Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Comfort Systems USA Earnings Conference Call. My name is Darick, and I’ll be operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the conference over to Ms. Julie Shaeff, Chief Accounting Officer. Please proceed.

Thanks, Darick. Good morning. Welcome to Comfort Systems USA’s second quarter earnings call. Our comments this morning as well as our press releases contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a more detailed listing and commentaries concerning our specific risk factors in our most recent filed Form 10-K and Form 10-Q as well as in our press release covering these earnings. A slide presentation will accompany our remarks. The slides are posted on the Investor Relations section of the Company’s website found at comfortsystemsusa.com. Joining me on the call today are Brian Lane, President and Chief Executive Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.

Okay. Thank you, Julie. Good morning, everyone, and welcome to our second quarter earnings call. Let me start by thanking all the Comfort Systems USA employees for their continued hard work and fantastic performance. I’ll start with the highlights of our strong performance, and Bill will cover the financial results in more detail. This was a very good quarter, with strong growth, profits and cash flow. We’re also reporting substantial backlog increases and some excellent acquisitions. Building on solid execution over the past several quarters, we had our strongest ever quarterly performance. Revenues are 15% higher than the second quarter of 2017, profits improved substantially with earnings per share of $0.87 this quarter compared to $0.48 per share a year ago. Free cash flows are a remarkable $25 million for the second quarter. Considering our ongoing performance and cash generation, we have again increased our dividend. We have strong construction activity in many of our markets. We experienced another significant increase in backlog in the second quarter. As of June 30, our backlog was $1.23 billion, an increase of $149 million sequentially, and the increase is broad-based. Overall, I’m optimistic about our prospects for this year. During the first half of 2018, we acquired some solid companies into existing operations, including strong companies in upstate New York, Austin, Texas and in New England. And additionally, on July 1, we acquired the Dilling Group, a well-established mechanical contractor based in Indiana and Tennessee. The Dilling Group looks to expand our industrial presence in the Midwest, and we’re excited to welcome all our new team members to Comfort Systems USA. During the second quarter, we also increased and extended our credit facility. This amended agreement provides additional investment flexibility. I will discuss our backlog and outlook in more detail in a few minutes. But before I get into that, let me turn this call over to Bill to review the details of our financial performance. Bill?

Thanks, Brian. So please refer to Slide 2 through 6, as I provide some explanations and details of our results. Second quarter revenue was $535 million, an increase of $70 million or 15% compared to the second quarter of 2017. Most of this increase resulted from a high level of construction project activity this quarter. Gross profit was $111 million for the second quarter of 2018, an increase of $15 million or 16% compared to the second quarter of 2017. Gross profit as a percentage of revenue increased by 20 basis points from 20.6% in the second quarter of 2017 to 20.8% for the same quarter this year. SG&A expense was $71 million for the second quarter of 2017 compared to $67 million last year. The increase is due to the increase in revenue and increase compensation costs related to the earnings growth. SG&A as a percentage of revenue decreased from 14.3% in the second quarter 2017 to 13.3% for the second quarter of 2018. Pretax income was $43.3 million for the second quarter of 2018, an increase of $15.7 million or 57% compared to the second quarter last year. Income tax expense was $10.8 million with an effective tax rate of 24.9%, that compares to income tax expense of $9.7 million with an effective tax rate of 35.1% for the same period in last year in 2017. Net income for the second quarter was $32.5 million or $0.87 per share, compared to $18 million or $0.48 per share last year. Of the $0.87 of earnings per share that we’re reporting, $0.08 reflected gain from a legal settlement. The settlement was $4 million, and it related to claims for disruptions in our Gulf Coast operations in connection with the oil spill in 2010. Without that, we would have earned $0.79…

