 “Commitments and Contingencies.”

Warranty Costs

We typically warrant labor for the first year after installation on new MEP systems that we build and install, and we pass through to the customer manufacturers’ warranties on equipment. We generally warrant labor for thirty days after servicing existing MEP systems. A reserve for warranty costs is estimated and recorded based upon the historical level of warranty claims and management’s estimate of future costs.

Income Taxes

We conduct business throughout the United States in virtually all fifty states. Our effective tax rate changes based upon our relative profitability, or lack thereof, in states with varying tax rates and rules. In addition, discrete items such as tax law changes, judgments and legal structures can impact our effective tax rate. These items can also include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, tax reserves for uncertain tax positions and accounting for losses associated with underperforming operations.

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Income taxes are provided for under the liability method, which takes into account differences between financial statement treatment and tax treatment of certain transactions. Deferred taxes are based on the difference between the financial reporting and tax basis of assets and liabilities. The deferred tax provision represents the change during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more-likely-than-not some portion or all of the deferred tax assets will not be realized.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we must consider whether it is more-likely-than-not some portion, or all, of the deferred tax assets will not be realized. We consider all available evidence, both positive and negative, in determining whether a valuation allowance is required. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in prior carryback years and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of negative and positive evidence.

Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We establish reserves when, despite our belief that our tax return positions are supportable, we believe that certain positions may be disallowed. When facts and circumstances change, we adjust these reserves through our provision for income taxes.

To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and are classified as a component in provision for income taxes in our Consolidated Statements of Operations.

Concentrations of Credit Risk

We provide services in a broad range of geographic regions. Our credit risk primarily consists of receivables from a variety of customers including general contractors, property owners and developers, and commercial and industrial companies. We are subject to potential credit risk related to changes in business and economic factors throughout the United States within the nonresidential construction industry. However, we are entitled to payment for work performed and have certain lien rights related to that work. Further, we believe that our contract acceptance, billing and collection policies are adequate to manage potential credit risk. We regularly review our accounts receivable and estimate an allowance for uncollectible amounts. We have a diverse customer base, with our top customer representing 5% of consolidated 2020 revenue.

Financial Instruments

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

Insurance Recovery

We recorded a $4.8 million gain in the fourth quarter of 2019 due to insurance proceeds we received in the fourth quarter related to the ransomware incident that occurred in April 2019. Approximately $1.6 million of the gain was recorded as a reduction in SG&A, and the remainder was recorded as a reduction in Cost of Services expense. These proceeds related to recoverable costs that were primarily incurred prior to the fourth quarter in 2019. We do not expect any additional insurance proceeds or other recoveries related to the ransomware incident.

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3. Revenue from Contracts with Customers

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Sales-based taxes are excluded from revenue.

We provide mechanical and electrical contracting services. Our mechanical segment principally includes HVAC, plumbing, piping and controls, as well as off‑site construction, monitoring and fire protection. Our electrical segment includes installation and servicing of electrical systems. We install, maintain, repair and replace products and systems throughout the United States. All of our revenue is recognized over time as we deliver goods and services to our customers. Revenue can be earned based on an agreed upon fixed price or based on actual costs incurred marked up at an agreed upon percentage.

For fixed price agreements, we use the percentage of completion method of accounting under which contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs. More specifically, as part of the negotiation and bidding process to obtain installation contracts, we estimate our contract costs, which include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in our results of operations under the caption “Cost of Services.” Then, as we perform under those contracts, we measure costs incurred, compare them to total estimated costs to complete the contract and recognize a corresponding proportion of contract revenue. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.

Non‑labor project costs consist of purchased equipment, prefabricated materials and other materials. Purchased equipment on our projects is substantially produced to job specifications and is a value-added element to our work. The costs are considered to be incurred when title is transferred to us, which typically is upon delivery to the work site. Prefabricated materials, such as ductwork and piping, are generally performed at our shops and recognized as contract costs when fabricated for the unique specifications of the job. Other materials costs are generally recorded when delivered to the work site. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.

We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we either have written authorization from the customer to proceed or an executed contract.

Selling, marketing and estimation costs incurred in relation to selling contracts are expensed as incurred. On rare occasions, we may incur significant expenses related to selling a contract that we only incurred because we sold that contract. If this occurs, we capitalize that cost and amortize it on a percentage of completion basis over the life of the contract. We do not currently have any capitalized selling, marketing, or estimation costs on our Balance Sheet and did not incur any impairment loss in the current year.

We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they are capitalized and amortized on a percentage of completion basis over the life of the contract. We do not currently have any capitalized obtainment or fulfillment costs on our Balance Sheet and did not incur any impairment loss on such costs in the current year.

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Project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in our Statement of Operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Balance Sheet under the caption “Costs and estimated earnings in excess of billings.” Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our Balance Sheet under the caption “Billings in excess of costs and estimated earnings.”

Contracts in progress are as follows (in thousands):

​	​	​	​	​	​	​	​
​	​	December 31,
​		2020			2019
Costs incurred on contracts in progress	​	$	3,103,580	​	$	2,518,581	​
Estimated earnings, net of losses	​		548,435	​		405,891	​
Less—Billings to date	​		(3,813,171)	​		(3,033,112)	​
Less—Unbilled accounts receivable	​	​	(45,596)	​	​	(55,542)	​
Less—Unbilled accounts receivable credit allowance	​	​	(784)	​	​	—	​
​	​	$	(207,536)	​	$	(164,182)	​
​	​	​	​	​	​	​	​
Costs and estimated earnings in excess of billings	​	$	18,622	​	$	2,736	​
Plus—Costs and estimated earnings in excess of billings credit allowance	​	​	79	​	​	—	​
Billings in excess of costs and estimated earnings	​		(226,237)	​		(166,918)	​
​	​	$	(207,536)	​	$	(164,182)	​

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Accounts receivable include amounts billed to customers under retention or retainage provisions in construction contracts. Such provisions are standard in our industry and usually allow for a small portion of progress billings or the contract price to be withheld by the customer until after we have completed work on the project, typically for a period of six months. Based on our experience with similar contracts in recent years, the majority of our billings for such retention balances at each Balance Sheet date are finalized and collected within the subsequent year. Retention balances at

December 31, 2020 and 2019 were $124.1 million and $111.7 million, respectively, and are included in accounts receivable.

Accounts payable at December 31, 2020 and 2019 included $22.2 million and $15.8 million of retainage under terms of contracts with subcontractors, respectively. The majority of the retention balances at each Balance Sheet date are finalized and paid within the subsequent year.

The percentage of completion method of accounting is also affected by changes in job performance, job conditions, and final contract settlements. These factors may result in revisions to estimated costs and, therefore, revenue. Such revisions are frequently based on further estimates and subjective assessments. The effects of these revisions are recognized in the period in which revisions are determined. When such revisions lead to a conclusion that a loss will be recognized on a contract, the full amount of the estimated ultimate loss is recognized in the period such conclusion is reached, regardless of the percentage of completion of the contract.

Revisions to project costs and conditions can give rise to change orders under which there is an agreement between the customer and us that the customer pays an additional or reduced contract price. Revisions can also result in claims we might make against the customer to recover project variances that have not been satisfactorily addressed through change orders with the customer. Except in certain circumstances, we do not recognize revenue or margin based on change orders or claims until they have been agreed upon with the customer. The amount of revenue associated with unapproved change orders and claims was immaterial for the year ended December 31, 2020.

Variations from estimated project costs could have a significant impact on our operating results, depending on project size, and the recoverability of the variation via additional customer payments.

We typically invoice our customers with payment terms of net due in 30 days. It is common in the construction industry for a contract to specify more lenient payment terms allowing the customer 45 to 60 days to make their payment. It is also common for the contract in the construction industry to specify that a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, we receive payment of our invoices between 30 to 90 days of the date of the invoice.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one performance obligation and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In such cases, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized, customer-specific solution, and, in these cases, we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

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We recognize revenue over time for all of our services as we perform them because (i) control continuously transfers to that customer as work progresses, and (ii) we have the right to bill the customer as costs are incurred. The customer typically controls the work in process, as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company.

For the reasons listed above, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost to cost measure of progress for our contracts, as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts. Under the cost to cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including estimated fees or profits, is recorded proportionally as costs are incurred. Costs to fulfill include labor, materials and subcontractors’ costs, other direct costs and an allocation of indirect costs.

In our mechanical segment, for a small portion of our business in which our services are delivered in the form of service maintenance agreements for existing systems to be repaired and maintained, as opposed to constructed, our performance obligation is to maintain the customer’s mechanical system for a specific period of time. Similar to jobs, we recognize revenue over time; however, for service maintenance agreements in which the full cost to provide services may not be known, we generally use an input method to recognize revenue, which is based on the amount of time we have provided our services out of the total time we have been contracted to perform those services.

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion (the process described below in more detail) is complex, subject to many variables and requires significant judgment. The consideration to which we are entitled on our long-term contracts may include both fixed and variable amounts. Variable amounts can either increase or decrease the transaction price. A common example of variable amounts that can either increase or decrease contract value are pending change orders that represent contract modifications for which a change in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. Other examples of positive variable revenue include amounts awarded upon achievement of certain performance metrics, program milestones or cost of completion date targets and can be based upon customer discretion. Variable amounts can result in a deduction from contract revenue if we fail to meet stated performance requirements, such as complying with the construction schedule.

Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing performance obligation(s). The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis.

We have a Company-wide policy requiring periodic review of the Estimate at Completion in which management reviews the progress and execution of our performance obligations and estimated remaining obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors, the availability and timing of funding from our customer, and overhead cost rates, among other variables.

Based on this analysis, any adjustments to revenue, cost of services, and the related impact to operating income are recognized as necessary in the quarter when they become known. These adjustments may result from positive program performance if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities and may result in an increase in operating income during the performance of individual performance obligations. Likewise, if we determine we will not be successful in mitigating these risks or realizing related opportunities, these adjustments may result in a decrease in operating income. Changes in estimates of revenue, cost of services and the related impact to operating income are recognized quarterly on a cumulative catchup basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For projects in which estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

The Company typically does not incur any returns, refunds, or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of the work or are included as a modification to revenue. The Company does offer an industry standard warranty on our work, which is most commonly for a one-year period. The vendors providing the equipment and materials are responsible for any failures in their product unless installed incorrectly. We include an estimated amount to cover estimated warranty expense in our Cost of Services and record a liability on our Balance Sheet to cover our current estimated outstanding warranty obligations.

During the years ended December 31, 2020 and December 31, 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material.

​

Disaggregation of Revenue

Our consolidated 2020 revenue was derived from contracts to provide service activities in the mechanical and electrical services segments we serve. Refer to Note 16 “Segment Information” for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and service provided, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the following tables (dollars in thousands):

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	Year Ended December 31,																​
Revenue by Service Provided			2020				​		2019				​	​	2018				​
Mechanical Services	​	​	$	2,413,016		84.5	%	​	$	2,251,560		86.1	%	​	$	2,176,223	​	99.7	%
Electrical Services	​	​	​	443,643	​	15.5	%	​	​	363,717	​	13.9	%	​	​	6,656	​	0.3	%
Total	​	​	$	2,856,659	​	100.0	%	​	$	2,615,277	​	100.0	%	​	$	2,182,879	​	100.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	Year Ended December 31,																​
Revenue by Type of Customer	​	​	2020				​	​	2019					​	2018
Industrial	​	​	$	1,112,075	​	38.9	%	​	$	886,668	​	33.9	%	​	$	596,557	​	27.3	%
Education	​	​	​	487,922	​	17.1	%	​	​	412,318	​	15.8	%	​	​	391,937	​	18.0	%
Office Buildings	​	​	​	319,426	​	11.2	%	​	​	348,640	​	13.3	%	​	​	288,090	​	13.2	%
Healthcare	​	​	​	371,105	​	13.0	%	​	​	358,155	​	13.7	%	​	​	319,958	​	14.7	%
Government	​	​	​	163,717	​	5.7	%	​	​	162,507	​	6.2	%	​	​	143,958	​	6.6	%
Retail, Restaurants and Entertainment	​	​	​	239,541	​	8.4	%	​	​	248,083	​	9.5	%	​	​	225,348	​	10.3	%
Multi-Family and Residential	​	​	​	86,799	​	3.0	%	​	​	104,693	​	4.0	%	​	​	136,075	​	6.2	%
Other	​	​	​	76,074	​	2.7	%	​	​	94,213	​	3.6	%	​	​	80,956	​	3.7	%
Total	​	​	$	2,856,659	​	100.0	%	​	$	2,615,277	​	100.0	%	​	$	2,182,879	​	100.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	Year Ended December 31,																​
Revenue by Activity Type	​	​	2020				​	​	2019					​	2018				​
New Construction	​	​	$	1,333,739	​	46.7	%	​	$	1,201,122	​	45.9	%	​	$	829,978	​	38.0	%
Existing Building Construction	​	​	​	910,807	​	31.9	%	​	​	793,159	​	30.3	%	​	​	796,946	​	36.5	%
Service Projects	​	​	​	241,402	​	8.4	%	​	​	231,228	​	8.9	%	​	​	206,506	​	9.5	%
Service Calls, Maintenance and Monitoring	​	​	​	370,711	​	13.0	%	​	​	389,768	​	14.9	%	​	​	349,449	​	16.0	%
Total	​	​	$	2,856,659	​	100.0	%	​	$	2,615,277	​	100.0	%	​	$	2,182,879	​	100.0	%

​

Contract Assets and Liabilities

​

Contract assets include unbilled amounts typically resulting from sales under long term contracts when the cost to cost method of revenue recognition is used, revenue recognized exceeds the amount billed to the customer and right to payment is conditional, subject to completing a milestone, such as a phase of the project. Contract assets are generally classified as current.

​

Contract liabilities consist of advance payments and billings in excess of revenue recognized. Our contract assets and liabilities are reported in a net position on a contract by contract basis at the end of each reporting period. We classify advance payments and billings in excess of revenue recognized as current. It is very unusual for us to have advanced payments with a term of greater than one year; therefore, our contract assets and liabilities are usually all

current. If we have advanced payments with a term greater than one year, the noncurrent portion of advanced payments would be included in other long-term liabilities in our consolidated Balance Sheets.

​

The following table presents the changes in contract assets and contract liabilities (in thousands):

​

​	​	​	​	​	​	​	​	​	​	​	​
​	Year Ended December 31,					​	​	Year Ended December 31,
​	2020					​	2019
​	Contract			Contract		​	Contract			Contract
​	Assets		​	Liabilities		​	Assets		​	Liabilities
Balance at beginning of period	$	2,736	​	$	166,918	​	$	10,213	​	$	130,986
Change due to acquisitions / disposals	​	9,509	​	​	39,885	​	​	6,573	​	​	31,556
Change related to credit allowance	​	(79)	​	​	—	​	​	—	​	​	—
Other changes in the period	​	6,456	​	​	19,434	​	​	(14,050)	​	​	4,376
Balance at end of period	$	18,622	​	$	226,237	​	$	2,736		$	166,918

​

During the years ended December 31, 2020 and 2019, we recognized revenue of $165.8 million and $126.7 million related to our contract liabilities at January 1, 2020 and January 1, 2019, respectively.

​

We did not have any impairment losses recognized on our receivables or contract assets in 2020 and 2019.

​

Remaining Performance Obligations

​

Remaining construction performance obligations represent the remaining transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $1.51 billion. The Company expects to recognize revenue on approximately 80-85% of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter. Our service maintenance agreements are generally one-year renewable agreements. We have adopted the practical expedient that allows us to not include service maintenance contracts with a term of less than one year; therefore, we do not report unfulfilled performance obligations for service maintenance agreements.

​

4. Fair Value Measurements

Interest Rate Risk Management and Derivative Instruments

​

In April 2020, we entered into interest rate swap agreements to reduce our exposure to variable interest rates on our term loan and revolving credit facility. The notional amount covered by these interest rate swaps was $130.0 million as of December 31, 2020 and decreases to $80.0 million by November 30, 2021 until the termination date of September 30, 2022.

​

We use derivative instruments to manage exposure to market risk, including interest rate risk. All of our current derivatives are designated and accounted for as economic hedges. Unsettled amounts under our economic hedges are recorded on the Balance Sheet at fair value in “Other Receivables” or “Other Current Liabilities.” Gains and losses on our interest rate swaps are recorded on the Income Statement in “Interest Expense.” For the year ended December 31, 2020, we recognized a net loss of $0.3 million related to our interest rate swaps. We currently do not have any derivatives that are accounted for as hedges under ASC 815.

​

Fair Value Measurement

​

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

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

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

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

The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of December 31, 2020 and 2019 (in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fair Value Measurements at December 31, 2020
​		Level 1			Level 2			Level 3			Total
Cash and cash equivalents	​	$	54,896	​	$	—	​	$	—	​	$	54,896
Life insurance—cash surrender value	​	$	—	​	$	5,420	​	$	—	​	$	5,420
Contingent earn-out obligations	​	$	—	​	$	—	​	$	25,979	​	$	25,979
Interest rate swap liability	​	$	—	​	$	42	​	$	—	​	$	42
​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Fair Value Measurements at December 31, 2019
​		Level 1			Level 2			Level 3			Total
Cash and cash equivalents	​	$	50,788	​	$	—	​	$	—	​	$	50,788
Life insurance—cash surrender value	​	$	—	​	$	3,905	​	$	—	​	$	3,905
Contingent earn-out obligations	​	$	—	​	$	—	​	$	28,497	​	$	28,497

​

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity. The Company’s outstanding term loan held by third-party financial institutions is carried at cost, adjusted for debt issuance costs. The Company’s term loan is not publicly traded and the carrying amount approximates fair value as the loan accrues interest at a variable rate. The carrying value of our borrowings associated with the Revolving Credit Facility approximate its fair value due to the variable rate on such debt.

We have life insurance policies covering 86 employees with a combined face value of $61.7 million. The policies are invested in several investment vehicles, and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance. The cash surrender value of these policies was $5.4 million as of December 31, 2020 and $3.9 million as of December 31, 2019. These assets are included in “Other Noncurrent Assets” in our consolidated Balance Sheets.

