Comfort Systems USA, Inc. Aktie

Okay. Good afternoon, everyone, and thank you for joining Sidoti & Company's June 2026 Small-Cap Conference. My name is Julio Romero, and I cover industrials and engineering construction names at Sidoti & Company.

Really pleased to be able to host Comfort Systems USA, their ticker is FIX. With us today is Trent McKenna, President and Chief Operating Officer; and Chrissy Nelson, Director of Investor Relations.

So we'll start with management giving us a brief overview of the company, and then we'll go right into some Q&A. If you have any questions, feel free to type them into the Q&A section at the bottom of your screen. Happy to ask on your behalf if time permits. With that, Trent and Chrissy, thank you so much for being here.

Thanks.

Thanks, Julio. I'm going to just dive in and give a quick overview of the company. To understand what we are, we're a leading national mechanical, electrical and plumbing installation service provider, a little over $10-plus billion yearly in revenue. 75% of our mix is industrial, over 23,000 employees currently.

And we've had a history of profitable growth, cash flow. We have unmatched modular capabilities, which I'm sure everyone will find of interest as we talk about those and answer questions with regard to that.

And we've maintained a lot of financial stability over the history of the company with a very, very strong balance sheet. We're only in the 48 states, about 197 locations, 143 cities. Right now, as everyone on this listening would probably anticipate, we're seeing very strong demand in technology with data centers and chip manufacturing.

We also continue to see strong demand with life sciences and pharmaceuticals as well as food processing, both human and pet. Manufacturing continues to be a good end market for us as well as health care and energy storage.

The trends that we feel very strongly about over the next several quarters, technology, onshoring, modular. And of course, we continue to grow our service business. One way to understand what we do just at a very, very high level, right, is any building that needs any type of mechanical plumbing and/or electrical, we can do both the construction and the service, and we can take it all the way from the very early stages of development all the way to the life cycle of the building at any stage, we can play a very important part in the value proposition.

Additionally, our modular business continues to grow. And that -- just to understand that, we have off-site fabrication at every one of our businesses, and that -- but we don't consider that part of our modular.

Our modular business is a volumetric modular business. It's housed in Houston at a company we call TAS and then in Greensboro at EAS. And those two companies represent our modular revenue. In total, in '26 -- year-to-date for '26, our modular revenue represents about 17% of total revenue.

It continues to grow, but the rest of our business also continues to grow alongside it. Technology breaks up to about 56% and manufacturing, 19%. The rest is divided amongst a few other end markets. As you think about our modular business, we are working with two of the hyperscalers on programs that they have, and we have programmatic approaches with them. And those, we continue to work with them to expand and also, at the same time, meet the needs they have.

And so we are -- by the end of this year, we'll be up to 4 million square feet of modular capacity. And that's 4 million square feet of space for our modular facilities. And that's something we continue to look at whether we would continue to expand that or not, that would follow along with whether we get advanced purchase commitments from customers that we continue to talk to.

In addition to those 2 hyperscalers, obviously, we talk to others as well. Is there anything that we would add to what I just...

From a capital allocation perspective, after reinvesting in the business, which is our first best use of capital, we're increasing our modular capacity this year. So after that, we spent about 70% of our cash flow in acquisitions, which we think is our best path to growth.

Our headcount, we can kind of grow in sort of mid- to high single digits over a long period of time. We are getting some outsized success in growing that head count right now. But over a long period of time, we think that's about how we can grow and then the remainder is between dividends and share buyback.

We'll turn it over to questions.

Yes. Excellent. Great rundown. Maybe to start it off, you had a tremendous first quarter, right? Same-store revenue growth of 51%, record backlog, $12.5 billion.

You talked about technology being one of the key end markets driving the growth. Maybe you could speak to what is driving the growth in the backlog as well and the visibility beyond reported backlog and what kind of end markets are driving the growth there as well?

Yes. So we have right now across all of our businesses, we have as good a visibility as ever with regard to future work. And technology is driving a lot of that visibility, but we also see in manufacturing and health care, we also see some pretty good visibility.

And what I would kind of classify in government and education, it's sort of the normal level of visibility we have. But well out into the future, we can see projects that are being proposed and brought online.

And then from our perspective, a lot of what we're already working on is multiphased projects, and we anticipate being able to have really good opportunities as the next phases start to break ground. So all in, our pipeline is very robust, very strong going into the future.

Excellent. And so you talked about as good as visibility as ever in the multiphase projects that you see. Does that kind of give you the confidence that this current demand is multiyear and longer than one would expect? Or what else would give you kind of that confidence this is kind of -- the demand is pretty durable here?

Yes. I mean the confidence comes from our conversations with our customers. And in the -- really anyone who is building data centers right now for any reason, and that includes hyperscalers, includes colo, includes the frontier labs, the whole swath of data center builders.

They all are projecting build well into the future. And so that gives us a pretty high degree of confidence. And then when you just look at trends, right, you look at onshoring trends, you look at the pharmaceutical trends that are occurring, that also gives us a great amount of confidence.

And then in health care, I think we still are seeing a need to -- especially in certain parts of the country, you're seeing a need to build out health care infrastructure for an aging population and a changing demographic. And so I think because of that, you also have -- you have some long-term visibility into the future.

Got it. And I guess on the technology front, how should investors think about the breadth of the data center opportunity across mechanical, electrical, plumbing, service and modular over the next several years?

I think -- I mean, at this point, right now, it's more about the work -- the opportunities that we have to pass on than it is the opportunities we're taking, right? There are so many opportunities at this time. It's really a matter of allocating resources to the right opportunities to where we have the best chance of success and the best chance of favorable outcomes for our stakeholders.

So from my perspective, when I think about it, it's -- I've never seen a demand curve quite like what we're seeing, right? And just logically, I think to myself, okay, at some point, it has to change. But at this point, we see no change of it at all. It just continues to go out into the future.

And to provide some context to the size of the opportunity, like you hear all of the announcements from the hyperscalers, what their CapEx plans are, about 80% of that is going to be spent on the actual chips and servers. And then the remaining 20% is what is actually being built in the data center. And then our scope of work is about 50% to 60% of that 20%.

Got it. Very helpful there. so obviously, you're passing on a lot of work, right? But you're also bringing on increased capacity to take on more work. So one of the biggest takeaways from the first quarter was the step-up in the expected '26 CapEx to about 5% of sales.

I think for context, I don't believe you've ever -- it's ever surpassed 2% of sales in any given year since you guys have gone public in '97. On the first quarter call, you talked about buying a building in Houston.

You talked about other building investments potentially later in the year. If you could go into a little bit more into what you're investing in specifically this year.

Yes. And that's back to what I said during the opening, right, we'll be -- we intend to be at 4 million square feet of capacity by the end of the year. And some of that CapEx expenditure is buying out leases and buying the buildings that we already occupy.

So it's not a one-to-one expansion. It's really using some capital to be able to invest in those buildings. And then what that gives us the ability to do is bring in the modernized robotics and different automation equipment to help us be even more efficient with our build-out in modular.

And so that's the focus of a lot of that additional capital expense -- capital expenditures that we're going to be doing by the end of the year.

So to get from 2% to 5% modular build-out, 1.5% to 2% that we normally on CapEx, partly vehicles and then some incremental investments in our shops.

Got it. And it's interesting that some of the CapEx is spent towards buying out existing leases, some of that you already are operating in. But good context about kind of the primary driver for that step-up being operational, right, having control over the building, you can configure the building however you like.

You probably are more likely to invest in the building going forward. And to what extent does fixing the buildings also create some financial flexibility for you, whether it's through asset value or collateral support or just greater optionality. Does that factor into the capital allocation framework at all or...

I think at the end of the day, we're talking max 5% of revenue. So from a total perspective, I think it is still fairly insignificant on the spend. I think the opportunity comes with trust on the operations side of being able to optimize the way our team think they need to be able to...

And can you give us maybe like an example, if I could push you for example or 2 of like what you can do to optimize the facility, some ideas you might have? And are those like pilots? Or are those kind of you're ready to roll them out as soon?

Those are all things that we're either using or yes, they wouldn't even be pilot. They're all things that we're using already in existing facilities that we would then be expanding out to additional facilities.

Like for example, we bought a line cutter in one of our modular facilities recently that allows them to cut the sheet metal at a certain [indiscernible] specification.

It took 10 guys out of the operation that were able to be redeployed somewhere else in the...

Understood. Maybe the buildings you're buying that you're not currently leasing now, kind of the new buildings that you're buying, is there a time line that investors can expect from when you deploy the spend to those new buildings or those new factories to maybe when they'll begin to directly generate revenue?

Well, they'll start directly generating revenue fairly quickly. But for them to be fully up to speed and running at the capacity and the efficiency that we want to see, it's a 1 to 2 quarter type of build-out that is required to get it right.

And to be honest, it's more like a 2 to 3 to get it really, really finely tuned and humming the way you want it to be because there's a lot of just kind of learning curve and ability to kind of fix the way that you're doing the line over time. It's just like any other manufacturing process, it gets better and better the more you're producing the thing.

And so it's a little tough to put an exact time line, but I think that's a good rule of thumb.

It's more weighted towards the back half of the year for sure. And one thing I do like to remind investors too, we bring on capacity, it's not all exactly operating, so you can't do a linear growth to revenue. You have to remember that sometimes we're building out storage and those types of things, too. So the math should smoothly follow, but it's not going to be a direct correlation.

Yes. I think even on the last call, you said something about areas to paint the modular units.

Way down like good, like there's a lot that goes into it.

Yes. Last call, you talked about trialing some new customers as well. How much of the new capacity you're bringing on is for kind of existing for potential new and then kind of how much is TBD and kind of to be determined?

Well, all the capacity we're bringing on right now for existing commitments that we have.

And on the call, we were talking about a new customer that we're doing some hyperscale data center work for.

It wasn't really a trial for a new hyperscaler. We're always doing some development work with customers out there. So I think there's always a little bit of capacity that's reserved for that, but it wasn't a trial for a new hyperscaler.

Got you. And then you guys have obviously very long-standing relationships with your existing customers, and you prioritize those extremely well. If a new -- what would a new customer need to do or what needs to happen for like -- for a new customer to kind of get on your list, right, to build a longer term, as you called it, a programmatic relationship similar to what you have with your existing customer base?

So I mean, if you think about a brand-new customer, what ends up happening is they're already building in a certain way.

And then they tend to then say, okay, are there ways that we can get these buildings online faster, more dependably, more reliably with better track record. And then that's when the customer starts talking to us. And then to be completely candid, practically speaking, the way that usually occurs is someone has left an organization that already has seen the value of modular and then has come to a new organization and brought that knowledge with them and then is inviting us in to kind of very, very early talks about this is the way we currently deliver.

Can we use a modular delivery in part to deliver more dependently and faster. And depending on what they exactly want to do with their program, it could be a very long period of time when we're talking to them about, okay, this is trying to help them understand the value proposition or it could be a really quick start-up.

It really depends on what their appetite is and where they're coming from already on the curve of understanding how you can make this happen.

Got it. And I guess curious from -- sorry, I'm trying to rephrase the question. So it's still a conversation about modular, like it's not you're competing against other modular competitors. It's should we go traditional stick built construction versus modular, and that's when kind of the conversation goes with you guys?

Yes. With regard to us, if someone is talking to us early stages and trying to -- it's not -- they're not talking to 3 other modular providers. They're talking to us because they believe we have the expertise to deliver on what they need.

And then we're helping design and figure out a program for them that would make sense for them to be successful for their delivery systems that they want to make sure that they maintain. And so it's a constant conversation with a lot of these groups.

And you understand from their perspective, they're looking at it like this is how we're doing it. There's always risk of change. So it takes time to get them comfortable with this is a better way to deliver what you're trying to make that.

Are there -- is there like a certain top 3 or 4 items like on a checklist that they're looking for you guys to hit on the modular side?

Yes. It's speed, dependable, cost, safety. And I think those would be the top 4 that you're talking about.

Super helpful there. I'm curious how meaningful the maintenance and service opportunity can be to the installed base that's being created across some of the data centers and the projects you're currently working on now? And then how much of an advantage is it for Comfort to capture that wallet share by nature of you guys constructing the data center, constructing the modular units versus not being the ones to construct the units?

The service opportunity for us is going to be broad across all the -- so it won't be tied to the modular units, it will be tied to the data centers in general.

So the data centers are going to be -- over time, they're going to represent a very attractive market for us in service. And we continue -- we have some agreements in data centers currently.

We continue to sell into that end market, and we'll continue to do it. I will say this in the early stages of the data center coming online, the OEMs tend to have a better foothold inside that data center than we can. But over time, I believe that those -- especially where they're being located in such rural and remote locations, I think we'll be able to have a very good opportunity to be a service provider to the data centers that are currently being constructed.

I'm curious why that would be like a little bit -- if you could expand on why the OEMs would be.

Because they are packaging warranty obligations with the machinery, with the equipment. And so that's obligating the data center owner to then use them in warranty.

Got it. You mentioned the remote locations that they're being built. That's obviously a big kind of topical factor. You talked about strength in West Texas, but you're also seeing strength in other areas. Can you speak to that a little bit in areas that aren't...

Yes. We're building -- I mean we're building data centers right now in Mississippi, small towns in Mississippi, West Texas, where we've already talked about.

We have some proposed data centers that we're looking at of all places, Florida. which I would never -- I mean, they've always said they didn't want to build data centers in Florida because of the hurricane risk, but they are going to be building data centers in Florida.

So they're really all over at this point. And it's a real opportunity for us because of our acquisition of Kodiak several years ago, providing us that traveling workforce that's been able to really help us flex into some of these locations that require a lot of people in a remote area.

Additionally, we have a lot of companies that are really just really great at traveling inside of Comfort. And so that's really helped us as well to attack those opportunities.

About 20% of our headcount will travel.

Got you. And then as they're expanding to different geographies, right, there's different complexities and different obstacles that arise in each one.

Just talk about how you're your current kind of suite of services is positioned to handle that? And maybe what the portfolio may need in the future?

Yes. So I mean, I'll start with what we're doing. So I think your question was specifically focused on remote.

Absolutely. Yes.

And so those are often done collaboratively. So we'll have more than one Comfort company coming together to make that work. It's just logically, it makes sense, right? You can have companies partnering to be able to meet the needs of the customer.

And then we'll supplement that with a traveling workforce. That might be a company's own traveling workforce that might be Kodiak, our labor provider. And what we're doing and what we bring to the table is the expertise of being able to -- from start to finish on the project, bring the best professionals, the best project managers, the best design professionals to really help the customer understand what it's going to take to get this thing done and then at the same time, be able to execute on it.

And that's what our customers are valuing right now, and that's why our backlog continues to grow because they see that as dependable delivery. There are a lot of companies out right now that are probably getting a little over their skis and trying to chase the data center work. And I think a lot of our customers rely on us because they know that we are focused on what we can actually perform and do successfully for them.

Yes, absolutely. And you have a very -- you talked about the base of skilled labor that you have. But as kind of the opportunity set continues to grow and expand, talk about what you guys are doing to expand your base of skilled labor or project managers to kind of stay ahead of it or at least in sync with it.

So we've been investing heavily in our talent teams to make sure that we have the right kind of apprenticeship programs, and we have the right sort of training internal Comfort Systems.

And it's one of our benefits, right? We have the ability to scale training and programs across a much larger footprint with 23,000-plus employees. So that makes us so that our investments in that scale out at a level that really differentiate us from most of our competition.

So most of our competition is more local, regionalized and unable to scale at the level that we can. So that is something that craft professionals really, really want. They want the ability to go from an apprentice all the way up to a journeyman and beyond.

And that is what we can provide them is that path, that really nice career path to their time with us. And that is something that has been able to attract a level of craft professionals that's just better, right? And so that's our goal, right? We just want to have the best craft professionals in the markets that we serve and in the end markets that we serve because that's the whole game.

If we have the right people doing the work and delivering the construction or service that we're providing, then we're successful.

And we've invested heavily in our recruiting platforms, too. So we're doing a lot more recruiting through avenues like Hulu and ESPN and TikTok.

I'm going to offer one of those ads now that you mentioned it. Kodiak and Pivot, right, those are the 2 platforms that I remember that have been crucial to you guys managing the labor pool and helping to expand that.

Would the portfolio. I mean, would you be looking to add more things like Kodiak, like a Pivot to the portfolio? Are there more -- are those out there even?

There are a lot. There are a lot out there we look at. Our ad is going to be a mix of just -- we've organically grown Kodiak significantly since we acquired it.

And Pivot was more of a -- just to understand it, Pivot was more about the technology that was housed inside of it and the small recruiting group that was part of it. It was really a talent plus technology acquisition so that we could put that on top of Kodiak.

And Kodiak is the bulk of the travel craft professionals that we've been able to then utilize as we've expanded out and build to what we've become. As we look into the future, there are a handful of these types of companies that we would be interested in, and we talk to them. But a lot of times, it's just as easy for us to greenfield inorganically grow.

This is not a big CapEx type business. It's just people. And frankly, really, a lot of times, it boils down to just the technology and the Rolodex type of an approach, right? And so we are continuing to grow that and grow the capacity that it has and the expertise that it has, and we've just been able to do that organically.

I don't think if you acquire another contract labor for Rolodex plus Rolodex with Kodiak equal 2, maybe 1.5, there's a lot of overlap.