All right. Thank you, Bill. I’m going to spend a few minutes discussing our backlog and activity in various sectors and markets. These are covered in Slides 7 to 9. I will then comment on our prospects for the rest of this year. Our backlog increased significantly this quarter. Backlog at the end of the second quarter of 2018 was $1.23 billion, an increase of $149 million or 14% compared to the first quarter of 2018. Our year-over-year backlog comparison is even stronger. Compared to a year ago, our backlog has increased by $290 million, which is a 31% increase. The increase is distributed over most of our companies. We have good balance in various end-user sectors. Institutional markets, which include government, healthcare and education, made up 41% of our revenue for 2018. The commercial sector was 38% of our revenue and industrial represented the remanding 21%. Please turn to Slide 9 for our current revenue mix. For 2018, construction is 73% of our total revenue with 37% from construction projects for new buildings and 36% from construction projects in existing buildings. Our construction business is benefiting from good fundamentals and trends in nonresidential construction markets. We are booking good projects, including many for next year. Geographically, we experienced strong results in most of our markets with particular strength in Wisconsin, North Carolina and Virginia. We continue to make investments in our service business. Service is 27% of our revenue, with service project providing 9% of revenue and pure service including all the work providing 18% of revenue. Our service business is doing well and exceeded the second quarter of 2017 in both volume and profits. Finally, our outlook. Our backlog and pricing environment is strong. We believe that our prospects for revenue growth have improved, and we currently expect upper single-digit revenue growth during the second half of 2018. We are positioned to execute on these opportunities, and we intend to continue to invest and return capital to our shareholders. With our backlog at an all-time high and with good opportunities to invest, we are optimistic about our future. Thank you, once again, to our 9,200 employees for their hard work and dedication. I will now turn it back over to Darick for questions. Thank you.

[Operator Instructions] Our first question will come from the line of Tahira Afzal, KeyBank.

Hi, there folks and congratulations on a very strong quarter to yourself and your team.

Thank you, Tahira.

So I guess first question is, given the amount of trends you’re seeing in backlog Brian, given you said that the visibility in terms of duration within this backlog is pretty good. I mean, are we looking out a year and seeing potentially mid-single-digit organic growth is being possible?

Yes. Tahira, I think, we’re pretty confident as I said, the rest of the issue probably upper middle single-digit in next year. We have a – probably half of our backlog into 2019. So probably mid-single-digit in that range would be good for next year. So I think we’re both pretty confident in 2018 and 2019, Tahira.

Got it. Okay, Brian. And so, if I add on the small acquisitions you’re doing to that as well. It seems like – and then, if I was to assume that you can keep your gross margins even flat and really assume the operating leverages said in the past. Seems like you’re not too far from doing $3.50 even for next year.

This math I’ve never done.

Yes, Tahira.

I’m just doing the math in excel.

Yes.

So I’m just sitting out…

Tahira, having said all that, right now we’re just very fortunate the level of execution we’re getting from the field is really terrific.

Right.

We’re very confident in the people we have out there and the work they’re doing.

Okay. I mean, is there – I guess what could go wrong. Is it just execution at this point? Obviously, the macro cycle is another thing. But barring that, obviously just looking at execution? It seems you’ve been able to strip enough labor, so is that execution at this point?

Right. And really I would say, it’s execution mix, right. Right now, really we have uniform good execution across the United States. And environment for pricing that gives us a good opportunity to continue to that. We are bigger than we have been in the past, so there are jobs today, right, that are making any money for us. But we’re – it’s a portfolio of projects. And I think there is a risk – there is the execution risk, broad-based. If you had problems with that would be – probably because you’re overcommitted to your resources. And then there’s always the chance of a macro event, right? That’s – you can never know what the future holds.

And, Tahira, we’ve talked about this numerous times, but the level of training we did and continue to do during the recession is what’s paying off for us for now. So this was four, five years in the making, if you know what I mean.

Got it. Congrats and I got a couple of questions. But I’ll hop in the queue.

All right, thank you.

Your next question will be from the line of Joseph Mondello, Sidoti & Company.

Hi, good morning guys.

Good morning, Joe.

Good morning, Joe.

