Comfort Systems FIX Earnings Call Transcript

Image source: The Motley Fool.

DATE

Friday, July 25, 2025 at 3:00 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Brian Lane

Chief Financial Officer — Bill George

Chief Operating Officer — Trent McKenna

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

Revenue-- setting a new high

Same-Store Revenue Growth-- 19% same-store revenue growth, driven by broad segment strength.

Segment Revenue-- Electrical segment revenue rose 49%; mechanical segment revenue grew 13% year-over-year.

Gross Profit-- Gross profit was $510 million, a $146 million improvement in gross profit, yielding a 23.5% gross profit margin versus 20.1% in the quarter ended June 30, 2024.

EBITDA-- EBITDA (non-GAAP) was $334 million. As of June 30, twelve-month trailing EBITDA exceeded $1 billion for the first time.

Operating Income-- Operating income was $300 million, up from $185 million in the quarter ended June 30, 2024, with operating margin at 13.8% versus 10.2% in the quarter ended June 30, 2024.

SG&A Expense-- $210 million, or 9.7% of revenue, higher than $180 million or 9.9% of revenue in the quarter ended June 30, 2024, due to investments in personnel.

Backlog-- $8.1 billion backlog at quarter end, up $2.4 billion or 41% year-over-year, and $1.2 billion or 8% sequentially; $2.2 billion of the year-over-year increase and $1.1 billion of the sequential increase in backlog is same-store.

Industrial Customer Exposure-- 63% of revenue for 2025; Technology projects comprised 40% of revenue for 2025, up from 31% in the prior year.

Construction/Modular Mix-- Construction accounted for 85% of revenue for 2025, with new buildings at 58% of revenue for 2025, existing buildings accounted for 27% of revenue.

Dividend-- Quarterly dividend raised by 5¢ to 50¢ per share.

Share Repurchases-- $111 million spent year-to-date in 2025 to repurchase approximately 326,000 shares.

Net Cash Position-- Exceeds $250 million after funding acquisitions and share repurchases as of the quarter ended June 30, 2025.

Acquisition-- Rightway Plumbing acquisition expected to contribute $60 million to $70 million in annual revenue.

Outlook on Margins and Demand-- Bill George said, "we feel pretty darn bullish about our prospects going forward." while noting that recent margin levels are "eye-popping" and already being digested internally.

SUMMARY

Comfort Systems USA(NYSE:FIX) delivered a record quarter, breaking the $2 billion revenue mark and posting unusually high growth across key financial metrics. Strategic project selection favored high-margin technology and industrial sectors, and management confirmed historic bookings driving both backlog growth and extended future visibility. Expanded modular building capacity, acquisition integration, and consistent service revenue gains further diversified profit sources, even as labor and materials inputs were managed for efficiency and price discipline.

Backlog duration now extends work visibility well into 2027, according to management, as discussed on the quarter ended June 30, 2025, earnings call, who described the pipeline as "very robust" with customers already in active multi-year planning discussions.

Management reported no adverse impact from July’s federal tax reform, stating, "we currently do not expect that the new and amended provisions will have any significant impact on our operating results or cash flows."

Expansion in modular construction focuses on measured capacity increases and ongoing productivity gains, with no immediate plans to add a third facility despite strong sector demand.

Pricing discipline remains strong, evidenced by increased gross margins to 23.5%, and service profitability continues to rise through both volume and operational innovation.

INDUSTRY GLOSSARY

Modular: Prefabrication of building systems or assemblies off-site, delivered to construction sites for rapid installation, improving speed and flexibility for complex projects.

Same-store: Financial metric comparing the performance of business units or branches open for the full comparison period, isolating organic growth from effects of acquisitions.

Backlog: The total value of signed contracts for work yet to be performed, serving as a key indicator of future revenue visibility and operational capacity.

Full Conference Call Transcript

Brian Lane: Okay. Thanks, Julie. Good morning, and thank you for joining us on the call today. We had a fantastic quarter with amazing execution by our teams. This is the first time that our quarterly revenue has exceeded $2 billion. We earned an unprecedented $6.53 per share this quarter, which is an increase of 75% compared to a year ago. Our mechanical business had a sharp increase in profitability, and our electrical segment was higher as well. Service revenue and profits also increased by double-digit percentages. Bookings were strong, and our backlog at the end of the quarter grew to a new high of $8.1 billion.

