Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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The following discussion and analysis should be read in conjunction with our historical Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2024 (the "Form 10-K"). This discussion contains "forward-looking statements" regarding our business and industry within the meaning of applicable securities laws and regulations. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause our actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in "Item 1A. Risk Factors" included in our Form 10-K. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The terms "Comfort Systems," "we," "us," "our," 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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Introduction and Overview

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We are a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services industries. We operate primarily in the commercial, industrial and institutional markets and perform most of our work in manufacturing, healthcare, education, office, technology, retail and government facilities. We operate our business in two business segments: mechanical and electrical.

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Nature and Economics of Our Business

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In our mechanical business segment, customers hire us to ensure heating, ventilation and air conditioning ("HVAC") systems deliver specified or generally expected heating, cooling, conditioning and circulation of air in a facility. This entails installing core system equipment such as packaged heating and air conditioning units, or in the case of larger facilities, separate core components such as chillers, boilers, air handlers, and cooling towers. We also typically install connecting and distribution elements such as piping and ducting.

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In our electrical business segment, our principal business activity is electrical construction and engineering in the commercial and industrial field. We also perform electrical logistics services and electrical service work.

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In both our mechanical and electrical business segments, our responsibilities usually require conforming the systems to pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing. Our project management responsibilities include staging equipment and materials to project sites, deploying labor to perform the work, and coordinating with other service providers on the project, including any subcontractors we might use to deliver our portion of the work.

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Approximately 92.4% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities. When competing for project business, we usually estimate the costs we will incur on a project, and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur to support our operations but which are not specific to the project. Typically, customers will seek pricing from competitors for a given project. While the criteria on which customers select a provider vary widely and include factors such as quality, technical expertise, on-time performance, post-project support and service, and company history and financial strength, we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider.

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After a customer accepts our bid, we generally enter into a contract with the customer that specifies what we will deliver on the project, what our related responsibilities are and how much and when we will be paid. Our overall

price for the project is typically set at a fixed amount in the contract, although changes in project specifications or work conditions that result in unexpected additional work are usually subject to additional payment from the customer via what are commonly known as change orders. Project contracts typically provide for periodic billings to the customer as we meet progress milestones or incur costs on the project. Project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have completed the work. Amounts withheld under this practice are known as retention or retainage.

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Labor, materials and overhead costs account for the majority of our cost of service. Accordingly, labor management and utilization have the most impact on our project performance. Given the fixed price nature of much of our project work, if our initial estimate of project costs is wrong or we incur cost overruns that cannot be recovered in change orders, we can experience reduced profits or even significant losses on fixed price project work. We also perform some project work on a cost-plus or a time and materials basis, under which we are paid our costs incurred plus an agreed-upon profit margin, and such projects are sometimes subject to a guaranteed maximum cost. These margins are frequently less than fixed-price contract margins because there is less risk of unrecoverable cost overruns in cost-plus or time and materials work.

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As of September 30, 2025, we had 8,974 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately $2.4 million. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration, together with typical retention terms as discussed above, generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we consider to be a well-diversified distribution of revenue across end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of our services to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings. The service work that we do, which is discussed further below, usually does not give rise to lien rights.

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We also perform larger projects. Taken together, projects with contract prices of $2 million or more totaled $19.38 billion of aggregate contract value as of September 30, 2025, or approximately 92% of a total contract value for all projects in progress, totaling $21.17 billion. Generally, projects closer in size to $2 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length.

A stratification of projects in progress as of September 30, 2025, by contract price, is as follows:

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In addition to project work, approximately 7.6% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide maintenance and repair service under ongoing contracts. Under these contracts, we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically are for one or more years and frequently contain 30- to 60-day cancellation notice periods.

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A relatively small portion of our revenue comes from national and regional account customers. These customers typically have multiple sites and contract with us to perform maintenance and repair service. These contracts may also provide for us to perform new or replacement systems installation. We operate a national call center to dispatch

technicians to sites requiring service. We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications.

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Profile and Management of Our Operations

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We manage our 48 operating units based on a variety of factors. Financial measures we emphasize include profitability and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost, billings and receivables. We also monitor selling, general, administrative and indirect project support expense, backlog, workforce size and mix, growth in revenue and profits, variation of actual project cost from original estimate, and overall financial performance in comparison to budget and updated forecasts. Operational factors we emphasize include project selection, estimating, pricing, safety, management and execution practices, labor utilization, training, and the make-up of both existing backlog as well as new business being pursued, in terms of project size, technical application, facility type, end-use customers and industries and location of the work.

