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Comfort Systems USA Inc (NYSE:FIX)
Q3 2019 Earnings Call
Oct 25, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome everyone to Q3 2019 Comfort Systems USA Earnings Conference Call hosted by Julie Shaeff, Chief Accounting Officer. During her presentation, your lines will remain on listen-only.

[Operator Instructions]

I would like to advise all parties that this conference call is being recorded for replay purposes. And now with that, I would like to hand the call over to Julie. Please go ahead, ma'am.

Julie Shaeff -- Senior Vice President & Chief Accounting Officer

Thanks, Chris. Good morning. Welcome to Comfort Systems USA's third 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 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.

Brian E. Lane -- Chief Executive Officer, President & Director

Okay. Thanks, Julie. Good morning everyone and welcome to our third quarter earnings call. Let me start by thanking all the Comfort Systems USA employees for their continued hard work and extraordinary execution. I'll start with an overview of our performance and Bill will cover the financial results in more detail. We earned $0.98 per share this quarter, compared to $1.02 per share the same quarter last year. This was a very good quarter with strong operating results and exceptional cash performance. Free cash flow this quarter was $67 million compared to $23 million in the prior year. Year-to-date, our free cash flow is a very strong $79 million. We also paid down more than $50 million of debt in the third quarter.

Our backlog has grown to $1.6 billion, and it has increased by 6% on a same-store basis since September 30, 2018. We also had a significant increase in backlog compared to last quarter, which is especially encouraging after busy third quarter. We continue to be pleased with the addition of Walker Engineering, which we acquired at the beginning of the second quarter of this year. Walker contributed approximately $0.06 of earnings per share after amortization and purchase adjustments, which is more than we expected so soon after their acquisition.

I will discuss our outlook in more detail in a few minutes, but first let me turn this call over to Bill to review the details of our financial performance. Bill?

William George -- Executive Vice President & Chief Financial Officer

Thanks, Brian. Please refer to slides 2 through 6 as I provide some explanations and details of our financial results. Third quarter revenue was $707 million, an increase of $112 million or 19% compared to the third quarter of 2018. This increase was due to the acquisition of Walker Engineering. Revenue increased slightly on a same-store basis for the third quarter, and same-store revenue was up 3% for the first nine months. Gross profit was $143 million for the third quarter of 2019, an increase of $15 million or 12% compared to the third quarter of 2018. Gross profit as a percentage of revenue was 20.2% in the third quarter of 2019, compared to 21.5% for the third quarter of 2018.

I want to take a minute and talk about how Walker affects our results. Walker was a strong contributor to our earnings and cash flow again this quarter. Of the $15 million increase in gross profit that we reported in this quarter, $13 million was earned at Walker Engineering. Having said that, like our other subsidiaries that have the capability to perform large and complex projects that have significant material and equipment pass through [Phonetic], Walker will tend toward lower average gross margin. Without Walker, we would have had lower net income and much lower EBITDA and cash flow. However, our gross profit margin would have been 21.8%. So the addition of Walker impacted our gross margins by 1.6%, arising from a combination of the lower gross margins in their business mix and certain purchase adjustment that impact our gross margin.

SG&A expense was $90 million for the third quarter of 2019, compared to $75 million for the third quarter of 2018. The increase was due to acquisitions, including additional amortization expense and also reflects investments in people, due to the growth we have experienced in recent year. SG&A as a percentage of revenue for the third quarter of 2019 was 12.7%, which is the same as the third quarter last year. Income tax expense was $12 million with an effective tax rate of 25.6% as compared to $14 million with an effective tax rate of 26.1% for the third quarter of 2018.

Net income for the third quarter of 2019 was $36 million or $0.98 per share, which is slightly lower than the same quarter last year, when we earned $39 million or $1.02 per share. As a reminder, the $1.02 per share that we had last year was the first time in our history that we exceeded $1.00 per share in a quarter. So although down from last year, the $0.98 we reported this quarter is historically very strong.