So based on the breakout that you gave on retrofit versus new construction versus service. It looks like in the second quarter here new construction as the percent of the total was probably the smallest in the years. But we know that in backlog, there’s a lot of new construction there. So just wondering your thoughts on, did that play a role in sort of may be the stronger-than-expected gross margins? And what your thoughts are for the back half of the year as we go through some of these new construction backlogs?

I would say, the mix – it’s really pretty similar to what has been between new and existing. We do have some new construction projects starting. But because we’re doing more industrial and stuff like that. A lot of times even big projects are additions to existing facilities. Industrial customers, they don’t break around in new facilities that often, they typically add to existing facilities. So I think that – it is that mix in a sense that’s true, because that type of work is very profitable for us. It’s hard with this kind of execution really has to be good everywhere.

And Joe, also, just want to point out. You can see it in the queue, but healthcare is over 20% of our backlog. It’s been a heck of a long time since healthcare has been over 20%. So we’ve seen a little bit more activity, a couple of new bills, add-on to existing buildings. And so it’s the first time I’ve seen that number in a while.

Okay. So I guess, the one thing I’m just wondering if we should be consider or not is that, you said that new construction with 39% of sales in the March quarter and then it was 37 year-over-year at this point. So that assumes at the second quarter with 35%, that’s a lowest that I’ve seen new construction as a percent of the total. And what you guys have always talked about is that new construction carries lower gross margin. I my analysis, it look like maybe that would have – should have maybe boosted gross margins on the second quarter and if there’s a lot of new construction in the backlog, and you guys have been sort of cautious on that candidly over the last quarter. How should we be thinking about gross margin going in to the year?

That’s an interesting thing you’re pointing out. First quarters are lumpy and hard for us, I think this 37% more representative. But I will say you make a good point. We will have expanding – new construction will expand faster over the next little while than the other parts. I think our opportunity for very good gross margins in that new construction is very good because of just demand. But I will also say, a lot of that work will be early in the project life. So one of the things that can create sort of some movement quarter-to-quarter, even if the underlying trend is very good, we’ll be – a lot of our work is young, there’s not a lot of close out in a particular quarter. That could certainly lower the margin for a quarter here and there. But that really shouldn’t obscure – whatever happens there, shouldn’t obscure that the underlying trend is good. We’re booking good work in good places and good prices.

And it’s worked out we liked and the pace is good.

Okay. Another thing that I was noticing was that the number of projects with the value over $1 million is up for 20% from a year ago. And your sub $1 million project is sort of fairly flattish. So I’m just wondering sort of what your thoughts are in that in terms of execution, larger projects, those that come with maybe potential execution risks? And can you talk about the gross margin and execution based on the larger projects that you’re – that you have undergone?

Yes, it’s a good question. Joe, Our average price is still in the $600,000 range, so jobs 1 million to 5 million is really in us as a sweet spot. I think during the recession, the work just got a little smaller, but you always going to have execution risk, I don’t know, how big it is. But I think we’re very well geared up to do work in that range. So that doesn’t really concern me very much.

Okay, and then last question related to gross margins as well that I wanted to ask was in the 10-Q you called out that – I don’t know if it was the biggest reason, or it made it seem like one of the larger reasons why gross margin was up for the year or for the quarter was because of improvement in your North Carolina operation. Could you talk about that? Was that a one-time type thing within the quarter? Was it because of a comparable related to the second quarter of last year? Just talk about that and how that was may be a factor?

So, I will give you – I will tell you the exact sort of what was going on there, but I will also say the way that the MD&A rules work, you have to get the reason for everything, so you’re always going to mention somebody, having said that North Carolina did have a pick up. They had – they came out of 2017 a year in which four or five of their largest customers who they’ve done on really hundreds of millions of dollars worth of work for over the last several years. It’s just so happened that none of them have projects last year. So they are just – so they had a good year last year, but obviously some of that work has picked up for them and so they are – if you are required by an accounting rules to look at the math and say okay where was biggest change. They were the biggest changes, but I also don’t want to – I don’t want to read too much into that because we would have put somebody there.

Okay, I see. Okay. All right, I have a couple other questions, but I will let somebody else to take the step. Thanks.

