Comfort Systems USA, Inc. Stock

Good day, and thank you for standing by. Welcome to the Conference Systems USA Third Quarter 2026 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 Accounting Officer. Ma'am, please go ahead.

Thank you, Michelle. Good morning. Welcome to Comfort Systems USA's third 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 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, Chief Executive Officer; Trent McKenna, President; 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 results that exceed even our recent record results. We earned $13.91 per share this quarter, which is $5.66 more than we earned in the same quarter last year. Our mechanical business had an extraordinary increase in activity levels and profitability. And our Electrical segment once again achieved spectacular organic revenue growth at very high margins. Construction is driving most of our results, but service revenue and profit also grew by double-digit percentages. Bookings were strong and our backlog at the end of the quarter grew to a new high of $17.8 billion. As a result of continuing strong demand, we achieved an eighth consecutive sequential backlog increase.

We continue to book work with good margins and good working conditions for our valuable people. And we entered the fourth quarter of 2026 with $8.4 billion more in backlog than last year at this time. I'm happy to announce the acquisition of two companies on August 1. Boys Electrical located in Melbourne, Florida and NeoPod, a modular company for the health care industry based in New Braunfels, Texas. We are thrilled to have these two companies join the Comfort Systems USA family of companies and expect that they will contribute over $100 million in annual revenue at good margins. Today, we increased our quarterly dividend by $0.10 to $1 per share, and we actively purchased shares during the quarter. With solid bookings and great demand, we expect continuing growth and strong results for the remainder of 2026 and 2027.

In a moment, and Bill will discuss our results and outlook, but I want to first discuss another announcement that we made yesterday. Last night, we announced Bill's decision to retire from the company after 30 years of amazing service. Bill helped file the company in 1997 and has led the financial strategy of the company since 2005. As importantly, since 2008, Bill has led the extraordinarily successful acquisition efforts of the company. And since 2011, Bill has also worked with many of our companies in an operational leadership role. I am deeply grateful to Bill for his steady leadership, thoughtful advice and the integrity that he has brought to Comfort Systems USA every day. He has been a great partner to me. I, along with the rest of the leadership team, wish Bill the absolute best in his well-deserved retirement. Bill will be transitioning from the CFO role shortly after we report our 2026 results, and then will continue with the company for a period to transition his other roles.

We also announced that Julie will be promoted to CFO as Bill's successor, and I also want to congratulate her. Julie has been an integral member of our finance and accounting team for many years, and I have the utmost confidence that she is the perfect person to lead the organization through Bill's transition.

Before Bill discusses our results, I've asked him to also give his thoughts about the upcoming changes. Bill?

Thanks, Brian. It's a [indiscernible] day for me, and I do want to take just a few minutes and explain why I am utterly confident that Comfort Systems USA will continue to have the best management team in our industry long after I'm gone.

So over 30 years, I've done a lot of things at Comfort; legal, financial acquisitions, operations. The main three things I do today are financial, operational and acquisitions. The great news is that in the financial area, our depth is extraordinary. It's -- frankly, it's amazing. Right down the line, starting with Julie, we are stacked with unbelievable talent, in our financial area. And honestly, the day after I leave this role, Comfort Systems will still have the best CFO in construction and the best finance department in construction. You guys know Julie, I've been hearing from people for the last 24 hours, how happy and relief -- both internal and external, how happy and relieved they are that Julie will be our next CFO.

Operations is the part that I'll miss the most. But the good news is that our business isn't run in Houston. It's not even close to being run in Houston. It's run in the field. And as long as we maintain our culture and stay out of the way of the the great companies we have will always be fine.

So I wanted to spend just a little bit more time commenting on acquisitions. Every acquisition we've ever done at Comfort Systems USA was done by a team of people. And every company we've ever bought. We pick companies. We certainly qualify companies, but we don't pick companies. They pick us. We give them unlimited time to do -- an unlimited access to do due diligence on us, and the reason that we continually win in the acquisition area, frequently buying companies at lower prices than other people are offering them is because we have worked so hard to make Comfort Systems the best place on Planet Earth for somebody who has made their life's work building a great contractor a home for their legacy. And if we continue doing that, we'll continue winning because that's why we win in acquisitions.

And after I leave, we'll continue to have a great team. We have Vice President of Acquisitions, who was carefully selected as a person with the right judgment and temperament to sit in the middle of the team and facilitate things as somebody who won't get in the way of Comfort's message, which is all I've ever tried to do. The people who do our acquisitions include Brian Lane. They include our CEO, our President our Chief Operating Officer, our regional leaders, our Head of Innovation is very important in acquisitions guys named Briston-Blair. But most important, the thing that we -- makes us win in acquisitions is our field leadership. We're always involved in the acquisitions that we do. When we buy companies where there is overlap, we faced that and solve that before we buy a company. We don't have mysteries, and we'll figure things out later. And I think we'll continue to do that. So I think Comfort Systems acquisitions is on a great role. I think that will continue. I think will continue to be a trustworthy disciplined company that does acquisitions with conviction. Above all, we'll be patient. I would say the key to our acquisition program is that we refuse to be hurried. We're fast, actually, and we are -- when we are ready to go, we go, but we never have to hurry. So I'm very, very confident about the future of acquisitions at Comfort Systems.

And I just want to say one more thing about Comfort, which is how great comfort is, and why I believe it will stay great, and that's our people and our culture. This company is filled from top to bottom with amazing people. And I don't think there's anybody who understands that as well as I do. And there's a lot of people who really understand it in Houston. Every one of our crucial functions is led by a great leader, tax, internal [indiscernible], risk management, treasury, insurance, every one of them. People -- most people -- people on this call will never meet the great people we have people with names like Adam and Amy and Ana and Barbara and Byron and Elvira and George, Ela, Jay Jordan, Judy, Michael, Wayne and more. I couldn't possibly name them all. The unbelievable group of people with very long tenures at the company, very, very dedicated to our company and very, very dedicated to its culture. And then we have perhaps even surpassing that at our subsidiaries that are companies in all of these states, Texas, North Carolina, New York, Florida, South Carolina, Kentucky, did I mention Texas? We have unbelievable groups of people who have pulled together to create something that's unmatched in their markets.

And that culture has led to the staying power that we have in all our markets. It's led to us making money every year of our existence, us having free cash flow every year of our existence to us being the best positioned when markets became great to really take advantage of it. And it's that -- everything I've just described is what created the great results that I'm going to review right now.

So that revenue for the third quarter of 2026 was $3.8 billion, an increase of $1.3 billion or 54% compared to last year. Electrical segment revenue grew by 85% and mechanical revenue grew by 43%. Through 9 months, our same-store revenue increased 47%, and we expect full year same-store revenue will also be in the mid-40% range. We estimate that our same-store full year 2027 revenue will grow in the mid-20% range. Gross profit was $934 million for the third quarter of 2026. $327 million higher than 1 year ago. Our gross profit percentage remained consistent at a strong 24.8% this quarter. Quarterly gross profit percentage in our Mechanical segment increased to 25.1% this quarter compared to 24.3% last year. Despite Electrical segment revenue growth of over 80%, margins in our Electrical segment slipped to 24.3% this quarter as compared to 26.2% in the third quarter of 2025.

