Earnings call transcript: Comfort Systems’ Q2 2025 earnings beat projections

Looking ahead, Comfort Systems anticipates mid-teen same-store revenue growth for the full year 2025. The company remains optimistic about opportunities in the technology and data center sectors, with potential expansions into the semiconductor and pharmaceutical markets. The guidance for the upcoming quarters suggests continued growth, with EPS forecasts for FY2025 and FY2026 set at $20.16 and $21.48, respectively. The company’s strong financial position is further supported by its impressive revenue growth of 26.33% and a robust Altman Z-Score of 8.46, as reported by InvestingPro. With 20 additional ProTips available on InvestingPro, investors can gain comprehensive insights into Comfort Systems’ financial health and growth prospects. The company’s strong financial position is further supported by its impressive revenue growth of 26.33% and a robust Altman Z-Score of 8.46, as reported by InvestingPro. With 20 additional ProTips available on InvestingPro, investors can gain comprehensive insights into Comfort Systems’ financial health and growth prospects.

Key Takeaways

• Comfort Systems achieved record quarterly revenue, exceeding $2 billion for the first time.
• EPS of $6.53 represented a 75% increase from the previous year.
• The company’s stock price jumped over 22% in aftermarket trading.
• The technology sector contributed significantly to revenue growth.
• Comfort Systems maintains a strong backlog, indicating continued demand.

Company Performance

Comfort Systems USA demonstrated strong performance in Q2 2025, with revenue increasing by 20% year-over-year to $2.2 billion. The company’s net income rose to $231 million, a 75% increase from the previous year. This growth is attributed to a robust demand in the technology, healthcare, and industrial sectors, where the company has a significant presence.

Financial Highlights

• Revenue: $2.2 billion, up 20% year-over-year
• Earnings per share: $6.53, a 75% increase from last year
• Gross profit: $510 million, with a gross profit margin of 23.5%
• EBITDA: $334 million, a 50% increase year-over-year

Earnings vs. Forecast

Comfort Systems’ Q2 2025 EPS of $6.53 significantly exceeded the forecasted $4.84, resulting in a 34.92% earnings surprise. Revenue also surpassed expectations, coming in at $2.17 billion compared to the $1.97 billion forecast, representing a 10.15% revenue surprise. These results mark a strong upward trend compared to previous quarters.

Market Reaction

Looking ahead, Comfort Systems anticipates mid-teen same-store revenue growth for the full year 2025. The company remains optimistic about opportunities in the technology and data center sectors, with potential expansions into the semiconductor and pharmaceutical markets. The guidance for the upcoming quarters suggests continued growth, with EPS forecasts for FY2025 and FY2026 set at $20.16 and $21.48, respectively. The company’s strong financial position is further supported by its impressive revenue growth of 26.33% and a robust Altman Z-Score of 8.46, as reported by InvestingPro. With 20 additional ProTips available on InvestingPro, investors can gain comprehensive insights into Comfort Systems’ financial health and growth prospects.

Outlook & Guidance

Looking ahead, Comfort Systems anticipates mid-teen same-store revenue growth for the full year 2025. The company remains optimistic about opportunities in the technology and data center sectors, with potential expansions into the semiconductor and pharmaceutical markets. The guidance for the upcoming quarters suggests continued growth, with EPS forecasts for FY2025 and FY2026 set at $20.16 and $21.48, respectively.

Executive Commentary

CEO Brian Lane highlighted the company’s milestone achievement, stating, "This is the first time that our quarterly revenue has exceeded $2,000,000,000." CFO Bill George emphasized the company’s strategic focus, noting, "We don’t decide what needs to be built. We just make sure we’re the best people to build it."

Risks and Challenges

• Supply chain disruptions could impact project timelines and costs.
• Economic downturns may affect demand in key sectors.
• Increasing competition in the technology and industrial markets.
• Potential regulatory changes in key operating regions.
• Maintaining workforce flexibility amidst growing demand.

Q&A

During the earnings call, analysts inquired about Comfort Systems’ modular business strategy and its implications for future growth. Executives confirmed a strong project pipeline and emphasized their selective project approach, highlighting their pricing power and margin management strategies.

Full transcript - Comfort Systems USA Inc (FIX) Q2 2025:

Latonia, Conference Call Operator: Good day, and thank you for standing by. Welcome to the Q2 twenty twenty five Comfort Systems USA Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. You will then hear an automated message advising that your hand is raised.

To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Shape, Chief Account Officer. Your line is open.