We had a great free cash flow quarter this quarter. Our quarterly free cash flow was $67 million, a large increase from $23 million a year ago. Our nine-month free cash flow was $79 million, which compares to $47 million for the first nine months of 2018. We feel good about our cash flow prospects for the fourth quarter and our working capital trends provide a solid foundation to continue generating additional free cash flow. As Brian mentioned, we closed the Walker Engineering acquisition at the beginning of April. And as I said, while we expected that Walker would contribute to our EBITDA and cash flow this year, we expected they would be neutral the EPS. As we said, they did better than expected and even after amortization and adjustments, Walker contributed $0.06 of earnings per share this quarter.

In addition to paying down debt in the quarter, we were quite active this quarter in purchasing shares. During the third quarter, we purchased 184,000 of our shares at an average price of $40.35. So, year-to-date we purchased 345,000 shares. And since we began our stock repurchase program in 2007, we bought back 8.5 million shares at an average price of $17.38.

That's all I have on financials, Brian.

Brian E. Lane -- Chief Executive Officer, President & Director

Okay. Thanks, Bill. I am going to spend a few minutes discussing our backlog and activity in various markets and sectors. These are covered in slides [Phonetic] 7 through 9. I will also comment on our prospects for the rest of this year.

Backlog at the end of the third quarter of 2019 was $1.61 billion, an increase of $113 million, compared to the second quarter of 2019. A little more than half of the sequential backlog growth was a result of a sequential increase at Walker, where we had especially strong bookings. Our year-over-year same-store backlog also reflected very strong bookings as same store backlog compared to a year ago increased by $75 million or 6%. In addition to strong backlog improvement, we have remarkable balance across our various end-use sectors. Institutional markets, which include government, healthcare and education, made up 38% of our revenue for 2019. The commercial sector was 31% of our revenue. And industrial is the remaining 31%.

Please turn to slide 9 for our current revenue mix. For 2019, construction is 76% of our total revenue, with 44% from construction projects for new buildings and 32% from construction projects in existing buildings. We are being helped by good fundamentals and trends in non-residential construction. And we continue to book good projects including many for next year. Geographically, we experienced strong results in most of our markets with particular strength in North Carolina, Florida, Texas and Wisconsin. We continue to make investments in our service business. For the first nine months of 2019, service is 24% of our revenue with service projects providing 9% of revenue and pure service including hourly work providing 15% of revenue. Our service business is doing very well. And on absolute and same-store basis, third quarter 2019 service results were higher than the third quarter of of 2018 in both volume and in profitability.

Finally, our outlook. Our backlog is strong and our ongoing prospects remain very supportive. We expect low-to-mid single digit revenue growth on a same-store basis in the fourth quarter of 2019 in the first half of 2020. We see good trends in our business. Our pricing environment continues to be good, and we are optimistic that revenue and net earnings for the fourth quarter of 2019 and during 2020 will continue at the strong levels that we have experienced since the start of 2018. Over the past few weeks, I've spoken to many of our leaders across our markets.

They continue to express enthusiasm about their construction pipelines, as well as service in small project demand. Overall, our sense is that our markets remain very supportive and we believe that our fantastic teams are well positioned we continue to capitalize on these opportunities.

Thank you once again to our 11,900 employees for your hard work and dedication. I'll now turn it back over to Chris for questions. Thank you.

Questions and Answers:

Operator

Everyone, your question-and-answer session will now begin.

[Operator Instructions]

And our first question is from the line of Adam Thalhimer from Thompson Davis. Please go ahead, your line is open.

Adam Thalhimer -- Thompson Davis -- Analyst

Hey, good morning, guys, congrats.

Brian E. Lane -- Chief Executive Officer, President & Director

Hey, thanks, Adam. Good morning.

Adam Thalhimer -- Thompson Davis -- Analyst

Hey, I wanted to zero-in first on Q4 specifically. After a couple of quarters of down EPS, do you see growth year-over-year in Q4?

William George -- Executive Vice President & Chief Financial Officer

On the EPS line?

Adam Thalhimer -- Thompson Davis -- Analyst

Yes.

William George -- Executive Vice President & Chief Financial Officer

I think that's probably more likely than not, but it would be very similar. I mean, we're just -- we're earning at high levels.

Brian E. Lane -- Chief Executive Officer, President & Director

Adam, we are confident. I think we'll be on the putting green about now, you think it's going to be. So, we're optimistic though.