Demand remained strong, especially in technology, and we continue to book work with good margins and good working conditions for our valuable people. We are going into 2025 with significant same-store growth in both sequential and year-over-year backlog. I am happy to announce the acquisition and welcome Rightway Plumbing, a great plumbing business based in Florida that we expect will earn $60 to $70 million per year in revenue. We also increased our quarterly dividend by 5¢ to 50¢ per share, and we actively purchased shares during the first half of 2025. Despite a backdrop of tariff ambiguity and economic uncertainty, we feel fortunate to have good demand, especially for large and complex projects.

Thanks to our amazing people, we expect continuing strong results in 2025 and continuing success into 2026. Trent will discuss our operations and outlook in a few minutes, and I will make a few closing comments after our Q&A. But first, I will turn the call over to Bill to review our financial performance.

Bill George: Thanks, Brian. So, yeah, our second quarter results are remarkable. With 19% same-store revenue growth, sharply higher margins, and over $220 million of free cash flow. Also achieved more than $300 million in quarterly EBITDA for the first time ever, and that's a 50% increase over the same quarter one year ago. Revenue for 2025 was $2.2 billion, an increase of $363 million or 20% compared to last year. Electric segment revenue grew by 49%, while mechanical segment revenue increased by 13%. Through six months, same-store revenue has grown by 17%, and currently, our best estimate is that for full year 2025, our same-store revenue increase will remain in that mid-teen range.

Gross profit was $510 million for the second quarter of 2025, $146 million higher than one year ago. Our gross profit percentage grew to a remarkable 23.5% this quarter compared to 20.1% for the second quarter of 2024. Quarterly gross profit percentage in our 22.9% this year, compared to 19.2% last year. Margins in our electrical segment also increased significantly to 25.3% as compared to 23.6% in the second quarter of 2024. We currently expect that gross profit margins will continue in the strong range that we have averaged over recent quarters. SG&A expense for the quarter was $210 million, or 9.7% of revenue, compared to $180 million or 9.9% of revenue in the second quarter of 2024.

SG&A increased mainly from ongoing investments in people, to support our higher activity levels. Our operating income increased by just over 60% from last year from $185 million in the second quarter of 2024 to $300 million for the second quarter of 2025. With improved gross profit margins, our operating income percentage surged to 13.8% this quarter, from 10.2% in the prior year. Our year-to-date tax rate was 20.7%. Our effective tax rate in the first quarter was lower due to interest we received on a delayed refund by the IRS that was associated with our 2022 federal tax return. We received that $118 million refund in April 2025, which included $11 million of interest.

Excluding this item, our effective tax rate would have been approximately 23% year-to-date, and we expect our tax rate for 2025 to continue to be in that 23% range. With our full-year effective rate a bit lower due to the discrete benefit recorded in the first quarter. In July 2025, the federal government enacted major tax reform legislation. However, we currently do not expect that the new and amended provisions will have any significant impact on our operating results or cash flows. After considering all these factors, net income for 2025 was $231 million or $6.53 per share.

And that compares to net income for 2024 of $134 million or $3.74 per share, and this is an over 70% improvement from last year's already very strong showing. EBITDA increased to $334 million this quarter, from a strong $223 million in the second quarter of 2024. This 50% increase reflects great execution by our workforce, and strong demand in our markets. As of June 30, our twelve-month trailing EBITDA exceeds $1 billion, for the first time ever. Free cash flow for 2025 was $222 million. This quarter's cash flow includes two discrete cash flow items that largely offset each other.

As previously discussed, we received a $118 million tax refund in April 2025 that was related to our 2022 federal tax return. In addition, the remaining impact of our long-awaited cash flow turnaround of the advanced customer payments from our modular operations completed this quarter. As expected, the advanced payment position that we enjoyed for several quarters has now roughly normalized, and we expect that starting now and over time, our cash flow should once again approximate our after-tax earnings subject to the quarter-to-quarter and seasonal variances that are typical in our industry. We purchased additional shares this quarter, and year-to-date, we have spent $111 million buying approximately 326,000 shares.