Thanks, Joe.

Thanks, Joe.

Your next question will be from the line of Bill Newby, D.A. Davidson.

Good morning guys and again congrats on the quarter.

Thank you, Bill.

Thank you, Bill.

I was hoping to just dig into that backlog a little bit more. I guess how far out are you guys booked into 2019 now and I mean is this the best visibility that you guys has ever had?

I terms of 2019 about half of the backlogs into – plus the service work we have that we do not put into backlog, but since I have been here in 2003, this is clearly the best visibility, Bill has been here longer than me that I’ve seen since I’ve been here. So what the baseline looks like for next year Bill for sure.

Yeah, I’ve never – we’ve never been in a July where we have this much work already on the schedule for the next year.

Okay. And I guess – I mean Brain you called out healthcare, are there any – are there end markets that are – that ticked up I guess in the last six months that are driving this?

I don’t – ticked up education has been strong. University level work continues to be strong. Industrial, we’ve had a really good steady state. We are adding on some more industrial folks who’re dealing, which is not in our numbers at all. And in office buildings, our backlog is a little bit higher than we have had recently. So I don’t think it’s any one thing. It’s pretty broad based both geographically and sector wise.

All right, and then just a quick modeling for Bill. With the closing of this bigger acquisition in July, how should we think about interest for the rest of the – for the second half of this year? I assume [indiscernible] there?

Yeah, that’s a really good question. So we have net borrowings today of $70 million or $80 million and we pay about 3% assuming we don’t do more deals. We don’t close anything that we’ll pay that debt down as the year progresses. And then there is also - our interest expense also includes – yeah, you have to add a little bit because we’re amortizing the fees that we did when we do our – there is a same as they have always been. So I guess let’s say the interest, last year we did the same thing. Last year in April, we have big borrowings for a big deal that we did. And I think you will see interest similar to last year, but at the little because by the end of the year, we had paid that down quite a bit. So I don’t mean to be – so I’d say, last year plus 25% would be a good place to start, last year meaning the second two quarters – the third and fourth quarters of last year.

Right, right.

And then obviously, there’s a chance interest, LIBOR creeps up a little and certainly has been creeping up a little.

Yes that’s helpful. And then I guess one more since you brought it up. You guys usually finish these big deals and maybe take a pause from the market. But I mean – are you guys exploring deals in the second half of this year?

It’s not like we ever take a pause in a sense that we – these deals have – long multiple years that typically we work on them before we do them. And they really – they’re ready when they’re ready. Normally, we do these days in the winter. And so it’s not a real common for us to be announcing something at this time of year. I think we got a good prospect later in the year. But I don’t – I wouldn’t rule out another deal of this year. But – I wouldn’t rule out another deal of this year. But it’s just a coin flip.

Alright. I appreciate it. I’ll get back in queue.

Thank you.

Next question will come from Adam Thalhimer, Thompson Davis.

Good morning guys.

Good morning Adam.

Hey Adam.

So I guess dealing will probably add a little bit to backlog. But what your thoughts on how backlog trends for the rest of the year from here?

I’ll answer that first, from the point of view of seasonality. I don’t expect backlog, you don’t really expect backlog to go up in the second or third quarter. So I won’t say that – we burned a lot of backlog in second quarter we’re going to burn every bit as much if not more in the third quarter. If we were flat, that would be bullish. So I know – but having said that our prospects are very good, we’re burning backlog in too. And so I think the next time you – the most likely, next time you’d see bidding, noticeable changes upward – would be winter because that’s when they always happen. This quarter is really an exception and I’m not sure that just means that exceptions always been the case, What do you think Brian?

If you look at a little bit out Adam, we feel good about the backlog just because our prospects and the activity level that we’re looking at are just very good. And we we’ll win our fair shares so. Like Bill said, probably late in the winter, a lot of people executing the work even general contractors that they have in place. You will see that in summer time but I think over the winter, they’ll be another good booking season.

Yes.

And then how – what is it, half – you would say half of your revenues is booked for 2019?