Julie Shape, Chief Account Officer, Comfort Systems USA: Thanks, Latonia. Good morning. Welcome to Comfort Systems USA’s second quarter twenty twenty five earnings call. Our comments today as well as our press releases contain forward looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based upon 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 detailed listing and commentary concerning our specific risk factors in our most recent Form 10 ks and Form 10 Q, as well as in our press release covering these earnings. A slide presentation is provided as a companion to our remarks and is 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 Trent McKenna, chief operating officer and Bill George, chief financial officer. Brian will open our remarks.

Okay. Thanks, Julie.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Good morning, and thank you for joining us on the call today. We had a fantastic quarter with amazing execution by our teams. This is the first time that our quarterly revenue has exceeded $2,000,000,000. We earned an unprecedented $6.53 per share this quarter, which is an which is an increase of 75% compared to a year ago. Our mechanical business had a sharp increase in profitability, and our electrical segment was higher as well.

Service revenue and profits also increased by double digit percentages. Bookings were strong and our backlog at the end of the quarter grew to a new high of $8,100,000,000 Demand remained strong, especially in technology, and we continue to book work with good margins and good working conditions for our valuable people. We are going in into the 2025 with significant same store growth in both sequential and year over year backlog. I’m happy to announce the acquisition and welcome Rightway Plumbing, a great plumbing business based in Florida that we expect will earn 60,000,000 to $70,000,000 per year in revenue. We also increased our quarterly dividend by 5¢ to 50¢ per share, and we actively purchased shares during the first half of twenty twenty five.

Despite a deck, a backdrop of tariff ambiguity and economic uncertainty, we feel fortunate to have good demand, especially for large and complex projects. Thanks to our thanks to our amazing people, we expect continuing strong results in 2025 and continuing success into 2026. Trent will discuss our operations and outlook in a few minutes, and I will make a few closing comments after our q and a. But first, I will turn the call over to Bill to review our financial performance. Bill?

Bill George, Chief Financial Officer, Comfort Systems USA: Thanks, Brian. So, yeah, our second quarter results are remarkable with 19% same store revenue growth, sharply higher margins and over $220,000,000 of free cash flow. We also achieved more than $300,000,000 in quarterly EBITDA for the first time ever, and that’s a 50% increase over the same quarter one year ago. Revenue for the 2025 was $2,200,000,000 an increase of $363,000,000 or 20% compared to last year. Electric segment revenue grew by 49%, while Mechanical segment revenue increased by 13%.

Through six months, same store revenue has grown by 17%. And currently, our best estimate is that for full year 2025, our same store revenue increase will remain in that mid teen range. Gross profit was $510,000,000 for the second quarter of twenty twenty five, 146,000,000 higher than one year ago. Our gross profit percentage grew to a remarkable 23.5% this quarter compared to 20.1% for the second quarter of twenty twenty four. Quarterly gross profit percentage in our Mechanical segment jumped to 22.9 this year, compared to 19.2% last year.

Margins in our Electrical segment also increased significantly to 25.3%, as compared to 23.6% in the second quarter of twenty twenty four. We currently expect that gross profit margins will continue in the strong ranges that we have averaged over recent quarters. SG and A expense for the quarter was $210,000,000 or 9.7% of revenue, compared to $180,000,000 or 9.9% of revenue in the second quarter of twenty twenty four. SG and A increased mainly from ongoing investments in people to support our higher activity levels. Our operating income increased by just over 60% from last year from $185,000,000 in the 2024 to $300,000,000 for the second quarter of twenty twenty five.

With improved gross profit margins, our operating income percentage surged to 13.8% this quarter from 10.2% in the prior year. Our year to date tax rate was 20.7%. Our effective tax rate in the first quarter was lower due to interest we received on a delayed refund by the IRS that was associated with our 2022 federal tax return. We received that $118,000,000 refund in April 2025, which included 11,000,000 of interest. Excluding this item, our effective tax rate would have been approximately 23% year to date, and we expect our tax rate for the 2025 to continue to be in that 23% range, with our full year effective rate a bit lower due to the discrete benefit recorded in the first quarter.

In July 2025, the federal government enacted major tax reform legislation. However, we currently do not expect that the new and amended provisions will have any significant impact on our operating results or cash flows. After considering all these factors, net income for the 2025 was $231,000,000 or $6.53 per share, and that compares to net income for the 2024 of $134,000,000 or $3.74 per share. And this is an over 70% improvement from last year’s already very strong showing. EBITDA increased to $334,000,000 this quarter from a strong $223,000,000 in the second quarter of twenty twenty four.