Last year, we noted that our electrical results were positively impacted in the third quarter by discrete gains, including a when a customer emerged from bankruptcy. Those gains improved Electrical segment margins last year by approximately 1.8%. And without that effect, electrical margins were roughly flat. We currently expect that 2027 gross profit margins are likely to continue in the strong ranges that we've achieved an average over recent quarters.

SG&A expense for the quarter was $314 million, or 8.3% of revenue compared to $230 million or 9.4% of revenue in the third quarter of 2025, and we continue to invest to support our extraordinary growth. Our operating income increased by 65% from last year from $379 million in the third quarter of 2025 to $625 million for the third quarter of 2026. Our operating income percentage increased to 16.6% this quarter from 15.5% in the prior year. Our year-to-date tax rate was 23%, and we expect our tax rate to continue to be around 23% for the rest of 2026 and in 2027.

After considering all these factors, net income for the third quarter of 2026 was $489 million or $13.91 per share as compared to net income for the third quarter of 2025 and of $292 million or $8.25 per share. Thanks to great execution by our people, EBITDA increased by 61% and to $668 million this quarter from a strong $414 million in the third quarter of 2025. Our trailing 12-month EBITDA is now approximately $2.3 billion. Free cash flow for the third quarter of 2026 was $806 million, and year-to-date, our free cash -- our cash flow is roughly $2 billion.

In addition to strong earnings, we benefited from advantageous payment terms and favorable collections from large technology customers. Our cash flow this quarter was also higher due to $166 million in income tax payments that we were able to defer until the fourth quarter of this year. In addition to the modular expansions that are underway, we invested over $100 million in CapEx to expand prefabrication facilities for our traditional construction business. We estimate that full year CapEx will be 4% to 5% of revenue, and we're likely to continue to incur CapEx at elevated levels during the first half of 2027.

We actively purchased our shares this quarter, and year-to-date, we've returned $349 million to our shareholders, and we've retired approximately 212,000 shares. So once again, in expressing my gratitude to the people I mentioned earlier and to the people on this call who've supported us for so long, I'm going to turn the time over to Trent. Trent?

Thanks, Bill. And before I start, I just want to thank you for the time I've been able to work with you over the last 22 years and for taking the chance in hiring me back 22 years ago. I appreciate it though.

So I'm going to discuss our operations and outlook. Our backlog at the end of the third quarter jumped to a record $17.8 billion. Since last year, at this time, our backlog has increased by $8.4 billion or 90%. On a sequential basis, backlog increased by $3.8 billion or 27%. 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. Industrial customers accounted for 76% of total revenue in the first 9 months of 2026, and they are major drivers of pipeline and backlog. Technology, which is included in industrial was 59% of our revenue, a strong increase from 42% in the prior year.

Our modular operations continue to grow with our established customers and we are building products for new customers, including a frontier lab and colo providers. Although we have not yet entered new arrangements that we would consider programmatic, we continue to explore deeper partnerships with these and other potential strategic partners.

In Institutional markets, which include education, health care and government remains strong, and represents 16% of our revenue, and the commercial sector provided about 8% of revenue. Most of our service revenue is for commercial customers. Overall, our companies continue to execute at high margins. However, this quarter, we experienced a higher proportion of equipment and materials in our cost mix that augmented our sequential revenue growth but dampened sequential margins. Construction accounted for 90% of our revenue with projects for new buildings representing 75% and existing building construction 15%.

We include modular and new building construction and year-to-date, modular was 17% of our revenue. We remain on track to have over 4 million square feet of space in our modular businesses by the end of 2026. And with ongoing orders and investments to meet that demand we expect to have approximately 6 million square feet of capacity by the end of 2027. We also continue to evaluate further investments based on continuing strong demand and customer needs.

Service revenue was higher by 13% this quarter, but with faster growth in construction, service represents 10% of total revenue. Service profitability was stronger than ever this quarter, and service remains 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 in thanking our over 25,000 employees for their hard work and dedication, and I will now turn it back over to Michelle for questions.

[Operator Instructions] Our first question is going to come from the line of Adam Thalhimer with Thompson, Davis.

Congrats on another great quarter. Julie congrats on the promotion. And Bill, congrats to you on your retirement. You'll be missed, Bill. Trent, I want to start with you on the sequential margin decline. Can you give a little bit more color on that? And how should we think about that as we look ahead to margins in the next few quarters?

Yes. Yes. I'll jump in, and then I'm sure Bill will want to add a little bit too. But sequentially, we just -- we carried a higher proportion of equipment and materials in our cost mix this quarter. So that's going to add revenue, but equipment doesn't carry the margin. Our labor does. So the percentage comes down even as the dollars go up. So -- but anyway, the way I think about it, I'd be careful about focusing on one quarter. We've always kind of just -- some of this is a little bit lumpy depending on what the mix is, and that's what we experienced in the prior quarter.

And there's other things that contributed to the slight decline. One of the things that happens is after we do acquisitions, we have purchase adjustments and certain of those purchase adjustments relate to the changes in the WIP schedule for jobs that were ongoing at the time we closed. And because of that, those purchase adjustments roll through our costs. And those adjustments were like $12 million higher in the third quarter than they were in the second quarter. So that was a straight hit to margins. We also -- we have one large company in electrical. It's over half of our electrical segment, that company had gross margins in the 30s in the second quarter, and their gross margins were still unfathomably high in the third quarter and above average for our company, but they weren't in the 30s. So we just -- there's discrete things that happened what happened. I think the business has never been better. The other thing is when you see this kind of a jump in revenue, like 80% organic revenue growth in the electrical, you know a couple of things. One, you got a big denominator for your fraction, but you also know that we're early in a lot of jobs, and we don't pull out high margins early in jobs, right? We wait -- we keep contingency. We wait and see how they go. So I can't -- I don't think there is anything but good news in this quarter, Adam.

And then, Bill, just to pull on that thread a little bit. When you say we're early in jobs, when should we think about the portfolio maturing a little bit?

We've reached a point today where it's really hard to answer that question because some of these jobs are multiyear. But I will say you begin to see profit changes when you're 40%, 60%, 70% complete. These big jobs, the way that you recognize revenue in our industry is you estimate the remaining cost it's going to take you to finish a contractual obligation. Early in the job, you don't know what's going to happen. You don't know how much it's going to rain. You don't know what the people who are working next to you as other subcontractors are going to do. So companies that stay in business they keep money in the job for the things they don't know. As you get deeper and deeper into those jobs, you begin to get a better view. And for us, historically, we've had net gain on jobs every year of our existence, and they've been bigger than ever lately. So I would say this quarter, definitely early in jobs. I'd say next quarter will be on average early in jobs, although there's always closeouts in fourth quarters to some extent just because of the nature of years ending and what customers want you to do. So I guess it's hard to say. I think we'll get back to average first half of next year.

