Comfort Systems USA Inc (FIX) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Comfort Systems USA Earnings Conference Call.

My name is Derek, and I'll be your operator for today. (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, Derek. Good morning. Welcome to Comfort Systems USA 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 commentary concerning our specific risk factors in our most recent file 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 are 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 flow was 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 am 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 are 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 increased 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%, and 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 20017 -- 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 reflects a gain from a legal settlement. The settlement was $4 million, and it related to claims for disruptions at our Gold Coast operations in connection with the oil spill in 2010. Without that, we would have earned $0.79 this quarter.

We had very strong free cash flow during the quarter, especially given the fact that we are in the second quarter and that we had to deploy working capital to defend our strong revenue growth. For the quarter, our free cash flow was $25.4 million, and that compares to $4.9 million a year ago. Our 6 months free cash flow is $24 million which compares to $10.1 million for the first 6 months of 2017.

We're continuing to deploy our discretionary cash flow to add value for our shareholders. Acquisitions are an important component of our strategy. And as Brian mentioned, we have acquired companies that were combined with existing operations during the first 6 months of this year.

We also teamed up with Dilling Mechanical, as Brian mentioned, a fantastic industrial company in the Midwest and that was right on the first day of the third quarter. These companies are expected to contribute annualized revenues of approximately $120 million and profitability levels that are generally comparable to our other companies.

In light of the required amortization and expense related to intangibles and other costs associated with the transactions, these acquisitions are expected to make a neutral to slightly accretive contribution to earnings per share during the first 12 to 18 months after acquisition.

During 2018, we have purchased 166,000 of our shares at an average price of $41.19. And since we began our stock repurchase program in 2007, we have bought back 7.8 million shares at an average price of $14.34.

As Brian noted, we just increased our quarterly dividend to $0.085, and this is the first time that we have increased our dividend in 2 consecutive quarters.

In April, we amended our credit facility to increase it from $325 million to $400 million, and the amended facility will not expire until April 2023.

Overall, we're happy with the results and optimistic about the remainder of the year. That's all I have on financials, Brian.

All right. Thank you, Bill. I am going to spend a few minutes discussing our backlog and activity in various sectors and markets.

These are covered in Slides 7 through 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, health care and education, made up 41% of our revenue for 2018. The commercial sector was 38% of our revenue and industrial represented the remaining 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 good -- we are booking good projects, including many for next year.

Geographically, we experienced strong results in most of our markets with particular strength with Wisconsin, North Carolina and Virginia.

We continue to make investments in our service business. Service is 27% of our revenue, with service projects providing 9% of revenue and pure service including hourly 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 Derek for questions. Thank you.

(Operator Instructions) Our first question will come from the line of Tahira Afzal from KeyBanc.

So I guess first question is, given the amount of trends you're seeing in backlog, Brian, and given you said that the visibility in terms of duration within the 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 this year will probably upper middle single-digit, then 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 you said in the past, it seems like you're not too far from doing $3.50 even for next year.

That's math I've never done.

Yes, thanks, Tahira.

I'm just doing the math in excel. That's what's it's spitting out. I'm just...

Yes, you're mathematically challenged. Tahira, having said all that, right now, we are just very fortunate, the level of execution we're getting from the field is really terrific. 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, are we just looking at execution? It seems you've been able to scrape enough labor, so it's just 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. We have an environment for pricing that gives us a good opportunity to continue to do that. We are bigger than we have been in the past. So there are jobs today, right, that aren't making any money for us. But we're -- it's a portfolio of projects. And I think there is the risk -- there is the execution risk broad-based. If you had problems with that it would be probably because you 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 now. So this is 4, 5 years in the making, if you know what I mean.

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

So based on the breakout that you gave on retrofit versus new construction, versus service. It's a look in the second quarter here new construction as a percent of the total was probably the smallest in 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, maybe 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 backlog?

I would say, the mix -- it's really pretty similar to what it 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 to -- with -- when -- with this kind of execution really has to be good everywhere.

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

Okay. So I guess the one thing that I'm just wondering if we should be concerned or not, is that you said that new construction was 39% of sales in the March quarter, and then it was 37% year-to-date at this point. So that assumes that the second quarter was 35%, that's the 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 margins. So in my analysis, it looks like maybe that would have -- should have maybe boosted gross margins in the second quarter. And if there is a lot of new construction the backlog, and you guys have been, sort of, cautious on that, candidly, over the last quarter or 2, what should -- how should we be thinking about gross margin going into the back half of the year?

That's an interesting thing you're pointing out. The first quarter is very lumpy and hard for us. I think this 37% is 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, will be -- if where -- if a lot of our work is young, there's not a lot of close outs 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've -- we're booking good work in good places at good prices.

And it's worked out. We like -- 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 projects 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 undergoing.

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

Okay. And then the last question related to gross margin 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 was -- or for the quarter was because of improvement at your North Carolina operation. Could you talk about that? Was that a onetime 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 maybe a factor?