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Most of our operations compete on a local or regional basis. Attracting and retaining effective operating unit managers is an important factor in our business, particularly in view of the relative uniqueness of each market and operation, the importance of relationships with customers and other market participants, such as architects and consulting engineers, and the high degree of competition and low barriers to entry in most of our markets. Accordingly, we devote considerable attention to operating unit management quality, stability, and contingency planning, including related considerations of compensation and non-competition protection where applicable.

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Economic and Industry Factors

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As a mechanical and electrical services provider, we operate in the broader nonresidential construction services industry and are affected by trends in this sector. While we do not have operations in all major cities of the United States, we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector. As a result, we monitor the views of major construction sector forecasters along with macroeconomic factors they believe drive the sector, including trends in gross domestic product, interest rates, business investment, employment, demographics and the fiscal condition of federal, state and local governments.

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Spending decisions for building construction, renovation and system replacement are generally made on a project basis, usually with some degree of discretion as to when and if projects proceed. With larger amounts of capital, time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.

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Operating Environment and Management Emphasis

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Following the impacts of the global pandemic during 2020 and 2021, we experienced increasing demand in 2022, 2023 and 2024. We currently expect that the demand environment, especially for manufacturing and technology customers, will remain at high levels for the remainder of 2025 and for 2026. While the impacts from the supply chain shortages have improved, we continue to experience increased labor costs and delays in delivery of certain materials and equipment. We anticipate that constraints and delays in our supply chain will persist, as well as pressure on cost and availability, especially for skilled labor, will continue over the next several quarters.

We have a credit facility in place with terms we believe are favorable that does not expire until October 2030. As of September 30, 2025, we had $916.8 million of credit available to borrow under our credit facility. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are strong and benefit from our operating history and financial position. We have generated positive free cash flow in each of the last 26 calendar years and will continue our emphasis in this area. We believe that the relative size and strength of our Balance Sheet and surety relationships, as compared to most companies in our industry, represent competitive advantages for us.

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As discussed at greater length in "Results of Operations" below, we expect price competition to continue as local and regional industry participants compete for customers. We will continue to invest in our service business, to pursue the more active sectors in our markets, and to emphasize our regional and national account business.

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Cyclicality and Seasonality

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The construction industry is subject to business cycle fluctuation. As a result, our volume of business, particularly in new construction projects and renovation, may be adversely affected by declines in new installation and replacement projects in various geographic regions of the United States during periods of economic weakness.

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The mechanical and electrical contracting industries are also subject to seasonal variations. The demand for new installation and replacement is generally lower during the winter months (the first quarter of the year) due to reduced construction activity during inclement weather and less use of air conditioning during the colder months. Demand for our services is generally higher in the second and third calendar quarters due to increased construction activity and increased use of air conditioning during the warmer months. Accordingly, we expect our revenue and operating results generally will be lower in the first calendar quarter.

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Critical Accounting Estimates

Management believes that there have been no significant changes during the three months ended September 30, 2025, to the items that we disclosed as our "Critical Accounting Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended December 31, 2024. A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements are included in Note 2 "Summary of Significant Accounting Policies and Estimates."

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Results of Operations (dollars in thousands):

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We had 47 operating locations as of December 31, 2024. In the first quarter of 2025, we completed the acquisition of Century Contractors, LLC ("Century"), which reports as a separate operating location. In the second quarter of 2025, we combined two operating locations into one. Additionally, we completed the acquisition of Right Way Plumbing & Mechanical LLC ("Right Way"), which reports as a separate operating location. We had 48 operating locations as of September 30, 2025. Acquisitions are included in our results of operations from the respective acquisition date. The same-store comparison from 2025 to 2024, as described below, excludes Right Way, which was acquired May 1, 2025, Century, which was acquired on January 1, 2025, one month of results for Summit Industrial Construction, LLC ("Summit"), which was acquired on February 1, 2024, and one month of results for J & S Mechanical Contractors, Inc. ("J&S"), which was acquired on February 1, 2024. An operating location is included in the same-store comparison on the first day it has comparable prior year operating data, except for immaterial acquisitions that are often absorbed and integrated with existing operations.