That makes sense. I guess talking about technology a little bit and usage of it, where are you guys seeing the biggest opportunity for innovation internally? Like is it for robotics used in some of the modular facilities? Is it on the digital tools or on labor productivity? Just speak to that and that kind of -- how that changes the value you bring to your customers.

Yes, it's kind of all of the above what you just mentioned. So we're seeing a lot of automation in our modular. And also, I want to be clear, it's also in our off-site fabrication, too, because every one of our companies has off-site fabrication and a lot of them are using automated innovation to be able to deliver more efficiently to projects.

And then digital tools on site, 10 years ago, you walk a job site and no one would have an iPad. Now you walk the job site, everybody has an iPad. There's a lot of things that we've introduced into the work stream to make sure that we're taking errors out of the work. I mean that's the biggest productivity killer is people thinking that it should be built one way when it was supposed to be built a different way.

And so making sure that the people on the ground understand exactly how we want to build, conveying that all the way from the engineering architect all the way down to the person who's actually doing the install, digital tools have made that far, far more productive and far more efficient.

Now we have to scale them. So that scale has really provided us a unique advantage from where we sit vis-a-vis our competitors. And that is something our craft professionals also benefit from.

So once they see the benefit of these tools, that also has a stickiness where they know that if they were to go to another competing contractor, they wouldn't have access to these tools that they've become really, really comfortable with and that they have a high degree of trust in at this point.

Excellent. Great answer. What haven't we covered? What haven't we talked about that you think is worth highlighting here?

We acquired a really great electrical company in Utah that closed on May 1, and we built acquisitions for the best path to growth. Scale is getting harder, as you might imagine. But there's still a lot of really great companies out there, and our approach to acquiring, I think is going to stay the same. We're going to get to know them and take our time to do some good deals.

Excellent. Well, thank you so much for joining us. Much appreciated, and thank you to the whole Comfort Systems team.

Thanks.

Thanks for having us.

Thanks.

Thank you for standing by, and welcome to Comfort Systems USA's First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

I would now like to hand the call over to Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Latif. Good morning. Welcome to Comfort Systems USA's First Quarter 2026 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 in our comments.

You could read a 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 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, Chief Executive Officer; Trent McKenna, President and Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.

All right. Thanks, Julie. Good morning, and thank you for joining our call today. We had a fantastic quarter and a strong start to 2026 driven by continued outstanding performance by our field teams. Our same-store revenue grew by 51% and quarterly gross margins at a new all-time high. We earned $10.51 per share this quarter more than double our strong first quarter in 2025.

We also ended the quarter with record backlog of $12.5 billion, reflecting persistent demand including strong demand for our tech customers. And we entered the second quarter of 2026 with total backlog that is $5 billion higher than it was 1 year ago. We also announced another increase to our quarterly dividend to $0.80 by adding $0.10 per share, and we remain committed to consistently rewarding our shareholders while maintaining a strong balance sheet. Trent will discuss our business and outlook in a few minutes. But first, I will turn the call over to Bill to review our financial performance. Bill?

Thanks, Brian. So yes, we had a really great start to 2026. Our first quarter revenue was $2.9 billion, an increase of 56% compared to last year. Same-store revenue increased by 51% or $943 million. Revenue increased in both segments with an increase of 88% in our Electrical segment, while our Mechanical segment revenue increased by 47%. Both segments also continue to benefit from strong demand in the technology sector, although we will face higher comparables in the second half of 2026, we believe same-store revenue for the full year 2026 and is likely to be higher than 2025 revenue by percentage growth in the mid- to high 20% range.

Gross profit was $754 million for the first quarter of 2026, which is $351 million higher compared to a year ago. Our gross profit percentage grew to 26.3% this quarter compared to 22.0% for the first quarter of 2025. Gross profit in the quarter benefited from $43 million in favorable developments on late-stage projects, including change orders, especially in our Mechanical segment. Quarterly gross profit percentage in our Mechanical segment improved to 26.9% this year compared to 21.7% last year. Margins also moved up by almost 2 full percentage points in our Electrical segment to 24.9% as compared to 23% in the first quarter of 2025.

We currently expect that gross profit margins will continue in the strong ranges that we have averaged over the past several quarters. SG&A expense for the quarter was $269 million compared to $195 million in the same quarter of 2025 as we grew people and rewarded our busy teams in markets across the nation.

So with the large jump in revenue, SG&A as a percentage of revenue was 9.4% this quarter compared to 10.6% in the prior year. Our operating income increased by 132% from $209 million in the first quarter of 2025 to $486 million for the first quarter of 2026 with improved gross profit margins and SG&A leverage, our operating income percentage increased sharply from 11.4% to 17.0%. Our quarter-to-date effective tax rate was 23.2% compared to 18.6% in 2025. Our prior year effective tax rate was lower due to interest we received on a prior year tax refund. We expect our full year effective tax rate to be around 23%.

After considering all these factors, net income for the first quarter of 2026 was $370 million or $10.51 per share, and that compares to net income for the first quarter of 2025 of $169 million or $4.75 per share. EBITDA increased by 116% to $524 million this quarter from $243 million in the first quarter of 2025 and our trailing 12-month EBITDA at the end of March 2026 is $1.74 billion. Our free cash flow was a positive $242 million in the first quarter.

Capital expenditures were $147 million in the quarter compared to $22 million in 2025. CapEx was 5.1% of revenue compared to 1.2% in 2025. And expenditures included a large modular assembly building purchase in Texas and other investments in our modular capabilities. We plan similar capital investment for the remainder of the year, and we estimate full year CapEx will be in the range of 5% of revenue. We're also happy to note that during March, we entered into a definitive agreement subject mainly to regulatory approval to acquire another highly skilled electrical contractor. The transaction is expected to close in early May, and we expect our new partner to initially contribute annualized revenues of roughly $250 million with EBITDA margins in the 8% to 10% range. That's what I've got. Trent?

Thanks, Bill. Brian has asked me to comment on our business operations and provide an assessment of our outlook. Backlog at the end of the first quarter was a record $12.5 billion, a same-store sequential increase of just over $500 million and a remarkable same-store year-over-year increase of $5.3 billion. First quarter bookings were especially strong in the technology sector. Our companies are collaborating more than ever to deliver superior mechanical and electrical solutions for our customers. Our revenue mix continues to be led by the industrial sector with that sector accounting for 75% of our volume in the quarter. Advanced technology dominated by data center work increased to 56% of our revenue and advanced technology remains the largest driver of pipeline and backlog. In institutional markets, including education, health care and government are also solid, comprising 17% of our revenue. The commercial sector now accounts for about 8% of revenue, with most of our commercial sector revenue flowing through our service activities.

Construction accounted for 90% of our revenue with projects for new buildings representing 75% and existing building construction 15%. Modular revenue was 17% of total revenue in the quarter. We are on track to have 4 million square feet of modular capacity by the end of 2026. And we are actively evaluating additional capacity investments. We include modular in new building construction and in our Mechanical segment. Service revenue was up 8% this year, but with faster growth in construction service is now 10% of total revenue. Service profitability was strong this quarter, and service continues to be a growing and reliable source of profit and cash flow.

Before we turn the call over for questions, I want to join Brian and Bill and the team here in Houston in thanking our over 23,000 employees for their hard work and dedication. Comfort Systems USA success is a direct result of the people that serve our customers every single day. We're now going to turn this call back to Latif for questions. Thank you.

[Operator Instructions]

First question comes from the line of Adam Thalhimer of Thompson, Davis.

Great quarter. Bill, the CapEx forecast for the rest of the year, can you give a little more color on what that is? And is that more geared towards projects you've already booked? Or are you getting ready to handle future orders?

Just as it's been for the last really couple of years, the answer to that question is all of the above. So we did buy our biggest building ever in Houston in the first quarter. Once you buy them, you then have to spend tens of millions of dollars putting cranes and robots and various turntables and paint booths and stuff like that into the building. One of the reasons we're buying these buildings now is because we've become a lot more automated, and we put so much money into the building, but it doesn't make sense to make those big investments into a building you don't own. We are looking at other building investments later in the year. We are -- this building was part of getting to the 4 million square feet. But of course, we definitely have the demand from our existing largest customers and from new customers that we're doing trial, trial -- large -- very large trial orders with add additional capacity if we become comfortable with that later in the year.

Okay. And then the other one for me. Geographically, I'm curious where you are seeing more of the data center demand these days and how that matches up with your capabilities?

Well, I would say by far and away, the biggest epicenter of demand is Texas, right? And it's really, really strong. But we're seeing data center -- I don't know that there is our strongest place. I mean there's certainly the Mid-Atlantic, the Carolinas and Virginia continue to have a ton of activity. And then you've got stuff in places like Mississippi and I don't know, up in the Upper West, there's stuff going in. So it's just kind of -- it's kind of amazing just the sheer -- the sheer sort of [ stand ] of it.

And Adam, we can handle the geographies because we have a significant traveling workforce. So where they want to build them, we pretty much can accommodate them.

Our next question comes from the line of Timothy Mulrooney from William Blair.

This is Sam [indiscernible] on for Tim. I want to dig a bit more into your new guidance here. Mid- to high 20% organic growth for the year would obviously be a great result. It does imply to a fair amount of growth moderation through the year. And I understand the comps get a bit harder here, but you had great momentum in the first quarter, and your backlog growth continues to outpace revenue growth. I guess given this, I think it would be helpful for us to understand a bit more how you came to the mid- to high 20% organic growth rate for the year here.

So you know at Comfort, the way that we come up with this is very organic. We get projections from our field, and we we know what our work that's committed is. Obviously, if we give guidance, it's at levels that we feel -- have very good reasons to believe are extremely achievable. Having said that, I'm not sure I agree with you that to get to something like the high 20s or something, you still got to be above 20% on average for the next 3 quarters. And I know you acknowledged this. But we had some really big revenue quarter [indiscernible] revenue quarters in the third and fourth quarter. And then the last thing I'll say is revenue is never our goal, our goal is profit. And so we just want to make sure that we take the amount of work we can do that we get paid barely for the unbelievable productive capacity that we have and the risk that we take is also well compensated.

Yes. That makes sense. That's helpful. Maybe another one on the data center topic here, but several states have begun talking about data center bands or even limiting access to power. I'm wondering for the regions you're more exposed to on the data center side. Are there any pieces of legislation or proposals that you're actively tracking or closely following that could put some of your projects or backlog ever risk?

At this point, no. There's no states where we're involved that have proposals out that we've been tracking and they just don't impact our geography. And then the other thing I'd add to that is any time a large project that has a big footprint is getting put into some sort of community or state, and there's a lot of build occurring. There's always been pushback on these things historically. So this is something that we've been able to work around for years. It's not, I don't think, a high level of concern.

Additionally, we have a very good nexus of work in the states that are not currently in any sort of discussion. In fact, they're encouraging the build-out in the states that we are primarily focused on right now with where our geographies are. So in the long term, something we'll continue to keep an eye on, but it's not a pressing concern in the current environment.

And as we sit here today, the demand of the data set still exceeds the supply.

Our next question comes from the line of Sangita Jain of KeyBanc Capital Markets.

Can I ask one on the Electrical acquisition that you just mentioned, maybe the geography of that acquisition, the core end markets is participating or any other information that you can help us with?

So this is a company that is right in our sweet spot. It's the kind of company that is incredibly strong in its market. Its market is in the West. I can't get too specific because, obviously, until we announce it, you don't need to know about it before the people there know about it. But it's in a core market that we love where we already have a mechanical. It's going to be a great acquisition that helps a little.

Got it. And I appreciate your giving us more details on how you came up with the guidance for this year. So as you were planning for your guidance for the remainder of the year, can you talk about where you found the biggest pinch point for growth? Is it labor? Is it procuring the equipment you need or maybe something else? Any color would be helpful.

I mean it's always and forever for us. It's labor. That may change some, David, as of today, we have unbelievable workforce, but they can only do so much work, and they basically tell us. They take the work that they can confidently deliver for their customers. If you look at our same-store growth, it's unbelievable what these -- our workforces are accomplishing, the additional work they're able to take. Our head count -- if you look at the head count in the first quarter of 2025, it's 3,000 or 4,000 people higher in the first quarter of 2026, depending whether you include or don't include sort of travelers and temporary workers that are always W-2 employees. That's a very, very big source of that increase.

In addition, our materials and equipment as a percentage of our revenue is up by a couple of hundred basis points, and that drives -- but a lot of that increase in headcount last year happened from the first to the second quarter. So a lot of the sort of the 23,000-plus level that were -- we were much closer to our current level of employment by the end of the second quarter last year then we were -- we had a great spring hiring season last year.

So we're just comfortable mid- to high 20s. Obviously, if you average that, it's well above 20% on average a quarter for the next 3 quarters. In the real world, what will happen, we never know, but we feel like we should give you guidance based on what we see and we're confident in.

Our next question comes from the line of Josh Chan of UBS.

Congrats on a really good quarter. I guess I was wondering if you can talk about the project pipeline. So basically, the future projects that could enter the backlog in the future, I guess, I'm asking this because book-to-bill this quarter was like 1.2, which is pretty normal for Q1. But for the last 4 quarters, you have been running massively strong book-to-bill. So I was just wondering if there's cadence change or how you're thinking about the market?

Yes. So Josh, we -- the high-level answer is the pipelines are still very full, very strong, close to [indiscernible]. So there's no issue with the pipelines and availability of work. What I -- and we're really happy to see is we're maintaining our discipline and the selection of work we're taking. There is no sense overcommitting ourselves in work that we can't do properly. So I think the way we're approaching this is the way we've always approached it. It just to make sure we can deliver a good product and service to our customers and that means staying within our lanes, the work we're taking in our wheelhouse, and it's evident in the margins we're delivering. So at lines are good, and we're really comfortable with the backlog we have.

In the 30 years I've been watching this industry almost the whole time, whenever you saw deceleration or whenever you saw limitations, until the last couple of years and sort of the ability to convert revenue or book work, it was a demand issue. Today I think it's really important for people to understand that it's a supply issue. There is plenty more work we could take if we could possibly do it. And so it's very, very hard to really internalize that paradigm after it never having been true in living memory. But today, when you see somebody like a prognosticator like McGraw Hill or FMI, revise downward their number for next year especially to anything remotely close to the super cycle and in the kind of markets we're in, in the mid-Atlantic and the Southeast and Texas and the really, really hot Rocky Mountain states. It is not that suddenly people don't want to build buildings. It's only a certain amount of buildings can be built, and that's what's going on.

Yes. Great color here. Thanks, Brian and Bill. And then maybe my second question on CapEx. So I know that for the modular capacity you've historically leased your buildings, and you mentioned why you're purchasing them now. I guess like what does that mean in terms of what you think about the durability of the cycle now that you're willing to kind of actually put your own money into the buildings? And does that suggest you have much more confidence in the outlook?

Well, so for one thing, you know us well enough to know that we don't go invest in buildings without being very, very confident that we have customers for those buildings. And for many of these buildings, we are insisting as a condition of us committing our capacity that customers make multiyear commitments at volume levels. And that allows us to give them better pricing, right? We would have to demand higher pricing. If we were certain that the capacity we were building wouldn't have a longer period to pay off. And it also tightens our relationship with these customers, right? We try to find out what they need, and we try to help them every way we can to get what they need.

Our next question comes from the line come from the line of Brian Brophy of Stifel.

Congrats on another nice quarter here. Wanted to ask about the $43 million change order close of benefit you mentioned in your opening comments. Just any more color on what drove that benefit this quarter? And I guess, so to the extent, was this more a kind of a onetime benefit from your perspective? Or is this more of a reflection of the environment we're in, with favorable T&Cs and is there an opportunity to continue to get these kind of benefits more consistently moving forward?

So I'll talk about it numerically, and then if Trent wants to, he can -- he's the one who would be able to talk about sort of what's happening in the jobs. But essentially, the reason we called this out, put it in the MD&A, quantified it is because there really were a few unique things that we don't believe are just business as usual. We had late-stage jobs where we received change orders. You may recall we had something like this 2 or 3 quarters ago where we collected some money on a job based on a negotiation that we didn't expect, where we see something that -- like we get the question from shareholders like you, was there anything special in the quarter?

We like to be able to answer that truthfully. So to answer it truthfully, we have to disclose it in this forum. And those really are not repeatable things. Things like that. Things like that can happen in the future, they have happened in the past, but they don't happen every quarter. If you take that $43 million and you back it out, it's almost $1 a share, and it takes our gross margin and it puts sort of at -- something like 25.2 which sequentially is much, much, much closer, it's still very high, but it's much closer to what you would expect in the first quarter. And so we just felt like the disclosure would be we don't like to give information, but we do do that when we feel like we owe it to you guys. So that -- hopefully, that helps.

It was just a mixture of change orders from the descope and then also additionally, some really favorable closeouts on some work that was new to the operating companies that were performing it, and they just recognized disproportionate gains at the end of the job because of their ability to deliver. It's really just it's really a credit to the teams that we're working so hard to make sure that they deliver to their customers. So that's what it blows down to.

Yes. That's helpful. And then I guess just looking at electrical growth, it was about 80% organic this quarter. It's been around that range for a few quarters now. I realize some of that is price and productivity, but obviously, headcount is a big part of that as well. I guess maybe just touch on where are you finding all these electricians and just how sustainable do you think your ability to grow headcount at this pace is?