This 50% increase reflects great execution by our workforce and strong demand in our markets. As of June 30, our twelve month trailing EBITDA exceeds $1,000,000,000 for the first time ever. Free cash flow for the 2025 was two twenty two million This quarter’s cash flow includes two discrete cash flow items that largely offset each other. As previously discussed, we received a $118,000,000 tax refund in April 2025 that was related to our 2022 federal tax return. In addition, the remaining impact of our long awaited cash flow turnaround of the advanced customer payments from our modular operations completed this quarter.

As expected, the advanced payment position that we enjoyed for several quarters has now roughly normalized, and we expect that starting now and over time, our cash flow should once again approximate our after tax earnings, subject to the quarter to quarter and seasonal variances that are typical in our industry.

Speaker 4: We purchased additional shares this quarter and year to date, we

Bill George, Chief Financial Officer, Comfort Systems USA: have spent $111,000,000 buying approximately 326,000 shares. Even after funding share repurchases and our RightWay acquisition, we are in a net cash position of more than $250,000,000 And considering our strong cash prospects, we remain in a great position to reward our shareholders and fund additional growth. And that’s all I’ve got on financial information. So Trent, to Trent?

Trent McKenna, Chief Operating Officer, Comfort Systems USA: Thanks, Bill. I’m going to discuss our operations and outlook. Our backlog at the end of the second quarter was a record $8,100,000,000 a large sequential and year over year increase. Since last year, our backlog has increased by 2,400,000,000 or forty one percent and $2,200,000,000 of the increase was same store. On a sequential basis, backlog increased by $1,200,000,000 or 18% of which $1,100,000,000 was same store.

Second quarter bookings especially strong in the technology sector, both in our traditional construction business as well as the modular part of our business. We are entering the 2025 with same store backlog 37% higher than at this time last year and our project pipelines remain at historically high levels. Industrial customers accounted for 63% of total revenue in the 2025 and they are major drivers of pipeline and backlog. Technology, which is included in industrial was 40% of our revenue, a substantial increase from 31% in the prior year. Manufacturing revenues were strong, but declined modestly as our businesses chose to book a higher proportion of technology related projects, particularly data center construction.

Institutional markets, which include education, healthcare and government remain strong and represent 24% of our revenue. The commercial sector, which is a smaller part of our business provided about 13% of revenue. Most of our service revenue is for commercial customers. Construction accounted for 85% of our revenue with projects for new buildings representing 58% and existing building construction 27%. We include modular in new building construction and year to date modular was 18% of our revenue.

We currently have over 2,700,000 square feet of building capacity dedicated to our modular business and we expect to have around 3,000,000 square feet by early next year. Service revenue was up 10% and is 15% of total revenue. Service profitability was strong this quarter and service continues to be a growing and reliable source of profit and cash flow. As mentioned before, we are entering the 2025 with a backlog that is 37% higher on a same store basis than we had at this time last year. And we have superb teams working hard for our customers every single day.

Thanks to the dedication and hard work of our employees across the country, we are optimistic about our future. I want to close by joining Brian and Bill in thanking our over 20,000 employees for their hard work and dedication. I will now turn it back over to Latonia for questions. Thank you.

Latonia, Conference Call Operator: Certainly. And our first question will be coming from Sanjeeta Jain of KeyBanc Capital Markets. Your line is open.

Sanjeeta Jain, Analyst, KeyBanc Capital Markets: Good morning. Thank you for taking my questions. So appreciate the update on the modular square footage. Can you tell us how you’re thinking about the extent of expansion in your modular capabilities and your thoughts on possibly adding a third location?

Bill George, Chief Financial Officer, Comfort Systems USA: So I Sangeeta, I I would say that we like what we’ve been doing, which is

Speaker 4: adding

Bill George, Chief Financial Officer, Comfort Systems USA: incremental capacity as, you know, in a way that’s measured and really spending even a bigger focus or at least as much focus on improving productivity and automation in our existing spaces. So I think, you know, the kind of growth you’ve seen as long as the market supports it and as long as the amazing people who run these two businesses for us are convinced that they have the bandwidth to implement it. As long as that is things hold true, we’ll probably continue the same kind of incremental build out. It feels as if that demand is there, to say the least, actually. And so I don’t know.

I hope that I hope that answers your question. As far as the third location, that’s something we think about on a long term basis. We have two pretty great locations. Right? We’re right in the middle of the Mid Atlantic.

Houston is pretty well located, especially for the, you know, for the markets that these things need to go to, and even considering the states you have to drive through, because that’s a consideration, because different states have different load requirements. So I’m not sure that’s a high priority for us right now, but we’re very open minded to it.