Adam Thalhimer -- Thompson Davis -- Analyst

Okay. Any -- great cash flow in the quarter and you've done a great job of paying down the debt quickly from Walker. I'm just curious what's the M&A outlook from here?

William George -- Executive Vice President & Chief Financial Officer

So we are very actively developing as we always do. I would say we -- to do a big deal would require a lot of conviction right now. To be honest, we probably have a bias toward some debt repayment but there are people we're talking to that we would love to own. And if they wanted to talk, we would definitely get serious. I think there is a prospect for M&A, not at the largest sizes that we've done recently. So I think we're just probably requiring a high degree of conviction, given that we just did a very large deal and we're busy getting to know those guys.

Adam Thalhimer -- Thompson Davis -- Analyst

Okay. And lastly Bill, what -- I'm curious on Walker gross margin. Do you any idea what that would be without the purchase accounting adjustments?

William George -- Executive Vice President & Chief Financial Officer

There -- I know off the top of my head, they were -- they had 1.6% effect on our gross margins. This quarter, only 0.2% of that came for purchase adjustments. Purchase adjustments were pretty quiet. As far as their stand-alone gross margin, you can get pretty close to that in the segment, although that does include some other electrical. But we don't disclose individual company gross margin separately.

Brian E. Lane -- Chief Executive Officer, President & Director

Yeah, and Adam, I just want to jump on that question for a minute. Right. We look at companies, we're worried about earnings, cash flow and how good they are at their work. They're a big construction company, gross margins are going to be lower, but their overhead is lower. So they'll continue to really contribute EBITDA, earnings EPS over a long time. So I feel really good about this company.

Adam Thalhimer -- Thompson Davis -- Analyst

And I guess I could ask the question differently. The question really is, once you anniversary some of this early accounting stuff, where do you think electrical margin shake out, is a better question.

William George -- Executive Vice President & Chief Financial Officer

I think the -- it's really not a question of anniversary. It's a question of amortization. And we actually included -- I think it's on page 17 in the 10-Q, we included a table of all of our future amortization, how it will go down. So unless we do another acquisition or we write something off, which that's not a prospect right now if we wrote something off early, you can look up and sort of see how that amortization comes down and that's a mathematical contribution compared to whatever else would have happened. As far as -- I don't know, their margins are similar to our other big project companies. It's not -- they have -- there's a lot of material and equipment that passes through those jobs. What they're trying to do is maximize their gross profit per man hour like all of our guys do, but because their business mix is making buildings -- giant buildings appear out of empty pieces of land, they do sell a lot of material.

Brian E. Lane -- Chief Executive Officer, President & Director

Their margins are fine for the work they do.

Adam Thalhimer -- Thompson Davis -- Analyst

Got it. Okay, good enough. Thanks guys. I'll turn it over.

Operator

The next question is coming from the line of Sean Eastman from KeyBanc Capital Markets. Please go ahead, your line is open.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Hi, gentlemen. Thanks for taking my questions.

Brian E. Lane -- Chief Executive Officer, President & Director

Hey, Sean.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Nice job this quarter. First question from me is, you guys had a pretty clear expectation for the second half year on the second quarter call. And it sounds like Walker is the primary contributor to the better-than-expected result here in the third quarter. I guess what I'm wondering is, after seeing their performance this quarter, does that kind of suggest that the neutral EPS contribution you guys had highlighted in expectations for next year is perhaps conservative or was this just kind of a lumpy outsized quarter?

William George -- Executive Vice President & Chief Financial Officer

So, my answer to that is I hope so, but I would not change the guidance on that right now. Year-to-date they have given -- so through the six months, they've given us $0.04. They were minus $0.02 [Phonetic] just because the purchase adjustment for sure in the second quarter. So you know this is a big company. So they do have the opportunity to make a big contribution if once they cover those note -- that note that you can look, I just talked about this in the footnotes. Once they cover that in the purchase adjustments, if they do well, their numbers are just bigger so they have a bigger opportunity to make a difference. So we feel -- I'm optimistic we'll get some sort of a contribution, but honestly we didn't buy them for the immediate effect, right? We bought them -- if we only buy companies that had as high a gross margin as we have, we wouldn't have much opportunity for the improvement we've been able to get over the last many years as well. So, right.