Okay. And then obviously unbelievable awards in the quarter. In terms of what's driving that, would you say that's your traditional data center customers? Or are there some new customers starting to creep in?

Yes, there are definitely new customers creeping in and demand is just very strong. I mean our customers -- I think part of it is our customers are committing earlier and for larger scopes because they know that capacity like ours is scarce right now. And we continue to be really selective in what we're looking at. So yes, it's kind of all of the above. It's a market right now where the governor isn't demand, the governor is really just labor, the ability to be able to get the labor to the work. And our customers realize that, so they're wanting to lock up our capacity, and that's why you see what the backlog is doing.

And you know Adam, it's a real tribute to the folks out there work and the quality of work they're doing that we're getting this much repeat business from very sophisticated customers, really tip at to the folks on what they're producing.

Our next question is going to come from the line of Adam Bubes with Goldman Sachs.

You talked about building some modular products for new customers, including Frontier lab and colo providers. Can you just clarify the 6 million square feet of capacity you expect by 2027? Is the incremental 1 million square feet versus what you targeted by midyear. Is that related to Frontier labs or new colos, or is that primarily your two hyperscaler customers? And then can you just expand on the engagement, those conversations with the Frontier Lab and colos? What are they asking from you in terms of scope of work, potential output?

Yes. So the answer is the build-out that we just talked about to $6 million is based on our current programmatic build-outs with the customers that we already have. And on the new customer front, yes, we're building product, right, for Frontier lab and colocation providers, and that's real work, and we're proud of it. but we haven't yet entered arrangements with them that we would call programmatic, and we're not going to call them that until we believe they are programmatic, right? So the build-out that we've announced is offer existing capacity that is with our current customer base in modular.

You might if you're living in the paradigm over the last 30 years, like I sometimes do, you might say, oh, they haven't yet sold business to these people. The reality is we haven't yet reach terms where we're willing to accept business from these people. Right now, one of the things that's front and center for us is the ability to pay, right? So if we do something -- typically, our programmatic people have made 5-year volume commitments to us. And then we have gone out and spent large amounts of CapEx to build space that's going to primarily build their product. And I think not just in modular, but across our business, we have a long history and a long set of experience that really, really takes into account the financial strength of our counterparties and not that these people don't have financial strength because they do. But we don't -- we think there are various considerations as you compare the customers that we do work for.

And one other thing, [ Adam, ] I'm sure I'm not telling you and you haven't already realized the modular 17% of our revenue, it's growing but staying 17% because the rest of our business is also seeing really great demand as well.

Got it. All super clear. And then, Bill, you referenced the projects in sort of earlier stages of completion, if you look at catch-up adjustments, the impact on revenues this quarter. I think it stepped down to 4.5% from closer to 8% of revenues in the first half of the year. Am I thinking about this right? Because if you kind of strip those impacts out, it looks like underlying gross margins actually continue to increase sequentially. Is that the right way to think about core execution? And does that give you confidence baseline margins can continue to expand as new projects mature?

I was with you all the way to the last sentence because we do not represent that margins will go up in the future. We do say -- we do know that things that are have been driving them up are still apparent for us. And if anything, they're at least as strong as ever. I will say what you said plus things I can see that nobody could see unless they were sitting in Julie's or I's or Michael's seat such as this point about the mix in our costs that Trent mentioned of a higher part of our -- by a couple of percentage points, our cost of goods sold has more material and equipment passing through it. There's nobody who runs a business for us, who worries about their return on wire they worry about their return on electricians and plumbers. And our gross profit per hour worked is -- continues to get better. So I agree and more.

Congrats, Bill and Julie.

Our next question will come from the line of Sangita Jain with KeyBanc.

Congratulations, Bill. And congratulations, Julie. So I just want to ask on the mechanical backlog. We saw a more meaningful jump than the electrical backlog. And I was wondering if you could break down the makeup of that, where they may be modular and the traditional business?

Backlog is really lumpy. I don't think there's any different trend between the two. I just think in any given quarter, one might book more, one might book less. Well, one might book vastly more and the other my book even more vastly more the way things are going. But at some point, I don't think there's any differential there. I think all of any of our 40 -- let's say, we have 40 businesses, 20 are highly exposed to the super cycle. Those people have more work than they can do. They're choosing how much they take it's really astonishing that our backlog went up this much in summer months. If I think about the burn, look at our revenue. This is a really, really [indiscernible], that's a really, really crazy amount of bookings. And I will say, what's also crazy about it is that Brian Lane let approved it. Brian Lane trend get on calls for the biggest jobs, and they talk through what are we doing to make sure we're safe. We have a whole program for large projects where we monitor them even more closely. By the way, we're not kidding ourselves that anybody in Houston is performing anything. But we did really try to stay on top of it. And I don't think we -- our backlog is the best it's ever been, Brian.

Best I've ever seen, Bill, and the activity level out there is as strong as I've ever seen it.

All right. So then can I ask a follow-up on this on backlog. Given that you're booking, it seems larger projects, how should we think about the duration of that backlog? I know historically, it's been under a year. But can you tell us how that has changed in recent quarters?

Yes. I mean I think if you look at the backlog of winning now, we're obviously winning larger projects. And I think the time frame is probably pushed out to 18 to 24 months as opposed to 10 years ago, 9 months was the best look see we had for sure. But the size of these jobs, the duration of them, where they are has extended the backlog to roughly 18 to 24 months I think, Sangita, would be a good framework. I was just going to say, Sangita, one way to look at it is just that -- when I look at the backlog right now, what it did in the quarter, right, is demand is just for what our people do, remains well in excess of what the industry can actually deliver. And we're being able to do and we're being asked to do and deliver more of it than ever before. So that's what I really take away from how strong the backlog was in this quarter.

Next question will come from the line of Brent Thielman with Oppenheimer & Co.

Bill, Julie, of course, congrats to both great career here, Bill. I guess you want to pick up maybe, Bill, where you were talking a little bit on comforts focused on quality of customers, so to speak. Obviously, data center balance sheet financing is a big topic in the market. Maybe if you could talk us through how you look at that, your operations look at that, how corporate looks at it and scrutinizes those customers? And I guess, especially with regard to the pipeline of new potential projects, it sounds very healthy. I'm assuming that includes companies with available financing to push this through. If you could just talk to that.