Sanjeeta Jain, Analyst, KeyBanc Capital Markets: Got it. And if I can follow-up, I know you said that the reconciliation bill does not maybe does not necessarily directly apply to what you do, but the bonus depreciation does help many of your customers as probably the Trump executive order on AI. Can you talk a little bit about if you’ve had any initial conversations with your customers around that?

Bill George, Chief Financial Officer, Comfort Systems USA: Yeah. The bonus depreciation helps them and us some. I would say that I would not view that as an important driver for us at a time when we’re already experiencing demand that far outstrips what we could possibly do. But anything that makes people a little hungrier is good, right? But I wouldn’t consider that an important consideration.

Sanjeeta Jain, Analyst, KeyBanc Capital Markets: I appreciate your thoughts, Bill.

Latonia, Conference Call Operator: Thank you. And one moment for our next question. Our next question will be coming from Akash Singh. Your line is open. Again, next question will be coming from Akash Singh.

Your line is open. Moving forward, our next question will be coming from Julio Romero of Sidoti and Company. Your line is open.

Alex, Analyst, Sidoti and Company: Yes. Hello. Good morning. This is Alex on for Julio. Congrats on the quarter.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: All right, thank you.

Bill George, Chief Financial Officer, Comfort Systems USA: Good morning.

Alex, Analyst, Sidoti and Company: My first question, maybe we could start with just some color on growth for the remainder of ’25. I know backlog and revenues have grown meaningfully even over the historical comps that you’ve mentioned that were a little tougher. So how’s your confidence that this sort of continues positively into ’25 and ’26 and maybe some of the conversations that have led to that?

Trent McKenna, Chief Operating Officer, Comfort Systems USA: Alex, how our backlog is always very lumpy, right? So we spend a lot of time thinking about that and when jobs land kind of on a time scale. What we’re really looking at is kind of our future pipelines. And what we see right now is very robust pipelines. They continue to be robust even with all the bookings we had in the second quarter.

So, things are still very bullish with regard to, future work.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Hey, and Alex, this is Brian. I’m just gonna jump in also service, As Bill and Trent mentioned, we’re getting good growth in services about a band to business for us now growing about 10 this last quarter. So that’s been nice consistent growth both from a revenue and profitability standpoint and on to the construction growth.

Alex, Analyst, Sidoti and Company: Very helpful color. Thank you. And I think kind of rising above consistent growth, you had very nice earnings performance. And I think you wrote about anticipating solid earnings for the remainder of ’twenty five and into ’twenty six. So could we get a little color there?

Is solid sort of a statement of continuing where we are now? Or is that a little bit more from historicals? Just a little color would be helpful.

Bill George, Chief Financial Officer, Comfort Systems USA: Well, we have a lot of work to do. We think our guys are the best in the world at doing it. Our customers want it. They’re willing to pay for it. So I think we just feel pretty great about at least the foreseeable demand and our ability to profitably meet it.

We don’t really have additional guidance on margins and stuff. These margins are pretty eye popping, and we’re still digesting them. But we’re still pretty darn bullish about about our prospects going forward.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Yeah. You know, Alex, if you if you look at these, you know, our gross margin is 22 and a half percent, which is strong. So we’re getting a good combination of, you know, pricing, which is out there as well as the execution has been just terrific. So I think we’re pretty optimistic about our results over the end of this year into next year for sure.

Alex, Analyst, Sidoti and Company: Great. Well, very exciting results again, and a lot more questions, but we’ll jump back in the queue. Thank you.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: All right. Thank you.

Latonia, Conference Call Operator: And our next question will be coming from Brent Thielman of D. A. Davidson and Company. Your line is open.

Brent Thielman, Analyst, D.A. Davidson and Company: Thanks. Good morning. Great quarter, guys. I guess the first question, just, Trent, you’d commented on the manufacturing kind of customer side and that you ultimately were focusing maybe a bit more on the data center tech customers where you may get the best opportunity out of it. Guess the question is, has that market or pipeline of opportunities on that side subsided or it’s just simply your workers are fungible and you’re going to best opportunities?

Trent McKenna, Chief Operating Officer, Comfort Systems USA: No, I’d say it hasn’t subsided. It’s still strong. So what really is happening is the best opportunities right now are presenting themselves more often than not on the technology side. And so companies are choosing to put their skilled workforce in the best possible circumstances to be successful. And that’s what the technology customers right now.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: You know, Brett, just to follow-up. I mean, our operating companies, I think are doing a superb job with project selection, stuff that we’re really good at doing in places where we’re strong. So you gotta really tip your hat to them about the work they’re bringing in here and how they’re doing it.