Half of our backlog.

Half of the construction we need, right. So revenue increased service rights with 13% service, and that doesn’t really concern me.

It really happens for us that we have that much work into 2019 now. That in July.

That’s in July.

That meets the definition of backlog.

Yes. Part of what’s happening is people are committing earlier, right. If you’re somebody who wants to have a building, you’re well aware of it, it’s not very possible next year not everybody who want to building gets one. You want to get people signed up and committed. So things book a little further in advance. That’s part is helping us.

On incremental interest, are you raising price?

We are making sure that we’re pricing our jobs for considerations of labor going up, for considerations of labor going up, for considerations of materials going up, right? And we’re also looking for contractual protection. If people want better pricing, the need to protect us contractually, in particular on materials. And we get protection frequently or we get authorization to pre-buy and to be paid for the pre-buy. But ultimately, we’re more busy. We demand a good margin for the work we’re going to do. If we can’t do work for everybody, if we commit our resources, we want to be paid for it.

As you know Adam, that’s part of it. But the pricing on winning it but how you execute it to me is where the rubber really meets the road. How well do you get that at job site and deliver on what we think we can do.

Okay. And then Joe did most of the hard work here but just one more on gross margin. If I’m hearing you correctly, that 20.8% you did in Q2, there may be some positive bias from here, there that should be negative bias from here, but that’s more or less kind of how you see it playing out going forward?

I think the 20% gross margins for the full year are remarkably very likely. Some of this newer construction work starts that have less overheads right? You get SG&A leverage, certainly possible that you get pulled down a little bit, you get averaged down a little. But services good, are absolute levels of service were up even though they came down as a percentage or service profit at the dollars, we got in profits from service were up a little. So that should maintain because it’s a hot summer out there. And quite frankly, we have good pricing in our work and our guys know how to do it. And really, the average job size, we’re not yet into multiyear jobs. So we should have a good mix.

Yes, even that 20% gross margin range, Adam, folks doing the work should feel proud of themselves.

Understood. Okay, thanks guys.

Thanks.

The next question will be from the line of Sophie Karp, Guggenheim Securities.

Hi, good morning, guys. Congrats on the quarter.

Good morning and thanks.

I want to chat a little bit on the labor situation and its something that came up quite a bit recently or I think with the economy getting stronger and your book growing. How will that manifest itself, will that result into pricing power for you guys, more so than you have now or would pressure your cost maybe if you could give us some puts and takes here.

Yes, I’d say something and then Brian can speak. The answer is both, right. The cost of labor is going up, we are happy to be able to pay a fair wage and we have seen – we have had the opportunity to pay some guys are really deserve it more, hope that last little while. I would also say, by definition what we are as labor, we really killed ourself during the recession to keep our arms around and be fair with and maintain and preserve the labor we had. All of our acquisitions that we’ve done were pointed at acquiring simple workforces that we are fantastic. And then really investing in productivity and then keeping those people. We really were doing it, because we knew sooner or later, the demand would be there for these people and its there. That’s why you are seeing the results that you are seeing and that’s why we think our prospects are good.

And also on labor gullibility, Sophie, it is one thing how much a person gets per hour. But people are putting a lot of weight on your benefit package. And we got a first-class benefit package for the folks. I’m really happy that we able to pay more, that’s fantastic. But also the benefits, the medical, the dental, 401(k) et cetera, is what we can provide them with a first-class benefit package, and I think that really helps us attract people.

Great. And about pricing power, how would that manifest itself?

I think that it manifesting itself now. The results that you are seeing and I think what we are saying is demand is good and buyers constrained. And we’re not going to book work we don’t think we have the resources to do. But we’re going to make sure we get the money into the work that we need to do it right and to be compensated for the risk that we take.

And our operating companies, for the most part, the number one and number two player in their markets. So they’ve got a really good feel about what the markets going to be of the pricing and in particular geographic area.

All right, so basically when there’s strong demand and there isn’t sufficient availability of competition that you basically just are able to push for higher price in the declines is that how it works for you?