It's very textured. So you have the ultimate customer, but outside of modular, and I know this came up in the context of modular. But outside of modular, the payment obligation is actually typically coming from a large national GC, right? And then in modular, you have -- we do get mobilization payments and then we have payments upon delivery. We are typically -- at this point, we're vastly ahead with our programmatic customers. And based on very open with each other, negotiations. The other thing that you look at is the labor that you're doing, whatever you're building, are you building something that other people would want, right? Because we have lean rights in our business where we get to -- they go back to the English common law, right, 1,000 years ago, where we have the right to seize the building if we don't get paid. So one of the things that we learned to look at over the years is, is this a building that there would be many, many people who would want? Or is this a building like we're involved in a wafer construction and construction of a plant that made wafer using a certain technology where we knew that, that large and very expensive building would be pretty useless to anybody but the person building it. And so we -- in that case, asked for very special terms where we were paid every 2 weeks, and we had the right to leave on very short notice. So it's very -- there are many, many things that you take into account when you when you try to figure this out. So -- and by the way, there are people rolling into modular now who are taking large books of business who we think are agreeing to payment terms where they are banking some people. And so if we lose work on that basis, we don't mind it.

Okay. Maybe another sort of pointing concern out there just the technology or data center project opportunities that are out there that you're looking at that aren't reflected in huge backlog today, presumably over the next few years. I guess any sense for how many of those you're looking at already have power connections figured out?

Pretty much. The things we're looking at is prospects, the power connection is usually already solved.

If anybody stroke a check for us to do design work doesn't make our engineers.

Because of where we sit in the cycle, right, we're pretty late cycle player in the design of a building. And so for our traditional construction business, there aren't a lot of -- I'm not aware of a lot of things that we're looking at prospect pipeline wise, where the power hasn't already been solved. And I got to tell you, it really hasn't delayed anything we're seeing that, Brent. And a lot of these data centers is generating their own power anyway. So these folks are going to solve their problem way or another.

Okay. Just a quick technical question. The operating margins in the mechanical segment has come up a lot this year, including the third quarter. Is that primarily due to better profit margins in modular compared to last year, at least on an operating basis, essentially, are you getting better fixed cost leverage there and that's...

In the mix, that's the large -- that's the single largest driver in the mix. There is actually higher margins for the 9 months for sure. in pretty much all parts of that work, but modular has really closed the gap with the rest of the business to come really up to parity with our average margins. And of course, mathematically, that changes the mix.

And I'm just going to throw crops to one company that is doing an unbelievable job on piping, really throughout the country and their margins have improved significantly is doing a heck of a job.

Our next question will come from the line of Josh Chan with UBS.

Congrats, Bill and Julie both truly very well observed. Congrats. My first question, could you talk about the magnitude of the orders that you took in, in the quarter? I mean it's sort of billions of dollars more than you're taking in any other quarter. And so maybe -- I know that the demand is obviously really strong, but just kind of what drove that decision, the confidence around being able to phase it out and things of that nature?

Yes, Josh. So the first part of that is that the timing of the work, we can handle, we have the personnel to do it. The locations are working in our favor. And the most important thing is labor availability of when it's going to go. So as Bill said earlier, when we work with our operating companies looking at these opportunities where they are, we're very confident we can handle all the work we have right now with the forces we have. And we're also very fortunate the company of this size that the companies collaborate work together, add that on to have a good traveling work for us. So when you add all that up, we're very confident in executing the level of backlog we have today.

That depends, great to hear and obviously, great backlog. I guess my follow-up. Could I ask about the margin comment about the mix of materials because obviously, I understand the mathematical reason for that. But over the years, it's very rare for you to call out that mix as a driver. And so I was wondering if anything large specifically happened this quarter where that mix was more impactful than usual.

So material and equipment was about 2% higher than it had averaged in the first 6 months. The only other time we brought that up was during COVID because there was so much inflation in materials and equipment. I think that they just met. The dollars of them just became such a bigger part of our cost mix. I think in this case, a big part of it is the earliness of the job. So a lot of stuff gets delivered. The earlier in a job, there's -- you're doing very, very long pipe brands and things like that. I think some of that actually comes back to the earliness of the job. Some of it is just it's lumpy, and that's just the way it is. Trent, I mean what do you...

Yes, everything you said, both is correct. So it's really where the large projects are in their life cycle and where we are in ordering that equipment.

Our next question will come from the line of Tim Mulrooney with William Blair.

The first question I wanted to ask about is on the backlog, obviously, a very strong result, but we don't see -- we don't have insight in the individual conversations that you're having. So I'm wondering with all the political rhetoric around data center moratoriums heading into the election, other regulations that governors are proposing around data center construction. Just curious if you've seen any change in any project schedules or push out in the pipeline in any other states?

So I would say, and having talked to one of our biggest companies in the last day or two, the answer is generally no. Like I haven't -- literally, I don't know a project where one of these considerations has changed its trajectory. I will say, I think on a more macro level, I have a sense, and I've talked with people who've given me this sense this may push more of the work nationally into more sort of friendly jurisdictions. So if you were a large hyperscaler, and you were laying your bets on which states you wanted to do work in, I think you sort of where your future, where you place your bets, where you go do your work and make your commitments, is going to be influenced by your perception of whether the governor in that state wants people in that state to have jobs, right? And -- so I do think -- I do -- I'm not saying it has no effect, but I don't know -- like I don't think at a micro level, we've seen any effect was so.

Tim, I can tell you from the work we have today, what we are seeing here at Comfort Systems we have not been delayed by any moratorium. One thing more to think about, too, is that modular is even less exposed because it ships to wherever the customer side is. So it's also something to keep in mind for us 17% of our business.

Okay. That's really helpful color. And just on the modular business, by the way, my -- just my last question here. I'm curious why you haven't added any more programmatic customers in your modular business? I know you touched on this earlier, but the demand is clearly there. Could you just walk me through that decision metrics around that and a little bit more than I'll start. So this happens in the real world, right? We're talking about 250,000, 600,000, 700,000 square foot buildings that are being built out with rows of robots and automated paint boots and turn tables and have to be staffed with thousands ultimately of people. And so we think we've grown unbelievably fast. We don't -- this is not scalable the way you can just print another copy of software. And honestly, we have tended to stick with our two big customers who've kept us happy together for -- in 1 case for 20 years because we know them, it works. They want more than we can buy. They can't buy enough from us to the point where they're looking at other sources of supply. So another way of asking -- the other side of that question is, why would we divert from a sure thing to sort of a mystery, right?

Our next question is going to come from the line of Julio Romero with Sidoti & Company.

And again, Bill, congrats on your retirement, and Julie congrats on the CFO role, well deserved. Trent, you mentioned earlier that your customers understand that labor is the governor. I guess if that's the case, what lever would expand that fastest? Would it be training? Would it be modular automation or digital field tools? And what kind of growth in your head count does mid-'27 require?