We value contingent earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate. The contingent earn-out obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. Significant unobservable inputs that could impact the fair value measurement include our weighted average cost of capital and the forecasted level of operating income for each earn-out measurement. As of December 31, 2020, cash flows were discounted using a weighted average cost of capital ranging from 9.5% - 17.0%.

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

​	​	​	​	​	​	​	​
​	​	December 31,
​	​	2020			2019
Balance at beginning of year		$	28,497		$	7,375
Issuances	​		16,715	​		19,500	​
Settlements	​	​	(10,114)	​	​	(1,369)	​
Adjustments to fair value	​		(9,119)	​		2,991	​
Balance at end of year	​	$	25,979	​	$	28,497	​

​

The fair value for our interest rate swaps is based upon inputs corroborated by observable market data with similar tenors, which are considered Level 2 inputs. The Company’s outstanding term loan held by third-party financial institutions is carried at cost, adjusted for debt issuance costs. The Company’s term loan is not publicly traded and the carrying amount approximates fair value as the loan accrues interest at a variable rate. The carrying value of our borrowings associated with the revolving credit facility approximate its fair value due to the variable rate on such debt.

We 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. No goodwill or other intangible asset impairments were recorded during the years ended December 31, 2020, 2019 and 2018. We did not recognize any other impairments on those assets required to be measured at fair value on a nonrecurring basis. See Note 6 “Goodwill and Identifiable Intangible Assets, Net” for further discussion.

5. Acquisitions

TAS Energy Inc. Acquisition

​

On April 1, 2020, we consummated a merger through which TAS Energy Inc. (“TAS”) became a wholly owned subsidiary of the Company. TAS is headquartered in Houston, Texas, and is a leading engineering, design and construction provider of modular construction systems serving the technology, power and industrial sectors. As a result of the acquisition, TAS is a wholly owned subsidiary of the Company reported in our mechanical services segment. Revenue attributable to TAS was $106.4 million for the nine months from the acquisition date.

​

The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands):

​

​	​	​
Consideration transferred:	​	​
Cash paid at closing	$	105,950
Working capital adjustment	​	40,455
Notes issued to former owners	​	14,000
Estimated fair value of contingent earn-out payments	​	9,100
​	$	169,505
Recognized amounts of identifiable assets acquired and liabilities assumed:	​	​
Cash and cash equivalents	$	47,460
Billed and unbilled accounts receivable	​	18,702
Other current assets	​	15,634
Other long-term assets	​	1,556
Property and equipment	​	7,709
Goodwill	​	72,788
Identifiable intangible assets	​	53,400
Lease right-of-use asset	​	19,736
Accounts payable	​	(16,453)
Billings in excess of costs and estimated earnings	​	(24,196)
Current lease liabilities	​	(2,337)
Accrued expenses and other current liabilities	​	(4,109)
Long-term lease liabilities	​	(17,398)
Other long-term liabilities	​	(2,987)
​	$	169,505

​

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

​

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

The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 15% - 23.5%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

​

As a result of the TAS acquisition, we acquired $53.2 million of federal net operating loss (“NOL”) carryforwards and $6.5 million of state NOL carryforwards. Our ability to utilize these NOL carryforwards to reduce taxable income in future years is subject to significant limitations under Section 382 of the Internal Revenue Code (the “Code”) due to the ownership change in TAS on April 1, 2020. While we expect to fully utilize the federal NOL carryforwards before they begin to expire in 2031, a full valuation allowance was recorded against virtually all of the state NOL carryforwards. We do not believe it is more-likely-than-not that TAS will have sufficient revenue-generating operations in those states in the future.

​

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

​	​	​	​	​	​	​	​
​	​	Valuation Method	​	Estimated Useful Life	​	​	Estimated Fair Value
Backlog	​	Excess earnings	​	1 year	​	$	5,200
Trade Name	​	Relief-from-royalty	​	25 years	​	​	8,200
Customer Relationships	​	Excess earnings	​	10 years	​	​	40,000
Total	​	​	​	​	​	$	53,400

​

The contingent earn-out obligation is associated with the achievement of specified earnings milestones over a 27-month period, and the range of estimated milestone payments is from $1 million to $8 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using a 17.7% discount rate, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is re-measured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

​

T E C Industrial Construction and Maintenance Acquisition

​

On December 31, 2020, we consummated an acquisition of all outstanding equity interests of Tennessee Electric Company, Inc. dba TEC Industrial Maintenance and Construction (“T E C”). T E C is headquartered in Kingsport, Tennessee, and provides multidisciplined construction and industrial services, including electrical, mechanical and other plant services, primarily in Tennessee and surrounding states. As a result of the acquisition, T E C is a wholly owned subsidiary of the Company reported in our electrical services segment. T E C did not contribute to our revenue in 2020.

​

The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands):

​

​	​	​
Consideration transferred:	​	​
Cash paid at closing	$	73,000
Working capital adjustment	​	2,006
Notes issued to former owners	​	7,000
Estimated fair value of contingent earn-out payments	​	7,560
​	$	89,566
Recognized amounts of identifiable assets acquired and liabilities assumed:	​	​
Cash and cash equivalents	$	4
Billed and unbilled accounts receivable	​	13,660
Costs in excess of billings	​	2,040
Other current assets	​	108
Other long-term assets	​	53
Property and equipment	​	912
Goodwill	​	44,431
Identifiable intangible assets	​	37,200
Lease right-of-use asset	​	1,234
Accounts payable	​	(4,123)
Billings in excess of costs and estimated earnings	​	(2,838)
Current lease liabilities	​	(175)
Accrued expenses and other current liabilities	​	(1,881)
Long-term lease liabilities	​	(1,059)
​	$	89,566

​

The allocation of the purchase price to the assets acquired and liabilities assumed is preliminary and, therefore, subject to change pending the completion of the final valuation of identifiable assets acquired and liabilities assumed. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. All of the goodwill recognized as a result of the T E C acquisition is tax deductible.

​

In estimating the fair value of the acquired intangible assets, we utilized the valuation methodology determined to be the most appropriate for the individual intangible asset. In order to estimate the fair value of the backlog and customer relationships, we utilized an excess earnings methodology, which consisted of the projected cash flows attributable to these assets discounted to present value using a risk-adjusted discount rate that represented the required rate of return. The trade name value was determined based on the relief-from-royalty method, which applies a royalty rate to the revenue stream attributable to this asset, and the resulting royalty payment is tax effected and discounted to present value. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 14% - 15%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

​

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

​

​	​	​	​	​	​	​	​
​		Valuation		Estimated		Estimated
​		Method		Useful Life		Fair Value
Backlog		Excess earnings		2 years	​	$	7,200
Trade Name		Relief-from-royalty		20 years	​		5,800
Customer Relationships		Excess earnings		9 years	​	​	24,200
Total	​	​	​	​	​	$	37,200

​

The contingent earn-out obligation is associated with the achievement of specified earnings milestones over a three year period, and the range of estimated milestone payments is from less than $1 million to $5 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using a 12.9% discount rate, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is re-measured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

​

Other Acquisitions

​

In addition to the TAS and T E C acquisitions, we completed the acquisition of an electrical contractor in North Carolina in the first quarter of 2020 with a total purchase price of $41.6 million. This acquisition is reported in our electrical services segment.

​

In the second quarter of 2019, we acquired all of the issued and outstanding stock of Walker TX Holding Company, LLC and each of its wholly owned subsidiaries (collectively “Walker”) for $235.4 million of which $187.0 million was allocated to goodwill and identifiable intangible assets. The total purchase price included $178.0 million in cash, $25.0 million in notes payable to former owners, a $20.5 million advance to former owners, a $19.5 million contingent earn-out obligation and a $0.2 million tax equalization payment, offset by a $7.8 million working capital adjustment. Walker is a full-service electrical contracting and network infrastructure engineering business serving commercial and industrial clients with headquarters in Irving, Texas, and operations throughout the state of Texas. As a result of the acquisition, Walker is a wholly owned subsidiary of the Company reported in our electrical services segment. In addition to the Walker acquisition, we completed two additional acquisitions in 2019 which were “tucked-in” with existing operations. The total purchase price for these additional acquisitions, including earn-outs, was $2.6 million.

​

The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. Excluding the Walker and TAS acquisitions, the acquisitions completed in 2020 and the prior year were not material, individually or in the aggregate. Additional contingent purchase price (“earn-out”) has been or will be paid if certain acquisitions achieve predetermined profitability targets. Such earn-outs, when they are not subject to the continued employment of the sellers, are estimated as of the purchase date and included as part of the consideration paid for the acquisition. If we have an earn-out under which continued employment is a condition to receipt of payment, then the earn-out is recorded as compensation expense over the period earned.