Bill George, Chief Financial Officer, Comfort Systems USA: Yeah.

Brent Thielman, Analyst, D.A. Davidson and Company: And then on modular, I heard you say 18% of revenue year to date. Could you possibly comment maybe on the proportion modular represents in backlog today? And then also just from a customer standpoint, is there an opportunity to add another hyperscaler to what you already have just with the incremental capacity you’re adding? Or is that capacity add really to serve, you know, the customers existing customers you have today?

Bill George, Chief Financial Officer, Comfort Systems USA: So to your first your second question, the opportunity is there. There are people who would who would buy our product. The people the our two main customers really are are are our best option to sell to right now. You know, across our businesses right now, there’s a general tendency of our guys, of our leaders, of our, you know, the people who interact with our customers to choose to do business with the customers who realize that we’re trying to do something together as opposed to trying to do something that is, you know, a fight. So we’re really, really choosing who we give our unbelievable and scarce resources to by the people who really wanna go out there, build a good project, build it right, build it quick, work together, understand that everybody has to be paid for the risk they take.

And so I think ultimately, that’s the experience we’re having with those customers, and that’s really, really valuable to us.

Brent Thielman, Analyst, D.A. Davidson and Company: Okay. And sorry, just the question around modular proportion of backlog. Is that something you could comment on or how we might think about what’s in the book of business?

Bill George, Chief Financial Officer, Comfort Systems USA: So my guess was modular is going to continue to grow. Right? We’re investing in new space. We’re improving our productivity. There’s a range of how fast it could grow.

You made me pick an over under, I’d say, now that we think that the business overall is gonna grow mid teens, I think modular should stay near that percentage. Now having said that, I fully recognize it’s grown from, you know, four to six to eight to 10 to 12. You know what I mean? But, you know, we have such good demand and opportunity in all of our businesses that it’s a pretty is it is it everybody’s great at getting bigger and better. It’s a pretty tough chore to get become a bigger percentage of our company right now.

Brent Thielman, Analyst, D.A. Davidson and Company: Okay. If I could sneak one more in, just maybe another approach to kind of the visibility question. Could you talk about the funnel or pipeline and what that looks like today as you look into ’twenty six and possibly into ’27. I mean, I’m sure you’re having conversations about next year at this point, but is the dialogue with customers becoming much more active about, you know, opportunities into 2027 at this point?

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Yeah. Yeah, Brett, absolutely. I mean, you know, ’25 is we’re full. Right? You’re looking at ’26, ’27 for sure, looking at opportunities longer out.

As you as you know, we got bigger projects. They run longer, take longer to get them done in the front end to get them to get them, signed, sealed, and delivered. But, yeah, you know, customers are looking out 2627. It’s it’s a great time to be in the construction business, buddy.

Bill George, Chief Financial Officer, Comfort Systems USA: Very good. I’ll pass it on. Thank you.

Latonia, Conference Call Operator: And one moment for our next question. Our next question will be coming from Adam Thalhimer of Thompson Davis. Your line is open, Adam.

Adam Thalhimer, Analyst, Thompson Davis: Hey, good morning guys. Congrats on the record quarter. Basically wanted to pick up with where Brent left off and rephrase the question. Within the current backlog, how much of that work would be scheduled for 2027 plus?

Bill George, Chief Financial Officer, Comfort Systems USA: A lot. I don’t think we have a precise number. Yeah. Yeah. A lot.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: But, yeah, the the statement we made, Adam, about we’re good going out is is because we’re seeing both in backlog and what we’re looking at is healthy.

Bill George, Chief Financial Officer, Comfort Systems USA: If you do a little math, you you have to realize that if if we’re telling you we’re gonna grow mid teens, the backlog’s pushing farther out. Yeah. I understand.

Adam Thalhimer, Analyst, Thompson Davis: Understood. The growth that you’ve seen at Walker Electrical, how much of that is occurring in their traditional North Texas market versus work in other areas of Texas or even outside of Texas?