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Revenue-Revenue for the third quarter of 2025 increased $638.6 million, or 35.2%, to $2.45 billion compared to the same period in 2024. The increase included a 33.3% increase in revenue related to same-store activity and a 1.9% increase related to the Right Way and Century acquisitions. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been especially strong in the technology sector, particularly for data centers.

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The following table presents our operating segment revenue (in thousands, except percentages):

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Revenue for our mechanical segment increased $371.8 million, or 25.8%, to $1.81 billion for the third quarter of 2025 compared to the same period in 2024. Of this increase, $35.2 million resulted from the acquisitions of Right Way and Century, and $336.6 million was attributable to same-store activity. The same-store revenue increase primarily resulted from an increase in activity in the technology sector at one of our North Carolina operations ($75.7 million), our Texas modular operation ($63.3 million) and one of our Texas operations ($62.2 million).

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Revenue for our electrical segment increased $266.8 million, or 71.4%, to $640.5 million for the third quarter of 2025 compared to the same period in 2024. The increase primarily resulted from an increase in activity in the technology sector at our Texas electrical operation ($200.3 million).

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Revenue for the first nine months of 2025 increased $1.30 billion, or 25.1%, to $6.46 billion compared to the same period in 2024. The increase included a 22.8% increase in revenue related to same-store activity and a 2.3% increase related to the acquisitions of Right Way, Century, Summit and J&S. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been especially strong in the technology sector, particularly for data centers.

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The following table presents our operating segment revenue (in thousands, except percentages):

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Revenue for our mechanical segment increased $776.0 million, or 19.0%, to $4.85 billion for the first nine months of 2025 compared to the same period in 2024. Of this increase, $119.0 million resulted from the acquisitions of Right Way, Century, Summit and J&S, and $657.0 million was attributable to same-store activity. The same-store revenue increase primarily resulted from an increase in activity in the technology sector at one of our North Carolina operations ($184.8 million), our Texas modular operation ($126.1 million) and one of our Virginia operations ($113.3 million).

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Revenue for our electrical segment increased $519.9 million, or 47.9%, to $1.60 billion for the first nine months of 2025 compared to the same period in 2024. The increase primarily resulted from an increase in activity in the technology sector at our Texas electrical operation ($432.5 million).

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Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Project work generally lasts less than one year. Service agreement revenue, service work and short duration projects, which are generally billed as performed, do not flow through backlog. Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months. As a result, we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term, and should not be interpreted as indicative of ongoing revenue performance over several quarters.

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The following table presents our operating segment backlog (in thousands, except percentages):

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Backlog as of September 30, 2025 was $9.38 billion, a 15.4% increase from June 30, 2025 backlog of $8.12 billion, and a 65.1% increase from September 30, 2024 backlog of $5.68 billion. The sequential backlog increase was primarily a result of increased project bookings in the technology sector at one of our Indiana operations ($546.3

million) and one of our Texas operations ($325.9 million). The year-over-year backlog increase included the acquisitions of Right Way ($129.8 million) and Century ($48.9 million), as well as a same-store increase of $3.52 billion, or 61.9%. Same-store year-over-year backlog growth was primarily attributable to increased project bookings in the technology sector at one of our North Carolina operations ($985.2 million), one of our Indiana operations ($679.8 million), our Texas electrical operation ($667.1 million) and our Texas modular operation ($627.1 million).

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Gross Profit-Gross profit increased $226.2 million, or 59.2%, to $607.9 million for the third quarter of 2025 as compared to the same period in 2024. The increase included a $4.6 million, or 1.2%, increase related to the Right Way and Century acquisitions, as well as a 58.0% increase in same-store activity. The same-store increase in gross profit was driven by both higher revenues in the current year as well as improved execution in our operations, including increased volumes at our Texas electrical operation ($47.0 million) and one of our Texas operations ($34.3 million). Additionally, we achieved improvements in project execution at one of our North Carolina operations ($37.4 million) and at another one of our Texas operations ($23.8 million). Our Texas modular operation achieved both higher volumes and improvements in project execution ($32.5 million). In the third quarter of 2025, we had favorable developments on certain large jobs including recognition of $15.5 million of previously unrecognized revenue as a customer emerged from bankruptcy. As a percentage of revenue, gross profit for the third quarter increased from 21.1% in 2024 to 24.8% in 2025, primarily due to the factors discussed above and improvements in our mechanical segment gross profit margin.