It's going to require -- I mean we're over 25,000 today, right? And we've done -- we've grown that kind of the way we've always done it, right? Where our companies strive to be the best place for craft professionals to work. We pay well. We train relentlessly. And we are always trying to keep people busy on good projects with good conditions. That's what a craft professional is interested in. Obviously, our traveling workforce has helped a lot in this in our contract craft operations at Kodiak and Pivot have helped as well. And acquisitions like Hunt and voice have already let us put people where the work is, right? So there's a lot of ways we're doing it. And our companies, we have planned -- the one key thing about us is that if we've taken work, it means we planned against every labor plan against every dollar in that backlog. So that's one thing about us. When we look at something to Bill's point earlier, when he talked about Trent and Brian looking at work, it's always the question is always, well, do we have the labor to do it. And then it's labor planned before we ever agree to it. So as we look into the future in that mid-20s we will have to add people, but we'll just do it the way we've always done it. And that's really -- the easiest way to kind of sum that up is we want to be the best place for a craft professional to build their career. We'll continue to try to be that place. And that's a lot of -- there's a lot of things that go into that, but that's the easiest way to understand it.

I've been doing construction a long time, probably more than I want to remember. But we really do treat people with respect and feel it here, and I think that really matters when you bring people in and they stay with us. I think it's really important what the culture of this company is and how we get people to go to work when they go work.

Yes. And I want to -- if it's okay, Brian, I want to add to that because if you look at what our people, the 25,000-plus, just did over the last 3 months, they were working in the hottest months of the year. Many of them, many of them are on the road away from their families, and they still delivered safely on schedule with great quality for our customers. That's -- I just want to take my hat off to them and commend them on the work that they performed and how grateful I am for what they've done.

Really helpful there. And then maybe just asking again about what you mentioned earlier about programmatic relationships, typically involving multiyear volume commitments and enough visibility to support CapEx, and earlier, I know it's another question you stated, why would you divert from those -- the two large programmatic customers. But I guess what would you need to see from one of the newer customers before they could kind of graduate to programmatic. And how important is the financial strength of the customer in those considerations?

Yes. So I would say that the two things that you would look for are the nature of the commitment and the payment timing, right, payment timing. And also, you actually take into account many of these newer customers are really -- they're new to building modular hot aisle containment or modular chiller plants. And so one great thing about them is they're willing to really listen to our experience and build stuff. And if we build stuff that's constructible and versatile that gives us a lot of comfort as well that it's valuable to them or to someone else and maybe more importantly, that the capacity that we set up to build for them has a lot of outlets. So none of it's mysterious, you could sit and think of it. Nobody here is a genius who's thought of something new. It's exactly what you would think.

Our next question will come from the line of Kurt Yinger with D.A. Davidson.

I just wanted to go back to the point on capacity. I guess for those operating companies that are doing larger out of center work. How much capacity, so to speak, is just left looking at the projects and backlog and how that carries you through next year? And I guess what I'm ultimately trying to get at is thinking about bookings in the next couple of quarters and whether the outsized performance this quarter maybe takes away from what we might expect looking forward?

I think that -- first of all, that question doesn't have like a mathematical answer. There's no gauge, right? And your willingness to stretch to accept work has to do with work, the nature of that work, the flexibility that you're giving, the timing, I would say, our guys -- it's certainly the case that if we book more in one quarter, we might not -- we might book not as much in a future quarter. My sense is our guys have -- they're going to continue to book the work of price, continue to book further out. At this moment, the conditions are extremely supportive with no sign of that changing. I don't know. It's -- but I can't change the fact that you don't collect a dollar-wise, you don't book the same job twice, right?

And Kurt, we will -- we do remain disciplined on what we're going to take. The big driver for us is we're not going to take work that we can't do. at a very high level. So that, to me, is the overriding factor when we look at these things. And -- but we have world-class people out there looking to work, doing the work. So we'll handle what we can handle and we'll see how it goes. But we'll keep booking work as we go farther and farther out.

All right. That makes sense. And then just second on capital deployment. I mean, given the level of cash generation, I guess I'm just curious looking at historically as a percentage of that, what you've deployed towards M&A, how does kind of the current landscape look in terms of the ability to continue to do that? And how does that maybe impact the thinking or aggressiveness that we might expect from kind of a share repurchase perspective going forward?

So we look at these decisions over years, not months or quarters. we have a very, very good acquisition pipeline. But of course, pricing for acquisitions has been high. I think it might be -- that might be rolling over right now with interest rates and with the continued lack of exits for certain private people, but we'll see. We've always bought our shares more aggressively when they dip, right? Over a long period of time, we typically use -- we have used 15% to 20% of our free cash flow to buy shares. But if you look over the time we've bought them since 2007, we buy a lot more during deep seek in a 2-week period, we bought -- we spent $200 million, right? And the $200 million, by the way, more than a year ago was more to us than it is today. We spent $200 million this last quarter. So I guess, all of those things are -- we're trying to do exactly what you would do. We have a lot of confidence in our future. So we have a lot of confidence in stock buybacks, especially when the price is softer. And we have a really good acquisition pipeline, but we will not do a deal just because we have money. And by the way, one turn of EBITDA and cash, we've had that many, many times in the past. This is not -- it's a big dollar amount, but it's not a big dollar amount on the scale of what Comfort is yet.

And in the interest of time, our last question is going to come from the line of Brian Brophy with Stifel.

Bill, Julie, congrats to you both. Bill, quite an incredible career. And Julie, very well deserved. I guess just one for me. Curious if there's any areas of geographic exposure that kind of stand out this quarter in terms of relative strength or weakness towards calling out obviously, it sounds like Texas remains quite strong, but curious if there's other regions that are notable.

Yes, you hit it right on the head, Texas really strong. Georgia strong and getting stronger. We've seen a lot Mississippi, Louisiana. We don't do much work in, but Louisiana is strong. And then, of course, you've got North South Carolina and the Southeast areas. But Texas right now is really strong. Utah is very strong. Bill, any other...

Just woken up. There's a news.

Yes, it is a new one. Yes. If you're talking about the areas of we consider above normal strength. Those would probably be the territories.

By the way, we -- I'm not saying we'll play there because we may choose other options. But Arizona is -- the next phases of some of the big semiconductor work is about to hit. We have opportunities there. I don't know that we'll take very much of that because we're so busy in Texas. But if you're just asking about geographies, there's some monster work in Arizona.

I would now like to hand the conference back over to Brian Lane for closing remarks.

All right. In closing, I want to thank our teams across the country for their dedication, skill and excellence they bring to serving our customers every day. Demand remains strong and our people continue to rise to the challenge of meeting an unprecedented need for their expertise. Conditions remain favorable for continued strong performance, and we have the resources and commitment to build on that momentum. Thank you for your confidence, and I hope you all have a great weekend.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Thank you for standing by, and welcome to the Comfort Systems USA's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Jonathan. Good morning. Welcome to Comfort Systems USA's Second 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 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 on the comfortsystemsusa.com. Joining me on the call today are Brian Lane, Chief Executive Officer; Trent McKenna, President; 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 $3 billion. We earned $12.53 per share this quarter, which is an increase of 92% compared to a year ago. Our Mechanical business experienced a sharp increase in profitability, and our Electrical segment also performed exceptionally well. Bookings continued to trend upwards, and our backlog increased to a new high of $14.1 billion.