​

6. Goodwill and Identifiable Intangible Assets, Net

Goodwill

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

​	​	​	​	​	​	​	​	​	​
​	​	Mechanical Services		​	Electrical Services		​	​
​		Segment			Segment		​	Total
Balance at December 31, 2018	​	$	235,182	​	$	—	​	$	235,182
Acquisitions and purchase price adjustments (See Note 5)	​		579	​		96,686	​	​	97,265
Impact of segment reorganization	​	​	(1,101)	​	​	1,101	​	​	—
Balance at December 31, 2019	​	​	234,660	​	​	97,787	​	​	332,447
Acquisitions and purchase price adjustments (See Note 5)	​	​	72,788	​	​	59,157	​	​	131,945
Balance at December 31, 2020	​	$	307,448	​	$	156,944	​	$	464,392

The aggregate goodwill balance as of December 31, 2020 and 2019 includes $116.6 million of accumulated impairment charges, all of which relate to the mechanical services segment.

We perform our annual impairment testing on October 1, or more frequently, if events and circumstances indicate impairment may have occurred. As discussed in Note 2, “Summary of Significant Accounting Policies,” we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value.

During our annual impairment testing on October 1, 2019, we performed a quantitative assessment where the fair value of each reporting unit was estimated using a discounted cash flow model combined with a market valuation approach. We assigned a weighting of 50% to the discounted cash flow analysis and 50% to the public company approach for the year ended December 31, 2019. Based on this assessment, we concluded that the fair value of each of the reporting units was greater than its carrying value. The calculated fair values for the majority of the Company’s reporting units that have goodwill were significantly in excess (all greater than 80%) of the respective reporting unit’s carrying value, while two reporting units that were recently acquired had calculated fair values in excess of carrying value of at least 27%.

During our annual impairment testing on October 1, 2020, we performed a qualitative assessment for all of our reporting units except one, which considered various factors, including changes in the carrying value of the reporting unit, forecasted operating results, long-term growth rates and discount rates. Additionally, we considered qualitative key events and circumstances (i.e. macroeconomic environment, industry and market specific conditions, cost factors and events specific to the reporting unit, etc.). Based on this assessment, we concluded that it was more likely than not that the fair value of each of the reporting units was greater than its carrying value. Accordingly, no further testing was required. For Walker, we performed a step 1 quantitative assessment and the calculated fair value exceeded the carrying value by 24%. As a result of uncertainty caused by COVID-19 and Walker’s smaller excess of fair value percentage, this reporting unit is more susceptible to impairment risk from additional adverse changes in its operating environment, including micro- and macroeconomic environment conditions that could negatively impact them. Such adverse changes could include worsening economic conditions in the locations or markets they primarily serve, whether due to COVID-19 or other events and conditions. As of December 31, 2020, Walker had a goodwill balance of $96.8 million.

There are significant inherent uncertainties and management judgment involved in estimating the fair value of each reporting unit. While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, it is possible that a material change could occur. If actual results are not consistent with our current estimates and assumptions, or the current economic outlook worsens, goodwill impairment charges may be recorded in future periods.

Identifiable Intangible Assets, Net

Identifiable intangible assets consist of the following (dollars in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Weighted-Average	​	December 31, 2020					​	December 31, 2019
​		Remaining Useful Lives		Gross Book			Accumulated			Gross Book			Accumulated
​		in Years		Value			Amortization			Value			Amortization
Customer Relationships		8.0	​	$	255,692	​	$	(103,919)	​	$	183,061	​	$	(80,813)
Backlog		2.0	​		19,800	​		(12,600)	​		7,400	​		(6,388)
Trade Names		20.5	​		91,495	​		(18,661)	​		71,995	​		(15,281)
Total	​	11.7	​	$	366,987	​	$	(135,180)	​	$	262,456	​	$	(102,482)

​

The amounts attributable to customer relationships and tradenames are amortized to “Selling, General and Administrative Expenses” based upon the estimated consumption of their economic benefits, or a straight-line method over periods from one to twenty-five years if the pattern of economic benefit cannot otherwise be reliably estimated. The amounts attributable to backlog are being amortized to “Cost of Services” on a proportionate method over the remaining backlog period. Amortization expense for the years ended December 31, 2020, 2019 and 2018 was $32.7 million, $27.1 million and $20.1 million, respectively.

As of December 31, 2020, future amortization expense of identifiable intangible assets was as follows (in thousands):

​	​	​	​	​
Year ended December 31—		​		​
2021	​	$	32,344	​
2022	​		27,412	​
2023	​		23,514	​
2024	​		22,164	​
2025	​	​	19,977	​
Thereafter	​		106,396	​
Total	​	$	231,807	​

​

7. Property and Equipment

Property and equipment consist of the following (dollars in thousands):

​	​	​	​	​	​	​	​	​	​
​	​	Estimated	​	​	​	​	​	​
​		Useful Lives		December 31,
​		in Years		2020			2019
Land		—	​	$	7,167	​	$	6,206	​
Transportation equipment		1 - 7	​		113,802	​		106,972	​
Machinery and equipment		1 - 20	​		43,386	​		35,575	​
Computer and telephone equipment		1 - 10	​		23,215	​		20,744	​
Buildings and leasehold improvements		1 - 40	​		69,683	​		62,301	​
Furniture and fixtures		1 - 17	​	​	5,861	​	​	5,244	​
Construction in progress		—	​		1,294	​		2,123	​
​	​	​	​		264,408	​		239,165	​
Less—Accumulated depreciation	​	​	​		(147,202)	​		(129,369)	​
Property and equipment, net	​	​	​	$	117,206	​	$	109,796	​

​

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $27.9 million, $24.5 million and $22.6 million, respectively.

8. Detail of Other Current Liabilities

Other current liabilities consist of the following (in thousands):

​	​	​	​	​	​	​	​
​	​	December 31,
​		2020			2019
Accrued warranty costs	​	$	8,914	​	$	7,452	​
Current lease liability	​	​	16,586	​	​	14,016	​
Accrued job losses	​		2,151	​		2,226	​
Accrued sales and use tax	​		3,731	​		2,938	​
Deferred revenue	​		4,559	​		5,506	​
Liabilities due to former owners	​		10,280	​		11,219	​
Other current liabilities	​		45,271	​		38,273	​
​	​	$	91,492	​	$	81,630	​

​

​

9. Debt Obligations

Debt obligations consist of the following (in thousands):

​	​	​	​	​	​	​	​
​	​	December 31,					​
​		2020			2019
Revolving credit facility	​	$	70,000	​	$	28,000	​
Term loan	​	​	135,000	​	​	150,000	​
Notes to former owners	​	​	31,000	​		48,483	​
Total principal amount	​	​	236,000	​		226,483	​
Less—unamortized debt issuance costs	​	​	(267)	​	​	(348)	​
Total debt, net of unamortized debt issuance costs	​	​	235,733	​	​	226,135	​
Less—current portion	​	​	—	​		(20,817)	​
Total long-term portion of debt, net	​	$	235,733	​	$	205,318	​

​

At December 31, 2020, future principal payments of debt are as follows (in thousands):

​	​	​	​	​
Year ended December 31—		​		​
2021		$	—
2022	​		23,000	​
2023	​		34,000	​
2024	​		26,500	​
2025	​		152,500	​
Thereafter	​	​	—	​
​	​	$	236,000	​

​

Interest expense included the following primary elements (in thousands):

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019			2018
Interest expense on notes to former owners	​	$	1,354	​	$	1,531	​	$	642	​
Interest expense on borrowings and unused commitment fees	​		5,319	​		6,887	​		2,211	​
Interest expense on interest rate swaps	​	​	338	​	​	—	​	​	—	​
Letter of credit fees	​		830	​		512	​		474	​
Amortization of debt financing costs	​		544	​		387	​		383	​
Total	​	$	8,385	​	$	9,317	​	$	3,710	​

​

Revolving Credit Facility and Term Loan

In December 2019, we amended our senior credit facility (the “Facility”) provided by a syndicate of banks, increasing our borrowing capacity from $400.0 million to $600.0 million. As amended, the Facility is composed of a revolving credit line in the amount of $450.0 million and a $150.0 million term loan, and the Facility also provides for a $150.0 million accordion or increase option for the revolving portion of the Facility. As of December 31, 2020, the Facility capacity was $585.0 million as the term loan was paid down by $15.0 million since the inception of the Facility. The amended Facility also includes a sublimit of up to $160.0 million issuable in the form of letters of credit. The Facility expires in January 2025 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and assets held by certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. In 2019, we incurred approximately $1.4 million in financing and professional costs in connection with an amendment to the Facility which are being amortized over the remaining term of the Facility. Of this amount, $0.4 million is attributable to the term loan and is being amortized using the effective interest method. The remaining $1.0 million is attributable to the revolving credit line, which combined with the previous unamortized costs of $1.3 million, is being amortized over the remaining term of the Facility on a straight-line basis as a non-cash charge to interest expense. For the term loan, we are required to make quarterly payments increasing over time from 1.25% to 3.75% of the original aggregate principal amount of the term loan, with the balance due in January 2025. As of December 31, 2020, we had $135.0 million

principal outstanding on the term loan, $70.0 million of outstanding borrowings on the revolving credit facility, $49.5 million in letters of credit outstanding and $330.5 million of credit available.