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Gross profit increased $478.5 million, or 45.9%, to $1.52 billion for the first nine months of 2025 as compared to the same period in 2024. The increase included a 1.8% increase related to the Right Way, Century, Summit and J&S acquisitions, as well as a 44.1% increase in same-store activity. The same-store increase in gross profit was driven by both higher revenues in the current year as well as improved execution in our operations, including increased volumes at our Texas electrical operation ($96.9 million). Additionally, we achieved improvements in project execution at our Texas modular operation ($85.3 million), one of our Texas operations ($56.6 million) and one of our North Carolina operations ($53.4 million). Another one of our Texas operations achieved both higher volumes and improvements in project execution ($50.5 million). In the third quarter of 2025, we had favorable developments on certain large jobs including recognition of $15.5 million of previously unrecognized revenue as a customer emerged from bankruptcy. As a percentage of revenue, gross profit for the nine-month period increased from 20.2% in 2024 to 23.6% in 2025, primarily due to the factors discussed above and improvements in our mechanical segment gross profit margin.

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Selling, General and Administrative Expenses ("SG&A")-SG&A increased $49.4 million, or 27.4%, to $229.6 million for the third quarter of 2025 as compared to 2024. On a same-store basis, excluding amortization expense, SG&A increased $44.8 million, or 27.0%. The same-store increase was primarily due to higher same-store revenue and increased compensation costs ($36.5 million), largely attributable to increased headcount and increased cost of labor. Amortization expense increased $0.7 million during the period, primarily as a result of the Right Way and Century acquisitions. As a percentage of revenue, SG&A for the third quarter decreased from 9.9% in 2024 to 9.4% in 2025 due to leverage resulting from the increase in revenue.

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SG&A increased $112.5 million, or 21.5%, to $634.9 million for the first nine months of 2025 as compared to 2024. On a same-store basis, excluding amortization expense, SG&A increased $99.7 million, or 20.7%. The same-store increase was primarily due to higher same-store revenue and increased compensation costs ($78.3 million), largely attributable to increased headcount and increased cost of labor. Amortization expense increased $3.4 million during the period, primarily as a result of the Summit, J&S, Right Way and Century acquisitions. As a percentage of revenue, SG&A for the nine-month period decreased from 10.1% in 2024 to 9.8% in 2025 due to leverage resulting from the increase in revenue.

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We have included same-store SG&A, excluding amortization, because we believe it is an effective measure of comparative results of operations. However, same-store SG&A, excluding amortization, is not considered under generally accepted accounting principles to be a primary measure of an entity's financial results and, accordingly, should not be considered an alternative to SG&A as shown in our consolidated statements of operations.

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Interest Income-Interest income increased $2.6 million, or 66.8%, to $6.4 million for the third quarter of 2025 as compared to the same period in 2024. Interest income increased $6.8 million, or 101.2%, to $13.5 million, for the first nine months of 2025 compared to the same period in 2024. The increase in interest income for the third quarter and the first nine months of 2025 was primarily due to an increase in our average cash balance compared to the prior year.

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Interest Expense-Interest expense increased $1.2 million, or 71.9%, to $3.0 million for the third quarter of 2025 as compared to the same period in 2024. Interest expense increased $1.1 million, or 22.2%, to $6.2 million, for the first nine months of 2025 compared to the same period in 2024. The increase in interest expense for the third quarter and the first nine months of 2025 was due to an increase in our average outstanding debt balance compared to the prior year. Additionally, we expensed $0.3 million related to unamortized debt issuance costs for lenders who exited the credit facility in the August 2025 amendment.

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Changes in the Fair Value of Contingent Earn-out Obligations-The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. Expense from changes in the fair value of contingent earn-out obligations for the third quarter of 2025 decreased $5.2 million, or 29.9%, as compared to the same period in 2024. Expense from changes in the fair value of contingent earn-out obligations for the first nine months of 2025 decreased $24.5 million, or 55.1%, as compared to the same period in 2024. The decrease in earn-out expense for the third quarter and the first nine months of 2025 was primarily caused by lower expenses at J&S, as a result of them achieving their maximum cumulative earn-out target in the prior year. Additionally, we had lower expenses at Summit, driven by larger changes in their forecasted results in the prior year.