Well, I think we're finding everywhere, but as we've said there is -- we're a really good place to work. We pay people well. We do a lot of training. We have a lot of work that attracts people. So the type of work we're getting is attracting a lot of electricians throughout the country. Can we keep the pace that we're going to try to. We're full court press and recruit and hiring. And so far, we've had good luck doing it. But we'll continue swinging away at it, Brian.

Our next question comes from the line of Julio Romero of Sidoti & Company.

Bill, you mentioned earlier that Comfort's goal and focus is on the gross profit dollars and still the 26.3% gross margin percentage you put up this quarter, eye-popping, even backing out the $43 million change order, as you said, 25.2 is still very strong. Just asking about the sustainability of those gross margins on a core basis going forward? And then kind of related to that, as you take on these additional larger projects, are we seeing any change in the mix of activity versus cost pass-throughs that flow through the revenue line that might cause gyrations in the gross margin line on a percentage basis?

So the answer to the second one is no. Actually, we're seeing, if anything, more uniformity in the work that we're taking and more repeatability, which is one of the reasons that we're doing so well. We're able now to sort of -- we have a much stronger ability to pick our counterparties to make sure that we do work with people. We've done similar work with people who have proven that they're constructive when issues come up. And so I would say, if anything, we probably feel more comfortable than ever with that sort of structural internal cadence.

As far as the ability to maintain the margins, we said we expect to stay at the high margins that we've averaged over the last several quarters for the next several quarters. Everything else we said on this call is super supportive of our ability to extract high margins and to get rewarded for the work we do. And I -- as much as Brian Lane likes to complain and cry, we're -- we're in a pretty good market and we got the best teams in the world. And so at some point, we just have to take the win.

I want to keep crying, Bill.

And only one thing I'd like to tack on to that is just we wouldn't be achieving these types of results if it wasn't for the teams in the field and their commitment to constant improvement. It's really our companies, especially our company's field leadership that's fostering a culture of continuous improvement, and that is in these results, right? It's just hats off to the teams out there that are making this happen.

Really helpful and insightful. And then secondly, related to kind of your point earlier, Bill, about partnering with repeat customers and choosing your customers and repeat end-use customers kind of a broader question about the longer-term revenue opportunity on these technology construction projects. Is there an opportunity or have you thought about an opportunity to expand wallet share with the owner-operator of the data center beyond the initial construction scope by cross-selling any adjacent solutions related to monitoring sensors or just overall optimization of the data center?

I think there's a wonderful maintenance and service opportunity that think about the installed base that's being created and then sort of think about the companies that are doing it, the advantage we have and understanding it. And like -- and even if you take our modular stuff, the modular units that we build are built to be maintained. They're built to have great accessibility to the parts and pieces that we'll need in the future. There are also -- there's a lot of consideration that's going into the work we do today about what -- in what ways things might need to be retrofitted in the future.

For example, if they were to achieve chips, that do not need to be cooled as much. Then at some point, you could keep high levels of cooling, but you would still have to add electrical capacity in order to add additional servers. And I know for a fact that in some cases, consideration is being given much more than it has in the past about the ways that the technology might change in the future and making sure that you can exactly future-proof stuff but you can give yourself options and a lot of that's happening.

It's really -- it's one of the great advantages of doing something on this scale, you -- and for us, right, doing it in so many states with so many great companies that talk to each other. We can bring something to our customers that is pretty close to unique

I would now like to turn the conference back to Brian Lane for closing remarks. Sir?

Thank you. I think in closing, I really want to thank our amazing employees again. We are truly fortunate to have the people that work at all levels of this organization. It's a real privilege to be here. We appreciate all your interest in Comfort Systems and then we look forward to having a really strong 2026. Thanks again, and I hope you all have a great weekend. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q4 2025 Comfort Systems USA Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to the speaker for today, Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Lisa. Good morning. Welcome to Comfort Systems USA's Fourth Quarter and Full Year 2025 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 in our comments. You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K 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, Chief Executive Officer; Trent McKenna; President and Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.

All right. Thanks, Julie. Good morning, everyone, and thank you for joining us today. Last night, we reported record earnings and backlog and exceptional cash flow, thanks to best-in-class execution by our teams across the United States. Same-store revenue growth for the fourth quarter was 35%, and our quarterly gross margin exceeded 25% for the first time in company history. We are reporting $9.37 per share this quarter, up 129% from last year, and we earned $28.88 per share for the year compared to $14.60 in 2024.

Backlog increased to a new all-time high of $12 billion, thanks to fantastic bookings in the quarter. Backlog growth was especially strong with technology customers, but our bookings and pipelines are strong in practically every sector. 2025 operating cash flow was $1.2 billion, laying a strong foundation for continued investment, the net cash flow demonstrates strong trends in our execution, customer relationships and prospects.

Our modular capacity is currently around 3 million square feet, and we expect to increase this to approximately 4 million square feet by the end of 2026, with planned additions in Texas and North Carolina. We continue to explore every opportunity to invest in our businesses. And in addition to expanding our modular footprint, we are investing in technology, equipment and training for our amazing workforce.

Also, as announced previously, we acquired 2 great electrical companies during the fourth quarter, FC in Michigan and Meisner in Florida. Both are off to a great start, and I am happy to have them as part of Comfort Systems USA.

We have increased our quarterly dividend by $0.10 to $0.70 per share. And with our share repurchases last year, we are proving our commitment to rewarding our shareholders. Trent will discuss our operations and outlook in a few minutes, and I will make closing comments after our Q&A, but first, I will turn this call over to Bill to review our financial performance. Bill?

Thanks, Brian. As Brian demonstrated these results are unprecedented. Revenue for the fourth quarter of 2025 increased by 42% compared to last year to $2.6 billion. Full year revenue for 2025 exceeded $9 billion, an increase of 30% compared to 2024. For the full year, our Mechanical segment revenue increased by 21%, benefited by modular expansion and substantial organic construction and service growth. Electrical segment revenue increased by 62% and overall same-store revenue increased by 26%. Despite tough revenue comparables in 2026, we expect same-store revenue will rise by mid-teen to high-teen percentages this year, weighed more heavily to the first half of the year.

Gross profit was $675 million for the fourth quarter of 2025, a $241 million increase compared to a year ago. Our gross profit percentage grew to 25.5% this quarter as compared to 23.2% for the fourth quarter of 2024. This margin improvement was achieved through excellent execution within both of our segments. The quarterly gross profit percentage in our Mechanical segment improved to 24.9% compared to 22.4% last year, and margins in our Electrical segment continued to climb to 26.9%.

Full year gross profit increased by $719 million, and our annual gross profit margin was 24.1% as compared to 21.0% in 2024. Our electrical margin was 26.7% for 2025, while mechanical was 23.6%. As we look to 2026, we are optimistic that gross profit margins will continue in the strong ranges that we have achieved over the last several quarters, although we expect that as usual, our margins will be seasonably lower in the first quarter compared to the full year.

SG&A expense in the fourth quarter was $248 million, or 9.4% of revenue; compared to $208 million, or 11.1% of revenue in the same quarter of 2024. For the full year, SG&A expense as a percentage of revenue was 9.7%, down from 10.4% in 2024. In 2025, our SG&A increased by $153 million, as we invested to support our much higher activity levels.

Quarterly operating income increased by 89% from $226 million in the fourth quarter of 2024 to $427 million for the fourth quarter of 2025. Thanks to the jump in gross profit margins and good SG&A leverage, our quarterly operating income percentage increased to 16.1% from 12.1% in the prior year.

For the full year, our operating income was $1.3 billion, and we achieved a noteworthy operating income percentage of 14.4%. Our 2025 tax rate was 20.9%. Our effective tax rate was lower last year due to interest we received on a delayed refund for 2022, and we estimate that our tax rate in 2026 will be around 23%.

After considering all these factors, net income for the fourth quarter of 2025 was $331 million, or $9.37 per share, and this is a 129% improvement in quarterly earnings per share from last year. Our full quarter full year earnings per share for 2025 were $28.88 as compared to $14.60 per share in the prior year, so our annual EPS grew by 98%.

EBITDA increased 78% to $464 million this quarter from $261 million in the fourth quarter of 2024. Same-store quarterly EBITDA increased by over 70%. Full year 2025 EBITDA was $1.45 billion, and our EBITDA margin was 16%. Full year free cash flow was a record $1 billion. CapEx in 2025 was $155 million, just over 1.7% of revenues. We continue to invest in our operations, expand our modular capacity and purchased vehicles to support the growth in our service business.

We increased our investment in share repurchases in 2025 and returned more than $200 million to shareholders by purchasing over 440,000 shares at an average price of $489 per share. Since inception, our share purchase program has retired approximately 10.9 million shares at an average price of $50.15, and we have returned more than $546 million to you, our owners. That's all I've got, Trent.

Thanks, Bill. I'm now going to discuss our business and outlook. Backlog at the end of the fourth quarter was $11.9 billion, a same-store increase in both sequential and year-over-year backlog. Same-store sequential backlog increased $2.4 billion, or 26%, driven by bookings within the technology sector in both traditional construction and modular.

More than 1/2 our sequential backlog increase was new modular bookings and with the continuing increase in modular and larger project backlog, the duration of our backlog continues to extend. Since last year, our backlog has doubled with an increase of $6 billion on a same -- and on a same-store basis, our backlog is 93% higher than at this time last year.

Our revenue mix continues to be led by the industrial sector, which includes technology and industrial accounted for 67% of our volume in 2025. Technology dominated by data center work was 45% of our revenue, an increase from 33% the prior year. Industrial and specialty technology is the largest driver of pipeline and backlog. Institutional markets, including education, health care and government are also strong and represent 21% of our revenue.

Commercial service markets are active for us. However, our commercial construction is now a small portion of our overall construction business. Construction accounted for 86% of our revenue with projects for new buildings representing 63% and existing building construction 23%. We include modular in new building construction and year-to-date, modular was 18% of our revenue.

Service revenue increased by 12% this year, but with faster growth in construction, service is now 14% of our total revenue. Our overall service business achieved a record $1.2 billion in revenue for 2025, and service continues to be a growing and reliable source of profit and cash flow.

With unprecedented backlog and strong project pipelines and given the confidence we feel in our best-in-class workforce, we expect continued strong performance in 2026 and we feel confident in our prospects.

I want to take this opportunity to close by thanking our over 22,000 employees for their hard work and dedication. Our success is a direct result of the people that serve our customers every single day.

I will now turn it back over to Lisa for questions. Thank you.

[Operator Instructions] Our first question today will be coming from the line of Tim Mulrooney of William Blair.

I wanted to ask a clarification question on the backlog, and then I have one for Trent about labor. But first on the backlog, I think folks are going to look at your backlog, and they see that that growth accelerating there. And they're curious what that's really based on. So could you talk a little bit more about how this all really works? Like is your technology backlog today, is that reflective of the recent spike in CapEx that we've seen at the major hyperscalers recently, those announcements the last couple of weeks? Or is your backlog today reflective of hyperscaler spending plans last year or 2 years ago? In other words, are you early cycle or later cycle on the CapEx announcements that we see?

Thanks, Tim. So yes, so if you -- if we put something into backlog, it means that we have the legal -- a binding legal commitment, a price and a scope in order for us to meet those 3 requirements, a building has to have been planned a year or 2 ago, right? We're not booking backlog for things that are being committed to today. The backlog we hit -- we book is for stuff that's already -- the holes have been dug, things are being built. So we -- for a long time, people have thought of construction in a rubric. There's the early cycle players. That's mostly engineers and architects. There's the mid-cycle players. It's the people who start -- dig the hole, start the building, and then we're what's called a late-cycle player.

So by the time we are booking backlog and especially by the time we're booking revenue, we're really working on things that came up 1 to 2.5 years ago. So for these gigantic projects, I think as you were kind of implying, we'll see whatever commitments they're making now, we'll see that in '27, '28 in our revenue.

Okay. That's very clear, though. That's exactly what I was asking about. So thank you for clarifying that. And then just shifting gears completely. I -- Trent, I wanted to ask about the labor shortage situation could have seen -- you've added more than 7,000 employees over the last 24 months, according to your SEC filings. So it's a lot. So I guess my question is, are you able to still source enough talent to fulfill all this demand? Or are you seeing more bottlenecks these days? And can you talk about the different things that you're doing as an organization to build and retain this critical talent pool?

Yes. Thanks, Tim, for that question. First, I think, first and foremost, our operating companies are really great places to work. They attract best-in-class craft professionals and leaders in the industry. And that's across the board, Comfort Systems companies all meet that description. And then one of the things that we've talked about in the past and we continue to invest in and grow is our in-house capacity to provide contract craft professionals on a traveling basis, and that's in Kodiak and pivot.

And pivot brought to us also a technology stack that has really helped us grow that piece of what we're building to be able to meet the labor needs of our customers. And this really gives our business leaders at a local level, greater flexibility to pursue work, either in remote geographies or work that would otherwise have had too large of a peak staffing requirement for them to have previously gone after. So when you see those numbers, one, it's an all-of-the-above approach to hiring. And then two, it's a novel and new approach for us with regard to contract craft professionals. And that's how we're currently approaching this demand environment where we have a lot of work to chase.

Understood. Congrats on a nice quarter.

Thanks.

Thanks, Tim.

Our next question will be coming from the line of Adam Thalhimer of Thompson, Davis.

Congrats on another wave of record results.

Thanks, Adam.

A similar question to Tim, but I was hoping you could give us more color on the bookings in Q4. What kind of projects are those? And when will those start construction?

So there were -- so if you look at the enormous sequential increase of $2.6 billion in bookings, a little over half of that was new bookings and modular. So in past years, we've sometimes had a lot of year-end purchase orders and modular. And as the business has scaled up, that scaled up too. That work is a huge proportion of the work that was actually booked this quarter is going to perform in 2027. Some of it will be in 2026 in the new buildings that we've committed to, and some of it actually goes into 2028.

For the rest of the business, the well over $1 billion of new construction project bookings, that is highly generally reflective of the most busy sectors, which is, by far, data centers is the most busy of those sectors, although there's really good activity in manufacturing in pharma and in other verticals such as food processing. But the projects are really big now. And so that means that they get into -- they sit in backlog for a longer period of time. And I think some of what you saw with those bookings was people trying to get us signed up for their project as soon as possible because I think there's a general understanding with the demand right now for construction services in the United States, not everybody who wants a building gets one. So it's a busy time and it's a great opportunity for us to really reward the people who are great partners for us.

Perfect. And then I wanted to ask about the modular expansion, the 3 million to 4 million square feet. Does all of that come online at the end of 2026, or does that kind of come online throughout 2026? What's your ability to add square footage beyond that? And then how does that impact CapEx this year?

So the single biggest procurement of space will close at the end of February. We'll be doing something in that space within a month or two, but it won't be fully productive until the end of the year. So I'd say it's more -- it's a gradual addition over the course of the year. But I think some of that space, we will be productive, especially final assembly space, we can be productive in that very, very quickly.

And do you have a forecast for 2026 CapEx, Bill?

If I had to -- so a lot of it will depend on whether we sign leases or purchase buildings. We are doing one very large building purchase in the first quarter. We are looking at both leasing and purchasing for another very big investment that we'll probably be making in North Carolina. So I really don't. If I were forced to, I would say, the 1.7% you just saw is kind of a baseline rate for us right now. And then if you buy a building and it's $60 million, $70 million, that's going to move the meter a couple tenths of a percent. So that's the best I've got for you.

Our next question is coming up from the line of Julio Romero of Sidoti & Company.

My first question is on the same-store sales growth expectation of mid- to high teens year-over-year in 2026, more weighted in the first half. Could you give us a sense of how much of the full year contribution is weighted to that first half? In other words, are we looking at a particularly strong first and second quarter where the same-store sales growth is similar to what you saw in 1Q '23, in 2Q '24 in that 30% growth range? Or how would you have us think about that, that growth in the first half?

Yes, it's interesting. It's not so much that the growth is heavier in the first half as the comparables last year are steeper in the second half of this year. So I think we're going to grow consistently through the year. But you -- the extra growth you saw in the third and fourth quarter of last year just makes it [ as deeper ] comparable. So essentially, we looked at -- we budget, right? We just had our year-end budgeting process. We look really hard at what of the new backlog and of the existing backlog, we think will come through. We think about our service business, we think about our modular capacity and we come up with sort of a full year revenue number.

But then when you just say, okay, and so that has a percentage, let's say, in the mid- to high teens. But then when you look at that, you have to take into account that last year, the pattern was a pretty steep ramp up. And so the first 2 quarters just the big number you're going to compare to is proportionately a little smaller.

Super helpful there. And then I had one other one about as data centers continue to increase in density, you're obviously seeing increase in scope and in project complexity. Can you maybe dive a little bit into how that improves the project economics for Comfort System. In other words, if scope is increasing 3 to 4x versus 5 years ago, given the scarcity of skilled contractors that can kind of tackle that fair to assume your project economics are outpacing the increasing density of data centers?

Yes. Well, it certainly has been doing that over the last several quarters, right, as evidenced by the results that we just demonstrated. We definitely have an opportunity to demand that we be rewarded for the risk and for the commitment of scarce resources to people. At Comfort, we don't price primarily based on gross profit per hour work. We put a very, very heavy emphasis on work that will be good for our people, places where they can get to it without stressing their family. They have -- they can find a place to live. They can get lunch, other contractors on the job who are their friends.