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: So right now, all their work is in Texas and it’s in the, you know, the four, what I call major markets, Dallas, Houston, Austin, and San Antonio. So though they’re very strong, North Texas, Dallas, etcetera, the other three markets are strong. It’s probably one of the probably if you talk to them with a few times since they’ve been in business, that all four of their major markets have been strong, Adam. And I wanna you

Bill George, Chief Financial Officer, Comfort Systems USA: know, Walker is killing it. It’s amazing what they’re doing, but all of our other electricals are just killing it as well. So it’s important to understand. We one of the nice things for us is that because we bought all of our electricals in the last five years or so, five or six years, we bought them at a time when we already had developed a big conviction around buying companies that had exposure to the super cycle, had exposure to certain states, certain complex capabilities. So if you look across Comfort Systems USA, our electricals just have a higher proportion of the companies that are tuned towards the good things that are happening right now, and and they are doing an amazing job taking advantage of it as our our mechanical companies, obviously, and our service, you know, everybody except corporate is doing great.

Julie Shape, Chief Account Officer, Comfort Systems USA0: But we’re doing a bit on this call to help out.

Adam Thalhimer, Analyst, Thompson Davis: Lastly, anything more you can say high level on pricing? Just as your technology customers are taking up more and more of your capacity, to what extent are they paying up for that?

Brent Thielman, Analyst, D.A. Davidson and Company: But, you know, if

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: you look at our gross margins, our pricing’s obviously very good. Right? You know, you can can read them in the income statement, but pricing is good and we’re getting paid for the risk and services that we’re delivering.

Trent McKenna, Chief Operating Officer, Comfort Systems USA: And then Adam, our project teams are really delivering efficiency effectively. And we’ve really pushed a lot of innovations out that are helping them manage projects even more efficiently than they had previously. So that’s also driving that margin. To some extent, our technology customers are very good partners with regard to those endeavors when it comes to innovation.

Adam Thalhimer, Analyst, Thompson Davis: It’s been a long time since we’ve cried about a bad job, so great work.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Yeah, I’m knocking on wood on that one, Adam.

Bill George, Chief Financial Officer, Comfort Systems USA: Me too. Thanks guys.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Thanks.

Latonia, Conference Call Operator: Thank you. And our next question will be coming from Josh Chan of UBS. Josh, your line is open.

Julie Shape, Chief Account Officer, Comfort Systems USA0: Hey, good morning guys. Congrats on a really good quarter.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: I guess Thank it’s Yeah, it’s clear

Julie Shape, Chief Account Officer, Comfort Systems USA0: that your demand environment is really strong. So could you just talk about kind of the your workforce, their willingness to continue to work more, make more, but kind of keep working hard and then what you’re seeing on the recruiting front?

Trent McKenna, Chief Operating Officer, Comfort Systems USA: That’s a great question, Josh. Because that’s what really is the secret to Comfort Systems long term success is making sure that it continues to be the best place for a craft professional to work. And I think our companies do a really great job of being the employer of choice in their markets. And then what we’ve talked about this previously, but what we’ve done with our staffing company that’s internal to the organization has really helped us be able to flex up and down and take care of our core workforce as we move through the specialty’s larger projects. Additionally, we get a lot of collaboration on jobs.

So we have more than one of our operating companies on projects and they’re able to share labor in ways that has also been able to help us. But yeah, it’s certainly an all of the above approach when it comes to talent right now because everybody’s constrained as far as being able to recruit and find. But I think we’re getting our our fair share, if not more, of the of the talented craft, professionals in America right now.

Julie Shape, Chief Account Officer, Comfort Systems USA0: That makes sense. Thank you, Trent. And then I guess like in terms of project selection, do you think about the approach to choose projects between the different verticals? Because obviously, your technology is is chosen more and more frequently. So, you know, are are you okay with that?

You know, how how are you talking to your in your operations about choosing types of projects that you want exposure to?

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Yeah. You know, that’s a good question. I think they’re doing a great job, you know, selecting what’s available in their markets. We’re still pretty diverse as you can tell by the pie chart or the different industries we serve. So we’ve kept good balance.

Obviously, tech is, you know, red hot right now. So we’re to service those customers the best we can, but we are keeping a pre, you know, our fingers in all the pies, everything by commercial, right? Office buildings is slow. Everything else has got good activity. And I think they’re selecting, I think as Bill said in his script where the best working conditions for our people are gonna pay for the risk and the service that we provide.

Bill George, Chief Financial Officer, Comfort Systems USA: I mean, one of the best operators in the world who works for us made the point recently that we don’t decide what needs to be built. We just make sure we’re the best people to build it. So Scott also said, I’ll take any job you have as long as it rhymes with Atas Center. He was kidding. The second part is kidding.

First part is

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: But that’s right. Yeah. Serious. Absolutely.

Bill George, Chief Financial Officer, Comfort Systems USA: We have to just do do the work that’s there for us and be the best people to do it.