Provision for Income Taxes-Our provision for income taxes for the nine months ended September 30, 2025 was $183.2 million with an effective tax rate of 20.9% as compared to a provision for income taxes of $104.0 million with an effective tax rate of 21.6% for the same period in 2024. The effective tax rate for 2025 was slightly lower than the 21% federal statutory rate primarily due to a $24.2 million credit for increasing research activities ("R&D tax credit") (2.8%) and recognizing $8.9 million of net interest income on our 2022 federal overpayment (1.0%), partially offset by $25.8 million of net state income taxes (3.0%) and $5.9 million of nontaxable or nondeductible items (0.7%). The effective tax rate for 2024 was slightly higher than the 21% federal statutory rate primarily due to $17.5 million of net state income taxes (3.6%) and $3.0 million of nontaxable or nondeductible items (0.6%), partially offset by a $17.4 million R&D tax credit (3.6%).

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Outlook

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We experienced strong ongoing demand in the first nine months of 2025, although we continue to experience increased labor costs and impacts from supply chain shortages, including delays in delivery of certain materials and equipment. We are recognizing these challenges in our job planning and pricing, and we are ordering materials on an earlier timeline and seeking to collaborate with customers to share supply risks and to mitigate the effects of these challenges. We have been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.

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We have a good pipeline of opportunities and potential backlog. Considering our substantial advance bookings, we anticipate continued solid earnings for the remainder of 2025 and we believe we are well positioned for continued success in 2026. Although we are preparing for a wide range of challenges and economic circumstances, including a potential recession, we currently expect that supportive conditions for our industry, especially for our manufacturing and technology customers, are likely to continue for the remainder of 2025 and 2026.

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Liquidity and Capital Resources (in thousands):

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Cash Flow

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Our business does not require significant amounts of investment in long-term fixed assets. The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment deployed in project work until our customer pays us. Customary terms in our industry allow customers to withhold a small portion of the contract price until after we have completed the work, typically for six months. Amounts withheld under this practice are known as retention or retainage. Our average project duration, together with typical retention terms, generally allow us to complete the realization of revenue and earnings in cash within one year.

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Net Cash Provided by Operating Activities-Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily associated with labor, equipment and subcontractors, are required to be paid before the receivables resulting from the work performed are billed and collected. Working capital needs are generally higher during the late winter and spring months as we prepare and plan for the increased project demand when favorable weather conditions exist in the summer and fall months. Conversely, working capital assets are typically converted to cash during the late summer and fall months as project completion is underway. These seasonal trends are sometimes offset by changes in the timing of major projects, which can be impacted by the weather, project delays or accelerations and other economic factors that may affect customer spending.

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Net cash provided by operating activities was $717.8 million during the first nine months of 2025 compared to $638.6 million during the same period in 2024. The $79.2 million increase in net cash provided by operating activities was primarily driven by higher earnings before non-cash expenses such as amortization of intangible assets in the current year and a $484.3 million benefit from changes in billings in excess of costs and estimated earnings and deferred revenue driven by timing of customer billings and payments. These increases in cash were partially offset by a $518.5 million decrease in accounts payable and other current liabilities, as well as a $115.7 million increase in receivables, net. We made an $80.0 million federal tax payment in the first quarter of 2025 that otherwise would have been paid in the second half of 2024, as a result of tax relief from the Internal Revenue Service due to Hurricane Beryl. In 2023, we filed our 2022 federal tax return requesting a refund of our $107.1 million overpayment, which was received in April 2025 and positively impacted our second quarter cashflows. Along with the refund, we received $11.3 million (or $8.9 million, net of tax) of interest income that reduced our provision for income taxes in the first quarter of 2025.

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Net Cash Used in Investing Activities-During the first nine months of 2025, net cash used in investing activities was $236.0 million compared to $304.0 million during the same period in 2024. The $68.0 million decrease in net cash used in investing activities primarily related to a decrease in cash paid (net of cash acquired) for acquisitions in the current year compared to the same period in 2024.

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Net Cash Used in Financing Activities-Net cash used in financing activities was $171.2 million for the first nine months of 2025 compared to $124.1 million during the same period in 2024. The $47.1 million increase in net cash

used in financing activities was primarily due to an increase in share repurchases of $82.4 million and an increase in payments for contingent consideration related to acquisitions of $27.7 million in the current year compared to the same period in 2024. These increases were partially offset by higher net borrowings of debt in the current year compared to the same period in 2024.