So there's a -- when your workforce is as scarce as ours is, if you thought about it, I don't think it would surprise you to know that being good to your workforce is almost more important than making sure that you optimize something that's in a spreadsheet, right? Because the spreadsheet is no good if the people aren't there.

And Julio, 1 more thing. I mean even when they're getting bigger, which they are getting a lot bigger, the work is still the same for us. Is this more of it? And I really do think it helps with your productivity and your planning, at least the ones I've seen. So it does -- I think it does help our economics in terms of how fast we can go as well.

That question comes from the line of Brent Thielman of the D.A. Davidson & Company.

Great quarter. Again, I guess just a question. I mean, it looks like you saw a measurable increase in modular contribution in the fourth quarter, and happen to see pretty meaningful operating leverage here as well. SG&A as a percentage of revenue. So I mean, I think it's the lowest, I think you've ever seen for a fourth quarter that I can remember the two go hand in hand? Anything else that you would say is driving that operating leverage is it ultimately reflecting this benefit at the fixed overhead at modular this quarter?

So I'll start with the second one and say something briefly about your first question and then let see if anybody else has anything they want to say. That SG&A leverage, we increased our SG&A expenditures by $155 million. That's a lot of money in the real world. That is a lot of human beings and computers. And it's just that our revenue is growing so much faster that we're still getting leverage, and I think we just talked about pretty strong revenue growth next year. If we were to hit that revenue growth, I don't think our SG&A would grow quite as fast. So there's some of that still available to us.

As far as the prior question goes, and if I don't answer it, I think it's a pretty down to earth answer. It's execution. It's getting good pricing, it's just having an opportunity to go out and let our people do what they're great at and having them have enough money in the job to account for the risks and to take care of -- take care of their people. I don't know. Maybe I didn't answer your first question, but that's what I'm thinking.

Okay. Well, to be continued there, Bill, I guess. maybe another question just on modular. You guys had a number of initiatives, I mean, even before talking about this $4 million square footage, a lot of initiatives in terms of growing physical space, upgrading equipment, so I think, all were intended to help you kind of debottleneck. Where would you say you are in terms of leveraging the investments you've already made there at modular? And are there still some of these things coming online through this year before the square footage increase that maybe you haven't fully realized the benefits of today?

I mean Yes. I mean we're on a fantastic journey, right? One of the interesting things, you heard me talk about how we might be buying more buildings. But one of the reasons we're looking at buying buildings rather than leasing them, we don't want to be in the real estate business, is because the amount of money we're putting into these buildings in the form of robotics and other optimizations using automation, makes it so that you really don't want to drop $30 million into a $60 million building you don't own. And I think we're making great progress. I think that -- it's really -- it's extraordinary to see what's being accomplished by those guys.

The last thing I want to do is just come back to the beginning of your question. The other thing is modular grew precipitously. And if you look in the MD&A, you can see groups precipitously on both revenue and the profitability side, but it's still only 18% of comfort. The rest of comfort is growing pretty much the same. It's a modular is an extraordinary wonderful ingredient for our success, but it's one ingredient and everything else is doing great as well.

Yes. If I could, I'd like to just commend that team. What the modular teams at Comfort Systems have been able to accomplish is really quite extraordinary with the expansion and also performance that they're continuing.

Yes, for sure. One more, if I could. Just -- I mean, it looks like you saw like a $1.6 billion increase in backlog for your I guess, your nonmodular Texas operations for the year. Could you just talk about markets outside the data center in Texas? Or should we just be talking about data center in Texas to the stick build operations, just adds a few questions there.

Yes. No. I mean, if you talk about Texas, it's a combination of modular and stick build. We're getting a lot of electrical work. As you know, we have the largest electrical contractor here in Texas for sure. We're going out more West to building in bigger so that has grown considerably. But also the other electricals we have are just outstanding as well throughout the country. So margin gets a lot of attention, but the stick build is still a very popular build and how people build either data centers or other facilities.

Well advanced technology, which for us, at least in the last 12 months is almost, it's overwhelmingly data center, that went from 33% of our revenue to like 45% of our revenue year-over-year. So the reality is it is a -- in Texas, data center is just coming and demanding the construction resources that we have. And the good partners are making it worth our while to dedicate the overwhelming majority of our resources to that vertical.

Yes. I'm just going to -- the Texas situation is really probably unique in the country with the amount of build that they're going, West Texas, there's a lot of, obviously, energy, et cetera, that's out there. But the amount of opportunities we're looking at is really outstanding.

Our next question is coming from the line of Josh Chan of UBS.

Congrats on a strong quarter.

Thank you.

Yes. I guess, Brian, you've talked for a long time about not overcommitting to jobs. And so do you feel like your subsidiaries still understand that? Do you feel like there's any push from them to take more jobs than you're comfortable with? Just kind of how is that kind of progressing so far given the [indiscernible].

Josh, that's a good question. We've talked about this a long time. I think it's a great question. we remain very disciplined. We go through on the acquisition side of the job, detail process, where we lay out our labor projections on our current work. In the future work, we're going to, once they're going to start, who's going to be available, how many are going to be available on the supervision for that work. So we are right now in a very good position to handle all our backlog and assess what is coming that we can do to make sure we keep our profitability up, productivity up and keep everybody safe. So no, we haven't people and pushing over the skis, the work we have, we can handle.

That's great to hear. And then I guess on your outlook, you you did call out stronger growth in the first half. Obviously, there was a ice storm in a lot of the South and Southeast in Q1. I just wanted to make sure that the operations kind of handle that well and that's not a concern in the near term, I guess?

So we did have some of our biggest operations who had job shut down for multiple days in January. But that's why we're seasonally lower, right? That's why every year, we're seasonally lower. There's always something like that. So I don't think it's -- there's anything -- there's ice storms every year. It's just what you'd normally see.

And why we're talking about this, if you look at the weather particularly up in the north with the temperatures we had, really want to plot our guys for working through it. They did a heck of a job in very challenging conditions for sure.

And our next question is coming from the line of Brian Brophy of Stifel.

congrats on a nice quarter. Obviously, there was some discussion about a month ago on some potential changes to cooling requirements on next-generation ships -- just any color on how that may impact your business and any notable implications we should be thinking about?

I would say not at all. The new chip stuff, he said, okay, we can use 45-degree water, still needs pipe still needs water, 45-degree water is not naturally occurring for 99% of the year and 99% of the places. So I don't if you just talk to our smartest people until they figure out how to run the servers without electricity, they're going to have heat. And yes, we just think people are going to need electricians and pipe fitters, honestly.

Far more impactful for the OEMs than for us.

Yes. No. That's helpful. And then I just wanted to ask about the M&A pipeline and cash deployment. You guys are obviously generating a lot of cash, have a very large cash balance at this point. It seems like your cash generation may be outpacing your ability to deploy into M&A? Maybe that's true, maybe that's not. But just big picture, how are you also thinking about other avenues on the capital deployment side?

The pipeline is good. but the cash flow is relentless. So we like our pipeline. We'll get some done. You might have noticed we spent a couple of hundred million dollars buying shares this past year. Two consecutive $0.10 increases to our dividend is almost a 50% increase to our dividend. I know our stock price keeps running away from it. At the same time, we -- proportionately, if you look at the cash that we have and at least project to have this year, given the M&A we -- the range of M&A we might do, we are not going to have an unprecedented amount of cash as compared to the size of Comfort Systems. There have been times in the past when the financial crisis started, we had more cash proportionately than we think we're going to have in the next little while, and that's why we have some of the great companies we have today. So we're not -- we're definitely of a mindset to continue to have very, very high demands for conviction when we do acquisitions.

We are certainly paying more for companies than we ever have. It's because they're worth more a company with hundreds of electricians that have worked together as a team for years, for decades is worth more than it was in the past, but at some point, we do actually think we're building for a multi-decade period, and we just want to have people that come in and that are good peers to the amazing companies we have. One of the reasons Comfort is so successful is we have so many companies that have -- they've been building data centers for decades, right?

There's nobody on the planet that has better pattern than us in building data centers. And we want to keep the quality of our group of companies very high. And so with acquisitions, we have to choose between conviction and sort of making spreadsheets happy. We're going to stick with conviction. It's done well for us in the past.

And the next question is coming from the line of Sangita Jain of KeyBanc.

Great. So I have a question on the backlog duration becoming longer, which is kind of a little bit different from what has been the case for you guys. Since we still have the supply chain and tariff uncertainties, are you having to contract for this longer duration backlog a little bit differently so that you know you're protecting your returns when you deliver them, let's say, in 2028.

If you look across our costs, like if you look at our cost of goods sold, and you look across our costs, there really aren't -- we don't quote equipment or anything that's highly spec, which is -- on this scale of work, it's all highly specked without getting a quote from someone else. And so that really hasn't changed. We're actually being released even on these long jobs to purchase stuff very, very early, sometimes we're being released -- we're being given enough of a commitment to purchase stuff before the work itself even goes into our backlog the rest of our cost and where we take all of our risk is labor. There's no such thing as sort of 4-year price locks for labor.

So what we rely on there is that we have the best people in the country knowing that they're going to have to take care of their people and making sure that they put the money in the jobs that they're going to need to take care of their people.

And Sangita, Bill and I -- this is Trent. Bill and I is recovering attorneys, both appreciate how much our legal team does to make sure that we have the right contract terms to protect us as we go forward with all this work. And they do a really, really great job of making sure that we're protected contractually.

They do better than they did when Trent and I were general.

Without a doubt, Bill. Without a doubt.

I'll certify possible, we have a little more bargaining power.

Got it. Let me ask 1 more on the modular capacity increase. Can you kind of walk us through your decision on going from $3 million to $4 million. Is that a function of a specific customer coming and asking you for additional capacity? Or is it more you've kind of seen the runway ahead?

It's primarily us taking steps to meet more of the demand from our 2 largest customers. they would buy more if they could. And we really want to do everything we can. They've been great partners for us. We want to be great partners for them. We've added a few customers, but none of them are at scale. And if you look at the new buildings, and you say, okay, what's going to be built in those buildings. The floor space right now is planned for those 2 large hyperscaler customers who have been so good to us.

I would now like to turn the call back over to Brian Lane for closing remarks. Please go ahead, Brian.

All right. Thank you. In closing, I really want to thank our amazing employees again. They're truly outstanding. We had a great 2025, and we are really excited about 2026. Thanks for your interest in Comfort Systems. We look forward to seeing you on the road soon and hope you all have a great weekend.

This does conclude today's conference call. You may all disconnect.

Okay. Great. Good morning, everybody, and thank you for joining the Sidoti Year-end 2025 Small Cap Conference. My name is Julio Romero, and I cover building products, industrial and engineering and construction here at Sidoti & Company. Really pleased to be able to host Comfort Systems USA. Their ticker is FIX. With us today, we have Julie Shaeff, Chief Accounting Officer and Senior Vice President; and Trent McKenna, Chief Operating Officer.

So we'll do a quick overview of the company, then we'll hop right into Q&A. If you have any questions, feel free to type them into the section at the bottom of your screen. Happy to ask on your behalf. With that, Julie, Trent, always a pleasure. Thanks for being here, and the floor is yours.

Thanks for having us.

Thanks, Julio. Good afternoon, everybody. Just to give you -- I think a lot of you all know us, so I'll just kind of give a brief overview of the company. But Comfort Systems, what we really are is an assembled workforce. We have about 21,000 employees across the United States. About 85% of them are -- have tools in their hands. They're pipe fitters, welders, technicians, project managers, and they go out to our customers' job sites and perform both electrical and mechanical installation and service on behalf of our customers.

We're -- about 85% of our business is mechanical right now, where it's HVAC, process piping, plumbing and about -- I'm sorry, 85% of our business is construction, where we're installing the mechanical and electrical for our customers. About 15% of our business is service, where we're going into our customers and servicing the equipment, performing preventive maintenance and doing some small projects for our customers. About 3/4 of our business is mechanical, and that's where we do the mechanical, the HVAC, the process piping and plumbing for our customers and about 1/4 of our business is electrical.

The reason that electrical is smaller than mechanical, we've been a mechanical company for -- since inception, since 1997. We started buying electrical companies in 2019. So that's why you can kind of see it, we're a bit smaller on the electrical side. As far as who we do our work for, we're about 65% of our business is industrial. That includes data centers, chip manufacturing, fabrication facilities, tire facilities, other manufacturing, food processing. So we do that work for our customers. And then about 24% of our revenues is institutional. It's health care, education. We do some government work. And then the remaining is about 13% of our business is commercial. We don't do a lot of commercial construction. Most of the commercial work we do is related to our service operations.

This is a great cash flow business. Our first dollars that we generate from cash flow, we reinvest in our existing operations, whether it be investing in technology, investing in training for our employees. We'll spend a portion of our free cash flow on capital expenditures. We'll buy -- expand our facilities, whether it be the shops or we'll invest in some of the modular capacity. But it's a relatively capital-light business, maybe 2% of our revenues is spent on CapEx. So we have a lot of available free cash flow. And over a 5-, 10-, 15-year period, we'll spend about 75% of that free cash flow on acquisitions. The remaining we'll spend returning money to our shareholders through dividends and through share buybacks. So what we really are is assembled workforce, generate a lot of cash flow and try to deploy it in the best manner possible on behalf of our shareholders. So Julio, this is kind of an overview of the company, and I think we're happy to take some questions.

Excellent. Thanks very much for the rundown. I'll hop right in. Maybe just starting off with what you guys are seeing on the demand front across your end markets, industrial, institutional and commercial. And then also, if you could touch on from your seat kind of how you view the pace of data center and AI-related construction projects over the next several years?

So I'll jump right in. And then if Julie has anything to add, she can come in and add on to that. But we're seeing really, really robust pipeline looking forward into the next several quarters. There's a lot of projects that are being -- are part of that pipeline, right? So when we talk about our backlog, as we mentioned in the past, it's -- we have a signed agreement with a scope and a price. But when we talk pipeline, we're talking more about opportunities that exist. We're not intending to try to get all of those. We try to get the best, and we focus in on what we think is best, not just from a price perspective, but also from our people's perspective and from kind of a quality of project perspective. So really, really robust and strong pipelines.

And that's in -- as you already mentioned, that's in technology with data centers and chip manufacturing. There is some of that in -- on the horizon that we're seeing. They're very episodic and programmatic in how they build out those chip facilities. We see some future opportunity there. In Pharmaceuticals and Life Sciences, one of our -- I think, our -- currently our largest contract is on a pharma project related to GLP-1. We have had some big announcements that we'll get our piece of with regard to GLP-1, but just traditional pharma also has a lot of activity as well. It's not just the GLP-1 drug development.

And then food processing continues to be something that we see a lot of manufacturing as well and health care is really strong. All of that, just to say we have really strong end markets. It's a very good demand environment. So from our perspective, it's all about making the right go/no-go decisions. We spend a lot of time with our teams, making sure that they're focused on how to make those decisions correctly for their markets and for their people and for their expertise. And so that's what we're focused on going forward is making sure that we pick the right projects so that we can continue to have success.

Excellent. And you talked about your backlog and your project pipelines. Your backlog is at record high, $9.4 billion. Your project pipeline, which goes out beyond the reported backlog is historically high as well. And from an end market perspective, it's obviously skewing towards the technology front. But can you also talk about the backlog in terms of a quality perspective, the types of designs, the scopes and the complexity within the backlog at this point?

Yes. So it's skewing, like you said, towards the technology side with the data center customers primarily. But the interesting thing about the way we -- at least the way I think about our business is we're really just about delivering craft professionals to a work site so that we can then construct the facility. And from a craft professional standpoint, the difference between welding pipe in a data center and welding pipe in a health care facility or an industrial facility, there is no difference, right? And so it doesn't matter to our craft professionals. So we're very capable of moving in and out of end markets.

Right now, the data center end market favors us in some ways just because of our size, our sophistication and our scale, right? So that's helpful to us from that standpoint. But overall, long-term thinking, as you think about, okay, the value of Comfort Systems, it really is embedded in its ability to be the place where we're the best place where a craft professional wants to build a career. And we have some advantages from that because of our scale and also our ability to kind of manage the locality and the localness of a business so that a craft professional wants to be part of that business, while at the same time benefiting from the scale of Comfort Systems. So that's all just really the long term helps us from a strategy perspective, be able to meet demand.

And then something we've mentioned before on things and something we were very deliberate about as far as our strategy, we could see a big demand environment coming. No one would have anticipated this sort of demand environment. But because of that, we acquired Kodiak, which is they specialize in contract travelers in traveling labor. So in the craft professional world, you have a labor that wants to stay within about 100 miles of their home. And that's how they like to do it. And then you have a labor that wants to travel, wants to go somewhere and spend 4 to 6 months working on a project and then go back to where they call home. So those 2 people, we needed to supplement comfort systems on the traveler side. So that was why we brought in Kodiak, and they've been really helpful in helping us flex into all this demand and be able to meet the requirements that our customers have.

Right now, we're able to pick the work that we want. We're turning down work every single day. So from a quality standpoint of backlog, and this has been going on for a couple of years now, but it really is some great projects. We're picking the work with general contractors that we believe run really good projects that are safe, that we have a good opportunity to have good outcomes on these projects. We're also able to negotiate some good terms on these contracts right now, and that includes having a good schedule of values so we can kind of get overbilled and being able to collect the money in good order. You can see on our balance sheet, we are significantly overbilled. So yes, we're having a -- we're being able to take advantage of this environment and pick good work with good terms.