Julie Shape, Chief Account Officer, Comfort Systems USA0: Yeah.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: And that’s why, you know, Josh, you know, if you think about the bigger picture, training is crucial in here at all levels of this organization, the field up to project management leadership, make sure folks throughout the organization are well prepared to address the market.

Julie Shape, Chief Account Officer, Comfort Systems USA0: Yeah. I appreciate the color guys, and congrats again on a really strong quarter.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Alright. Thank you.

Latonia, Conference Call Operator: And our next question will be coming from Brian Brophy of Stifel. Your line is open, Brian.

Speaker 4: Thanks. Good morning, everybody. Congrats on the nice quarter. Appreciate the update on the modular capacity expansion plans. Can you provide an update on what you’re seeing on modular from a competitive standpoint?

Are you seeing any new entrants in this space? Curious your latest thoughts on how you’re feeling about your leadership position there. And I guess to what extent are any changes in the competitive environment driving, I guess, of this leaning into more capacity? Thanks.

Bill George, Chief Financial Officer, Comfort Systems USA: So I will say our customers continue to encourage people to develop competitive capacity for us. They’ve had some of the best companies in the world work on that with mixed results. We don’t think that we’re you know, what we do is can’t be done by someone else. We just our goal is just be so good at it that you’d be crazy to buy it from somebody else. So I I hope that answers your question.

Speaker 4: Okay. And then, that’s helpful. And then I guess anything to call out on the health care end market? It looks like that was really the only other end market that grew meaningfully outside the tech this quarter.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Yeah, I mean, we’re seeing, I think we’ve mentioned it in the last few quarters, Brian, that we’re seeing some new build hospitals get built heavy in the South for sure, Florida. So we are seeing a number of opportunities, both on expansion of hospitals, new build, and also surgical centers are, the smaller outpatient type facilities you see. So yeah, we are seeing some strength in healthcare, been pretty consistent for a little over a year now.

Speaker 4: Thanks, I appreciate it. I’ll pass it on.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Thank you.

Latonia, Conference Call Operator: Thank you. And our next question will be coming from Sam Snyder of Northcoast Research. Your line is open.

Julie Shape, Chief Account Officer, Comfort Systems USA1: Hey, guys. Great job, obviously. I just had a question on modular like everybody else, it seems like. I was wondering what has sort of changed or what could change going forward that has made Modular, respectively, a bigger part of the business? And then is there anything that you see down the road that, you know, maybe that maybe that changes?

Ten percent’s good. I kinda surprised it’s not more, but just curious your thoughts there. Why 10? And is there anything you see down the down the line where that might change?

Bill George, Chief Financial Officer, Comfort Systems USA: One thing people misunderstand about modular, it it’s very easy to think about it as a separate product line. And it is a it is a it is a different way of doing something. So anything that we do modularly, and we’ve done not just tech, we did pharma. Pharma was our main product, our main customer for modular for many years, is something that is also being done that day in a thousand locations in a in a stick built way. So modular is a way of delivering a product that a building that is being built in, you know, in the traditional ways as well.

It has certain really unique advantages relating to speed and flexibility. And we think that there as the years pass, if you look forward in time, modular will become a more and more important modality for delivering especially complex projects in The United States. But as far as what percentage it takes, I just think it’s a for for now, at least for tech, where it we’re being pretty much bought out. It is a vector that allows them to do even more than they could have done if they ignored this opportunity. But I don’t you know, so I think people there may be a day when people are trying to decide, well, who’s which which way of doing this is gonna win.

I think that will not be in my lifetime. I think it’s it’s a it’s a really great modality for accomplishing things. There are projects that have certain characteristics for which it’s really has an almost irresistible advantages. But I do think people, it’s really important that people understand it’s a way of doing something, not a different thing that’s being done. A building is a building is a building is a building.

Julie Shape, Chief Account Officer, Comfort Systems USA1: That’s really helpful. Thank you. And then I had a I’m switching gears. Looking at price cost, do you see, you know, your your suppliers trying to pass on costs And they’re probably not getting that by you as a larger contractor, but just kind of curious on, are you able to get some concessions from customers based on based on that sort of the tariff, you know, scaries right now?

Or is it really just passing through? And if it to the extent that it does or it doesn’t, it just passes through equally?

Bill George, Chief Financial Officer, Comfort Systems USA: What kind of people do you think we are? Business. Business people. Yeah. Business people.

Yeah. Yeah. Is the real world. People wanna be compensated for what they do. They use talking points to justify getting the best price that they can.