Yes. I'll give you -- I'll 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 give a reason for everything. So you always going to mention somebody. Having said that, North Carolina did have a pickup. They had -- they came out of 2017, a year in which 4 or 5 of their largest customers who they've done really hundreds of millions of dollars’ worth of work for over the last several years. It just so happened that none of them had projects last year. So there it is. So they had a good year last year. But obviously, some of that work is picked up for them. And so they are -- if you're required by an accounting rule to look at the math and say okay, where is the biggest change? They were where the biggest change is. But I also don't want to read too much into that because we would've put somebody there.

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

I was hoping to just dig into that backlog a little bit more. I guess how far out are you guys booked into '19 now? And I mean is this the best visibility you guys have ever had?

In terms of 2019, about half the backlog is into the [air], plus the service work we got that we do [not] put into backlog. But since I've been here in 2003, this is clearly the best visibility -- Bill's 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.

Yes. No, I've never -- we've never been in a July where we had this much of work already on the schedule for the next year.

And I guess, Brian, you called out healthcare, are there any other end markets that picked up? I guess in the last 6 months that are driving this?

I don't -- pick up, education has been strong. University level work continues to be strong. Industrial, we've had a really good steady state. We're adding on some more industrial folks with Dilling, which is not in our numbers at all. And in office buildings, our backlog is a little bit higher than we've had recently. So I don't think it's any one thing. It's pretty broad-based and 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? And I assume, you're going to dig a little bit into your revolver there?

Yes. 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 a little more deals, we don't close anything, that will -- we'll pay that debt down as the year progresses. And then there's also -- our interest expense also includes -- yes, you have to add little bit because we're amortizing the fees that we did when we do our -- there's a same as they've always been. So I guess, I'd say that interest -- last year, we did the same time. Last year in April, we had big borrowings for big deals that we did. And I think you'll see interest similar to last year but up a little. So by the year -- 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 2 quarters, the third and fourth quarter of last year. And then obviously, there's a chance interest LIBOR creeps up a little and certainly has been creeping up a little.

Okay, yes. It's helpful. And then I guess one more since you brought it up. I mean you guys usually finish these big deals and then maybe take a pause from the market. But I mean are you guys still exploring deals in the second half of this year?

I wouldn't -- it's not that we ever take a pause in the sense that we -- you -- 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 deals in the winter. And so it's not real common for us to be announcing something in 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 this year. But it's a coin flip.

Your next question will come from the line of Adam Thalhimer, Thompson, Davis.

So I guess Dilling 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 didn't expect backlog. You don't really expect backlog to go up in the second or third quarter. So I would say that -- we burned a lot of backlog in the 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 don't -- but having said that, our prospects are very good, we're burning backlog too. So I think the next time you -- the most likely, next time you'd see big -- 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, that exceptions always be the case. What do you think Brian?

Yes. If you look at a little bit early, Adam, we feel good about the backlog just because our prospects and the activity levels that we're looking at are just very good. And will -- went up in share so. Like Bill said, and probably later in the winter a lot of people are executing the work even general contractors that they have in place. So you see that in summer time, but I think over the winter, they'll be another good booking season.

Yes.

And then how -- would have half of -- what is it, half of -- you would say half of your revenue is booked for '19?

Half of our backlog.

After the construction we need, right. So revenue include service, right. With 30% service, and that doesn't really...

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

That meets the definition of backlog. 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 that not -- it's very possible next year not everybody who wants a building gets one. You want to get people signed up and committed. So things book a little farther in advance. So that's part what's helping us.

So on incremental interest, are you raising price?

No. We are making sure that we're pricing our jobs 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, raw materials. And we get that 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. We can't -- if we can't do work for everybody, if we commit our resources, we want to be paid for it.

And Adam, as you know that's part of it. But pricing on winning it, but how you execute it, to me is where the rubber really meets the road. How well do you get to that 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's maybe some positive buys from here, there's some negative buys 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 has less overhead, right? You get SG&A leverage, certainly possible that you get pulled down a little, you get averaged down a little. But service is good. Our 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 we're 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 in -- yet into multiyear jobs. So we should have a good mix.

Yes. You're in that 20% gross margin range, Adam, folks doing the work should feel proud of themselves.

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

Wanted to chat a little bit on the labor situation and that's something that came up from quite a bit recently, right. And with the economy getting stronger and your book growing, how will that manifest itself out? Will that result into pricing power for you guys more so than you have now? Or will it pressure your cost? Maybe if you could give us some puts and takes here?

So -- yes, I'll say something and then Brian can speak. The answer is both, right. So the cost of labor is going up. We're happy to be able to pay a fair wage and we have seen -- we have had the opportunity to pay some guys who really deserve it more over the last little while. I would also say that by the definition, what we are is labor, we really killed ourselves 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 of simple workforces that we think are fantastic. And then really investing in productivity and in keeping those people. And we really were doing it because we knew, sooner or later, the demand would be there for these people. And it's there, and we're -- that's why you're seeing the results that you're seeing and that's why we think our prospects are good.