Even after funding share repurchases and our RightWay acquisition, we are in a net cash position of more than $250 million. And considering our strong cash prospects, we remain in a great position to reward our shareholders and fund additional growth. That's all I've got on financial information. So try to

Trent McKenna: Thanks, Bill. I'm going to discuss our operation and outlook. Our backlog at the end of the second quarter was a record $8.1 billion, a large sequential and year-over-year increase. Since last year, our backlog has increased by $2.4 billion or 41%. And $2.2 billion of the increase was same store. On a sequential basis, backlog increased by $1.2 billion or 8%, of which $1.1 billion was same store. Second quarter bookings were especially strong in the tech sector, both in our traditional construction business as well as the modular part of our business. We are entering 2025 with same-store backlog 37% higher than at this time last year, and our project pipelines remain at historically high levels.

Industrial customers accounted for 63% of total revenue in 2025, and they are major drivers of pipeline and backlog. Technology, which is included in industrial, was 40% of our revenue. A substantial increase from 31% in the prior year. Manufacturing revenues were strong but declined modestly as our businesses chose to book a higher proportion of technology-related projects. Particularly data center construction. Institutional markets, including education, health care, and government, remain strong and represent 24% of our revenue. The commercial sector, which is a smaller part of our business, provided about 13% of revenue. Most of our service revenue is for commercial customers.

Construction accounted for 85% of our revenue with projects for new buildings representing 58% and existing building construction 27%. We include modular in new building construction, and year-to-date, modular was 18% of our revenue. We currently have over 2.7 million square feet of building capacity dedicated to our modular business, and we expect to have around 3 million square feet by early next year. Service revenue was up 10% and is 15% of total revenue. Service profitability was strong this quarter, and service continues to be a growing and reliable source of profit and cash flow.

As mentioned before, we are entering 2025 with a backlog that is 37% higher on a same-store basis than we had at this time last year, and we have superb teams working hard for our customers every single day. Thanks to the dedication and hard work of our employees across the country, we are optimistic about our future. I want to close by joining Brian and Bill in thanking our over 20,000 employees for their hard work and dedication. I will now turn it back over to Latonia for questions. Thank you.

Operator: Certainly. As a reminder, to ask a question, please press 11 on your phone. Our first question will be coming from Sanjeeta Jain of KeyBanc Capital Markets. Your line is open.

Sanjeeta Jain: So appreciate the update on the modular square footage. Can you tell us how we are thinking about the extent of expansion in your modular capabilities and your thoughts on possibly adding a third location?

Bill George: So I, Sanjeeta, I would say that we like what we've been doing. Which is adding incremental capacity as you know, in a way that's measured and really spending even a bigger focus or at least as much focus on improving productivity and automation in our existing spaces. So I think the kind of growth you've seen as long as the market supports it and as long as the amazing people who run these two businesses for us are convinced they have the bandwidth to implement it. As long as that is things hold true, we'll probably continue the same kind of incremental build-out. It feels as if that demand is there, to say the least, actually.

And so I don't know. I hope that answers your question. As far as the third location, you know, that's something we think about on a long-term basis. We have two pretty great locations. Right? We're right in the middle of the Mid Atlantic. Houston is pretty well located, especially for the, you know, for the market that these things need to go to. And even considering the states you have to drive through, because that's a consideration because different states have different load requirements. So I'm not sure that's a high priority for us right now. But we're very open-minded to it.

Sanjeeta Jain: Got it. And if I can follow-up, I know you said that the reconciliation bill does not maybe does not necessarily directly apply to what you do. But the bonus depreciation does help many of your customers as probably the Trump executive order on AI. Can you talk a little bit about if you've had any initial conversations with your customers around that?

Bill George: Yeah. The bonus depreciation helps them and us. Some, I would say that I would not view that as an important driver for us at a time when we're already experiencing demand of our outstrips. What we could possibly do But, you know, anything that makes people a little hungrier is good. Right? But I wouldn't consider that an important consideration.

Sanjeeta Jain: Got it. Appreciate your thoughts, Bill.

Operator: Thank you. And one moment for our next question. Our next question will be coming from Akash Singh. Your line is open.

Operator: Again, our next question will be coming from Akash Singh. Your line is open.

Operator: Moving forward, our next question will be coming from Julio Romero of Sidoti and Company. Your line is open.

Alex Dwyer: Yes. Hello. Good morning. This is Alex on for Julio. Congrats on the quarter.