Collateral

A common practice in our industry is the posting of payment and performance bonds with customers. These bonds are offered by financial institutions known as sureties and provide assurance to the customer that in the event we encounter significant financial or operational difficulties, the surety will arrange for the completion of our contractual obligations and for the payment of our vendors on the projects subject to the bonds. In cooperation with our lenders, we granted our sureties a first lien on assets such as receivables, costs and estimated earnings in excess of billings, and equipment specifically identifiable to projects for which bonds are outstanding, as collateral for potential obligations under bonds. As of December 31, 2020, the book value of these assets was approximately $167.8 million.

Covenants and Restrictions

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. Credit Facility Adjusted EBITDA is defined under the Facility for financial covenant purposes as net earnings for the four quarters ending as of any given quarterly covenant compliance measurement date, plus the corresponding amounts for (a) interest expense; (b) provision for income taxes; (c) depreciation and amortization; (d) stock compensation; (e) other non-cash charges; and (f) pre-acquisition results of acquired companies. The following is a reconciliation of Credit Facility Adjusted EBITDA to net income for 2020 (in thousands):

​	​	​	​	​
Net income		$	150,139
Provision for income taxes	​		41,401	​
Interest expense, net	​		8,282	​
Depreciation and amortization expense	​		60,629	​
Stock-based compensation	​		6,934	​
Pre-acquisition results of acquired companies, as defined under the Facility	​		18,511	​
Credit Facility Adjusted EBITDA	​	$	285,896	​

​

The Facility’s principal financial covenants include:

_Total Leverage Ratio—_The Facility requires that the ratio of our Consolidated Total Indebtedness to our Credit Facility Adjusted EBITDA not exceed 3.00 to 1.00 as of the end of each fiscal quarter. The leverage ratio as of December 31, 2020 was 0.8.

_Fixed Charge Coverage Ratio—_The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA, less non-financed capital expenditures, provision for income taxes, dividends and amounts used to repurchase stock when the Company’s Total Leverage Ratio exceeds 2.00 to 1.00 to (b) the sum of interest expense and scheduled principal payments of indebtedness be at least 1.50 to 1.00. Credit Facility Adjusted EBITDA, capital expenditures, provision for income taxes, dividends, stock repurchase payments, interest expense, and scheduled principal payments are defined under the Facility for purposes of this covenant, to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of December 31, 2020 was 7.2.

_Other Restrictions—_The Facility permits acquisitions of up to $5.0 million per transaction, provided that the aggregate purchase price of such an acquisition and of acquisitions in the same fiscal year does not exceed $10.0 million. However, these limitations only apply when the Company’s Total Leverage Ratio is greater than 2.50 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 leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders.

We were in compliance with all of our financial covenants as of December 31, 2020.

Interest Rates and Fees

There are two interest rate options for borrowings under the Facility, the Base Rate Loan Option and the Eurodollar Rate Loan Option. Additional margins are then added to these two rates. Under the Base Rate Loan Option, the interest rate is determined based on the highest of the Federal Funds Rate plus 0.5%, the prime lending rate offered by Wells Fargo Bank, N.A. or the one-month Eurodollar Rate plus 1.00%. Under the Eurodollar Rate Loan Option, the interest rate is determined based on the one- to six-month Eurodollar Rate. The Eurodollar Rate corresponds very closely to rates described in various general business media sources as the London Interbank Offered Rate or “LIBOR.” Additional margins are then added to these rates. The additional margins are determined based on the ratio of our Consolidated Total Indebtedness as of a given quarter end to our “Credit Facility Adjusted EBITDA,” which shall mean Consolidated EBITDA as such term is defined in the credit agreement, for the twelve months ending as of that quarter end.

The interest rates under the Facility are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. For illustrative purposes, the following are the respective market rates as of December 31, 2020 relating to interest options under the Facility:

​	​	​	​
Base Rate Loan Option:
Federal Funds Rate plus 0.50%		0.59%	​
Wells Fargo Bank, N.A. Prime Rate	​	3.25%	​
One-month LIBOR plus 1.00%	​	1.14%	​
Eurodollar Rate Loan Option:	​	​	​
One-month LIBOR	​	0.14%	​
Six-month LIBOR	​	0.26%	​

​

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 just the same as actual borrowings. We have never had a claim made against a letter of credit that resulted in payments by a lender or by us and believe such claim is unlikely in the foreseeable future.

Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. Letter of credit fees and commitment fees are based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA.

​

​	​	​	​	​	​	​	​	​	​
​	​	Consolidated Total Indebtedness to
​	​	Credit Facility Adjusted EBITDA
​		Less than 1.00		1.00 to 1.75		1.75 to 2.50		2.50 or greater
Additional Per Annum Interest Margin Added Under:	​	​	​	​	​	​	​	​	​
Base Rate Loan Option	​	0.25	%	0.50	%	0.75	%	1.00	%
Eurodollar Rate Loan Option	​	1.25	%	1.50	%	1.75	%	2.00	%
Letter of credit fees	​	1.25	%	1.50	%	1.75	%	2.00	%
Commitment fees on any portion of the Revolving Loan capacity not in use for borrowings or letters of credit at any given time	​	0.20	%	0.25	%	0.30	%	0.35	%

​

The weighted average interest rate applicable to the borrowings under the revolving credit facility was approximately 1.4% as of December 31, 2020. The weighted average interest rate applicable to the term loan was approximately 1.4% as of December 31, 2020.

Notes to Former Owners

As part of the consideration used to acquire four companies, we have outstanding notes to the former owners. Together, these notes had an outstanding balance of $31.0 million as of December 31, 2020. In conjunction with the acquisition of T E C in the fourth quarter of 2020, we issued a promissory note to former owners with an outstanding balance of $7.0 million as of December 31, 2020 that bears interest, payable quarterly, at a stated interest rate of 2.5%. The principal is due in December 2023. In conjunction with the acquisition of TAS in the second quarter of 2020, we issued a promissory note to former owners with an outstanding balance of $8.0 million as of December 31, 2020 that bears interest, payable quarterly, at a stated interest rate of 3.5%. The principal is due in April 2022. In conjunction with the acquisition of the electrical contractor in North Carolina in the first quarter of 2020, we issued a promissory note to former owners with an outstanding balance of $6.0 million as of December 31, 2020 that bears interest, payable quarterly, at a stated interest rate of 3.0%. The principal is due in installments in February 2023 and February 2024. In conjunction with the Walker acquisition in the second quarter of 2019, we issued a promissory note to former owners with an outstanding balance of $10.0 million as of December 31, 2020 that bears interest, payable quarterly, at a stated interest rate of 4.0%. The remaining principal is due in April 2023.

10. Leases

We lease certain facilities, vehicles and equipment under noncancelable operating leases. The most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations. Leases with an initial term of 12 months or less are not recorded on the Balance Sheet. We account for lease components separately from the non-lease components. We have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities. Variable lease expense and short-term lease expense were not material to our financial statements and aggregated to $7.7 million in 2020 and $8.4 million in 2019. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate as of December 31, 2020 and 2019 was 4.2% and 3.9%, respectively. We recognize lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Lease expense for the years ended December 31, 2020, 2019 and 2018 was $28.2 million, $24.8 million and $23.4 million, respectively.

​

The lease terms generally range from three to ten years. Some leases include one or more options to renew, which may be exercised to extend the lease term. We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion. The weighted average remaining lease term was 7.5 years at December 31, 2020 and 8.1 years at December 31, 2019.

​

A majority of the Company’s real property leases are with individuals or entities with whom we have no other business relationship. However, in certain instances the Company enters into real property leases with current or former employees. Rent paid to related parties for the years ended December 31, 2020, 2019 and 2018 was approximately $4.2 million, $3.7 million and $4.8 million, respectively.

​

If we decide to cancel or terminate a lease before the end of its term, we would typically owe the lessor the remaining lease payments under the term of the lease. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. On rare occasions, we rent or sublease certain real estate assets that we no longer use to third parties.

​

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

​

​	​	​	​	​	​
​	December 31, 2020		​	December 31, 2019
Lease right-of-use assets	$	94,727	​	$	84,073
Lease liabilities:	​	​	​	​	​
Other current liabilities	$	16,586	​	$	14,016
Long-term lease liabilities	​	80,576	​	​	72,697
Total lease liabilities	$	97,162	​	$	86,713

​

The maturities of lease liabilities as of December 31, 2020 are as follows (in thousands):

​

​	​	​	​
Year ending December 31—	​	​	​
2021	​	$	20,254
2022	​	​	17,004
2023	​	​	14,727
2024	​	​	13,221
2025	​	​	12,108
Thereafter	​	​	36,645
Total Lease Payments	​	​	113,959
Less—Present Value Discount	​	​	(16,797)
Present Value of Lease Liabilities	​	$	97,162

​

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

​

​	​	​	​	​	​
​	Year Ended December 31,
​	2020		​	2019
Cash paid for amounts included in the measurement of lease liabilities	$	20,443	​	$	16,895
Lease right-of-use assets obtained in exchange for lease liabilities	$	27,346	​	$	26,811

​

​

11. Income Taxes

Provision for Income Taxes

Our provision for income taxes relating to continuing operations consists of the following (in thousands):

