Comfort Systems USA, Inc. Q4 FY2025 earnings call

• Reported record earnings, backlog, and exceptional cash flow. Fourth quarter same-store revenue growth 35%, quarterly gross margin over 25% for the first time. - 2025 EPS was $28.88, up 98% from 2024. Backlog reached a new all-time high of $12,000,000,000. - 2025 operating cash flow $1,200,000,000, full-year free cash flow a record $1,000,000,000. - Modular capacity expected to increase from around 3,000,000 square feet to approximately 4,000,000 square feet by end of 2026. - SG&A expense in fourth quarter $248,000,000 (9.4% of revenue), full-year SG&A as percentage of revenue 9.7%, down from 10.4% in 2024. - EBITDA increased 78% this quarter, full-year 2025 EBITDA $1,450,000,000 with a 16% margin. - Increased investment in share repurchases in 2025, returning over $200,000,000 to shareholders.

Fourth quarter same-store revenue growth was 35% and quarterly gross margin exceeded 25% for the first time. In 2025, gross profit was $675,000,000, an increase of $241,000,000 compared to the previous year, with a gross profit percentage of 25.5%. Full-year gross profit increased by $719,000,000 and the annual gross profit margin was 24.1%. The mechanical segment's quarterly gross profit percentage improved to 24.9% from 22.4% last year, and the electrical segment's margins climbed to 26.9%. Revenue mix: Industrial sector (including technology) accounted for 67% of volume in 2025, technology (dominated by data center work) was 45%, institutional markets 21%, construction 86% (63% new buildings, 23% existing buildings), modular was 18% of revenue, and service revenue increased by 12% to $1,200,000,000 in 2025, accounting for 14% of total revenue.

• Expect gross profit margins to continue in strong ranges in 2026 but likely seasonally lower in the first quarter compared to the full year. - Same-store sales growth in 2026 is mid to high teens year over year, more weighted in the first half. - Confident in continued strong performance in 2026 due to unprecedented backlog and strong project pipelines.

• Current plans and expectations include risks and uncertainties that might cause actual future activities and results to be materially different from those in comments. Detailed risk factors in recent Form 10-Ks and earnings press release. - Weather events like ice storms can impact operations, e.g., ice storm in first quarter 2026 affected some operations. - Labor shortage may pose challenges in fulfilling demand. - High conviction required for acquisitions as cash flow is strong and valuations of target companies are higher.

Q: Clarification on backlog based on CapEx cycle and labor sourcing.

A: William George explained backlog is for stuff planned 1 - 2.5 years ago, not current commitments. Brian E. Lane discussed all - of - the - above approach to hiring and use of contract craft professionals like in Kodiak and Pivot.

Q: Questions on Q4 bookings, modular expansion, and 2026 CapEx.

A: William George said over half of sequential booking increase was new modular bookings, some to perform in 2027, 2026, 2028; modular capacity increase is gradual, with single biggest procurement closing in February and some space productive quickly; 2026 CapEx depends on leasing or purchasing buildings, with 1.7% as baseline and building purchases moving the meter.

Q: On 2026 same - store sales growth weight and data center density impact.

A: Julio Romero asked about first half contribution and data center density impact. William George and Brian E. Lane discussed same - store sales growth is consistent through the year with comparables, and data center density improvement helps project economics.

Q: On SG&A leverage, modular contribution, and Texas operations.

A: Brent Edward Thielman asked about SG&A leverage and modular contribution. William George and Brian E. Lane talked about SG&A leverage due to revenue growth, modular's contribution to success but still only 18% of Comfort, and Texas operations including modular and stick build with data center being a major driver.

Q: On subsidiaries overcommitting and first quarter ice storm.

A: Joshua K. Chan asked about subsidiaries overcommitting and first quarter ice storm impact. Brian E. Lane said subsidiaries are disciplined and can handle work; William George said ice storms are seasonal and guys worked through challenging conditions.

Q: On chip cooling requirement change impact and M&A pipeline.

A: Brian Daniel Brophy asked about chip cooling impact and M&A pipeline. William George said no impact on business, and pipeline is good with cash flow relentless, emphasizing high conviction in acquisitions.

Q: On backlog duration protection and modular capacity increase reason.

A: Sangita Jain asked about backlog duration protection and modular capacity increase reason. William George and Trent T. McKenna said contract terms protect against risks, and modular capacity increase is primarily to meet demand from largest customers.