Demand remains strong, especially in Technology as we continue to book work with good margins and favorable working conditions for our valuable people, and we enter the second half of 2026 with increased sequential and year-over-year backlog. I want to welcome our newest acquisition, Hunt Electric, a transaction we mentioned last quarter and that closed on May 1. Hunt is a great electrical business based in Utah, and we expect Hunt will contribute about $250 million of annualized revenue. We also increased our quarterly dividend by $0.10 to $0.90 per share.

Thanks to our amazing people, we expect strong results for the rest of 2026 and continuing success into 2027. 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. Our results were once again extraordinary with 44% same-store revenue growth, approximately $1 billion in free cash flow and EBITDA that was higher than last year by 80%. Revenue for the second quarter of 2026 was $3.3 billion, an increase of $1.1 billion compared to last year. Electrical segment revenue grew by 81%, while Mechanical segment revenue increased by 40%. Through 6 months, same-store revenue has grown 47%, and we estimate that 2026 same-store revenue growth will likely finish with a full year increase that is in the mid- to high 30% range. Gross profit was $844 million for the second quarter of 2026, $334 million higher than a year ago.

Our gross profit percentage grew to a noteworthy 25.9% this quarter compared to 23.5% for the second quarter of 2025. Gross profit percentage ticked down by a small amount from our first quarter as it was reported. However, absent the unique gains that we identified and quantified last quarter, our second quarter gross profit percentage actually increased from 25.2% in the first quarter to 25.9% this quarter. Quarterly gross profit percentage in our Mechanical segment jumped to 25.6% this year compared to 22.9% last year. Margins in our Electrical segment also increased by a full percentage point to 26.4% compared to 25.3% in the second quarter of 2025.

We believe that gross profit margins are likely to continue in the strong ranges that we have averaged in recent quarters. SG&A expense for the quarter was $287 million compared to $210 million in the second quarter last year as we continue to invest in people and innovation to support our growing business. SG&A as a percentage of revenue declined from 9.7% of revenue last year to 8.8% this quarter. Our operating income increased by 86% from last year from $300 million in the second quarter of 2025 to $558 million for the second quarter of 2026. With our strong gross profit margins, combined with our SG&A leverage, our operating income percentage surged to 17.1% this quarter from 13.8% in the prior year.

Our year-to-date effective tax rate was 22.5% and benefited from a discrete tax item in the second quarter. We expect our full year effective tax rate to be around 23%. After considering all these factors, net income for the second quarter of 2026 was $442 million or $12.53 per share, and that compares to net income for the second quarter of 2025 of $231 million or $6.53 per share. So we are more than 90% higher than the already elevated numbers we achieved a year ago. EBITDA increased to $600 million this quarter from $334 million in the second quarter of 2025. This 80% increase reflects great execution by our workforce and strong demand in our markets.

At the end of the second quarter, our trailing 12-month EBITDA is approximately $2 billion. Free cash flow for the second quarter of 2026 was $999 million. We are continuing to fund expansion of our production facilities and expect to incur additional capital expenditures through the remainder of 2026. We estimate that full year CapEx expenditures will be approximately 5% of our revenue. Despite funding an acquisition and big capital investments, we are in a net cash position of over $1.8 billion. And with strong ongoing cash prospects, we are better positioned than ever to reward our shareholders and invest in growing and adding to our business. That's what I got, Trent.

Thanks, Bill. I'm going to discuss our operations and our outlook. Our backlog at the end of the second quarter was a record $14.1 billion, a large sequential and year-over-year increase. Since this time last year, our backlog has increased by $5.9 billion or 73% and $5.6 billion of the increase was same-store. On a sequential basis, backlog increased by $1.6 billion or 13%, of which $1.4 billion was same-store. Second quarter bookings were especially strong in the Technology sector, both in our Construction business as well as Modular offerings.

We entered the third quarter with same-store backlog 69% higher than at this time last year, and our project pipelines continue at historically high levels. Industrial customers accounted for 75% of total revenue in the first half of 2026, and they continue to be major drivers of pipeline and backlog. Technology, which is included in Industrial, was 58% of our revenue, a substantial increase from 40% in the prior year. Our Modular operations continue to grow and thrive, and we are making progress on expanding our customer base, including with frontier labs and colocation providers. Institutional markets, which include education, health care, and government, remain strong and represent 17% of our revenue. The Commercial sector, now a smaller part of our business, provided 8% of our revenue.

Construction accounted for 90% of our revenue with projects for new buildings representing 75% and existing building construction 15%. We include Modular in new building construction and year-to-date, Modular was 17% of our revenue. We now have over 3.5 million square feet of building capacity dedicated to our Modular business, and we are on track to have more than 4 million square feet in production by year-end. With ongoing orders and investments we are making to address that demand, we expect to have approximately 5 million square feet of capacity by late summer 2027.

Service revenue was up 7% this year, and it represents 10% of our total revenue. Our service remains very profitable and our investments to meet the future demand that will result from the current strong construction activity remains a key element of our overall strategy. As mentioned before, we are entering the second half of 2026 with a backlog that is 69% higher on a same-store basis than we had at this time last year, and we have a superb team 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. Well, I want to close by joining Brian and Bill in thanking our over 25,000 employees for their hard work and dedication. And with that, I will now turn it back over to Jonathan for questions. Thank you.

And our first question for today comes from the line of Adam Thalhimer from Thompson, Davis.

Congrats on another amazing quarter. Bill, maybe you can help us understand the puts and takes to cash flow, how we should be looking at $1 billion of free cash flow in a single quarter and what that tells us about your cash flow prospects?

Yes. That is a really extraordinary number, like 2.5x our earnings, right? And over time, our cash flow will match our net income plus a little because we do have some noncash expenses. The interesting thing about this, there is definitely an element of advanced cash. People who know us will recall a year or 2 ago, we received a lot of orders, and we were able to fill a percentage of those orders far ahead of when we would actually incur the cost to do the work. So we have begun to build a position of advanced cash as well.

We also have extraordinarily good payment terms because we have extraordinarily good negotiating power on our work overall. And then, of course, our jobs are doing very well and customers are happy to pay when they see that the work is getting done on time and well. So it was broad-based. It wasn't any one thing. It is certainly a good sign that our business is healthy and that our customers are happy. But there's no like -- other than some advanced cash, there's no unique item to point out.

And then I guess the flip side of that is how do you think about capital deployment from here?

We've told you that we would spend about 5% of our increasing revenues on -- essentially, it boils down to buildings where we're buying them instead of leasing them because we're putting so much capital into these buildings in the form of robots and custom paint booths and turntables and various kinds of cutters. And then we also continue to keep a sharp eye out for opportunities to buy stock. We like our stock better than we've ever liked it. We bought some year-to-date, but after the big purchases of last year, we've been a little slower at the first part of the year. And of course, a patient commitment to acquisitions is still a part of our capital allocation conviction.

Okay. Lastly, Trent, I think you made a comment on -- I think this was a modular comment, making progress on expanding the customer base. What did you mean by that? And then I'll turn it over.