​	​	​	​	​	​	​	​	​	​	​
​	​	December 31,
​		2020			2019			2018
Current tax provision—	​	​	​	​	​	​	​	​	​	​
Federal	​	$	36,556	​	$	33,281	​	$	22,728	​
State and Puerto Rico	​		12,798	​		8,388	​		8,589	​
Total current	​		49,354	​		41,669	​		31,317	​
Deferred tax provision (benefit)—	​	​	​	​	​	​	​	​	​	​
Federal	​		(5,483)	​		(3,750)	​		4,347	​
State and Puerto Rico	​		(2,470)	​		(501)	​		109	​
Total deferred	​		(7,953)	​		(4,251)	​		4,456	​
Provision for income taxes	​	$	41,401	​	$	37,418	​	$	35,773	​

​

The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 resulted in effective tax rates on continuing operations of 21.6%, 24.7% and 24.1%, respectively. The reasons for the differences between these effective tax rates and the federal statutory rates are as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​
​	​	December 31,
​		2020			2019			2018
Federal statutory rate of—	​	​	21	%	​	21	%	​	21	%
Income taxes at the federal statutory rate	​	$	40,223	​	$	31,866	​	$	31,222	​
Increases (decreases) resulting from—	​	​	​	​	​	​	​	​	​	​
Net state income taxes	​		8,406	​		6,644	​		7,470	​
Valuation allowances	​		(254)	​		(279)	​		(2,852)	​
Net unrecognized tax benefits	​		18,557	​		7,338	​		(15)	​
Nondeductible expenses	​		2,470	​		2,180	​		1,926	​
R&D tax credit	​		(26,133)	​		(4,569)	​		(2,726)	​
179D deduction	​	​	(1,062)	​	​	(5,126)	​	​	—	​
Net operating loss carryforwards	​	​	—	​	​	—	​	​	2,225	​
Stock-based compensation deductions	​	​	(426)	​	​	(714)	​	​	(1,293)	​
Other	​		(380)	​		78	​		(184)	​
Provision for income taxes	​	$	41,401	​	$	37,418	​	$	35,773	​

​

Our provision for income taxes was reduced by $2.8 million in the first quarter of 2018 due to a reduction in unrecognized tax benefits from the filing of a federal income tax automatic accounting method change application.

In the third quarter of 2019, we filed an amended federal return for 2015 to claim the credit for increasing research activities (the “R&D tax credit”) and recorded a $4.6 million tax benefit that was fully offset by an addition to unrecognized tax benefits. We previously filed an amended federal return for 2014 to claim the R&D tax credit during 2018 and recorded a $2.7 million tax benefit that was also fully offset by an addition to unrecognized tax benefits. These $7.3 million of tax benefits were fully offset by additions to unrecognized tax benefits due to the uncertainty of the outcome from examinations opened by the Internal Revenue Service (the “IRS”). As a result, the R&D tax credit claimed had no impact on our effective tax rates.

During 2018, we dissolved our Puerto Rican subsidiary and thus wrote-off the remaining $2.2 million of net operating loss (“NOL”) carryforwards and related valuation allowance. The dissolution of our Puerto Rican subsidiary did not have an impact on our 2018 effective tax rate.

For the year ended December 31, 2019, our provision for income taxes was reduced by $2.2 million due to benefits from the filing, and expected filing, of amended returns to claim the energy efficient commercial buildings deduction (the “179D deduction”) allocated to us.

During the third quarter of 2020, the IRS completed its examination of our amended federal returns for 2014 and 2015 and issued a Revenue Agent Report (“RAR”) allowing the $8.9 million of refund claims in full. Subsequently, the Joint Committee on Taxation (the “JCT”) reviewed and approved the refund claims. As a result, our provision for income taxes was reduced by $8.3 million due to a reduction in unrecognized tax benefits of which $1.0 million related to the 179D deduction.

​

In early October 2020, we filed amended federal returns for 2016, 2017 and 2018 to claim the R&D tax credit and 179D deduction and recorded tax benefits of $6.1 million, $8.5 million and $11.9 million, respectively. The $26.5 million of tax benefits have been offset by additions to unrecognized tax benefits of $26.4 million due to the uncertainty of the outcome of future IRS examinations. The R&D tax credit and 179D deduction for 2016, 2017 and 2018, therefore, had no material impact on our effective tax rate for the year ended December 31, 2020. At this time, we cannot reasonably estimate the R&D tax credit for years after 2018 or 179D deduction for years after 2017.

​

Deferred Tax Assets (Liabilities)

Significant components of the deferred tax assets and deferred tax liabilities as reflected on the balance sheets are as follows (in thousands):

​	​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2020			2019
Deferred tax assets—	​	​	​	​	​	​	​
Accounts receivable and allowance for credit losses	​	$	2,186	​	$	1,660	​
Stock-based compensation	​		2,791	​		2,561	​
Accrued liabilities and expenses	​		39,761	​		25,569	​
Lease liabilities	​	​	22,768	​	​	20,873	​
Net operating loss carryforwards	​		12,127	​		2,750	​
Intangible assets	​	​	—	​	​	7,988	​
Other	​		627	​		525	​
Subtotal	​		80,260	​		61,926	​
Valuation allowances	​		(514)	​		(369)	​
Total deferred tax assets	​	​	79,746	​	​	61,557	​
Deferred tax liabilities—	​	​	​	​	​	​	​
Property and equipment	​		(13,877)	​		(11,286)	​
Lease right-of-use asset	​	​	(22,715)	​	​	(20,873)	​
Long-term contracts	​		(609)	​		(876)	​
Intangible assets	​	​	(242)	​	​	—	​
Goodwill	​		(11,615)	​		(6,020)	​
Other	​		(2,626)	​		(2,004)	​
Total deferred tax liabilities	​		(51,684)	​		(41,059)	​
Net deferred tax assets	​	$	28,062	​	$	20,498	​

​

The deferred tax assets and liabilities reflected above are included in the consolidated balance sheets as follows (in thousands):

​	​	​	​	​	​	​	​
​	​	December 31,
​		2020			2019
Deferred tax assets	​	$	29,401	​	$	21,923	​
Deferred tax liabilities	​	$	1,339	​	$	1,425	​

​

As of December 31, 2020, we had $9.4 million of deferred tax assets related to $44.9 million of federal NOL carryforwards as a result of the TAS acquisition. If not used, such carryforwards will begin to expire in 2031. We also had $2.7 million of deferred tax assets related to $46.2 million of state NOL carryforwards, including carryforwards acquired from TAS. The state NOL carryforwards will expire in varying amounts between the years 2021 and 2040. Valuation allowances of $0.5 million have been recorded against certain of the state NOL carryforwards. The $2.2 million of deferred tax assets for state NOL carryforwards, net of valuation allowances, reflects our conclusion that it is more-likely-than-not these assets will be realized based upon expected future earnings in certain of our subsidiaries.

Pursuant to Section 382 of the Code, utilization of our federal NOL carryforwards is subject to annual limitations due to the ownership change in TAS. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.

We regularly update our assessment of the realizability of our deferred tax assets, in particular, those related to state NOL carryforwards. A return to profitability in our subsidiaries with valuation allowances would result in a release of a portion of the valuation allowances relating to realizable deferred tax assets. A sustained period of profitability could cause a change in our judgment of any remaining deferred tax assets. If that were to occur, then it is likely that we would reverse some or all of the remaining valuation allowances.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands):

​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2020			2019			2018
Balance at beginning of year	​	$	10,199	​	$	2,966	​	$	8,929	​
Additions based on tax positions related to current year	​		—	​		—	​		—	​
Additions based on tax positions related to prior years	​		26,858	​		7,473	​		2,726	​
Reductions for tax positions related to prior years	​		—	​		(240)	​		(8,689)	​
Reductions for settlements with tax authorities	​		(8,301)	​		—	​		—	​
Balance at end of year	​	$	28,756	​	$	10,199	​	$	2,966	​

​

As of December 31, 2020, 2019 and 2018, we had $28.8 million, $10.2 million and $3.0 million, respectively, of unrecognized tax benefits, which if recognized in future periods, would impact our effective tax rates. We also had accrued zero, zero and $0.6 million for potential interest and penalties related to the unrecognized tax benefits as of December 31, 2020, 2019 and 2018, respectively. We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

We are subject to taxation in the United States and various state jurisdictions. During 2019, the IRS commenced an examination of our amended federal returns for 2014 and 2015. The IRS completed its examination and issued an RAR allowing our refund claims in full, which was reviewed and approved by the JCT during the third quarter of 2020. As a result, our unrecognized tax benefits were reduced by $8.3 million. In late January 2021, we received notification from the IRS that our federal returns for 2017 and 2018 were selected for examination. The completion of this IRS examination could impact our future results of operations and financial condition.

State income tax returns are generally subject to examination for a period of three to four years after filing the returns. However, the state impact of any federal audit adjustments and/or amendments remains subject to examination by various states for up to one year after formal notification to the states. We generally remain open to examination by various state tax authorities for the 2016 tax year forward. As of December 31, 2020, we did not have any state audits underway that would have a material impact on our financial position or results of operations.

We believe it is reasonably possible that a reduction of up to $28.8 million in unrecognized tax benefits could occur within the next twelve months. Any reduction in our unrecognized tax benefits, due to the future recognition of those tax benefits, would affect our effective tax rates.