We push as hard as we can.

All right, and then my other question was you mentioned in your press release that you are the mechanical contractor company. And I think – I know in the past, you mentioned that you may have some interest in electric as well. Is that something that’s still on the table and how do you see sort of the – your offerings evolving?

So we definitely – we spent years now getting to a lot of really greater electrical contractor, there’s a lot of really great wins out there. And I think that we do some electrical today. We think it’s a fantastic space and it’s definitely in our future. But I think anybody who’s – almost all of our stockholders are better on their stock for a long, long time. They know that we take our time and we get to know people over a long period of time and we buy when we have conviction. So there are some companies that we think are fantastic, we love to have them come in and be a part of convert. And if we can get to the right situation where its going to be good for them and its going to be good for us. I think you – I fully suspect you will see some of those transactions in the next six months to three years. But they are not going to happen until we get conviction and again find – we can make it work for them and us.

And also the Midwest contract that we just joined as Dilling has a pretty significant electrical component to their business. So we’re very comfortable right now with the electrical side of the business.

All right. Great. Thank you. Thank you for the comments. I’ll jump back into the queue.

Thank you.

Your next question will be from the line of Jared Goodman, Colorado PERA.

Good morning, guys.

Hey good morning, Jerry.

It was great to see healthcare tick up in mix. I was just curious to see how durable you think that trend is considering how weak it has been over the last couple of years?

Yes, I think – this is Brian. I think from the first time in a while, I think it’s got some legs to it, both in new build hospitals a little bit, adding onto one particular and then sort of end of life care. So I think you’ll see pretty good activity there for the next little bit. It’s not all demographics are driving more facilities. So I’m a little bit more confident than I’ve been in about eight to 10 years.

Excellent. Thanks. I was curious what you are seeing on the California?

California is stable for us. We have a really good service business in California. And we are trying to be very disciplined in California. And find the work that our guys do well and make sure that we had the contribution. I mean.

I think we got a nice steady state and I think we’ve got the right focus there on sort of service, small project type work. We do a fair bit of industrial work. So I think that team is well focused on the right things today.

Excellent. Thank you.

Thank you.

We have a follow-up question coming from the line of Tahira Afzal of KeyBanc.

Thank you. Brian and Bill, I guess the one question I had was you’ve obviously building up lots of cash which is a good thing. How do you think about the balance of the allocation between let’s say, buybacks I know you reach the dividend. But really looking at the buybacks versus acquisitions, as we go forward. I know you have an internal sort of threshold point for buybacks. Does that at least get inched up given the visibility and confidence you have?

We have a fantastic and supportive Board of Directors. One of the guys in our Board of Directors has a question he likes to ask us which is, if we start to get creative and think we’re going to have a good idea he says, Bill, Brian, what’s wrong with what with be doing? So I think that we decided in 2007 that our first use of capital was acquisitions. If we could find deals that we have conviction about. However, with no mean to do acquisition only and willingness to do acquisitions, we’ve used two-thirds or more of our cash flow over time doing acquisitions. But what’s left we divided it between dividends and buybacks. And I think you’re continue to see that. I think you’ll notice that we raised the dividend two quarters in a row, which we typically haven’t done in the past. I think what you’re seeing there is, we’ve been doing this dividend raise of the same size year after year. But we’ve been growing. So the amount we were raising the dividend was actually becoming smaller. So I think that there’s consideration right now to making sure that dividend at least has a little bit of size to use the amount of capital that we really have as a proportion wanted to dedicate to that. And then I think you will continue to us just use stock buybacks. I think that we’ll do that with the share of cash that we’ve been dedicating to that ever since 2007.

Got it. Okay. And I guess last question for me. You started to make some bigger forays on the industrial side of the equation. Our curiosity – I mean is it a strategy similar to what EMCOR has done? Or are you guys setting a different pathway for yourself?