I believe there are, for sure, people who are using these conversations to justify price increases. And I also believe there is a lot of there is a lot of people absorbing stuff. So I just think it’s just like when things happened during COVID, people would say, are you seeing delays from COVID? And that’s a hard question to answer because we always see delays. I don’t think I’ve ever seen a building built.

Well, virtually have never seen a building built that was finished on the goal day to finish it in the first conversation. So we always see delays. We always see price negotiations and bouncing around. And the you know, and people, they’re all of their it’s a it’s a complex situation with lots of factors. So I guess the answer is yes and no.

Got it. Thank you. Sorry to not give you a very helpful answer. That that that that’s okay.

Julie Shape, Chief Account Officer, Comfort Systems USA1: I think it’s just the gross margins are so good. Just looking for any reason why that might not continue.

Bill George, Chief Financial Officer, Comfort Systems USA: There’s not we’re not we don’t have some clever trick right now that’s that’s kinda sneaking some money out the side. It’s just that our guys are really, they’re valuable. They’re hardworking. They they can they can provide you with something that’s hard to get your hands on, and great customers are willing to pay for it.

Trent McKenna, Chief Operating Officer, Comfort Systems USA: And, Sam, if we had a clever trick, we wouldn’t tell you.

Julie Shape, Chief Account Officer, Comfort Systems USA1: That’s fair. That’s fair. Alright. I’ll pass along. Thank you.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Alright. Thank you.

Latonia, Conference Call Operator: Yep. And our next question will be a follow-up from Brent Thielman of D. A. Davidson and Company. Your line is open, Brent.

Brent Thielman, Analyst, D.A. Davidson and Company: Hey, thanks. Guess a quick question on the semi fab market and anything that may be coming down the pipeline there and maybe you can comment on pharma as well. There’s been a number of announcements out there and how real of an opportunity that can be down the line for you.

Trent McKenna, Chief Operating Officer, Comfort Systems USA: Yeah, those are all very strong in pipeline right now. We’ve got a lot of prospects that are out there. Mean, nothing that is that I’d comment on, but it’s that’s all larger stuff and it’s very lumpy like you get it or you don’t. Sometimes you get it at a small contract and then the remainder of the value of the contract is done in change orders over time. So, it’s one of those things, it’s hard to see it going through in and out of backlog, but at the same time, our pipeline is showing very strong opportunities in both pharma and fab and chip fab.

Brent Thielman, Analyst, D.A. Davidson and Company: Okay, and then maybe just more of a nuanced question, but when I look about revenue by activity type, existing building constructions actually been outgrowing new construction for the past four quarters. And I guess I think about data centers being largely greenfield. I just was curious why that is and the results.

Bill George, Chief Financial Officer, Comfort Systems USA: So much of our work is industrial now. And in The United States, an awful lot of industrial is adding on to existing capacity as opposed to greenfield, even in the tech area. So that’s been a trend actually for a long time as we become more and more industrial. Because the reality is, if you’re building phase three of something for us, that’s an existing sort of thing. Some of that’s just like, it’s a little bit definitional, and it’s also just the nature of the industrial world.

Brent Thielman, Analyst, D.A. Davidson and Company: Okay, but in so in that regard, the margins wouldn’t really be different. I’ve always thought of existing as having higher margins to it. But if you’re doing phase three of something, it’s in some way still a

Bill George, Chief Financial Officer, Comfort Systems USA: would still have as the big the big differentiator there is what percentage of the project is materials and subcontracts. And that would perform more like a traditional new building if it’s if it’s an extension. Know what I mean? So I I guess I would agree with that. Right now, are so good across the board that those distinctions are a little hard to even make.

Brent Thielman, Analyst, D.A. Davidson and Company: Fair enough. Thanks for taking the extra ones. Thanks, guys.

Bill George, Chief Financial Officer, Comfort Systems USA: Right. Take care. Thanks.

Latonia, Conference Call Operator: And I would now like to turn the conference back to Brian Lane for closing remarks.

Brian Lane, President and Chief Executive Officer, Comfort Systems USA: Right. Thank you. In closing, I wanna reiterate my gratitude for the amazing dedication and excellence of the teams we have across our nation, serving our customers every day. Demand is strong and our people are rising to the challenges of addressing the robust need for their unique skills. As Trent mentioned, we feel that conditions are good for us to continue to perform.

And as Bill indicated, we have the resources and the commitment to lean into delivering for our employees, our customers, and you, our shareholders. Thank you for your confidence and have a great rest of the of the summer. Thank you.

Latonia, Conference Call Operator: And this concludes today’s conference call. Thank you for participating. You may now disconnect.

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