12. Employee Benefit Plans

We and certain of our subsidiaries sponsor various retirement plans for most full-time and some part-time employees. These plans primarily consist of defined contribution plans. The defined contribution plans generally provide for contributions up to 2.5% of covered employees’ salaries or wages. These contributions totaled $16.3 million in 2020, $14.2 million in 2019 and $10.8 million in 2018. Of these amounts, approximately $0.5 million and $0.3 million were payable to the plans at December 31, 2020 and 2019, respectively.

Certain of our subsidiaries also participate or have participated in various multi-employer pension plans for the benefit of employees who are union members. As of December 31, 2020 and 2019, we had 6 and 7, respectively, who were union members. There were no contributions made to multi-employer pension plans in 2020, 2019 or 2018. The data available from administrators of other multi-employer pension plans is not sufficient to determine the accumulated benefit obligations, nor the net assets attributable to the multi-employer plans in which our employees participate or previously participated.

Certain individuals at one of our operating units are entitled to receive fixed annual payments that reach a maximum amount, as specified in the related agreements, for a 15 year period following retirement or, in some cases, the attainment of 65 years of age. We recognize the unfunded status of the plan as a non-current liability in our Consolidated Balance Sheet. Benefits vest 50% after ten years of service, 75% after fifteen years of service and are fully vested after

20 years of service. We had an unfunded benefit liability of $4.0 million and $4.1 million recorded as of December 31, 2020 and 2019, respectively.

13. Commitments and Contingencies

Claims and Lawsuits

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

We are in a dispute with a customer regarding the outcome of a completed project and also regarding the obligation to perform subcontract work under two executed letters of intent for subsequent projects that we believe are not enforceable. The customer is claiming approximately $15 million in damages related to performance of the original project as well as excess costs to perform the work that was subject to the letters of intent. We are claiming approximately $9 million composed of unpaid amounts under the completed contract as well as costs and inefficiencies that we suffered. We have a lien on the project, and this matter is currently scheduled for arbitration in the second quarter of 2021 with a likely decision in the following months. As of December 31, 2020, we recorded an accrual for this matter based on our analysis of likely outcomes related to this dispute; however, it is possible that the ultimate outcome and associated costs will deviate from our estimates and that, in the event of an unexpectedly adverse outcome, we may experience additional costs and expenses in future periods.

Surety

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and do not expect such losses to be incurred in the foreseeable future.

Current market conditions for surety markets and bonding capacity are adequate with acceptable terms and conditions. Historically, approximately 15% to 25% of our business has required bonds. While we currently have strong surety relationships to support our bonding needs, future market conditions or changes in the sureties’ assessment of our operating and financial risk could cause the sureties to decline to issue bonds for our work. If that were to occur, the alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.

Self-Insurance

We are substantially self-insured for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims, in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses are estimated and accrued based upon known facts, historical trends and industry averages. Estimated losses in excess of our deductible, which have not already been paid, are included in our accrual with a corresponding receivable from our insurance carrier. Loss estimates associated with the larger and longer-developing risks, such as workers’ compensation, auto liability and general liability, are reviewed by a third-party actuary quarterly.

Our self-insurance arrangements as of December 31, 2020 were as follows:

_Workers’ Compensation—_The per-incident deductible for workers’ compensation is $250,000. Losses above $250,000 are determined by statutory rules on a state-by-state basis and are fully covered by excess workers’ compensation insurance.

_Employer’s Liability—_For employer’s liability, the per-incident deductible is $250,000 and then we have several layers of excess loss insurance policies that cover losses up to $132.5 million in aggregate across this risk area (as well as general liability and auto liability noted below).

_General Liability—_For general liability, the per-incident deductible is $250,000. We are fully insured for the next $10.0 million of each loss, and then have several layers of excess loss insurance policies that cover losses up to $132.5 million in aggregate across this risk area (as well as employer’s liability noted above and auto liability noted below).

_Auto Liability—_For auto liability, the per-incident deductible is $250,000. We are fully insured for the next $10.0 million of each loss, and then have several layers of excess loss insurance policies that cover losses up to $132.5 million in aggregate across this risk area (as well as employer’s liability and general liability noted above).

_Employee Medical—_We have three medical plans. The deductible for employee group health claims is $350,000 per person, per policy (calendar) year for each plan. Insurance then covers any responsibility for medical claims in excess of the deductible amount.

Our $132.5 million of aggregate excess loss coverage above applicable per-incident deductibles represents one policy limit that applies to all lines of risk; we do not have a separate $132.5 million of excess loss coverage for each of general liability, employer’s liability and auto liability.

14. Stockholders’ Equity

2012 Equity Incentive Plan

In May 2012, our stockholders approved our 2012 Equity Incentive Plan (the “2012 Plan”), which provides for the granting of incentive or non-qualified stock options, stock appreciation rights, restricted or deferred stock, dividend equivalents or other incentive awards to directors, employees, or consultants. The number of shares authorized and reserved for issuance under the 2012 Plan is 5.1 million shares. As of December 31, 2020, there were 2.9 million shares available for issuance under this plan; however, following adoption of the 2017 Plan (described below), no additional shares will be issued under the 2012 Plan. The 2012 Plan will expire in May 2022.

2017 Omnibus Incentive Plan

In May 2017, our stockholders approved our 2017 Omnibus Incentive Plan (the “2017 Plan”), which provides for the granting of incentive or non-qualified stock options, stock appreciation rights, restricted or deferred stock, dividend equivalents or other incentive awards to directors, employees, or consultants. The number of shares authorized and reserved for issuance under the 2017 Plan is 2.9 million shares. As of December 31, 2020, there were 2.0 million shares available for issuance under this plan. The 2017 Plan will expire in May 2027. Additionally, we have outstanding stock options, stock awards and stock units that were issued under other plans, and no further grants may be made under those plans.

Share Repurchase Program

On March 29, 2007, our Board of Directors approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. On December 8, 2020, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.7 million shares. Since the inception of the repurchase program, the Board has approved 10.3 million shares to be repurchased. As of December 31,

2020, we have repurchased a cumulative total of 9.3 million shares at an average price of $19.63 per share under the repurchase program.

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the twelve months ended December 31, 2020, we repurchased 0.7 million shares for approximately $30.1 million at an average price of $43.99 per share.

Earnings Per Share

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

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

There were less than 0.1 million anti-dilutive stock options excluded from the calculation of diluted EPS for the years ended December 31, 2020, 2019 and 2018, respectively.

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

​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​
​	​	​	Year Ended December 31,					​
​			2020		2019		2018
Common shares outstanding, end of period	​		36,188		36,658		36,894	​
Effect of using weighted average common shares outstanding	​		354		196		308	​
Shares used in computing earnings per share—basic	​		36,542		36,854		37,202	​
Effect of shares issuable under stock option plans based on the treasury stock method	​		123		204		283	​
Effect of restricted and contingently issuable shares	​		73		73		107	​
Shares used in computing earnings per share—diluted	​		36,738		37,131		37,592	​

​

​

15. Stock-Based Compensation

Grants of stock options, restricted stock and restricted stock units, and performance share units have been, under the 2012 Plan and under the 2017 Plan, determined and administered by the compensation committee of the Board of Directors. In 2019, the Board of Directors approved a change to the structure of long-term incentive grants to remove stock options, commencing with the March 2019 equity grant. Total stock-based compensation expense was $6.9 million, $5.9 million and $7.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. Stock-based compensation expense is recognized using the straight-line method over the vesting period and generally vests over a three-year vesting period. Certain awards provide for accelerated vesting when the sum of an employee's age and years of service is at least 75. We recognize forfeitures as they occur. Total income tax benefit recognized for stock-based compensation arrangements was $1.5 million, $1.3 million and $1.5 million for each of the years ended December 31, 2020, 2019 and 2018.

We generally issue treasury shares for stock options and restricted stock, unless treasury shares are not available. Upon the vesting of restricted shares, we have allowed the holder to elect to surrender an amount of shares to meet their statutory tax withholding requirements. These shares are accounted for as treasury stock based upon the value of the stock on the date of vesting.

Stock Options

The following table summarizes activity under our stock option plans (shares in thousands):

​	​	​	​	​	​	​
​	​	Year Ended				​
​	​	December 31,				​
​	​	2020				​
​		​		Weighted-		​
​	​	​	​	Average		​
Stock Options		Shares		Exercise Price
Outstanding at beginning of year		382	​	$	27.06	​
Granted		—	​	$	—	​
Exercised		(114)	​	$	18.85	​
Forfeited		—	​	$	—	​
Expired		—	​	$	—	​
Outstanding at end of year		268	​	$	30.53	​
Options exercisable at end of year		241	​	​	​	​

​

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $3.2 million, $3.5 million and $6.7 million, respectively. Stock options exercisable as of December 31, 2020 have a weighted-average remaining contractual term of 5.2 years and an aggregate intrinsic value of $5.7 million. As of December 31, 2020, we have 0.3 million options that are vested or expected to vest; these options have a weighted average exercise price of $30.53 per share, have a weighted-average remaining contractual term of 5.4 years and an aggregate intrinsic value of $5.9 million.