Brian E. Lane -- Chief Executive Officer, President & Director

And Sean, just to add on to that, our traditional mechanical business performed extremely well in the third quarter.

William George -- Executive Vice President & Chief Financial Officer

[Indecipherable] By the way, just to give you -- just to -- so if you look at what we sort of told people they could expect in the third quarter, it would have triangulated to mid-80s, high 80s, right, and we're at $0.98. So $0.06 of that is from Walker. Of that I guess beat, if you want beat of lower expectations if you want to call it, about half of it came from Walker and about half of it came from our businesses we own doing better than our thorough scrub down, they did better than we thought they would.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

That's helpful. Yeah, so just kind of a combination of the two. And then when we think about the top line trajectory for next year, it seems like I guess after the the stronger bookings this quarter, a bit better visibility through the first half of next year, seeing growth. I just wondering kind of overall for next year. Is there maybe one or two sub-end markets that are really critical growth drivers, like maybe data centers or healthcare that are really core to that growth or a big swing factor to that growth next year, or is it just kind of broad-based as well?

Brian E. Lane -- Chief Executive Officer, President & Director

I mean, this -- it's Brian, Sean. I think it's broad based you saw by our revenue, right. We're basically a third of that, in the sectors that we look at which first time since I've been here, we've been net balanced. I mean if we're looking at what we're looking at today, industrial is still very good, data centers still very strong, education is maintaining strength at the university level, and we are seeing an improvement in healthcare, few more new build hospitals, particularly in Arizona, Florida in particular. So I think if we're looking for drivers, those would be the three that I expect to be good in 2020. But it's pretty -- it's still is pretty broad based, we're still seeing a lot of stuff at all the sectors, but those are the three that have probably the most activity.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Got it. And I think one of the real surprises for me this quarter was to see that backlog tick up sequentially despite the big revenue number. I just wonder about the backlog trajectory here from a capacity perspective. Like how full are you guys? Can the backlog still go up at this point? I don't know, maybe you can help me understand that.

Brian E. Lane -- Chief Executive Officer, President & Director

The backlog number in isolation is just a number, it's all timing right. Right now, if you look at the curves, you look at over time, we have good balance good distribution, we are very sensitive to the workload versus the capacity that we have, timing of work that would take. So right now we're in very good shape in terms of that, we still have some room. But if you look at the spread, we even got some work into 2020. So far this is a purely operational standpoint, looking at the backlog. The timing is good and the balance is very good.

William George -- Executive Vice President & Chief Financial Officer

Right. One of the important things to always remember about our backlog is that it is lumpy. So we have a couple of quarters where we have big bookings, then that's natural but that's a headwind in the next couple of quarters because you -- especially we booked -- for example, more than half of our same-store sequential increase in backlog came from Walker. They booked a very large project. Well, they're going to -- even if they continue to book those large projects, they are going to book one every two or three or four quarters, not every quarter. So just keep in mind that it's lumpy. The trends are really good. You can't get too focused on a single quarter's backlog number for us. And I think especially over the next few quarters, I think we have room to have very good news and it not look big in the backlog, just because we'll work down some of those big projects before we take a new one.

Brian E. Lane -- Chief Executive Officer, President & Director

Sean, what gives these optimism is how many opportunities we're still seeing that's good work. Right? Then that's -- and seeing it in the third quarter when usually we go down is, it's really a good sign for how the economy is doing in the United States.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Yeah, that's -- I agree. And last one for me, maybe more for Bill, on this one. Just given some of the moving parts with the Walker amortization and all, I'm just curious how free cash flow should look next year relative to net income.

William George -- Executive Vice President & Chief Financial Officer

So going into -- first let me talk about the fourth quarter. Last year, we had $75 million of free cash flow in the fourth quarter, coming off of a third quarter with $23 million. This year we're coming off of a third quarter with $67 million. Very, very hard for us in the fourth quarter to match last year's free cash flow, which of course was an all-time crazy quarter. We do however -- we still have since the beginning of the year a net investment and working capital same-store of over $30 million. So we think we're well positioned to have very, very good cash flow in the fourth quarter. And I don't know why we wouldn't just cash flow our earnings next year. I don't, I can't -- we expect to actually mid -- low-to-mid single digit revenue growth, so there shouldn't be a big sort of permanent move into working capital. So I think that you'll see our normal pattern of early in the year, we won't have much free cash flow, but for the full year next year, I think we'll have great free cash flow.