Great. Thank you for highlighting, Julie. And you've talked about project selection for a while, but I keep hearing more about like your ability to -- your preference for customers or repeat customers you worked with in the past. What do you look -- what makes a good repeat customer aside from like getting paid early? What makes a good like long-standing relationship with that customer?

It's really -- price is an important factor when we look at projects, but it's not everything. And what we really are looking for is project work that's really good for our employees that our employees are happy to work on that they are -- it's going to be safe. It's in a good geography. It's easy to get to. It's -- the projects -- we think we'll have a good chance of being executed well. The general contractor runs a project that's efficient where we have opportunities to have really good productivity. All those things really contribute to a good outcome on these projects. And I will say right now, we're just seeing our skilled craft professionals are performing really, really well. I mean, the execution is fantastic, and it's a tribute to them. But I also think it's been -- the fact that we've been able to pick the work we're on has contributed to those good outcomes.

Excellent. I wanted to dive a little bit into some AI-related trends and your viewpoints on some aspects that we often get inquiries on from investors about how it relates to Comfort Systems. First one is on generative AI as that becomes more mainstream using from a business aspect, used by creators. Disney today had an announcement about an agreement with OpenAI. As that becomes more mainstream, are you seeing any inflection points or derivatives and demand related to the broader use of AI tools within your business?

Yes. I mean, we are using tools already deeply in the business. What I see from AI is I think there's already -- even if you just said, let's freeze the models today, and we're not going to improve them at all. It's going to take the construction business several years, maybe even a decade to fully integrate the efficiencies that have been already created in the model. So this is a dumb analogy, but I'd like to use it because it helps me understand it. When I was first starting off in my career, there were still lots and lots of people in the workforce that didn't use the keyboard because they hadn't learned to type, right? And keyboard is one of the most -- it's a huge efficiency tool, right, and massive productivity, but they haven't learned to type.

So a lot of our workforce will need to learn how to use these tools because there's already the efficiency and productivity baked into them, and they'll just continue to get better, right? And so it's all about making sure we get them in their hands that we get the use cases. So we have them throughout the entire organization, we're using them and really trying to dig deep on where are we getting the best benefit. And our theory is if we can get it in the hands of people that are doing the work that we'll then start to see the use cases that are best and then we'll share them across.

And I think we have a real benefit from our scale there because we can be doing that at a much larger scale than our competitors. And so that really helps us to be able to identify those use cases and then share them across the entire platform. So I'm really bullish on what AI will mean to us from a productivity and efficiency perspective, but it's going to take a little bit of time because you've got to learn to use it, right, just like how people had to learn to type, right? So that's part of the equation.

Super helpful there. And then maybe even a little bit from a different angle there, maybe from a broader -- aside from an internal perspective, but from a demand perspective, I know you have plenty of work out there, but does that -- does generative AI becoming more mainstream and more used by a broader array of applications? Does that -- has that created any kind of inflection or change in terms of more people knocking on your door for your services?

Well, I mean, we have so much demand in the data center area right now that -- I'm not sure we'd noticed if there was an increase. I mean, I've said this before and...

That's interesting. I mean, that it's so much you can't even...

From my standpoint, the announcements they make, they're trying to build -- they're at least announcing more build than they could feasibly do, right? So -- and what I mean by that is just the U.S. to support it from a labor, from a regulatory, from an electrical grid utility, it's all more than can be done. And so from our perspective, that's a demand environment where we're not -- let's say you add 10% of that, well, it's still not going to get done. So I mean, so from our perspective, it's not really increasing or flexing demand. We're just going to continue to see it. Yes, I think that everywhere I go, it seems like people want to try to say, well, is this a bubble? And there might be certain companies that are in a spending bubble.

But as a use bubble, I don't think we're anywhere near it because I think to my point earlier, which is that even just in the construction industry, it's going to take years and years and years for the workforce to understand the productivity tool that has already been developed, and that tool is just going to continue to get better. And the one thing that's been true about AI from the very beginning is that it requires a lot more compute, and it requires a lot more data than anybody ever anticipated it would, and it just continues to -- as they iterate on it, continues to require more and more of that. So I'm no expert on that, so I don't want to pretend like I am. But what I can see from my demand lens is that that's not going away anytime soon.

That's extremely helpful. And you talked about that even if you freeze -- earlier when we were talking about internal uses, you were talking about that even if you freeze models, the LLMs where they are now, right, there's still a ton of runway for it to be applied internally. I assume that also extends to your customers who are asking for services, too. Maybe aside from the models' perspective, the chip technology continues to advance, right? You hear about these tensor processing chips that are being designed more for machine learning. If the data centers that are being built, if the chip technology changes internally, do you guys have to do anything differently with regards to electrical requirements or cooling requirements? And are you seeing any of that show up in like designs or scopes or anything of that nature?

Yes. I mean the data centers we're doing now are much denser than the data centers we did 5 years ago. And so there's just a lot more work for us inside of them, which -- that means just more piping, more electrical, more -- just more scope, right? And I'm, again, no expert on chips, right? But what we have seen is that data centers that were built for a prior chipset were built for a prior design. They're not really able to just kind of retrofit those into the AI model, right? They're either having to kind of turn those data centers into legacy data centers that house my Instagram pictures or whatever or they're having to really just go ahead and say, kind of tear it down all the way down and then rebuild it for an AI deployment, right? Now who knows what -- again, that's more -- they are way bigger experts on this than we are. But what we're just seeing is that what we used to do for -- if we had x amount of square footage in a data center, what our scope would look like is now 3 or 4x larger than it would have been for that amount of square footage because of the density of these data centers.

Super helpful. I guess, as you're thinking, again, shifting back to implementing AI and automation internally within Comfort Systems and the workforce, what can help that integration? Is it just more focused on AI internally? Is it a combination of maybe adding on some companies like Kodiak, which add help from like craft labor location standpoint? Just talk about that broadly about how you can kind of become more efficient and other things of that nature internally.

Yes. Yes. Kodiak is a great example of us looking and saying, okay, super strong demand environment. We're going to bring Kodiak in. Kodiak Specializes in these travelers. That's going to let our operating companies feel better about flexing up and down depending on what their demand environment looks like. So that's been really successful. And then on top of that, to answer your question about the AI piece, we had this large influx of ability around our -- deploying our craft professional, but that was logistically very challenging with the recruiting and with the bringing in, et cetera. So we acquired a very small company called [ Pivot ].

One of the big reasons why we bought Pivot in was because Pivot had this tech stack that really helped us with the Kodiak travelers and allowed us a quick entry into some AI tools that really helped us with recruiting, with retention, with making sure we know whether our travelers database that's 30,000 to 35,000 names big, whether that database is actually still relevant. So it's reaching out to these employees and keep it to these potential employees and keeping them in warm for lack of a better term. So all of that -- all of that plays into kind of making sure that we're using this technology to really help drive that productivity and efficiency. And this is just one example, right, of where we're using it.

Super helpful. Maybe shifting to modular a little bit. I know that I think last call, you mentioned you'll be at 3 million of square footage by early '26. And I think, Trent, you also mentioned on the last call that you prudently consider adding more based on strong demand. Can you maybe dive into that a little bit more to the extent that you can? Just what would talk about the bar that would be needed to be cleared to kind of think about adding more modular capacity beyond here?

Yes. I think -- I mean, I think based on what we've done over the last couple of years, right, we'd almost have to make a public announcement if we weren't intending to maybe consider at least some expansion, right? Because we've expanded every year for the last several years, that capacity. So we're always looking at that potential expansion, and they will be announced here or there, smaller expansions and things like that. But long term, what would we be looking for, for bigger expansion? Well, there's a couple of things, right? We want to be sure that we have the commitments from our customers for long-term capacity usage, right, because we don't want to build it and then find out they're not going to come, right? So we want those commitments.

But then secondly, we want to be sure that we can staff it, that we have the right talent profile in the area where we're building the facility and that we have the confidence that we can bring in the right craft professionals to be successful because what we don't want to do is expand and then have our quality degrade or expand and have difficulty with the ability to staff those facilities. So that's why we're real prudent in how we think about it, and we make sure to have a very detailed and robust plan moving forward. And it's easy to build the buildings. It's easy to install the cranes. It's easy to put the robots in. It's hard though to find the people that want to do that type of work. And we want to make sure that we're absolutely solving for that before we do any sort of expansion in the future.

Makes sense. You mentioned earlier, Trent, your largest single booking in the past couple of quarters was in pharma. I thought that was notable. Can you maybe expand a little bit into the current pharma landscape and what you're seeing there at the moment?

Yes. So that's a GLP-1 facility in Indiana, and it's like in the middle of a corn field. I'll tell you that. It's shocking to see it being built there from my perspective because I think previously, that might not have been placed in the United States. I think it's an interesting trend that we're seeing. There was a GLP-1 announcement around Houston that I think we'll probably get our fair share of when it becomes time. So that's just the GLP-1 side of the equation.

The traditional pharma side, there are a lot of projects that are -- that we're pursuing. There's a lot of projects that we're looking at. There's a lot of projects that are being announced that are all in very good geographies from where we have historically been able to have success in pharma. So that is all -- I think it's -- there's a lot of reasons that's happening. I think in part, it comes out of the -- this isn't like they're taking production from overseas and mothballing it and then moving it here. It's more just they're making the decision to build new facilities in the U.S.

And I think that's probably a function of business leaders having experienced COVID and the supply line, the supply chain disruption that, that represented. And so they're erring to the side of, hey, if we can figure out a way to make this pencil out in the U.S., let's do it here. And I don't think the tariffs are hurting that in any way. So all of that is a long way of me saying pharma continues to really be very, very strong opportunities for us, especially forward opportunities in that market.

Right. Because you mentioned in the past, the longer lead times and longer planning stages it takes to get to that to that, the pharma side.

Yes. Thank you for mentioning that, Julio.

Absolutely. And maybe some other end markets, health care, education, can you maybe just touch a little bit on those end markets and what you're seeing there?

Yes. Super strong in both those markets as well. We -- not the demand environment that the data centers are seeing, but a robust demand environment. And one thing I'd like to mention because I think everybody focuses so much on the data side, and that makes sense, the data center market is very strong. But if you look at our 50 operating companies, less than 20 are doing data centers because just the regions that those other and the areas of those other companies don't have data centers being built. So they're doing really good business in health care. They're doing really good business in education and institutional. So all that is a way of kind of saying, hey, those markets are really strong as well. So it's a robust kind of across the board. The only place we see weakness, and we've mentioned it before, is in commercial, where you don't see the downtown office buildings, you don't see the hotels, you don't see those types of projects much of that in our demand, in our pipeline right now.

Makes sense. But you do see some of that on the service front, I believe, right? And then...

Yes, most of our service -- so when you look at our service revenue, most of that is in those types of and markets. Yes.

Got you. Julie, you touched on it earlier on capital allocation historically been pretty consistent. Can you dive into that a little bit more and talk about your priorities for cash?

Yes. So over the long term, our growth really has been through acquisition, adding that talent, adding that assembled workforce. So we continue to look at really good opportunities. Again, we'll probably spend about 75% of our free cash flow in a 5-, 10-, 15-year period on acquisitions. We just closed -- we announced with our last release that we closed on 2 additional acquisitions, 2 electrical companies on October 1. There's a lot of companies that are kind of in that $100 million to $150 million range that are in our pipeline and things that we're looking at. Companies in that $300 million to $500 million, those are going to be more episodic. There's not a lot of those. So those will happen when they happen.

We're always looking for good companies. We're not really a fixer upper. So it's very relationship-based. So we don't have quotas for any year. We just continue to get to know these companies over a period of time and hope as they decide they want to be sold that we'll be there and we've built -- we're looking for companies that have a culture very similar to ours, right, that really value their employees. And we're a contractor, we're just like them, and we're a good place for these companies to come. So they are getting a little bit more expensive. It's -- these companies are -- have a higher value than they did 5 years ago. So we're spending -- happy to spend a little bit more money on these companies. But it's really just looking for companies just like us that we continue to grow. And then on an annual basis, we'll continue to do dividends. We've been increasing our dividends pretty steadily over the last couple of years. It's -- the yield hasn't gone up quite as much because of the stock price, but we do continue to increase dividends. And then share buybacks, we'll do opportunistically.

Yes. Have you guys ever -- you've ever bought anything from private equity, right, I think?

I can't -- not any of our contractors we've never bought from private equity.

Got you. It's just been relationship-based, like you said, and...

Yes. We're buying from people that have -- that started these businesses. They can be multi-generational in some cases. And they're baby boomers in a lot of cases. They're looking for an exit strategy. Now we won't buy something when they're ready to retire, we want those folks to work for us for at least 3 to 5 years and in a lot of cases, for a longer period than that because, again, we're buying an assembled workforce. We got to make sure that workforce comes to be part of the future of that company. So it's -- yes, so we're -- we'll just continue to develop those relationships and hopefully continue to build the business that way.

Yes. That's the secret sauce, if you will. Just a quick 30 seconds on what aspects of the story you feel investors maybe should hone in on as we look to '26?

I'll say real quickly and Trent, you can pipe in is we tend to talk a lot about the different end markets, data centers and pharma and stuff. I think it's important to remember that our workforce can do any of these things, right? It's not like we have a workforce of electricians and pipe fitters and welders that go out and do data centers or we have individual operating companies that just do data centers. These companies can do any of this work. An electrician -- honestly, they don't care if they're doing electrical work in a data center or a hospital. So I think that's an important part to understand about Comfort Systems is this -- the fungibility of doing these different types of projects.

And I would just say, short term, the demand environment is really, really strong. And then long term, I think, to Julie's point, we're the best place for -- we want to be the best place for a craft professional to work, and that's what adds long-term value to Comfort Systems.

Building legacies, as you guys have mentioned in the past.

Right.

Thank you, guys, so much for taking the time.

Thank you.

Thank you.

Good day, and welcome to the Third Quarter 2025 Comfort Systems USA Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to turn the call over to Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Michelle. Good morning. Welcome to Comfort Systems USA's Third Quarter 2025 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-K 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.

All right. Thanks, Julie. Good morning, and thank you for joining us on the call today. Our amazing teams across the country continue to deliver excellent results for our customers, and they have delivered financial results that far exceed even our recent outcomes. We earned $8.25 per share this quarter, which is double what we earned in the same quarter last year. Our mechanical business had a sharp increase in profitability and our Electrical segment was higher as well.

We also had favorable developments in some late-stage projects that contributed to our great results. Construction is driving most of our results, but service revenue and profit also grew by double-digit percentages. Our bookings were strong and our backlog at the end of the quarter grew to a new high of $9.4 billion. As a result of exceptional demand for our services, we achieved a second consecutive same-store backlog increase of more than $1 billion despite significant third quarter burn. We continue to book work with good margins and good working conditions for our valuable people.

We entered the fourth quarter of 2025 with $3.7 billion more in backlog than last year at this time.

I'm happy to announce the acquisition of 2 companies on October 1. [indiscernible] Electrical, a contracted with strong industrial capabilities located in Grand Rapids, Michigan and [ Meisner ] Electric, a contract based in [indiscernible], Florida, with strong capabilities in health care and other attractive markets. We are thrilled to have these 2 companies join the Comfort Systems USA family of companies, and we welcome them.

Today, we increased our quarterly dividend by 20% to $0.60 per share, and we have actively purchased shares during 2025. With solid bookings and great demand, we expect continuing growth and strong results in 2025 and 2026.

Trent will discuss our operations and outlook in a few minutes, and I will make closing comments after our Q&A. But first, I will turn the call over to Bill to review our financial performance. Bill?

Thanks, Brian. Our third quarter results were remarkable in every way with 33% same-store revenue growth, sharply higher margins, EPS up by over 100% from the prior year and a surge of over $500 million in quarterly free cash flow. We achieved more than $400 million in quarterly EBITDA for the first time ever, and that's a 74% increase over the same quarter 1 year ago.

So we'll start with revenue. Revenue for the third quarter of 2025 was $2.5 billion, an increase of $639 million or 35% compared to last year. Electric segment revenue grew by 71% and mechanical revenue increased by 26%. Through 9 months, same-store revenue increased 23% and currently, our best estimate is that fourth quarter same-store revenue will grow in the high teen range as compared to the same quarter last year. For full year 2026, we expect same-store revenue growth to continue most likely by a percentage in the low to mid-teens and weighed more heavily to the first half of the year.

Gross profit was $608 million for the third quarter of 2025, $226 million higher than 1 year ago. Our gross profit percentage grew to a remarkable 24.8% this quarter compared to 21.1% for the third quarter of 2024. Quarterly gross profit percentage in our Mechanical segment increased significantly to 24.3% this year compared to 20.3% last year. Margins in our Electrical segment also grew to 26.2% as compared to 23.9% in the third quarter of 2024.

Great ongoing execution augmented by favorable developments in certain late-stage projects drove us to higher margins in both segments. Our largest single discrete project development was recognizing $16 million of previously deferred revenue on a project as a customer emerged from bankruptcy. We currently expect that 2026 profit margins are likely to continue in the strong ranges that we have achieved and averaged over recent quarters.

SG&A expense for the quarter was $230 million or 9.4% of revenue compared to $180 million or 9.9% of revenue in the third quarter of 2024. SG&A increased mainly from ongoing investments in people to support our higher activity levels. Our operating income increased by just over 86% from last year, from $203 million in the third quarter of 2024 to $379 million for the third quarter of 2025. Our operating income percentage surged to 15.5% this quarter from 11.2% in the prior year.