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Free Cash Flow-We define free cash flow as net cash provided by operating activities, less customary capital expenditures, plus the proceeds from asset sales. We believe free cash flow, by encompassing both profit margins and the use of working capital over our approximately one year working capital cycle, is an effective measure of operating effectiveness and efficiency. We have included free cash flow information here for this reason, and because we are often asked about it by third parties evaluating us. However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity's financial results, and accordingly free cash flow should not be considered an alternative to operating income, net income, or amounts shown in our consolidated statements of cash flows as determined under generally accepted accounting principles. Free cash flow may be defined differently by other companies.

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Share Repurchase Program

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On March 29, 2007, our Board of Directors (the "Board") approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the program. On May 16, 2025, the Board approved an extension to the program by increasing the shares authorized for repurchase by 0.4 million shares. Since the inception of the repurchase program, the Board has approved 11.8 million shares to be repurchased. As of September 30, 2025, we have repurchased a cumulative total of 10.8 million shares at an average price of $42.04 per share under the repurchase program.

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The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, including pursuant to Rule 10b5-1 share repurchase plans, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the nine months ended September 30, 2025, we repurchased 0.3 million shares for approximately $125.4 million, inclusive of the applicable excise tax, at an average price of $363.15 per share.

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Debt

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Revolving Credit Facility

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On August 27, 2025, we amended our senior credit facility (as amended, the "Facility") arranged by Wells Fargo Bank, National Association, as administrative agent, and provided by a syndicate of banks, which increases our borrowing capacity from $850.0 million to $1.10 billion. The Facility is composed of a revolving credit line guaranteed by certain of our subsidiaries, in the amount of $1.10 billion. The Facility also provides for an accordion or increase option not to exceed the greater of (a) $500.0 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), in the form of additional revolving commitments or incremental term loans. The line of credit includes a sublimit for up to $200.0 million of letters of credit and a sublimit for up to $75.0 million of swingline loans. The Facility expires on October 1, 2030 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of and assets held by certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As a result of the amendment, $0.3 million of unamortized costs associated with lenders who exited the Facility were written off to interest expense in the third quarter of 2025. The remaining $1.0 million of unamortized costs from the previous facility will be deferred and amortized over the term of the new Facility. In 2025, we incurred approximately $3.7 million in financing and professional costs in connection with the amendment to the Facility, which, combined with previously unamortized costs of $1.0 million, are being amortized on a straight-line basis as a non-cash charge to interest expense over the remaining term of the Facility. As of September 30, 2025, we had $100.0 million of outstanding borrowings on the revolving credit facility, $83.2 million in letters of credit outstanding and $916.8 million of credit available.

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There are two interest rate options for borrowings under the Facility, the Base Rate Loan (as defined in the Facility) option and the Secured Overnight Financing Rate ("SOFR") Loan option. These rates are floating rates

determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two rates.

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

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As of September 30, 2025, we have $83.2 million in letter of credit commitments, of which $61.1 million will expire in 2025 and $22.1 million will expire in 2026. The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers' compensation, auto liability and general liability insurance program. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. Posting of letters of credit for this purpose is a common practice for entities that manage their self-insurance programs through third-party insurers as we do. While some of these letter of credit commitments expire in the next twelve months, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

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

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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 for the four fiscal quarters then ended. Credit Facility Adjusted EBITDA is defined under the Facility for financial covenant purposes as consolidated net income for the four fiscal 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 or equity compensation; and (e) other non-cash charges, in each case calculated on a pro forma basis for acquisitions or dispositions during such measurement period. The Facility's principal financial covenants include:

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Net Leverage Ratio-The Facility requires that the ratio of (a) our Consolidated Total Indebtedness (as defined in the Facility) minus unrestricted cash and cash equivalents up to $100,000,000, to (b) our Credit Facility Adjusted EBITDA not exceed 3.50 to 1.00 as of the end of each fiscal quarter; provided that, for the first four fiscal quarters ending after a material acquisition, such maximum Net Leverage Ratio steps up to 4.00 to 1.00.

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Interest Coverage Ratio-The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA to (b) consolidated interest expense, defined as all interest paid or accrued on indebtedness during the period excluding amortization of debt incurrence expenses, original issue discount, and mark-to-market interest expense, be at least 3.00 to 1.00.