Sean Eastman -- KeyBanc Capital Markets -- Analyst

Excellent, excellent. All good news. Thanks for the help.

Brian E. Lane -- Chief Executive Officer, President & Director

All right, Sean, take care.

Operator

And the next question is coming from Bill Newby from D.A. Davidson. Please go ahead, your line is open now.

William Newby -- D.A. Davidson & Co. -- Analyst

Thank you. Good morning. Nice quarter guys.

Brian E. Lane -- Chief Executive Officer, President & Director

Hey, thanks, Bill. Good morning.

William Newby -- D.A. Davidson & Co. -- Analyst

Just one more on Walker, because we haven't talked about it enough. The seasonality in that business, I guess I'm a little bit surprised just to see the sequential acceleration on the revenue line from Q2 to Q3. Is that -- it grew I guess 20%-ish sequential, and I'm wondering if that's typical or was Q2 a little depressed, because that was really close --?

William George -- Executive Vice President & Chief Financial Officer

If Q2 was a strong revenue quarter for them, 3Q was an even stronger revenue quarter for them. They got started on a big new booking, $100 million plus booking, and they've revenue -- they got a lot of revenue there because of some early equipment deliveries. We actually -- if you remember our -- I think that they had over -- solidly over $100 million of revenue in the third quarter. But if you recall, in our press release, we signaled to our investors that this was a company that was going to give us $325 million to $375 million a year of revenue, sort of as the years passed. We stand by that. We think one of the things -- over time, we think there is an opportunity at Walker to do just a little less work and be a little more demanding on pricing, especially in a couple of their markets.

So we are not pushing for growth are expecting growth. We think ultimately, the best path for that business and its people is to make sure they get paid for every hard thing they do. And I would say if anything I would expect their sort of annualized revenue contribution next year to be lower than this year. And I would expect that to be good news.

William Newby -- D.A. Davidson & Co. -- Analyst

Okay. But as I think about the seasonality next year, though I shouldn't -- the Q2 to Q3 seasonality should be relatively similar to the core business. Correct?

William George -- Executive Vice President & Chief Financial Officer

Yeah, I don't have a reason to predict -- they are in Texas. There is not as heavy a winter in Texas. So I would say they're probably a little flatter over the full year, but for whatever reason, all of our businesses, even in Florida have some of that seasonality where people get very busy in the summer, they close things out and then there is always a slow first quarter.

Brian E. Lane -- Chief Executive Officer, President & Director

But we're also seeing, Bill, just from an activity level, Dallas and San Antonio, in particular and Austin, just very busy. So they'll be very busy through this winter.

William Newby -- D.A. Davidson & Co. -- Analyst

Okay. That clears it up. Thanks. And then I guess just -- and I think you guys get this question every quarter, but from a labor standpoint, I mean obviously you are expecting organic growth to pick up again. Where do you stand from a labor standpoint and is that -- are you still being forced to turn away work because of that?

William George -- Executive Vice President & Chief Financial Officer

Yeah, the labor thing is a labor thing. That's a long-term issue. I think we're doing a really good job utilizing technology where it's applicable. We talked about prefab here for years, which is a big help. Using technology to help either the construction guys, the service person become more efficient productive yet being safe and doing quality work, that's helping us. So I think we have been able to do more work with less people. So we will continue to work on that and we'll continue to look for good people to join us. We are a good place to work. So I'm very confident that we'll be able to find good people.

William Newby -- D.A. Davidson & Co. -- Analyst

All right. That does it from me. Thanks guys, I appreciate it.

William George -- Executive Vice President & Chief Financial Officer

All right, Bill. Thanks.

Brian E. Lane -- Chief Executive Officer, President & Director

Thanks, take care.

Operator

And the last question is coming from the line of Joe Mondillo from Sidoti & Company. Please go ahead, your line is open now.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Hi guys, good morning.