Our year-to-date tax rate was 20.9%. Our effective tax rate in the first quarter was lower due to interest we received on a delayed refund relating to our 2022 federal tax return. We expect our tax rate to continue to be around 23% for the rest of 2025 and into 2026.

After considering all these factors, net income for the third quarter of 2025 was $292 million or $8.25 per share as compared to net income for the third quarter of 2024 of $146 million or $4.09 per share. Thanks to great execution by our people, EBITDA increased by 74% to $414 million this quarter from a strong $238 million in the third quarter of 2024. Our trailing 12-month EBITDA is now $1.25 billion.

Free cash flow for the third quarter of 2025 was $519 million. And year-to-date, our free cash flow is $632 million. We purchased additional shares this quarter. And year-to-date, we have spent around $125 million buying approximately 345,000 shares at an average price of $363.13 per share. At the end of September, our net cash position was $725 million.

As Brian mentioned, we acquired 2 fantastic companies on October 1 [indiscernible] and Meisner Electric. We funded approximately $170 million in purchase consideration in the fourth quarter, and these acquisitions are expected to provide over $200 million in incremental annual revenue and $15 million to $20 million of annual EBITDA.

In August, we finalized an amendment to our senior credit facility that increased our borrowing capacity from $850 million to $1.1 billion on very favorable terms. The new maturity date is October 2030. Our balance sheet and cash flow have put us in a great position to continue to invest, grow and reward our shareholders.

That's all I got. Trent?

Thanks, Bill. I'm going to discuss our operations and outlook. Our backlog at the end of the third quarter was a record $9.4 billion, a large sequential and large year-over-year increase. Since last year at this time, our backlog has increased by $3.7 billion or 65% and $3.5 billion of the increase was same-store. On a sequential basis, backlog increased by $1.3 billion or 15%, all of which was same-store. .

Third quarter bookings were 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 final quarter of 2025 with same-store backlog 62% higher than at this time last year, and our project pipelines remain at historically high levels. Industrial customers accounted for 65% of total revenue in the first 9 months of 2025, and they are major drivers of pipeline and backlog. Technology, which is included in industrial was 42% of our revenue, a substantial increase from 32% in the prior year.

While our manufacturing revenues declined on a percentage basis, we continue to see good demand for manufacturing, but in many cases, data center opportunities are more compelling. Institutional markets, which include education, health care and government remains strong and represent 22% of our revenue. The commercial sector provided about 13% of revenue. Most of our service revenue is for commercial customers. Construction accounted for 86% of our revenue with projects for new buildings representing 61% and existing building construction 25%. We include modular and new building construction and year-to-date modular was 17% of our revenue.

We remain on track to have 3 million square feet of space in our modular businesses by early 2026, and we will prudently consider additional investments next year based on the strong demand we are seeing in modular. Service revenue was up 11%, but with faster growth in construction, it is now 14% of total revenue. Service profitability was strong this quarter, and service continues to be a growing and reliable source of profit and cash flow.

I cannot say enough about the amazing team of craft professionals that we have working hard for our customers every single day. Thanks to the teams that are working across the country, we are optimistic about our future. I want to close by joining Brian and Bill and thanking our over 21,000 employees for their hard work and dedication.

I will now turn it back over to Michelle for questions.

[Operator Instructions] Our first question comes from Adam Thalhimer with Thompson Davis.

Congrats on another wave of record results. I wanted to ask high level on the technology side. Does the bidding activity match the bookings and the revenue growth that you saw in Q3?

Yes, Adam, the opportunities, the pipeline is still robust, matching quarter 3. There's still more opportunities that then probably can be handled out there in the market at the moment. So we've seen no let up at all in the opportunities.

And then I'm curious on capital allocation. Your free cash flow -- or your net cash, I think, broke out to an all-time record in Q3. Just curious how you're thinking about that. And if just accumulating cash from here wouldn't be the worst thing in the world?

Well, that's never the worst thing in the world. There are worst alternatives to accumulating cash. But we haven't changed our capital allocation thinking since 2007. We will -- to the extent we can find opportunities that we have conviction around. We will deploy most of our cash doing acquisitions. We will continually buy back our shares using a portion of our free cash flow, and we get aggressive on that when we feel like the stock has dipped relative to its -- relative to our prospects. So for example, when it dipped earlier this year, we spent $100 million in a couple of weeks buying shares. .

And then we -- one point you might be making is there's so much cash now. Is it realistic for us to deploy it into acquisitions. And I think the answer is we've been -- we faced that problem on a couple of stair steps in our cash over the last few years. So far, our reputation as an acquirer and our commitment to great outcomes for the people we buy have allowed us to find good opportunities to deploy our cash.

One thing people might not think about is we're growing, but the companies we're buying are growing as well. There's a certain amount of scaling going on. So I meet with companies regularly that are having -- that have results that are twice as big as they were 3 years ago. And so in a sense, the reality is the opportunity set that's facing a company with a great, deep, well-established workforce of pipe fitters or electricians is amazing, these companies are worth more than they were 5 years ago just because of actually what's going on because of the investments they've been making in the meanwhile. And we're optimistic we're going to just try to keep doing what we've been doing.

[Audio Gap]

Make sure that timing is right work for us that we can achieve a good product for our customers. So if you look at the timing of what we're winning when it's coming in, -- and can we handle it, we feel very comfortable with the workload that we have today.

And I want to add to the collaboration between our companies is really permitting a lot of this additional booking that yet you're seeing. It's the companies working together to share workforces so that they can tackle projects that would otherwise have been kind of outside of their ability scope previously.

And Julio, one thing that we do have going for us is that we have folks that will travel and you see some of this work, maybe get the West Texas Abilene and Mario that we can handle because we have people that will travel to these sites.

That's very helpful. And then I know a big emphasis is being selective with regards to the specific partners you work with. And I think you guys mentioned earlier, your partners are getting bigger, they're taking on additional work. But just throwing that question back at you guys, has the pool of partners that you work with increased -- or is this just more a function of you doing more with your existing partners?

So what Trent was referring to was our companies working together. We do work sometimes with -- we worked with some companies. We worked with a company we bought called IV before we bought them. We have selected situations like that. But I think overwhelmingly, we're really talking about companies that are Comfort Systems USA companies that are 50 or 100 or 150 miles from [indiscernible].

And it's really a great point for people to come and join us. They have an opportunity to work with a lot of other companies in the same industry under the same overall structure that we have.

Yes. And I'm sorry, to rephrase my question. I mean when I said as the pool of partners increased, I meant, has the pool of kind of the customers that you typically have worked with increased? Or are you doing more with existing customers?

I would say there aren't many people in the United States we haven't done work for in the past. If they've done work in the past, we've probably done it. So that's kind of a hard question to answer, but it's mostly -- there's a definite preference for people who we have a history of succeeding together with. We have rep projects. We don't want to do work with those people anymore. We want to work with the people that we have great projects with over and over. Did you -- I mean, yes.

Our next question comes from Brent Thielman with D.A. Davidson & Company.

Congrats again, another great quarter. I guess, Brian, Trent or Bill, one of the questions that seems to come up often is just your ability to sustain the growth you're seeing outside of modular, just given sort of the industry labor constraints out there. You've grown same-store, call it, 20% or more for what looks to be a fourth year in a row here. And I know there's a lot of factors to the growth over the last few years, but -- maybe you could talk about just sort of how critical had your sort of internal recruiting, hiring efforts been in recent years in support of that growth versus job values getting bigger?

And then also, I guess, is there any sort of slowdown or change you've seen in terms of your ability to bring in people to support the growth, I guess, outside of acquisitions?

Yes. So I'll go for it, Brent. First and foremost, this is a good place to work, right? We treat people fair in what respect. We pay them well, there's a good benefit package. So we're constantly recruiting. But as you can tell by our numbers were up over 21,000 access to another probably 35,000 contract labors that we have. So all in all, we can see recruiting, but we do get people to come here and work. We also have a lot of work, which makes us a good place to work as well.

So how much can we grow? We continue to train. We're improving productivity constantly. We're trying to pick the right jobs that we're good at planning them using [ BIM ], prefab and modular help us, but the enhancement that we are achieving with the skilled work was the best I've ever seen in my career today.

Okay. All right. And then the $3 million growth footage of space and modular that, I guess, becomes available early 2026, I think you said Trent, is that capacity or space already effectively sold out? Or do you expect it to be seen?

Yes. The answer is yes.

Okay. Just one last technicality, if I could. The $15.5 million write-up that you called out, I think, in the filing, is that all reflected in the mechanical segment? Or -- I'm just trying to level set what kind of the margin looks like.

So that happens to be in the Electrical segment. But one of the things we were basically saying is we always get these questions, did you have anything special in the quarter? Did you have jobs that closed out especially well? We have a lot of jobs now. So we almost always do. But at this point, we did have some special closeouts this quarter that were particularly helpful. That was the biggest one. So in MD&A, you required to give an example we gave the biggest single example, but they happened in both Electrical and Mechanical. We're late in some jobs. The jobs are going well. The systems are being turned on and they work well. We're able to relieve contingency. So we did -- this would have been a great quarter without those. This would have been a record quarter even without some of those pickups, some of those pickups pushed our results a little further, and we wanted to just let people know that.

Okay. Sorry. And Bill, theoretically you have these every quarter. It just varies. So even if you might have about them last year.

But the last 3 or 4 quarters, we were frequently asked. Did you have any special closeout and we said in nothing out of the usual. This time, we're saying that we kind of had some -- a little more than we might normally count on having. So I would say we do have -- we had some really good stuff happened this quarter.

Our next question comes from Josh Chan with UBS.

Congrats on a really great quarter. I wanted to ask about the backlog question, but especially within the last 6 months because obviously, you've had a strong demand environment, you have labor constrained. You have labor sharing for a while now. But really over the last 2 quarters, you had these 2 consecutive $1 billion step-up in the backlog. And I was just wondering if anything is different in this last 6 months versus the longer period, I guess?

So it's an interesting way you asked that question. Every quarter is different from every other quarter, right? We had some big bookings sometimes they're in pharma, sometimes there -- it's never exactly the same because this is lumpy stuff. As we've said, we had a lot of really, really good opportunities get to the point where they were documented and could go into backlog this quarter. Year-to-date, it's the companies you guys know of and think about. There were some interesting ones this quarter. It's work we know -- are really companies that are doing work they've done over and over. So we feel great about it, but there's just such a good market. There's such a good opportunity. Our customers -- they want us to commit earlier, so they commit early. It's just a fantastic market, and we have just unbelievably good companies.

That makes lot of sense. I appreciate the color there. And then on modular capacity, if you were to expand kind of incrementally from here would there be a preference to serving existing customer or, I guess, demand for that? Or would there be a preference to kind of grow with other types of customers within modular?

I would say we always have a preference towards meeting the needs of the people who have been great partners for us over years. And in the case of one of the ones you would be referring to more than a decade. So we'll always have a preference towards great customers as opposed to new customers. .

Having said that, we are -- we talk to new customers. We have opportunities. As you know, we added a customer. But if you were asking me the question, would our guys rather do work with people who they have a great relationship with or find out how good somebody else is they'll take the sheer thing.

Our next question comes from Tim Mulrooney with William Blair.

I hate to go back to this backlog question and beat it to death, but I'm newer to the company here. So I just want to make sure I understand how this works. How much of your backlog, excluding that modular piece, would you expect to start at some point over the next 12 months? I'm just trying to understand how much of this backlog is actually being pushed out versus just elongated due to the larger projects?

So I'm really glad you asked. The majority of the backlog numerically is jobs that have already started that it's the work left to finish on jobs that have already started. When Trent says, everything is going to start within a year. He means all the new bookings. We don't have new bookings really, many of the new bookings have already started at some level in the sense that we're doing preliminary work, underground work, we have engineering we're billing for, but it is -- this is really a -- because the definition of backlog in sort of what's called the remaining performance obligation under GAAP is so strict. You really don't put something into the reported backlog number until you have a price, a scope and a legally binding obligation that can be audited. We are -- almost any project that we put into our backlog, it was awarded to us a quarter, 2 quarters, 3 quarters ago. We received the phone call saying, "This is your work", long before it shows up in backlog.

So I hope that helps because it's not like -- we're not like a manufacturing company that's selling stuff we're going to start producing far in the future. You can't really building until it's been designed. You can't really design a building to you're about to start it. So...

Yes. No, that's really helpful, Bill. That and I guess, a more firm picture for a more firm backlog that -- that's helpful.

So my other question just really quick is actually something I don't hear discussed a lot on these calls, but I'm curious to learn more is that service revenue piece. I mean it's up 11%. And you said it's like 14% to 15% of your revenue. It's not insignificant. I don't hear talked about a lot. What's driving that strength in the revenue growth there? And it sounds like -- and in the profitability and -- is there some sort of conversion like when your new construction is stronger that brings along some service? Or are those pretty much not correlated? Just any color on that piece of the business.

So the service business continues to be strong. There's a lot of investment in sales force collaboration, making sure that we're going after the right parts of that market. Across the board, we're just seeing broad strength in that business, and it's execution driven. We have a lot of people -- the search business, it's really -- it's a day-to-day kind of bunt single doubles business. It's not like the construction business where you add a lot to your backlog at once. It's small maintenance contracts, pull-through work that comes from that.

To your point, it's converting new work to service contracts over time. So it is the kind of business that just by its nature, doesn't grow quite as episodically as the construction business, but what you've got is you've got some real strength in that from the teams out in the field that are making it happen.

Our next question comes from Brian Brophy with Stifel.

Congrats on the nice quarter. Just wanted to have a follow-up on some of this head count discussion. I think the over 21,000 employees implies a little bit over 15% head count growth since the end of 2024. Obviously seems to be an important enabler of some of the organic growth we've seen here this quarter. Just could you help us understand how sustainable that pace of hiring could be, assuming demand remains healthy year?

That number does include some acquisitions. So -- but I would say the majority of that was 15 points were added by our companies. And we don't -- we would never tell you, we can regularly add 12% to our workforce of craft workers. We had a really good 9 months. We're confident we can -- we have on any given day, we have apprenticeship program going on that we really are trying to get as many people as we can legally put into them involved in. There are like state mandated ratios wherever you can only have a certain number of apprentices per journey persons. So we're trying to grow as fast as we can. I think high single digits is what we've accomplished over a long period of time. We're pretty proud of that, by the way, because that means you're creating or you're helping people create themselves as electricians and pipe fitters and that's good for them. That's good for us. That's good for the U.S.

Okay. Yes, that's helpful. And then wondering if you could give an update on some of the automation investments you've made on the modular side. And just to what extent you're seeing some productivity benefits? Any color you can provide there would be interesting.

You want to -- Okay. Well, so more and more robots, right? So as we get more and more buildings implemented, we see the bills go by for robots. We're buying we've added turn tables. It's what Trent was saying. It's singles and doubles. But yes, no, there's a lot of automation going in. There's improvements in welding proficiency that's driven by better software, really AI-enabled software, there's just 1 million little things. I mean, Trent...

I'll also tell you, Brian, in terms of the history of construction, the amount of innovation and technology that's being developed and applied today, leaps and bounds over what it's ever been, and it's going to be a huge help into helping us build stuff as we look forward, safer and more productively and the quality is getting better every day.

Yes. And 1 of the benefits Comfort Systems has is we have 48 different test beds where we can try new things, and then move them throughout the enterprise if they work. And so it's a really excellent way to be able to test and innovate and then be able to do it in a controlled way and then move it out if it's effective in one operating unit, then it will be effective across. And it's a way for us to be able to innovate inside of a construction environment without significant risk. So it's a real benefit to our structure.

Yes. That's really helpful. Last one for me. Pharma was mentioned very briefly, just would you give us an update on kind of what you're seeing on the project pipeline side, particularly some of the onshoring opportunities that may be coming? Obviously, we've had a little bit more tariff discussion on pharma products. Just curious if you've seen any movement in that market?

Our biggest single booking, I think, in the last couple of quarters was in pharma, but the majority of our bookings today are in technology. It's not because there aren't pharma opportunities. It's because technology is competing for our resources and the they're making a compelling case for our resources.

I will also say, if you talk to -- we have a very, very strong pharma group of people that have done work in pharma for decades in the mid-Atlantic. I've spent time with some of them recently. They say that there is a lot of planning going on projects with code names for construction along the Eastern seaboard, but for -- in our case, that would be the Mid-Atlantic area and especially the research triangle, the area around the research triangle. So there's a lot of work coming.

Pharma has very, very long lead times. They think and plan for years. So unless something like -- there are exceptions to that. GLP-1 they're just building it as fast as they can, the COVID vaccines and all sorts of things that were needed for the COVID vaccines very, very fast, but normal regular day-to-day pharma step that develops over a long period of time. And that pipeline the people, the smartest people in our company who know about it, say it's very, very good. Now the time may come when it's available to us, and that's not what we choose to do, right? But I think that the opportunity is out there.

Our next question is a follow-up from Sangita Jane with KeyBanc Capital Markets.

I had a follow-up on -- as you see large data center starting to get commissioned. I'm wondering if there's a change in the type of electrical or mechanical scope that you may be seeing because we're hearing that developers are now looking at DC power into AC power. And I wonder if that impacts you or if it just kind of stays outside the loan?