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Other Restrictions-The Facility (a) permits unlimited acquisitions when our Net Leverage Ratio is less than or equal to 3.25 to 1.00; or 3.75 to 1.00 for the first four fiscal quarters ending after a material acquisition, (b) expands certain baskets for permitted indebtedness and liens, and (c) permits unlimited distributions, stock repurchases, and investments when the Net Leverage Ratio is less than or equal to 2.75 to 1.00.

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While the Facility's financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility's Net Leverage Ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted.

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We were in compliance with all of our financial covenants as of September 30, 2025.

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Notes to Former Owners

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We have outstanding notes to the former owners of acquired companies. Together, these notes had an outstanding balance of $35.3 million as of September 30, 2025. On September 30, 2025, future principal payments of notes to former owners by maturity year were as follows (dollars in thousands):

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Outlook

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We have generated positive net free cash flow for the last 26 calendar years, much of which occurred during challenging economic and industry conditions. We also continue to have significant borrowing capacity under our credit facility, and we maintain what we feel are reasonable cash balances. We believe these factors will provide us with sufficient liquidity to fund our operations for the foreseeable future.

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Other Commitments

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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 sureties for any expenses or outlays they incur.

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

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Cautionary Statement Concerning Forward-Looking Statements

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Certain statements and information in this Quarterly Report on Form 10-Q may constitute forward-looking statements regarding our future business expectations, which are subject to applicable securities laws and regulations. The words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could," or other similar expressions are intended to identify forward-looking statements, which are generally not historic in nature. These forward-looking statements are based on the current expectations and beliefs of the Company concerning future developments and their effect on the Company. While the Company's management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company will be those that it anticipates, and the Company's actual results of operations, financial condition and liquidity, and the development of the industry in which the Company operates, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments

may not be indicative of our results or developments in subsequent periods. All comments concerning the Company's expectations for future revenue and operating results are based on the Company's forecasts for its existing operations and do not include the potential impact of any future acquisitions. The Company's forward-looking statements involve significant risks and uncertainties (some of which are beyond the Company's control) and assumptions that could cause actual future results to differ materially from the Company's historical experience and its present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the use of incorrect estimates for bidding a fixed-price contract; undertaking contractual commitments that exceed the Company's labor resources; failing to perform contractual obligations efficiently enough to maintain profitability; national or regional weakness in construction activity and economic conditions; economic downturns in the markets where the Company operates; shortages of labor and specialty building materials or material increases to the cost thereof; financial difficulties affecting projects, vendors, customers, or subcontractors; unexpected adjustments or cancellations in our backlog resulting in the Company's backlog failing to translate into actual revenue or profits; inflation, supply chain disruptions, and capital market volatility; the loss of significant customers; intense competition in the Company's industry; risks associated with acquisitions, including the ability to successfully integrate those companies; impairment charges for goodwill and intangible assets; reductions or reversals of previously recorded revenue or profits as a result of the Company's cost-to-cost input method of accounting; difficulties in the financial and surety markets; delays and/or defaults in customer payments; difficult work environment; worldwide political and economic uncertainties, including international conflicts and epidemics or pandemics; retention of key management and employees; the Company's decentralized management structure; our ability to effectively manage our backlog and the size and cost of our operations; failure of third party subcontractors and suppliers to complete work as anticipated; difficulty in obtaining, or increased costs associated with, bonding and insurance; our ability to remain in compliance with covenants under our credit agreement, service our indebtedness, or fund our other liquidity needs; our inability to properly utilize our workforce; increases and uncertainty in health insurance costs; regulatory and legal risks, including adverse litigation results, failure to comply with laws and regulations; changes in United States trade policy, and tax-related risks; the imposition of past and future liability from environmental, safety, and health regulations including the inherent risk associated with self-insurance; an increase in our effective tax rate; a material information technology failure or a material cybersecurity breach; risks related to our common stock; failure or circumvention of our disclosure controls and procedures or internal control environment; our ability to manage growth and geographically-dispersed operations; extreme weather conditions (such as storms, droughts, extreme heat or cold, wildfires and floods), including as a result of climate change, and any resulting regulations or restrictions related thereto; force majeure events; deliberate, malicious acts, including terrorism and sabotage; findings of inadequate internal controls; changes in accounting rules and regulations; and other risks detailed in our reports filed with the SEC.

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For additional information regarding known material factors that could cause the Company's results to differ from its projected results, please see its filings with the SEC, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

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Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether because of new information, future events, or otherwise, except as otherwise required by law.

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