Brian E. Lane -- Chief Executive Officer, President & Director

Hey, good morning, Joe.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

I also wanted to ask a question on Walker as well. The gross margins, I guess at least of the acquisition related, I think there is some acquisitions outside of Walker, but in terms of the acquisition data, the ex the same-store sales data, it looks like gross margins expanded by over 300 basis points from the second quarter to the third quarter. And I think some amortization fell off from 2Q to 3Q, but even accounting for that, it looks like gross margins expanded sequentially by over 200 basis points. So I'm just wondering what sort of drove that. I assume that it's at Walker, but just trying to understand.

Brian E. Lane -- Chief Executive Officer, President & Director

Yeah. So, gross margin, not counting Walker, year-over-year 3Q to 3Q, which I know is not what you're talking about, was up 0.3%. The sequential expansion in gross margin was just our typical third quarter seasonality. We always have a stronger third quarter. Typically the third quarter is always our strongest quarter virtually -- really always from a revenue standpoint, and almost always from a margin standpoint, although sometimes, and it really every now and then the fourth quarter will have higher margins than the third quarter. So I think that's just seasonality, the increase in gross margin sequentially.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay. So at Walker, would there be -- from 3Q to 4Q, would there be a step down at all, would you anticipate, the gross margins at Walker?

Brian E. Lane -- Chief Executive Officer, President & Director

That -- for any one company, that's extremely hard to predict, but over a period of years, I would expect that Walker has lower gross margins in their third quarters than they have in their fourth quarters. And for this year, if you make a guess, it's just as for any of our companies, it's more likely than not. I don't think it's a huge difference. Like I said, our fourth quarter can sometimes rival our third quarter.

William George -- Executive Vice President & Chief Financial Officer

But it's not going to be from a performance issue, that the work they do is very good so.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Right. Okay. And then so in terms of 4Q gross margin, how do you think about the year-over-year comparison considering that there will be some amortization that would be a headwind in the fourth quarter, how do you think about that 4Q gross margin comp?

William George -- Executive Vice President & Chief Financial Officer

So on a same-store basis, I think we -- right now I'd say we have a good opportunity to match last year's fourth quarter. And frankly, it's not as tough a comparable as the second and third quarter were. Of course Walker is going to continue to average us down on a sort of full company as-reported basis, probably in -- to a degree similar to the third quarter, but it gets very lumpy, right, when you're trying to pick one quarter and take the effect of one company, even a big one, but I would say the general trend is what I've just said.

Brian E. Lane -- Chief Executive Officer, President & Director

And also, Joe, if you look at our total numbers, service is a smaller percentage, but it's the bigger absolute number in terms of revenue and profitability. So that helps our gross margin too so. I'm not -- we have no projects were worried about out there. We should flow [Phonetic] well in the fourth quarter.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay. And then I wanted to ask about SG&A. So your same-store revenue was sort of flat in the quarter, yet your same-store SG&A was up over 7%. In the Q, you cited investment in new personnel and I think professional fees, which were largely related to a tax investment. So when did you see the hiring of the new personnel? Was it sort of at the end of 2Q, so you saw a big increase in SG&A in the 3Q? And then also in terms of the tax investment of $900,000, does that -- was that just a one-time thing in the third quarter?

William George -- Executive Vice President & Chief Financial Officer

So let me take each of those individually. And really, I'm going to add as -- the something as well that's important.

As far as the tax thing goes, we are -- we made some investment with professional firms to be in a position to claim, and we have claimed on our tax returns, some credits that were entitled to. Those did not benefit us in the large part yet because we'll have to go through an audit. They're impaired in our -- we didn't take the benefit, but we did bear the expense. The other reason that SG&A, if you only knew our top line numbers, you would not expect SG&A to be up as much as it was. We did invest -- we did hire people because we're bigger, we have more people, but I would say another factor when we really dug into it was we pay our most important bonuses by far the largest dollars that are paid at Comfort Systems USA are paid to the human beings who run our 40 or so subsidiaries. And in general, for virtually all of them, half their bonus is based on cash flow. So whereas last year, we had a huge amount of our cash flow in the fourth quarter. So, we accrued the bonuses for that in the fourth quarter. We had a pretty big, bigger than that tax expense by double, a pretty big accrual for cash flow bonuses, because we had a ton of cash flow. So we're happy about it. Also that -- you know that we only get that cash flow once, but the bonus for cash flow matches the quarter when the cash flow comes, but sometimes cash flow like in this case is bigger in a quarter than the proportional earnings were. So a good chunk of that is also accrual for cash flow bonuses based on the extraordinary cash flow.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay.