Brian Lane: Alright. Thank you. Good morning.

Alex Dwyer: My first question, maybe we could start with just some color on growth for the remainder of 'twenty-five. I know backlog, you know, and revenues have grown meaningfully even over you know, the historical comps that you've mentioned that were a little tougher. So, you know, how's your confidence that this sort of continues positively into '25 and '26 and, you know, maybe some of the conversations that have led to that?

Brian Lane: You know, Alex, you know how our backlog's always very, lumpy. Right? So we don't we don't spend a lot of time thinking about that and where when jobs land kind of that on a time on a time scale, we're really looking at is kind of our future pipelines. And what we see right now is very robust pipelines. They continue to be robust even with all the bookings we had in the second quarter. So, yeah, things are still very bullish with regard to, future work.

Bill George: Hey, and Alex. I'm just this is Brian. I'm just gonna jump in. Also, right, is you know, Bill and Trent mentioned, we're getting good growth in service. It's about a b and two business for us now, growing about 10%. This last quarter. So that's been nice consistent growth both from a revenue and profitability standpoint and on to the construction growth.

Alex Dwyer: Very helpful color. Thank you. And I think, you know, kind of rising above consistent growth you had very nice, you know, earnings performance. And I think you, you know, you wrote about solid earnings for the remainder of '25 and into '26. So could we get a little color there? You know, is solid sort of a statement of continuing where we are now or you know, is that a little bit more from historicals Just a little color would be helpful.

Bill George: Well, we have a lot of work to do. Think our guys are the best in the world at doing it. Our customers want it. They're willing to pay for it. So I think we just feel pretty great about at least the foreseeable demand and our ability to profitably meet it. We don't really have additional guidance on margins and stuff. These margins are pretty eye-popping. And we're still digesting them. But we feel pretty darn bullish about our prospects going forward.

Brian Lane: Yeah. You know, Alex, if you if you look at these you know, our gross margin is 22 and a half percent, which is strong. So we're getting a good combination of you know, pricing, which is out there as well as the execution has been just terrific. So, I think we're pretty optimistic about our results over the end of this year into next year for sure.

Alex Dwyer: Great. Well, very exciting results again and a lot more but we'll jump back in the queue. Thank you.

Brian Lane: Alright. Thank you.

Operator: And our next question will be coming from Brent Thielman of D. A. Davidson and Company. Your line is open.

Brent Thielman: Quarter, guys. I guess, the first question, just Trent, you'd commented on the manufacturing kinda customer side and that you ultimately were focusing maybe a bit more on the data center tech customers where you, you know, may get the best opportunity out of it. I guess the question is, has that has that market or pipeline of opportunities on that side subsided or it's just simply your workers are fungible and you're going to best opportunities?

Trent McKenna: No. It's it hasn't subsided. Still strong. So what really is happening is the best opportunity right now. Are presenting themselves more often than not on the technology side, and so companies are choosing to you know, put their put their skilled workforce the best possible circumstances to be successful, and that's with the technology customers right now.

Brian Lane: You know, Brent, just to follow on. I mean, our operating companies, I think, are doing a superb job with project selection. Stuff that we're really know, good at doing, in places where we're strong. So gotta really tip your hat to them about the work they're bringing in here and how they're doing it.

Brent Thielman: Yeah. And then on modular, I heard you say 18% of revenue year to date. Could you possibly comment maybe on the proportion modular represents in backlog today? And then also, just from a customer standpoint, you know, is there an opportunity to add another hyperscaler to what you already have? Just with the incremental capacity you're adding? Is that capacity add really to serve know, the customers existing customers you have today?

Bill George: So your first your second question, the opportunities there, there are people who would who would buy our product. The people the our two main customers really are our best option. To sell to right now. You know, across our businesses, right now, there's a general tendency of our guys, of our leaders, of our you know, the people who interact with our customers to choose to do business with the customers who realize that we're trying to do something together. As opposed to trying to do something that is you know, a fight.

So we're really, really choosing who we give our unbelievable and scarce resources to by the people who really wanna go out there, build a good project, build it right, build it quick, work together, understand that everybody has to be paid for the risk they take. And so I think ultimately, that's the experience we're having with those customers, and that's really, really valuable to us.