The following table summarizes information about stock options outstanding at December 31, 2020 (shares in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Options Outstanding						​	Options Exercisable
​		​		Weighted-		​	​	​	​	​	​	​
​	​	​	​	Average	​	​	​	​	​	​	​	​
​	​	Number	​	Remaining	​	Weighted-		​	Number	​	Weighted-
​	​	Outstanding at	​	Contractual	​	Average		​	Exercisable at	​	Average
Range of Exercise Prices		12/31/2020		Life (in years)		Exercise Price			12/31/2020		Exercise Price
$11.21 - $15.00		14		2.2	​	$	13.76		14	​	$	13.76	​
$15.01 - $35.00		130		4.4	​	$	23.54		130	​	$	23.54	​
$35.01 - $42.50		124		6.8	​	$	39.78		97	​	$	39.02	​
$11.21 - $42.50		268		5.4	​	$	30.53		241	​	$	29.18	​

​

The fair value of each option award is estimated, based on several assumptions, on the date of grant using the Black-Scholes option valuation model. We did not grant any options in 2019 or 2020. The fair values and the assumptions used for the 2018 grant are shown in the table below:

​

​	​	​	​	​
​	​	​	​
​		2018
Weighted-average fair value per share of options granted	​	$	13.06	​
Fair value assumptions:	​	​	​	​
Expected dividend yield	​	​	0.79%	​
Expected stock price volatility	​	​	31.7%	​
Risk-free interest rate	​	​	2.66%	​
Expected term	​		5.3 years	​

​

Stock options are accounted for as equity instruments. As of December 31, 2020, the unrecognized compensation cost related to stock options was less than $0.1 million, which is expected to be recognized over a weighted-average period of 0.3 years. The total fair value of options vested during the year ended December 31, 2020 was $0.7 million.

The following table summarizes information about nonvested stock option awards as of December 31, 2020 and changes for the year ended December 31, 2020 (shares in thousands):

​	​	​	​	​	​	​
​		​		Weighted-Average		​
​	​	​	​	Grant Date		​
Stock Options		Shares		Fair Value
Nonvested at December 31, 2019		81	​	$	12.53	​
Granted		—	​	$	—	​
Vested		(54)	​	$	12.26	​
Forfeited		—	​	$	—	​
Nonvested at December 31, 2020		27	​	$	13.06	​

​

Restricted Stock and Restricted Stock Units

The following table summarizes activity under our restricted stock plans (shares in thousands):

​	​	​	​	​	​	​
​	​	Year Ended				​
​	​	December 31,				​
​	​	2020				​
​	​	​	​	Weighted		​
​	​	​	​	Average Grant		​
Restricted Stock and Restricted Stock Units		Shares		Date Fair Value
Unvested at beginning of year		91	​	$	47.58	​
Granted		118	​	$	39.03	​
Vested		(85)	​	$	39.13	​
Forfeited		(4)	​	$	45.21	​
Unvested at end of year		120	​	$	45.21	​

​

Approximately $1.1 million of compensation expense related to restricted stock and restricted stock units will be recognized over a weighted-average period of 1.8 years. The total fair value of shares vested during the year ended December 31, 2020 was $3.3 million. The weighted-average fair value per share of restricted stock shares and units awarded during 2020, 2019 and 2018 was $39.03, $51.02 and $44.02, respectively. The aggregate intrinsic value of restricted stock vested during the years ended December 31, 2020, 2019 and 2018 was $2.9 million, $3.5 million and $3.3 million, respectively.

Performance Stock Units

Under the 2012 Plan, we granted dollar-denominated performance vesting restricted stock units (“PSUs”), which cliff vest at the end of a three-year performance period. The PSUs are subject to two performance measures; 50% of the PSUs are based on the annual performance of our stock price relative to a group of our peers (total shareholder return) and 50% of the PSUs are measured based on meeting or exceeding a pre-determined annual earnings per share target as set by our Board of Directors (EPS). Depending on the Company’s performance in relation to the established performance measures, the awards may vest at zero to a maximum of 2.0 times the dollar-denominated award granted at target. Upon achievement of the necessary performance metrics, the award will be determined in dollars and may be settled in cash or stock based on the market price of the Company’s common stock at the end of the performance period, at our discretion.

Compensation expense for dollar-denominated performance units will ultimately be equal to the final dollar value awarded to the grantee upon vesting, settled either in cash or stock. However, throughout the performance period we must record and accrue expense based on an estimate of that future payout. For units determined by EPS performance, the awards are evaluated quarterly against established targets in order to estimate the liability throughout the vesting period. For units determined by total shareholder return performance, a Monte Carlo simulation model was used to estimate accruals throughout the vesting period. The model simulates our total shareholder return and compares it against our peer group over the three-year performance period to produce a predicted distribution of relative share performance. This is applied to the reward criteria to give an expected value of the total shareholder return element. The calculated fair market value as of December 31, 2020 was $6.2 million. Of this amount, $2.2 million relates to the PSUs granted in 2018 whose performance period ended December 31, 2020. These awards will be settled within the upcoming

year either in cash or stock. The expense related to performance stock units for the years ended December 31, 2020, 2019 and 2018 was $2.7 million, $1.9 million and $2.9 million, respectively. At the December 31, 2020 calculated fair market value, approximately $0.7 million of compensation expense related to performance stock units will be recognized over a weighted-average period of 1.4 years.

16. Segment Information

We have two reportable segments: (a) our mechanical segment, which includes HVAC, plumbing, piping, and controls, as well as off-site construction, monitoring and fire protection; and (b) our electrical segment, which includes installation and servicing of electrical systems. We consider these two lines of business to be separate segments because they require different skill sets, and the business models for providing services have some differences, as a mechanical system requires ongoing maintenance and monitoring and an electrical system generally does not. However, the business model for installation of new systems or retrofitting existing systems is very similar between the two segments.

Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. We aggregate our operating segments into two reportable segments, as the operating segments meet all of the aggregation criteria. Substantially all of our revenue is generated, and all of our assets are located, in the United States, our country of domicile. The following table presents information about our reportable segments (in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​
​		Mechanical Services			Electrical Services			Corporate			Consolidated
Total Assets at December 31, 2020	​	$	1,215,985	​	$	449,588	​	$	91,782	​	$	1,757,355
Total Assets at December 31, 2019	​	$	1,056,609	​	$	372,254	​	$	76,149	​	$	1,505,012
​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31, 2020
​		Mechanical Services			Electrical Services			Corporate			Consolidated
Revenue	​	$	2,413,016	​	$	443,643	​	$	—	​	$	2,856,659
Gross Profit	​	$	509,740	​	$	37,243	​	$	—	​	$	546,983
Capital Expenditures	​	$	22,550	​	$	955	​	$	626	​	$	24,131
​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31, 2019
​		Mechanical Services			Electrical Services			Corporate			Consolidated
Revenue	​	$	2,251,560	​	$	363,717	​	$	—	​	$	2,615,277
Gross Profit	​	$	465,144	​	$	36,799	​	$	—	​	$	501,943
Capital Expenditures	​	$	27,933	​	$	1,504	​	$	2,313	​	$	31,750
​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31, 2018
​		Mechanical Services			Electrical Services			Corporate			Consolidated
Revenue	​	$	2,176,223	​	$	6,656	​	$	—	​	$	2,182,879
Gross Profit	​	$	444,960	​	$	1,319	​	$	—	​	$	446,279
Capital Expenditures	​	$	25,945	​	$	57	​	$	1,266	​	$	27,268

​

17. Selected Quarterly Financial Data

Quarterly financial information for the years ended December 31, 2020 and 2019 is summarized as follows (in thousands, except per share data):

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020
​		Q1			Q2			Q3			Q4
Revenue	​	$	700,131	​	$	743,468	​	$	714,099	​	$	698,961	​
Gross profit	​		117,093	​		145,695	​		147,196	​		136,999	​
Net income	​		17,716	​		39,495	​		50,088	​		42,840	​
INCOME PER SHARE:	​	​	​	​	​	​	​	​	​	​	​	​	​
Basic	​	$	0.48	​	$	1.08	​	$	1.37	​	$	1.18	​
Diluted	​	$	0.48	​	$	1.08	​	$	1.36	​	$	1.17	​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2019
​		Q1			Q2			Q3			Q4
Revenue	​	$	538,473	​	$	650,302	​	$	706,918	​	$	719,584	​
Gross profit (1)	​		106,665	​		120,016	​		142,702	​		132,560	​
Net income	​		19,866	​		24,173	​		36,233	​		34,052	​
INCOME PER SHARE:	​	​	​	​	​	​	​	​	​	​	​	​	​
Basic	​	$	0.54	​	$	0.65	​	$	0.98	​	$	0.93	​
Diluted	​	$	0.53	​	$	0.65	​	$	0.98	​	$	0.92	​

​

	(1)	In the fourth quarter of 2019, we recorded a $4.8 million gain due to insurance proceeds we received in the fourth quarter related to the ransomware incident that occurred in April 2019.

The sums of the individual quarterly earnings per share amounts do not necessarily agree with year-to-date earnings per share as each quarter’s computation is based on the weighted average number of shares outstanding during the quarter, the weighted average stock price during the quarter and the dilutive effects of options and contingently issuable restricted stock in each quarter.

​