Comfort Systems USA, Inc. Q2 FY2025 earnings call

• Had a fantastic quarter with quarterly revenue exceeding $2 billion and earnings per share of $6.53, a 75% increase from the prior year.
• Mechanical and Electrical segments showed increased profitability. Service revenue and profits also increased double-digit.
• Bookings were strong, backlog at end of quarter was a new high of $8.1 billion.
• Acquired Right Way Plumbing, expected to earn $60-70 million per year in revenue.
• Increased quarterly dividend by $0.05 to $0.50 per share and actively purchased shares.
• Backlog at end of Q2 was $8.1 billion, with same-store backlog 37% higher year-over-year at the start of the second half of 2025.
• Modular represented 18% of revenue year-to-date, with over 2.7 million square feet of building capacity dedicated to modular and expected to reach around 3 million square feet by early next year.

For the second quarter of 2025, revenue was $2.2 billion, an increase of $363 million or 20% compared to the prior year. Electrical segment revenue grew by 49%, while Mechanical segment revenue increased by 13%. Gross profit for the quarter was $510 million, $146 million higher than the prior year. The Mechanical segment had a gross profit percentage of 22.9% this year compared to 19.2% last year. The Electrical segment's gross profit percentage was 25.3% this year versus 23.6% in the second quarter of 2024. Service revenue and profits increased by double-digit percentages. Electrical contributed significantly to revenue growth, while Mechanical also saw a notable increase. Service revenue is 15% of total revenue and grew 10%.

• Expect continuing strong results in 2025 and 2026.
• Full year 2025 same-store revenue increase expected to remain in the mid-teen range.
• Going into the second half of 2025 with significant same-store growth in both sequential and year-over-year backlog.
• Anticipate continuing strong performance with good demand, especially in technology and large complex projects.

• Tariff ambiguity and economic uncertainty are mentioned as risks. Also, detailed risk factors can be found in the most recent Form 10-K and 10-Q and the earnings press release.

Q: Can you tell us how you're thinking about the extent of expansion in your modular capabilities and thoughts on possibly adding a third location?

A: We like adding incremental capacity measuredly, focusing on improving productivity and automation in existing spaces. The third location is something thought about long-term but not a high priority currently.

Q: If I can follow up, can you talk a little bit about initial conversations with your customers around the bonus depreciation and Trump executive order on AI?

A: Bonus depreciation helps customers and us some, but not an important driver as demand already far outstrips capacity.

Q: Has the market or pipeline of opportunities on the manufacturing customer side subsided?

A: No, it's still strong; best opportunities are on the technology side, and companies are choosing to put skilled workforce in best circumstances there.

Q: Within the current backlog, how much of that work would be scheduled for 2027 plus?

A: A lot, with a healthy amount in backlog and future outlooks indicating strong work scheduled into 2027 and beyond Q: How much of the growth at Walker Electrical is occurring in their traditional North Texas market versus other areas of Texas or outside of Texas?

A: All work is in Texas, specifically the 4 major markets: Dallas, Houston, Austin, and San Antonio; all are strong Q: To what extent are technology customers paying up for the work you're doing?

A: Pricing is good as seen in gross margins, with customers paying for risk and services delivered Q: Talk about the workforce, their willingness to continue to work more, make more, and recruiting front?

A: Companies are employer of choice in markets, internal staffing company helps flex up/down, and collaboration on jobs helps with labor; getting fair share of talented craft professionals Q: How do you think about the approach to choose projects between different verticals?

A: Operating companies do a great job selecting projects in strong markets, keeping balance with tech being red hot but fingers in all pies except commercial Q: Provide an update on what you're seeing on modular from a competitive standpoint?

A: Customers encourage competitive capacity, goal is to be so good it's crazy to buy from someone else; modular has unique advantages for complex projects Q: Looking at price cost, do you see suppliers trying to pass on costs and concessions from customers?

A: Yes and no; people use talking points to justify price increases, and some absorb costs; it's a complex situation with many factors Q: Quick question on the semi fab market and pharma pipeline?

A: Both are strong in pipeline with many prospects, though lumpy; pipeline shows strong opportunities in pharma and fab chip areas Q: Why is existing building construction outgrowing new construction in results?

A: Much of work is industrial, and a lot of industrial is adding on to existing capacity rather than greenfield, though margins are strong across the board