Yes. We've been having some success with some pilot contracts, just small contracts with both frontier labs and also with colocation providers. And the hope is that those will lead to future programs.

And our next question comes from the line of Adam Bubes from Goldman Sachs.

I think you talked about potential for 5 million square foot of modular capacity at around this time next year. How should we think about incremental CapEx associated with 1 million incremental square foot of capacity? And is that tied to an existing customer or the new customers -- potential customers you were referencing? And lastly, just how are you thinking about the range of outcomes for modular capacity expansion in 2027? Could it ultimately move higher than that 5 million number?

I'll respond to the first part of that and probably Trent is a better person to respond to the second part of that. The 5% of revenue that we talk about is our guidance on that, and we're comfortable that, that's about the right amount of money. I will say when we make new investments, we -- every time -- and these are big buildings, right? They -- they're -- we bought one recently for $100 million. We really take a hard look at the pros and cons of leasing or ownership. We've been tending towards ownership lately in order to control our destiny and just liking the product that we're getting involved with. But there is some wiggle room around that because we don't know what decisions we're making as time passes. We'll try to make what's best for the business.

Yes. And as far as out into the future, one thing -- we're not going to invest in buildings just on speculation. We expand when customers provide us meaningful multiyear commitments. And so that would justify anything, but we'll be prudent about that going forward as we've always done.

But we do love this industry. We're bullish long term about what the opportunities are in the industry we're in.

Great. And then I think your 10-Q shows changes in estimates on projects positively impacted Q2 revenues by around 7.7%. I think that's close to double the impact a year ago. Two-part question. What's driving that level of favorable revisions? Is it change orders or conservative initial estimating? And how should we just think about the underlying margin rate given that could be reflective of in-process work running through the portfolio at conservative margins?

So just as sort of historical context, since I became CFO in 2005 and frankly, before that, we have had net gain in our jobs every single year ever. We have more -- and by the way, you would expect the construction company to have that because when you're -- as you progress in these jobs, you don't know what's going to happen when you turn the systems on. You don't know how much it's going to rain. People who are not accruing for or considering the risks of what they're doing as they go don't last long in this industry. They're bigger this quarter than usual. They're bigger. They've been just trending bigger because of things like you mentioned like excellent pricing that we're getting. And in some ways, the risk is bigger, right?

The number of jobs we have over $40 million or $100 million counsels us to not rush to recognize revenue on things that aren't finished too aggressively. I will also mention that in the first quarter, we called out some incremental gains that were out of the ordinary. One resulted from a big change order where we had a bunch of profit with no cost whatsoever. And so we identified $43 million of gains that were kind of even outside the scope of the ordinary gains that we've had every year since 2005. That's what -- that's the point I was making about sort of if you want to look at our margin progression over time, you would not be getting a good picture of it if you left that out. So does that answer your question?

Yes, that's helpful. I appreciate all the color.

If I could just add on one thing. When you look at an estimate and how well we do in the field, we're really fortunate to have elite trades people that are doing this work who get out in the field and really want to perform at a high level. So we're just very fortunate in this company to have the group of people we have building these buildings.

There's amazing execution.

Yes. For sure.

And our next question comes from the line of Sangita Jain from KeyBanc.

Bill and Brian and Trent, can I ask if you guys are evaluating your projects any differently or with greater scrutiny given the environment out there with the public sentiment turning against data centers and the NIMBY issues that are coming up?

I'll take the execution part of that, and Bill probably can take the other part of it. We always spend a lot of time scrutinizing the work at the operating level and here on the larger work. So that really hasn't changed philosophically how we look at estimates and review the jobs. But on the front end...

Because we sell directly to the hyperscalers and to the most important intermediaries, we have really good -- a really good view on what they're thinking, what they're planning. And there is a very deep and calm certainty among these people that they're going to continue to build, that they absolutely need and have to do this building. And our goal -- so we see no let down whatsoever. And our goal is just to really be a great partner for them in helping them achieve delivered compute. So the answer is absolutely no sign of a let down.

Got it. And then on the proposed expansion to 5 million square feet by next summer, I'm sorry if I missed this, but is that still for your current major customers? Or are you branching some capacity out into other industries or maybe reserving some for potential large customers coming up?

For current customers.

Okay. So even that expansion from 4 to 5 is still for the existing customers, you're saying?

Yes.

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

Your full year same-store sales guidance of mid- to high 30s for the year implies second half, I think, about high 20s range or even in the low 30s. How should we think about -- I'm really curious like kind of the exit rate embedded in that. In other words, is the high 20s range as a run rate a reasonable jumping off point for how to look at '27?

So it's really -- it's our best estimate. When we give this guidance and understanding we've been wrong in the conservative direction quite a bit, we don't just make it up, right? We have people in the field who are -- have sort of workforce loading.

We build it from the bottom up, Julio.

And I will say also, this really -- it's an extraordinary level of growth, but we do have, in particular, in the fourth quarter, but some really, really heavy comparables coming up. So we will show a lot of growth. We'll continue to show a lot of growth. But it's -- this level of growth against the comparables for the next 2 quarters and particularly in the fourth quarter is a whole different like proposition than what you just saw.

Got it. That's very helpful. And then I wanted to ask you about -- if you could speak a little about how the first couple of months of R.C. Hunt have progressed. Can you maybe speak to the strategic fit with the current mechanical subsidiaries you have out in Utah and how meaningful it is to go to market with that mechanical electrical pairing and if they're pursuing work jointly?

Yes. Hunt is exactly the kind of company that we want to be successful in joining Comfort Systems, and they have been fantastic in early stages with the integration. They're already working on some pursuits with our mechanical contractors in that market. That's a great market. We know it really well, and they are the premier electrical provider in that market. So we're really excited to have them on board.

And our next question comes from the line of Josh Chan from UBS.

Brian, Trent, Bill, Julie, congrats on a great quarter. I was wondering about the increase in the backlog. I think you called out Modular contributing a portion of the increase to backlog, but curious how much of the backlog increase was Modular this quarter? And is it unusual to have a larger Modular order in Q2 compared to the historical pattern? Just wanted some color around that.

So of that increase, Modular had bookings of $510 million. It's in the MD&A ahead of what they burned. So they booked enough to cover their incredible burn rate and net an additional $500 million. I would say nothing is unusual right now or actually, I think what I would say is everything is unusual right now. It's an amazing time. But I don't -- there wasn't some like really special unexpected thing that happened. It's just that -- it's the reason we're adding the square footage. There's just a very, very consistent demand from our customers to buy as much of this as we can produce.

Okay. Yes. That makes a lot of sense. And then on the backlog itself, could you just talk about the duration of the backlog? Are you stretching out the order book? How are you managing the dynamic of the duration as you may be booking a little further out or maybe not?