So we don't for us, electrons going through a wire you just can't even imagine how generic that is to an electrician. He couldn't care if those electrons or -- he doesn't care if it's going to make pills or it's going to make data. So you just need electricians. That's a great thing about our positioning. Whatever you -- if you need to do something, you need us. And I haven't heard anybody saying that it's materially changing.

The one thing you do here is scale, like the amount of copper, the amount of switches, the density of cooling, just the sheer scale, people even very, very seasoned people are amazed by that in our organization. But as far as like those kind of tweaks, I'm not hearing anything trend.

There are no further questions at this time. I'd like to turn the call back over to Brian Lane for closing remarks.

Okay. I just want to reiterate the 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 challenge of addressing the unprecedented 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 for you, our shareholders. As we embark upon the holidays that are coming up, we won't have another call. I wish everyone the best for the rest of the year and enjoy your time with your families as the holidays come.

Good day, and thank you for standing by. Welcome to the Q2 2025 Comfort Systems USA Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Account Officer.

Thanks, Latonia. Good morning. Welcome to Comfort Systems USA's Second Quarter 2025 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-K 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. 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 billion. We earned in unprecedented $6.53 per share this quarter, 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. Our bookings were strong and our backlog at the end of the quarter grew to a new high of $8.1 billion. Demand remains strong, especially in technology, and we continue to book work with good margins and good working conditions for our valuable people.

We are going into the second half of 2025 with significant same-store growth in both sequential and year-over-year backlog. I'm happy to announce the acquisition and welcome Right Way Plumbing, a great plumbing business based in Florida, that we expect will earn $60 million to $70 million per year in revenue.

We also increased our quarterly dividend by $0.05, to $0.50 per share, and we actively purchased shares during the first half of 2025. Despite a backdrop of tariff ambiguity and economic uncertainty, we feel fortunate to have good demand, especially for large and complex projects. 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&A.

But first, I will turn the call over to Bill to review our financial performance. Bill?

Thanks, Brian. So yes, our second quarter results are remarkable, with 19% same-store revenue growth, sharply higher margins, and over $220 million of free cash flow. We also achieved more than $300 million in quarterly EBITDA for the first time ever, and that's a 50% increase over the same quarter 1 year ago.

Revenue for the second quarter of 2025 was $2.2 billion, an increase of $363 million, or 20% compared to last year. Electric segment revenue grew by 49%, while Mechanical segment revenue increased by 13%. Through 6 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 million for the second quarter of 2025, $146 million higher than 1 year ago. Our gross profit percentage grew to a remarkable 23.5% this quarter, compared to 20.1% for the second quarter of 2024. 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 2024. We currently expect that gross profit margins will continue in the strong ranges that we have averaged over recent quarters.

SG&A expense for the quarter was $210 million, or 9.7% of revenue, compared to $180 million, or 9.9% of revenue in the second quarter of 2024. SG&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 million in the second quarter of 2024 to $300 million for the second quarter of 2025. 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 million refund in April 2025, which included $11 million 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 second half of 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 second quarter of 2025 was $231 million, or $6.53 per share, and that compares to net income for the second quarter of 2024 of $134 million, or $3.74 per share, and this is an over 70% improvement from last year's already very strong showing.

EBITDA increased to $334 million this quarter, from a strong $223 million in the second quarter of 2024. This 50% increase reflects great execution by our workforce and strong demand in our markets. As of June 30, our 12-month trailing EBITDA exceeds $1 billion for the first time ever.

Free cash flow for the second quarter of 2025 was $222 million. This quarter's cash flow includes two discrete cash flow items that largely offset each other. As previously discussed, we received a $118 million 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.

We purchased additional shares this quarter, and year-to-date, we have spent $111 million buying approximately 326,000 shares. Even after funding share repurchases and our Right Way acquisition, we are in a net cash position of more than $250 million. 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?

Thanks, Bill. I'm going to discuss our [ operational ] outlook. Our backlog at the end of the second quarter was a record $8.1 billion, a large sequential and year-over-year increase. Since last year, our backlog has increased by $2.4 billion, or 41%, and $2.2 billion of the increase was same-store. On a sequential basis, backlog increased by $1.2 billion, or 18%, of which $1.1 billion was same-store.

Second quarter bookings were 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 second half of 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 first half of 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, health care 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 and new building construction and year-to-date, modular was 18% of our revenue. We currently have over 2.7 million square feet of building capacity dedicated to our modular business, and we expect to have around 3 million 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 second half of 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, and thanking our over 20,000 employees for their hard work and dedication. I will now turn it back over to Latonia for questions.

[Operator Instructions] And our first question will be coming from Sangita Jain of KeyBanc Capital Markets.

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?

Sangita, I would say that we like what we've been doing, which is adding incremental capacity as -- 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 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 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 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 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.

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?

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 out 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.

Our next question will be coming from [ Akash Singh ]. Again, our next question will be coming from [ Akash Singh ].

Moving forward, our next question will be coming from Julio Romero of Sidoti & Company.

This is Alex on for Julio. Congrats on the quarter. 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 are a little tougher. So how is your confidence that this sort of continues positively into '25 and '26? And maybe some of the conversations that have led to that?

Alex, you know how our backlog is always very lumpy, right? So we don't 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, may continue to be robust even with all the bookings we had in the second quarter. So yes, things are still very bullish with regard to future work.

Alex, this is Brian. I'm just going to jump in. Also service, right is, Bill and Trent mentioned, we're getting good growth in service. It's about a $1.2 billion business for us now, growing above 10% this last quarter. So that's been nice consistent growth, both from a revenue and profitability standpoint and on to the construction growth.

Very helpful color. 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 '25 and into '26.

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.

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 feel pretty darn bullish about our prospects going forward.

Yes. Alex, if you look at these -- our gross margin is 23.5%, which is strong. So we're getting a good combination of 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.

And our next question will be coming from Brent Thielman of D.A. Davidson & Company.

Great quarter, guys. I guess the first question, just, Trent you commented on the manufacturing kind of customer side and that you ultimately were focusing maybe a bit more on the data center tech customers, or you may get the best opportunity out of it.

I 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?

No, 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.

Brent, just to follow on. 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 got to really tip your hat [ to them ] about the work they're bringing in here and how they're doing it.

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 the customers -- existing customers you have today?

To your second question, the opportunity is there. There are people who would buy our product. The people -- our two main customers really are our best option to sell to right now. Across our businesses right now, there's a general tendency of our guys, of our leaders, of our -- 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 a fight. So we're really, really choosing who we give our unbelievable and scarce resources to by the people who really want to 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.

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?

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 [indiscernible], I'd say now that we think that the business overall is going to grow mid-teens. I think modular should stay near that percentage.

Now having said that, I fully recognize it's grown from 4 to 6 to 8 to 10 to 12, you know what I mean. But we have such good demand and opportunity in all of our businesses, but it's a pretty -- everybody is great at getting bigger and better. It's a pretty tough [indiscernible] to get -- become a bigger percentage of our company right now.

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 '26, 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 opportunities into 2027 at this point?

Yes, Brent. Absolutely. I mean, '25 is -- were full, right? You're looking at a '26, '27 for sure, looking at opportunities. Longer out, as you know, we got bigger projects that run longer, take longer to get them done in the front end, to get them signed, sealed and delivered. But customers are looking out '26, '27. It's a great time to be in the construction business buddy.

Our next question will be coming from Adam Thalhimer of Thompson Davis.

Congrats on the record quarter. Basically, I 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?

A lot. I don't think we have a precise number. Yes a lot.

Yes, the statement we made, Adam, about what we're feeling good going out is because we're seeing both in backlog and what we're looking at is healthy.

If you do a little math, you have to realize that if we're telling you we're going to grow mid-teens, the backlog's pushing further out [indiscernible] percentage [ than that ].

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?

So right now, all the work is in Texas, and it's in the four, what I call major markets. Dallas, Houston, Austin and San Antonio. So although they are very strong in North Texas, Dallas, et cetera. The other three markets are strong. It's probably one of the -- probably if you talk to them in a few times since they've been in business that all four of their major markets have been strong, Adam.

And I want to -- [ 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.

One of the nice things for us is that because we bought all of our electricals in the last 5 years or so, 5 or 6 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 they are doing an amazing job taking advantage of it as are our mechanical companies, obviously, and our service, everybody except corporate is doing great.

But we're doing good, this call to help out.

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?

Well, if you look at our gross margins, our pricing is obviously very good, right? You can read them in income statement, but pricing is good, and we're getting paid for the risk and services that we're delivering.

And then Adam, our project teams are really delivering efficiency effectively. And we've -- 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.

It's been a long time since we've tried about a bad job. So great work. Yes, I'm knocking on wood on that Adam.

And our next question will be coming from Josh Chan of UBS.

Congrats on a really good quarter. I guess it's clear 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?

It'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 -- and 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 -- especially these 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 yes, it's certainly in all of the above approach when it comes to talent right now because everybody is constrained as far as being able to recruit and find. But I think we're getting our fair share, if not more, of the talented craft professionals in America right now.

That makes sense. Thank you Trent. And then I guess like in terms of project selection, how do you think about the approach to choose projects between the different verticals? Obviously, our technology is chosen more and more frequently. So are you okay with that? How are you talking to your operations about choosing types of projects that you want exposure to?

Yes. That's a good question. I think they're doing a great job selecting what's available in the markets were still pretty diverse, as you can tell by the pie chart of the different industries we serve. So we've kept good balance. Obviously, tech is red hot right now. So we're trying to service those customers the best we can. But we are keeping a -- our fingers in all the pies, everything by commercial right office buildings is slow. Everything else has got good activity. And I think the selecting, I think, as Bill said in the script, we the best working conditions for our people are going to pay for the risk and the service that we provide.

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 [indiscernible] also said, I'll take any job you have as long as it rhymes with data center. The second part is kidding.

That's right absolutely .

We have to just do the work that's there for us and [indiscernible] the best people to do it.

And that's why, Josh, if you think about the bigger picture, training is crucial in here at all levels of this organization, in the field up through project management leadership. Make sure our folks throughout the organization well prepared to address the market.

Our next question will be coming from Brian Brophy of Stifel.

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 the 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, some of this leaning into more capacity?

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 what we do is -- can't be done by someone else. We just -- our goal is to just be so good at it that you'd be crazy to buy it from somebody else. So I hope that answers your question.

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?

Yes. I mean we're seeing -- I think we mentioned 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 we are seeing some strength in health care, been pretty consistent for a little over a year now.

And our next question will be coming from Sam Snyder of North Coast Research.

Great job, obviously. I 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 maybe that changes [indiscernible] good. It kind of surprised it's not more, but just curious your thoughts there. Why [ 10 ]? And is there anything you see down the line where that might change?

One thing people misunderstand about modular, it's very easy to think about it as a separate product line. And it is a different way of doing something. So anything that we do modularly, and we've done not [ this tech ], we did [indiscernible] was our main customer for modular for many years, is something that is also being done that day in 1,000 locations in a stick build way. So modular is a way of delivering a product that -- a building that is being built 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 -- for now, at least for tech, where 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 -- so I think people -- there may be a day when people are trying to decide, well, which way of doing this is going to win? I think that will not be in my lifetime. I think it's a really great modality for accomplishing things. There are projects that have certain characteristics for which it's really has almost irresistible advantages. But I do think people -- it's really important that people understand it's a way of doing something, a different thing that's being done. A building is a building is a building is a building.

That's really helpful. And then I had a -- kind of switching gears. Looking at price cost, do you see your suppliers trying to pass on costs that really aren't there? 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 that sort of the tariff scaries right now? Or is -- or is it really just passing through? And to the extent that it does or it doesn't, it just passes through equally?

What kind of people do you think we are. This is the real world. People want to 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 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 it was -- 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 ever seen a building built that was finished on the goal day to finish it from -- in the first conversation. So we always see delays. We always see price negotiations and bouncing around. And the people there -- all of the -- it's a complex situation with lots of factors. So I guess the answer is yes and no.

That's okay. I think it's just the gross margins are so good. Just looking for any reason why that might not contain.

There's no -- we're not -- we don't have some clever trick right now that's kind of sneaking some money out the side. It's just that our guys are really, they're valuable, they're hard working. They can provide you with something that's hard to get your hands on, and great customers are willing to pay for it.

And Sam, if we had a clever trick, we wouldn't tell you.

And our next question will be a follow-up from Brent Thielman of D.A. Davidson & Company.

I 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 relevant opportunity that can be down the line for you?

Yes. Those are all very strong in pipeline right now. We've got a lot of prospects that are out there. I mean nothing that is that I'd comment on, but 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 chipset.

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 4 quarters. And I guess I think about data centers being largely greenfield. I just was curious why that is in the results?

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 3 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.

Okay. But -- and so in that regard, the margins wouldn't really be different? I've always thought that existing is, I mean, higher margins to it. But if you're doing Phase 3 of something, it's in some way still...

It would still have a -- 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 an extension. You know what I mean. So I guess I would agree with that. Right now, margins are so good across the board that those distinctions are a little hard to even make.

And I would now like to turn the conference back to Brian Lane for closing remarks.

Thank you. In closing, I want to 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 to delivering for our employees, our customers and you, our shareholders. Thank you for your confidence, and have a great rest of the summer. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Okay. Morning, everybody, and thank you for joining this Sidoti June 2025 Small Cap Conference. My name is Julio Romero, and I'm the industrials, building products and engineering and construction analyst at Sidoti that covers the name. Really pleased to be able to host Comfort Systems USA. Their ticker is FIX. With us today is Julie Shaeff, Chief Accounting Officer and Senior Vice President; and Trent McKenna, Chief Operating Officer.

So we're going to do a quick overview of the company, and then we'll hop into Q&A. If you have any questions for the company, feel free to type them into the Q&A section at the bottom of your screen. And I'm more than happy to ask on your behalf.

With that, Julie, Trent, thanks so much for being here.

Good morning, everybody. Happy to be part of the conference. I'll just give some opening remarks just to level set everyone as far as what Comfort System is and what we are is really an assembled workforce. We have about 19,000 employees, about 85% of them have tools in their hands, they're pipe fitters, welders, electricians. They're skilled craft professionals that do work on -- on complex projects throughout the United States.

So we're primarily in the mechanical and electrical sector. We do construction where we'll construct the build on the new buildings or existing buildings, and we'll also service buildings for their HVAC and electrical needs.

So we're nonunion, so we're largely in some second-tier cities. We're in places like Birmingham and Little Rock and Syracuse, New York. We're also in some larger cities in the South, such as Houston, Dallas, Orlando, Phoenix, performing these construction projects.

So we have about 48 operating companies throughout the U.S. Most -- I would say 40 of those companies do work within about 100 to 150-mile radius of their core office and the remaining 6 companies do a lot of traveling. They'll travel to remote locations to build it. In a lot of cases, some of these larger projects that are not being built right in metropolitan areas, they're building -- we're building things outside of large cities, outside of Phoenix, outside of Dallas, maybe in Sherman, Texas; in Lubbock, Texas, in different geographies.

So we're about 62% industrial now. A little more than half of that is technology, where we do work for -- on data centers and chip manufacturing facilities. The rest of our industrial is doing things like pharmaceutical builds. We're doing a very large pharmaceutical build outside of Indianapolis right now. We'll also do food production. We'll do batteries, all those things are again in that industrial sector.

We're also very strong in institutional. We do work in health care, which for us is largely hospitals and some urgent care facilities. We're seeing strong demand in that sector. We'll do a lot of university work for different universities, whether it be labs, we can do -- we'll do dorms, stuff of that nature.

And then we have -- about 15% of our revenue is in commercial, but we don't do a lot of commercial construction. It's primarily on the commercial side. We're doing service work where we have about the $175 million worth of maintenance contracts where we'll go in on an annualized basis, where we'll go in and -- and service the equipment for our customers and as a result, get some pull-through work.

So that's really, really who we are. And so with that, I'll just turn it back over to Julio for some Q&A.

Excellent. Well, Julie, thank you so much for the rundown. I guess I'll kind of stay on the topic you mentioned about your end markets and just thinking -- just asking about customer demand, what you're seeing on that front across the end markets. And maybe to start maybe with the data center CapEx, which is obviously the favorite topic of the day. On the first quarter call, you mentioned no slowdown on the demand front from data center CapEx. Can you just talk to what you're seeing there?

Yes. So Julio, we're continuing to see kind of that same level of demand, right? Like where we just don't see much slowdown, if any, none really, I should say. Our pipelines continue to be very robust with data center. And that's both -- because it's important to note, it's both our modular data center business, and it's also just our traditional construction data center business, both sides of the business are still very, very robust and the pipeline continues to be robust well into the future. So yes, I mean that's no changes from what we talked about on the call.

Any evolution as to what you're seeing as to like the skill set that customers are asking to bring from installing liquid cooling versus airside cooling HVAC solutions?

They're kind of -- from my perspective, they're using the same contractors, frankly, on that. But what they're really interested in is an owner. They're very -- data center owners are a very demanding owner, right? They want to make sure that their project is done the way they want it and on time and schedule is important to them. They're also a very -- they're very understanding owner though, about the fact that, that's not free, right?

And so that's, from my perspective, the reason why I'm phrasing it that way is because it requires that you have a team that's skilled, that you have a team that's good, that can deliver on the project because they don't have patients for teams that fall short.

So they're really interested in quality in their contractors. And so that really provides us a nice entree into what they're looking for because we have a lot of -- especially when our companies collaborate and work together to provide the customers' needs. That really helps us kind of really set ourselves apart as a really high value into the market, right? And so they're recognizing that. And that's why I think our pipelines continue to be so robust.

