Comfort Systems USA, Inc. (FIX) Earnings

Management highlights

- Brian mentioned a fantastic quarter with same-store revenue growth of 51%, quarterly gross margins at a new all-time high, $10.51 per share earned, record backlog of $12.5 billion, and entered the second quarter with total backlog $5 billion higher than one year ago. Also announced increase to quarterly dividend to $0.80. - Bill reviewed financial performance: first quarter revenue $2.9 billion, 56% increase y-o-y; same-store revenue up 51%; gross profit $754 million, up $351 million y-o-y; gross profit percentage 26.3%; SG&A expense $269 million; operating income increased 132%; net income $370 million, or $10.51 per share; EBITDA increased 116%; free cash flow positive $242 million; capital expenditures $147 million; plan similar capital investment for remainder of year with full-year CapEx estimated at 5% of revenue; entered into definitive agreement to acquire another electrical contractor expected to close in early May, contributing annualized revenues of roughly $250 million with EBITDA margins in 8% to 10% range. - Trent commented on business operations: backlog at end of first quarter was record $12.5 billion; first quarter bookings strong in technology sector; companies collaborating more to deliver superior solutions; revenue mix details; modular revenue 17% of total revenue in the quarter, on track to have 4 million square feet of modular capacity by end of 2026; service revenue up 8% but service now 10% of total revenue, service profitability strong.

Guidance

- Believes same store revenue for the full year 2026 is likely to be higher than 2025 revenue by percentage growth in the mid to high 20% range. - Expect full year effective tax rate to be around 23%. - Plans similar capital investment for the remainder of the year, estimating full-year CapEx will be in the range of 5% of revenue. - The way of coming up with guidance is very organic, getting projections from the field and being confident in the levels as extremely achievable. - Maintains discipline in selection of work taken, ensuring can deliver good product and service to customers.

Segment performance

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 the electrical segment and 47% in the mechanical segment. Both segments benefit from strong demand in the technology sector. Gross profit was $754 million for the first quarter of 2026, which is $351 million higher compared to a year ago. Gross profit percentage grew to 26.3% this quarter. SG&A expense for the quarter was $269 million, compared to $195 million in the same quarter of 2025. Operating income increased by 132%. Net income for the first quarter of 2026 was $370 million, or $10.51 per share. EBITDA increased by 116% to $524 million this quarter. Free cash flow was a positive $242 million in the first quarter. Capital expenditures were $147 million in the quarter. Backlog at the end of the first quarter was a record $12.5 billion. Revenue mix: industrial sector accounts for 75% of volume in the quarter, advanced technology dominated by data center work increased to 56% of revenue, institutional markets (including education, healthcare, and government) comprise 17% of revenue, commercial sector accounts for about 8% of revenue. Construction accounted for 90% of revenue, with projects for new buildings representing 75%, and existing building construction 15%. Modular revenue was 17% of total revenue in the quarter. Service revenue was up 8% this year, but with faster growth in construction, service is now 10% of total revenue.

Risks & headwinds

- The plans and expectations include risks and uncertainties that might cause actual future activities and results of operations to be materially different from those in comments. - States to read detailed listing and commentary concerning specific risk factors in most recent Form 10-K and Form 10-Q, as well as in press release covering these earnings. - Anytime a large project with big footprint is put into community or state, there's historically been pushback, but currently not a high level of concern as demand still exceeds supply.

Analyst Q&A

• Q: 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?

  A: The answer is all of the above. Bought biggest building ever in Houston in first quarter, now spending on putting equipment in it. Looking at other building investments later in the year. Demand from existing largest customers and new customers with trial orders. -

• Q: Geographically, I'm curious where you are seeing more of the data center demand these days and how that matches up with your capabilities?

  A: By far biggest epicenter of demand is Texas, but data center demand is also strong in mid Atlantic (Carolinas and Virginia), Mississippi, upper West, etc. Can handle geographies because of significant traveling workforce. -

• Q: 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, though, 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?

  A: At Comfort, the way of coming up with this is very organic, getting projections from the field, knowing what work is committed, guidance at levels felt extremely achievable. Goal is profit, want to make sure take amount of work can do, get paid fairly for productive capacity, and risk is well compensated. -

• Q: Several states have begun talking about data center bans or even limiting access to power. I guess 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 at risk?

  A: At this point, no states where involved that have proposals out being tracked. Pushback on large projects historically, but not a high level of concern currently as demand exceeds supply. Have good nexus of work in states not in discussion, and states we focus on are encouraging build out. -

• Q: Can I ask one on the electrical acquisition that you just mentioned? Maybe the geography of that acquisition, the core end markets it participates in, or any other information that you can help us with?

  A: Company is right in sweet spot, market in West, core market that Comfort loves where already has mechanical, great acquisition but can't get too specific until announced. -

• Q: As you were planning for your guidance for the remainder of the year, can you talk about where you found the biggest change points for growth? Is it labor? Is it procuring the equipment that you need? Or maybe it's something else, any color would be helpful?

  A: Always and forever for us, it's labor. Headcount in first quarter of 2026 is 3,000 or 4,000 people higher than first quarter of 2025, including travelers and temporary workers. Materials and equipment as a percentage of revenue is up by a couple hundred basis points. Great spring hiring season last year. Comfortable mid to high 20s organic growth. -

• Q: 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 the book to build this quarter was like 1.2, which is pretty normal for Q1. But for the last four 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?

  A: Pipelines are still very full, very strong, coast-to-coast. Maintaining discipline in selection of work taken, staying within wheelhouse, work is in wheelhouse and evident in margins. Pipelines good, comfortable with backlog. -

• Q: I know that for the modular buildings, you've historically leased your buildings, and you mentioned why you're purchasing them now. I guess 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? Does that suggest you have much more confidence in the outlook?

  A: Don't go invest in buildings without being very confident in having customers for those buildings. For many buildings, customers make multi-year commitments at volume levels, allows better pricing and tightens relationship with customers. -

• Q: You mentioned earlier that Comfort's goal and focus is on the gross profit dollars and, you know, 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?

  A: No, seeing more uniformity in work taken and more repeatability. Expect to stay at high margins averaged over last several quarters. Everything said on call supportive of extracting high margins and getting rewarded for work done. Teams in the field and their commitment to constant improvement show in results. -

• Q: Related to kind of your point earlier, Bill, about partnering with repeat customers and choosing your customers and repeat in-use customers. I kind of have 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 to monitoring sensors or just overall optimization of the data center?

  A: There's a wonderful maintenance and service opportunity. Consideration given to ways technology might change in future to give options. Advantage of doing work on scale, bringing something pretty close to unique to customers.