Yes. I'll start with that. It's A Tale of Two Cities with the difference, it's the best of times and the best of times. But on the Modular side, we are getting farther and farther booked out. On the Construction side, bigger projects take longer, but some of these bigger projects move pretty fast. So I would say we still have our sort of -- most of it burns on the Construction side in the next 18 to 24 months.

But Josh, just to make sure this is clear, we only take work that we know we can perform. We do a lot of time labor planning, looking at the extent of jobs, when the men are available. So we don't outkick our coverage. We're very prudent and disciplined on what work we take and what it is.

Great. Yes. Congrats on the quarter again and good luck in the second half.

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

Very nice quarter again. Curious, obviously, the CapEx number is quite large. You guys reiterated that. How are you thinking about returns on that CapEx spending this year relative to your internal hurdles?

So this would meet any reasonable person's internal hurdle. What we've been experiencing in that world is full paybacks within a year or 2. I mean it's unbelievable. So we don't -- we're not -- we're really not a company that stares at spreadsheets a lot or sits around conference rooms a lot. But if you were to, it's -- think about -- look at how much CapEx we've spent and then look at how much earnings we've incrementally added for -- you can probably do a one-to-one analysis on the Modular part of our business. You have the information to do this to say, okay, how much are they spending and how much is that business providing to them? And it's extraordinary. I mean the returns are embarrassing.

That's great to hear. And then there was some discussion on the advanced cash earlier. Curious to what extent this is related to the stick-built side of the business versus the modular side?

It's all of the above. To get a number like that, everything has to be optimized in that direction for that particular metric. But if you force me to guess, I would say it's something like 1/3, 1/3, 1/3 or so, I'd say 1/3 of it might be the advanced cash that we've gotten in the past and the rest of it is -- it's really good performance, but it's within the range of -- if you were to like do a lag 12-month -- trailing 12-month comparison of net income to cash, we're ahead, but we've been ahead for years. And I'd say it's not really outside sort of 1.5 standard deviations of what might have happened, setting aside the advanced cash.

And one of the things about the advanced cash is I think it reflects the strength of our counterparties and also how much they value locking up our capacity right now. So it's a real good indicator from an operations perspective.

That's great. And just kind of one follow-up on to that. To what extent have you guys seen any competitive changes from a landscape perspective on the Modular side recently?

There are a handful of other companies building, in most cases, the product that we codesigned with our customers. We don't really -- I'd say some of them are so new at it that I don't think it's -- we have feedback. But I can say this, which is our customers are not inducing other people to build this to replace us. They're inducing other people to build this because they want more than we'll build. And we've never really thought we'd be the only company in the world doing complex modular. We just want to be the best and keep a lead -- keep our -- earn a lead in that.

And our next question comes from the line of Jean Veliz from Oppenheimer.

Congrats on the quarter, team. Looking at the balance sheet, what was associated with the large change in billings in excess this quarter? Was that associated with a single customer in Modular or a collection of other customers?

I'd say it's all of the factors that contributed to our cash flow. And it's emblematic of our -- really, it's emblematic of the leverage -- I don't want to use the word leverage, of the credibility that we have with our customers and their willingness to be a great partner for us so that we can keep working together.

A lot of questions have been asked about Modular capacity. But just for more clarity, just roughly speaking, what percentage of the new capacity is allocated for the legacy customers, new recent customers and some -- and the potential leads based on the conversations you guys are having with all the above?

I agree with Trent. I mean the capacity we're talking to you about today is overwhelmingly for existing customers and existing orders. So if we were to begin to have serious programmatic revenue from the new customers that we're doing pilot orders with, we would have to add space to build that. And we're getting more and more confident in our ability in a measured way to add space and successfully.

And one last for me. Could you provide us an update on the service opportunities in data centers?

Yes. So I mean right now, we're very focused on what every project we build today, right, in the data center world really becomes tomorrow's service opportunity. And we're building this enormous installed base of these data centers across the country. And when you look at what it takes to properly maintain those, there's significant technical depth and the service technicians required for it. We feel like we're very well positioned for that, and that will develop over time. Some of that gets caught up into warranty periods and things like that with the OEMs. So it's not an immediate opportunity, but it's definitely a long-term opportunity for us to continue to grow our service business.

Are you guys having conversations about any pilot programs for the future? Or is this just based on what you're seeing right now?

Yes. We haven't -- we've established ourselves as a provider to one of the hyperscalers. So that provides us an inroad to some of the data centers that they have. And we're focusing on geographies where it makes sense for us. Some of this is -- at the end of the day, this is being able to deliver service technicians to the location in ways that make us successful. We're not going to take something that we can't perform. So we're being very judicious in how we approach it, but yes, we're seeing inroads.

And our next question comes from the line of Tim Mulrooney from William Blair.

It's going to shock you, but I have a question about your Modular business. So you're adding square feet. You're going from 4 million to 5 million now, I think it is the most recent update. Like are you adding projects to your backlog for that capacity today, even though that capacity isn't built out yet? Or do you wait until the expansion is closer to finished? And then -- so that's my first question is like how do we think about that in terms of flowing through the backlog? And then what kind of terms, I don't know, volume guarantees or otherwise, are you getting to derisk the investments that you have to make in these expansions?

Yes. So some of that was in this quarter. And Bill already mentioned the over $500 million of modular backlog that was added in the quarter, incrementally. So that's already in there to some extent. Some of it will be coming though in future orders as well. And then as far as derisking on that stuff, I mean, that's all about making sure that we have the volume commitments with the customer. And with the 2 hyperscalers that we work with, they have been willing to continue to provide us volume commitments. That's why we continue to expand.

Okay. That's really helpful. So even today, a part of the expansion from 4 to 5, you're booking some of that today and you are getting volume commitments. That's really helpful. My other question, it's still -- it's data center related. But I mean, we saw the -- okay, we saw the news about the moratoriums on data centers in New York. So I guess I'm curious if you have any planned projects there that might get impacted. But also, could you just talk more about this broader idea of state moratoriums, where those are cropping up and how that compares to the more business-friendly places where you operate in your footprint?

I mean a lot of what we currently have in our backlog, right, was already planned, permitted through late cycle, right? And then with regard to moratoriums and kind of what you're hearing with certain data centers really receiving heavy press coverage as to like we don't want them here or there. Our position on that is these data centers as many as can be built are going to get built. There might be reasons to move them, et cetera. With regard to our modular build-out, that doesn't impact it quite as much because that's more of a programmatic towards certain locations that they're trying to hit.

And then with regard to the stick-built part of our business, I think these -- I'm betting on these guys to be able to build the data centers over time. And so I think that you'll hear a lot. There's going to be some press coverage. There's going to be this that and the other. And certainly, during election periods, you're going to hear people say certain things. But I think at the end of the day, these things need to get built. So people will figure out a place to put them and a way to get them built.

And get the power to do it.

And get the power to do it. Got it. Okay. Congrats on a nice quarter.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Brian Lane for any further remarks.

All right. 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 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 you, our shareholders. Thank you for your confidence, and have a great rest of your summer. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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.