And also on labor availability, Sophie, because 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 the fields are getting paid more, that's fantastic. But also the benefits, medical, dental, 401k, et cetera, is what we can provide them with a first-class benefit package, and I think that really helps us attract people.

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

I think that it's manifesting itself now, right? The results that you're seeing. And I think as -- what we're saying is demand is good and buyer's 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 end of the work that we need to do it right and to be compensated for the risk that we face.

And our operating companies, for the most part, are the # 1 and #2 player in their markets. So they've got a really good feel about what the markets going to be of a pricing and their particular geographic area.

Right. So basically, when there's a strong demand and there isn't sufficient availability of competition really that you basically just are able to push for higher pricing with the clients. Is that how it works for you?

That's supply and demand.

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 in the past, you've 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've spent years now getting to know a lot of really great electrical contractors. There's a lot of really great ones 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 embedded by -- while almost all of our stockholders have been around 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'd love to have them come in and be a part of Comfort. And if we can get to the right situation where it's going to be good for them and it's going to be good for us, we'll -- you'll -- I think -- you'll -- I fully suspect you'll see some of those transactions in the next 6 months to 3 years. But they're not going to happen until we get conviction and we find -- we can make it work for them and us.

And also this mid -- the midwest contractor that we -- that just joined us, Dilling, has a pretty significant electrical component to their business. So we are very comfortable right now with the electrical side of business.

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

It was great to see healthcare tick up with 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 for 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 in particular. And then sort of end of lifecare. So I think you'll see pretty good activity there for the next little bit. If nothing else, demographics are driving more facilities. So I'm a little bit more confident than I've been in about 8 to 10 years.

Excellent. Just curious what you're seeing out of California?

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

Yes. I think we've got a nice steady state, 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.

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

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 to think about the balance of the allocation between, let's say, buybacks. I know you raised your dividend. But really looking at the buybacks versus acquisitions, as you 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 on our Board of Directors has a question he likes to ask us which is, we -- 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 we've been 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 need to do acquisitions, only out of willingness to do acquisitions. We've used 2/3 or more of our cash flow over time doing acquisitions. But what's left we divide up between dividends and buybacks. And I think you'll continue to see that. I think you noticed that we raised the dividend 2 quarters in a row, which we typically haven't done in the past. I think what you're seeing there is, we had been doing this dividend raise of the same size year after year. But we have been growing. And so the amount we were raising the dividend was actually becoming smaller. So I think that they're -- I think there's consideration probably 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'll continue to see us just do stock buyback. So I think that we'll do that with the share of cash that we've been dedicating to that ever since 2007. So...

Got it, okay. And I guess last question for me. You've started to make some bigger forays on the industrial side of the equation. Out of curiosity -- I mean is the strategy similar to what EMCOR has done? Or are you guys setting a different path for yourself?

I'm a big fan of industrial work. Company is an excellent piping company that's 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 that when they're thinking that they'll couple with us, we'll go for them as opposed to or maybe just think strategy on the Gulf Coast or something like that, Tahira. We're just looking for good companies 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 advantageous abilities to do things. With that track record's been building up, and it's made us some more attractive acquirer to a broader 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's selling us their company the phone number of everybody who's ever done a deal with us, every company president. So they can do their due diligence on that. And I think part of the reason you're seeing that is just because it's available and they're great companies.

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

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

Yes. So the notice -- the somewhat larger deal still not material for accounting purposes, $70 million to $80 million deal in Indiana and Genesee was closed on July 1. So it had no effect. Its balance sheet is not in the numbers, its backlog is not in the numbers we got no revenue from there. The other hand full of deals that we did, one closed in like February, and then we had a closing in like April and May. So because they annualize, let's say, $40 million or $40 million plus, we got almost nothing the first 6 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 had them for a month or 2 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 first and second quarters, is that right?

Yes.

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

Yes. Wouldn't move that number much, Joe.

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?

So that's a very good question, and there were no material changes as a result of the adoption of those standards. And with the new standard for backlog just coincidentally, we had always used -- the standard we'd always use for backlogs was -- as far as we can tell, identical to the new standard for remaining performance obligations. Not that there's -- so just so happened that we didn't have a change there because of 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 hope so.

We're praying for that bump.

We're praying for that.

That bump is a percentage of money that they make for us right. We want to get -- we want to pay as much of 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 that we'll stay for -- as I'd to guess, I think we'll stay 14% or below. But on a dollar basis, you're going to see some addition to that SG&A because obviously this company we just bought in Indiana, they got guys who send 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 and if we're as profitable as we hope to be. And we are -- you do have add people when you're growing like this. There is some -- there are project managers and other people who are being hired. But it -- well, we typically get leverage in a growth period like this, I think we'll continue to get it. But maybe SG&A goes up by half the rate the revenues go up.

But Joe, I think you know us long enough, we will watch that overhead like a hawk.

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, Derek, and thank you, everyone, for joining us on our call today. We are obviously very pleased with the results this quarter, and I am 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, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great weekend.