I’m a big fan of industrial work. Company is an excellent piping company is joining us. But I think it’s like most of the stuff we look at, if it’s a good company and it’s a good opportunity and we’re comfortable with them and they are thinking that they are comfortable with us, we’ll go for them as opposed to maybe distinct strategy on the Gulf Coast or something like that Tahira. We’ll just looking for good company that do good work with good customers, good people.

One of the things that’s been happening for us is, as we – as our track record of bringing in old accomplished companies with very rare or advantages abilities to do things. With that track records been building up and it’s made us more attractive acquirer to bought a range of companies, including a lot of these industrial companies they look at sister companies or companies they know. We give them the phone number. When we do a deal, we give the person who selling us their company the phone number of everybody has ever done a deal with us, every company President. So they can do their due diligence on us. And I think part of the reason you’re seeing that is just because it’s available and they’re great companies.

Got it. Thank you, folks.

Thanks, Tahira.

You’re next question will be from the line of Joseph Mondello, Sidoti & Company.

Hi guys. Just a couple of follow-up questions. So I was wondering if you could breakout the contributed revenue relative to the acquisitions as well as the contributed backlog for the quarter?

Yes. So the notice of the somewhat larger deal still not material for accounting purposes, $70 million to $80 million deal in Indiana and Tennessee was closed on July 1st. So it had no effect. Its balance sheet is not in the numbers. Its backlog is not in the numbers. We’ve got no revenue from that. The other hand full of deals that we did, one closed in like February and then we had a closing like April and May. So because they annualize let’s say $40 million or $40 million plus, we got them was nothing in the first six months. We got maybe $2 million in the first quarter and $5 million or $6 million in the second quarter from those tuck-ins just because they weren’t that, proportionally they’re not that big in the first place and we only have them for a month or two here and there. So I would say, use $5 million for the second quarter and $2 million for the first quarter.

Okay. And then I suppose the backlog is probably negligible for the…

These were tuck-ins and they intend to have a lot of service.

Yes. I would have moved that number much, Joe.

Yes.

Okay. And then I wanted to ask is the new accounting rules for revenue recognition has that affected how you account for revenue at all?

That’s a very good question. There were no material changes as a result of the adoption of those standards. And the new standard for backlog just coincidentally, we had always used the standard, we always use for backlog was – as far as we can tell, identical to the new standard for remaining performance obligations. Not that there is – so just so happened that we didn’t have a change there, because we’ve been doing it that way.

Okay. And then lastly, the SG&A in the fourth quarter always sees a seasonal bump. But just given the very strong organic growth that you’re seeing this year? Do you anticipate to see a bigger bump in SG&A than usual just based on compensation?

We are praying for that bump.

We’re praying that.

That bump is a percentage of money that they make for us, right. We want to get – we want to pay as much that as we can. I would say that as a percentage of revenues, we were 14.3% in the first quarter, I think, and 13.3% in the second quarter. I think we’ll stay for – as I’d guess, I think we’ll stay 14% and below. But on a dollar basis, you are going to see some addition to the SG&A because obviously, this company we just bought in Indiana, they got guys who sent out bills and they got people who do work in the office. So there’s going to be some number of millions of SG&A just straight from that acquisition. And then I think we’ll continue to see strong compensation accruals if where as profitable as we hope to be. And we are – you do have to add people when you’re growing like this. There is some – there are project managers and other people who are being hired. But it will – we typically get leverage in a gross period like this. I think we’ll continue to get it. But may be SG&A goes up half the rate, the revenues go up.

But Joe, I think those are long enough. We will watch that overhead like a hock.

Right. Okay, awesome. Thanks, guys.

Thank you.

At this time, I’m showing no further questions in queue. I would like to turn the conference back over to Mr. Brian Lane for any closing remarks.

Okay. Thank you, Darick, and thank you, everyone for joining us on our call today. We’re obviously very pleased with the results this quarter, and I’m optimistic for the remainder of 2018. We all hope you have a safe and enjoyable summer and we look forward to seeing you on the road. Have a great weekend, and thank you very much.

Thanks.

Ladies and gentlemen, I conclude today’s conference. We thank you for your participation. You may now disconnect. Have a great weekend.