William George -- Executive Vice President & Chief Financial Officer

Literally getting a share of cash flows [Indecipherable].

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

All right. And then, I just wanted to ask about the same-store bookings that you've seen this year. It seems like sort of if you backed out the acquisition, it seems same-store bookings have been sort of flattish. And I'm curious if you're getting positive benefits on price, has the same-store sort of volume of project spend sort of tailing down? Have we seen sort of peak volumes at the same-store basis?

Brian E. Lane -- Chief Executive Officer, President & Director

Well, bookings are up about 3% from the end of the year. You could also remember, nothing in service in small project goes into backlog. Also we do a lot of work during a quarter that never makes it into backlog. You start it on a Monday, and you're done in a week or two. So there is a fair bit of work that we get within the quarter, particularly in the second or third quarter that doesn't make it to backlog, so. I'm not worried at all about same-store revenue or backlog, today.

William George -- Executive Vice President & Chief Financial Officer

People are turning away.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay.

Brian E. Lane -- Chief Executive Officer, President & Director

We're turning away work, so.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay. And then I guess just lastly I wanted to sort of ask you guys about sort of the macro data that we're seeing. And considering -- and you can confirm this, considering that I think most of your business is at the tail end of construction projects, considering that and then what you're hearing in terms of macro data, is there anything in the macro data of any of these sources that you're reading or whatnot that gives you any caution in any of your end markets at all?

William George -- Executive Vice President & Chief Financial Officer

The narrative on TV, are going to talk people into something. It's not my biggest concern, but as far as in our business and also not just in our business, which as you point out is late cycle, in our conversations with customers and with our business development people, there may be a recession out there. It is not yet event-based. It's still -- sooner or later, there's going to be a recession, but right now, it's just not showing up in anything we're seeing. Just like for years, people kept asking us during the financial crisis, isn't it getting better. And we'd say, we hope so. Right now, I can say, we hope not, but we're definitely not seeing it.

Brian E. Lane -- Chief Executive Officer, President & Director

No.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay. Yeah, I'm not even really -- not even really referring to recession at all, but just specifically non-res construction. You see the Dodge construction starts have been negative. The Architecture Billings Index is indicating contraction. And I'm just wondering if any of that specific non-res data, not just general economic recession talk or what not, that specific non-res, if you seen or heard any of indications of slowing or anything like that?

Brian E. Lane -- Chief Executive Officer, President & Director

We have not. But you also [Indecipherable] New York, San Francisco, some of these big Northern cities, the markets that we're in, as Bill mentioned many times, sort of second tier smaller cities, the activity is still very good and we're seeing no signs of the data produced by economies affecting us.

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

Okay, great. Well, thanks for taking my questions. Have a great day.

Brian E. Lane -- Chief Executive Officer, President & Director

All right, Joe. You too. Take care. See you.

Operator

No incoming questions.

Brian E. Lane -- Chief Executive Officer, President & Director

So we all said OK. Chris, I'll wrap it up. I would like to thank everyone for joining the call today. We are very pleased with our results for the quarter and we are optimistic. We will finish the year strong with good momentum going into 2020. I'm sure we're going to see many of you on the road here in the near future, and I hope everyone has a very happy upcoming holiday season. Thank you and have a great weekend.

William George -- Executive Vice President & Chief Financial Officer

Thanks, everyone.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Julie Shaeff -- Senior Vice President & Chief Accounting Officer

Brian E. Lane -- Chief Executive Officer, President & Director

William George -- Executive Vice President & Chief Financial Officer

Adam Thalhimer -- Thompson Davis -- Analyst

Sean Eastman -- KeyBanc Capital Markets -- Analyst

William Newby -- D.A. Davidson & Co. -- Analyst

Joseph L. Mondillo -- Sidoti & Company, LLC -- Analyst

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