Excellent. Super helpful there. And you mentioned that the data center owners are very demanding, don't have a lot of patience. Are they going directly to you to and list you with your services? Do they go through the GC? Just talk about kind of how that -- that dynamic works.

And so in the modular side of the business 100%, they're going directly to us, right? So that whole piece of that business, that all is direct to the data center customer.

Then on the traditional construction side, it's generally they're going through a general contractor and then that general contractor has a team that we're part of, right? Sometimes we're -- there are projects where we're being -- the general contractor is being told like you're going to use this -- you're going to use this Comfort company for the electrical, you're going to use this Comfort company for the mechanical. There are relationships that are that good with some of these data center builders. But a lot of times, we're just working with a general contractor and putting together a team and then proposing on the project.

Excellent. Maybe focusing on the modular portion of the data center demand for a little bit. Can you talk a bit about the customer base that you have in modular, how that has evolved? And do you see that mix changing at all in terms of potentially adding more hyperscalers, potentially adding more colocation customers and how you see that kind of shaping up over time?

Well, if you think about like historically, our modular business, right, it wasn't data centers, it was pharma and it was other like logistically challenged projects and things like that. And then so now we've -- we still continue to have a pharma business inside of our modular construction business. We continue to hold capacity for that so that we maintain our relationships in those end markets.

And then it's just the data center customers have become so much more -- they just want more and more of our modular output, right? And so we have 2 hyperscalers that we have very -- we have 1 that has very deep relationship with us, and then we have 1 that we continue to deepen the relationship with. And then we continue to talk to all of the hyperscalers, continue to talk to all of the big builders of data centers.

It's -- these projects -- these programs because they have to become programs, they take a long time to develop and they're not the kind of thing that you start talking about it and you have a contract in hand a month later. It's a long process to get the owner comfortable with this type of delivery. It's not the way that construction generally is done in the U.S. And so it's becoming more and more accepted, but it's a slow process. But we continue to focus on all avenues around where we think we can add value with the modular delivery. And it's just a matter of getting people who are very used to doing it in a certain way to start to buy into like this is the way it can be done. So...

Yes. Construction people are famously known for being first to adopt a new technology.

There's a reason that there's so risk averse, right? There's a lot -- you get it wrong, you only get to build the building once, right? And if you get it wrong you can't fix it. So that's part of the problem, right?

That's right and totally fair. So you mentioned modular kind of didn't start out as data center oriented, it just eventually was where the mix in over time. If I was a potential modular customer of Comfort Systems, regardless of what market I was saying, how do I go about winning your services. How did data centers kind of win your services? Was it through bidding better price? Was it for things they did to make your employees happy? Just talk a little bit about how these customers are going about trying to win your services.

Julie, do you want to take a little bit of that? Or...

Sure, sure. Yes. So I think it's definitely price is part of it. Commitment, the hyperscalers that we're working with have made some pretty significant commitments to us, hence, is why we doubled our capacity back at the -- in 2023 and saw the result of having over just about 2 million square feet of capacity starting in 2023.

They also -- one thing I think that's been really helpful for us is that historically, when we were doing it for pharma, each individual unit was very customized. It was individual -- a lot of design went into building a certain particular modular for 1 or 2 instances where with the way the hyperscalers are working, it's much more programmatical, which has been good for us and good for them, too, is that now every couple of years, they'll change the program, but they'll want units built the same way for a period of time to do whether it's in some -- back we first started doing work with some of the hyperscalers, it was a combination of both doing the -- of having the mechanical within the building, but also having some of the -- the use for the servers were in the same rooms.

Now they're much more dense. In most cases, it's like a central utility plant where we're building the same central utility plant over and over again that they ship to different locations throughout the U.S. So I think it's a combination of commitment, pricing and then this programmatic system has been, I think, good for both of us.

So, Trent I don't know if you have anything to add as far as...

No, yes, that's a -- that covered the [indiscernible].

Very helpful. And then does the programmatic kind of I don't want to say repetitive, but kind of repetitive nature of doing that over and over, I imagine that naturally, you gain efficiencies if you get better at doing that -- that over time and that has been part of the margin uplift for you folks, is that fair?

Yes, I think there's some fairness there. I mean, obviously, though, at the end of the day, the customer is very, very, very aware of what our costs are and that we're getting -- and that we're getting efficiencies, right, and they're demanding that, they want us. We're being more efficient on the 30th version of that module than the first, right? And so there's only so much margin uplift that's available to us in that respect. For sure.

Where are you guys on the capacity front as of today? Modular perspective.

Modular, yes. So we had -- at the end of 2024, we had a 2 million -- sorry, end of 2023, we had 2 million square feet, we announced during the last quarter call that we had up to about 2.5 million square feet of capacity. A little bit of that is storage.

So we're continuing, just like we said, we're making incremental capacity increases. We'll add 100,000 square feet at the location in North Carolina and the location in Houston. And we'll continue to do that as it makes sense. And so we're up right -- like I said, right now, we're about 2.5 million square feet.

Got you. Can we talk about project complexity a little bit. So regardless of what end market is kind of driving demand data centers is obviously continuing to be strong. But -- these projects are becoming larger and they're becoming more complex, and there are more intricacies and more things [ demanded WS ] may become more complex. Is that the common thread that ties the fabric of where your project mix is going, kind of regardless of in-market? If you could speak to that.

Yes, that's definitely what we're focused on because we want to be one of maybe 2 or at most 3 contractors looking at a project. And for us to do that, it's all about complexity, that's what kind of windows the field down to just one of a few contractors that can do it.

And the way we've been approaching that at Comfort, a lot of it's through collaboration. So there's multiple projects inside of our current work that more than 1 Comfort company is working on together, right? And so that really helps us because that -- that provides an ability to deliver for a customer that a regional competitor or a local competitor just doesn't have that scale or capacity.

And then the other ways that we're doing that complexity is through training and through technology, making sure that we scale that across our company.

And then you finding the best talent, right? It's really all about having the best skilled trades people in the markets that we serve. And that's kind of an all of the above approach. You've heard me say that before a million times,. We try every single way we can to penetrate our markets to get the best people to want to work for us.

And part of that is just driving a culture that skilled trades people want to be part of, right? Because craft professionals, they have desire -- they have desires to work on certain types of projects and with certain types of teams. And we have to make sure that we keep our culture aligned with what they want, because they're the most important part of driving the business to success.

That's pretty fascinating. Do you guys partner with any universities or anything of that nature?

Yes. Most of our -- and most of our -- if not almost all of our markets, we have some sort of relationship with either like a community college or a technical trade school. And what that usually ends up looking like as we usually provide an instructor over to one of their courses. And then that's someone from our group that has years and years in the trade, they'll teach the class and then it's a nice way for us to pull in the best candidates into the company. And so that's how we continue to like revitalize that pipeline. We do other things as well, but that's a really, really effective tool for us is those partnerships.

Understood. And then you talked about technology as well as something you continuously invest in. Can you maybe talk about any investments you've made in terms of BIM, in terms of digital project management tools and where you are there?

Yes, I got to be careful because if Brian Lane find out how many people we have in the BIM team, he'll make me cut it. I'm just kidding. We've grown a lot on our BIM side. We really -- we have -- we believe that like anything technology related on a project, it requires them to be really effective, right? So the better you are at building information modeling, the better you're going to be at any kind of technology being introduced into the construction industry.

And you alluded to it earlier, the construction industry is a slow adopter, right? And so we never want to be -- we're never on the cutting edge, but we always want to be ahead of our competition. And the way we become confident in the fact that we're staying out in front of our competition is we partner with venture capital in the Bay area, and we make sure that we're partnered with them in a way that we're getting the ability to see a lot of these early-stage construction focused technology companies, and that really helps us make sure we stay out in front of anybody who we're competing with on technology.

That's really interesting. Very, very interesting. Maybe just back to the end markets a little bit. Health care is something, I think, that you guys mentioned on the last call as something that might be evolving from any market perspective. If you could talk to that a little bit.

Yes. I'll start with that one, Trent. So back with ObamaCare, there was some uncertainty as far as what is the health care industry going to look like. And as a result, there was really a slowdown as far as new construction of hospitals at that time.

So -- there was still some retrofit going on to existing facilities, but really not new capital going into the build up of hospitals. So -- and then you fast forward through COVID and I think after COVID, people realize man, we need to have more hospitals. We have baby boomers that are continuing to age. And as a result, we're just seeing a fair number of hospitals being built throughout the United States and -- and that -- we enjoy what we like doing that kind of work. We have a number of subsidiaries that are really good at building hospitals.

So -- and the other piece of it's urgent care facilities. We're seeing more and more urgent care facilities being built, and we're part of that build also.

Now pharma, I get the question a lot. Pharma is actually sitting in manufacturing for us. So health care really is that sector is focused on hospitals and urgent care.

Got it. And I have a question here on the webcast from the audience here. It's just in the opening remarks, you mentioned, Julie, a large pharma project. Can you talk to that a little bit more?

Yes. Yes. So -- so industrial, primarily focused on chip manufacturing in 2024. Their largest project they're working on right now is the GLP-1 drug outside of Indianapolis. So there is -- there are a number of firms working on that, but we're doing a lot of the underground and the piping associated with that project. .

Got it. Maybe if you guys could talk to reshoring a little bit how that's benefiting what do you classify as industrial, your markets as a whole and how you see that as a multiyear growth driver.

Yes. I mean I think it's -- my take on that is that we spent 30 years offshoring U.S. industry, and we're now really beginning to engage in reshoring, and that started before -- I think it started coming out of COVID. And then I think the Biden administration put a little bit of fuel on to it with some of the legislation that was passed. And then I think the tariffs, if anything, are just continuing to make people understand this is the right -- this is the right direction for at least part of their supply chain, right?

And so I think you're just going to continue to see more and more reshoring, which is really good for us. It fits our geography really well, because most people are reshoring to right to work states, and that's where we have a large part of our workforce. And so that's helping us a lot from that perspective.

Very helpful. Thinking about your new construction services, both on a modular and nonmodular side, what stage are you guys in the project? Are there any adjacencies either before or after your portion of the project, it could potentially be an adjacency, not near term but over time, either on an organic or inorganic basis?

Julie, do you want to

Yes, I'll let you do that. Yes, yes.

I mean I think there's -- there always are, right? There's a lot of things that go into a building, right? And there's always adjacencies here and there. And we -- we look at them -- but we're really confident in our approach to the mechanical electrical plumbing side of the business and we continue to see really good opportunities in M&A there, right?

So -- as far as adjacencies go, we're focused on our strategy of being really great at mechanical, electrical and plumbing. We continue to march forward with that strategy.

Yes. And I will say on the electrical side, we have, again, about 48 companies, only like 5 or 6 of them are electrical companies. So there's a lot of opportunities to continue to grow acquisitions in that electrical sector. .

Got it. Understood. Can you talk a little bit about Century contractors what you did in January?

Yes. So really great industrial piping company outside of Charlotte that we acquired. -- and they have already started to integrate with our companies that are in that footprint. They had already done -- to be frank, they were already well known to all those companies because they've been on projects together. Really great team, team that we've known for a while. Finally, just the right time to sell and a great transaction. Really excited about having them on board, and they'll really I think from where they will be, it will be a helpful thing.

One thing to understand about are the businesses we acquired is that our industry is very fragmented, and it's very siloed. So it's very hard for these individuals who run these companies when they're private to know exactly what their markets look like, what other people are doing in their markets, et cetera, et cetera.

And when they come on board at Comfort, and they get the benefit of all the information that we can provide them, immediately makes them better business leaders from the standpoint of just having the information because a lot of times construction is what you don't know, right? You just don't know what you don't know.

And so all these people then come into Comfort and then they go, "Oh, my goodness, all this information helps them understand how they can maximize the value of their business," and so I think Century is early stages, but that's very much in the process of of that integration. So it's exciting to see.

Got it. Really helpful there. I'll take a couple more from the webcast here. Are you seeing any challenges with hiring and retaining in the field talent and how often are you increasing wages.

Yes. I mean. Go ahead, Trent.

No, you go ahead.

Yes. I mean that's something that is probably the most important thing we're doing every single day is retaining and trying to hire people. So we are -- since probably 2015, we've been giving really good raises to the field folks, in some cases, you have to give them twice a year, just to make sure we're competitive and having really good medical benefits and 401(k) benefits and stuff of that nature.

Another way to retain people is just to continue to give them challenging work to work on. continue to train them, continue to invest in technology to make their work even more productive.

So I mean, at the end of the day, what Comfort Systems is as an assembled workforce and that's our most important asset. And every single day, every one of our companies is working to -- we pick projects based upon trying to find the best projects for our employees.

When we're picking projects I would say we're looking at 3 things. We're looking at projects that are really good for our employees that they will enjoy working on, that are good safe projects, that are easy to get to. And I think we're also looking for projects, working with really good owners and really good general contractors that value what we do that that run good projects, good safe projects that are run efficiently.

And then we also, of course, are looking at price and trying to get the best gross profit per man hour. But we're really looking at all 3 of those things when we're making a project selection. So...

Very helpful. As we head into the summer months, I imagine the call is for service and maintenance and repair kind of rev up a little bit. Can you talk a little bit about the service business? Maybe how sometimes in the summer, there's changes from seasonality standpoint and just overall where you are with the service business.

Yes, you hit the nail on the head. The service business starts to ramp up when it gets to be 90 degrees and cities and things and then it continues through to that. There's a lot of demand service that occurs during that time. We're really focused on like growing that business sustainably, which is growing that maintenance base that we really want to see that grow and continue to grow and then continue to just be able to work with the type of owners that we want to work with find the type of buildings that our people like and want to service.

So at the end of the day, it's a multi-point strategy. But if you look at our service business, it's been performing really, really well. It's just been outstripped by the the speed with which construction is growing. And also that's a little bit M&A as well because in the last several acquisitions didn't have service. And so that's also driving a little bit of that when you see the delta between the rates of growth.

But we feel really good about our service business and continues to grow. We continue to invest in it. We still -- one of the things we think sets us apart in the service business is that we have a centralized kind of -- I don't want to call it a help desk because it's much more than that, it's the ability to help a service technician who's on site virtually diagnose the fail condition and fix it without having to leave the site.

And that's a huge advantage that we have because we have the ability to pool all that data up from all of these service calls that we perform and really across any manufacturer, any piece of equipment we're able to then build a triage approach to how to fix that device and that really helps a service technician.

Who -- see it's a challenging job to be a service technician on top of a roof in a utility -- in a central utility plant and looking to try to figure out how to fix the thing. He's got a customer who's probably yelling at him, it's hot, needs to get it fixed. He's in there trying to figure it out, and it might be the first time he's looking at that piece of equipment. So it's nice that we have this database and technology platform for them that then helps them really diagnose the sales and then fix it. while they're there on site.

So it's a huge success. We've been investing in that for years now, continues to be successful, continue to invest in it, and we'll continue to set our service business apart from our competitors.

Excellent. I have -- I want to squeeze 2 more questions in the last 90 seconds do we have or so. Number one is just you've talked in the past about the business maybe becoming less seasonal as a result of doing more work in doors. How does that affect like when investors think about your traditional seasonality versus what it's look like going forward? And does that affect kind of the way your backlog ramps from a seasonality perspective at all as well?

Yes. Yes. I mean I just think -- like you said, we're less seasonal. 19% of our work is modular. We're also doing so much more work -- so much of our company and our activities are from Richmond down through Texas. So there's just less winter associated with those. And we're working on a lot more longer projects, larger projects that are going through the whole cycle, not just -- when I first started the comfort years, decades ago, 25 years ago, really, a lot of our work started in the first quarter, we really ramped up in the second and third quarter and closed out in the fourth quarter.

Now we're really seeing projects really closing out ratably through the year because of the size of them. So there's definitely less seasonality both at the revenue line as well as the -- as well as the gross profit margins that we see because of that.

Now there is going to be higher activity levels to some degree in the second and third quarter. And as Trent mentioned, services it's a growing part of our business from a dollar standpoint. Now percentage-wise, it's been smaller only because construction has been so strong, but we definitely are less seasonal.

As far as backlog, it's -- backlog is lumpy, and it's hard to predict. But I will say, in general, it was much more exasperated historically, but we generally do still see a lot more bookings and orders in the in the fourth and first quarter and then much more -- more revenue activity and a little bit less order activity during the second and third quarter. So I think the seasonality is still there. but just not as pronounced.

Understood. And then just last one that I'll squeeze in here is just it's conference season, so I'm sure you've been in front of a lot of folks lately. What are you surprised you don't get asked often? You probably hear the same question from us all the time. So what doesn't get asked that you think folks should be asking about you guys?

I think people -- I would say, Julio, I think people understand us pretty well and they ask the question, but I definitely ask if I was in their shoes, right?

I mean I think some of these intangibles that people don't ask about is the culture that we're able to drive. I get it, like that's not measurable, you can't put it in a spreadsheet, et cetera, et cetera, but it is a big differentiator, because our -- the craft professionals that work for us, they care about that, they deeply care about the culture that we're driving towards. And so that's something that -- yes, we don't get asked that a lot, but I understand why, right. So...

Excellent. Well, I'll leave it there. Julie, Trent, thanks so much for taking the time.

Great.

Thank you.

Thanks.