Brent Thielman: Okay. And sorry, just the question around modular proportion of backlog. Is that something you could comment on? Or how we might think about You know, my you know, what's in the book of business?

Bill George: So my guess would modular is going to continue to grow. Right? We're investing in new space. We're improving our productivity. There's a range of how fast it could grow. You made me pick an over under, I'd say, now that we think that the business overall is gonna grow mid-teens, I think modular should stay near that percentage. Now having said that, I fully recognize it's grown from, you know, four to six to eight to 10 to 12. You know what I mean?

But, you know, we have such good demand and opportunity in all of our businesses that it's a pretty is it is everybody's great at getting bigger and better, It's a pretty tough chore to get become a bigger percentage of our company right now.

Brent Thielman: Okay. If I could sneak one more in, just maybe another approach to kind of the visibility question. Could you talk about the funnel or pipeline and what that looks like today as you look into '26 and possibly into '20 I mean, I'm sure you're having conversations about next year. At this point. But is the dialogue with customers becoming much more active? About you know, opportunities into 2027 at this point.

Trent McKenna: Yeah. Yeah, Brent. Absolutely. I mean, you know, '25 is we're full. Right? You're looking at '26, '27 for sure looking at opportunities longer out. As you as you know, we got bigger projects that run longer. Take longer to get them done in the front end to get them to get them signed, sealed, and delivered. But, yeah, you know, customers are looking out '26, '27. It's it's a great time to be in the construction business, buddy.

Brent Thielman: Very good. I'll pass it on. Thank you.

Operator: And one moment for our next question. Our next question will be coming from Adam Thalhimer of Thompson Davis. Your line is open, Adam.

Adam Thalhimer: Congrats on the record quarter. Basically, wanted to Good. Pick up with where Brent left off. And rephrase the question. Within the current backlog, how much of that work would be scheduled for 2027 plus?

Bill George: A lot. I don't think we have a precise number. Yeah. Yeah. A lot.

Adam Thalhimer: Yeah. But, yeah, the statement we made, Adam, about we're feeling good going out is because we're seeing both in backlog and what we're looking at. Is healthy. If you do a little math, you have to realize that if we're telling you we're gonna grow mid-teens the backlog's pushing farther out. Yeah. Yeah. 5% of the

Adam Thalhimer: Understood. The growth that you've seen at Walker Electrical how much of that is occurring in their traditional North Texas market versus work in other areas of Texas or even outside of Texas?

Brian Lane: So right now, all the work is in Texas. And it's in the know, the floor I call major markets, Dallas, Houston, Austin, and San Antonio. So though the very strong, North Texas, Dallas, etcetera, The other three markets are strong. It's probably one of the probably if you talk to them with a few times since they've been in business, that all four of their major markets have been strong, Adam. And I wanna you know, Walker is I think, is killing it. It's amazing what they're doing. But all of our other electricals are just killing it as well.

So it's important to understand We one of the nice things for us is that because we bought all of our electricals in the last five years or so, five or six years, We bought them at a time when we already had developed a big conviction around buying companies that had exposure to the super cycle. Had exposure to certain states, certain complex capabilities. If you look across Comfort Systems USA, our electricals just have a higher proportion of the companies that are tuned towards the good things that are happening right now. And they are doing an amazing job taking advantage of it as are our mechanical companies, and our service. You know?

Everybody except corporate is doing great.

Brian Lane: But we're doing our good on this call to help out.

Adam Thalhimer: Lastly, anything more you can say high level on pricing?

Brian Lane: Just as your technology customers are taking up more and more of your capacity, to what extent are they paying up for that? Well, you know, if you look at our gross margins, our pricing's obviously very good. Right? You know, you can you can read them in the income statement, but, you know, pricing is good, and we're getting paid for the risk and service that we're delivering.

Adam Thalhimer: You know? And then, Adam, our project teams are really delivering efficiency effectively, and we've we've really pushed a lot of innovations out that are helping them manage projects even more efficiently than they had previously. So that's also driving you know, that margin. And, you know, to some extent, our technology customers are very good partners with regard to those endeavors, when it comes to innovation. Been a long time since we've cried about a bad job, so great work.

Bill George: Yeah. I'm knocking on wood on that one, Adam.

Adam Thalhimer: Me too. Thanks, guys. Thanks.

Operator: Thank you. And our next question will be coming from Josh Chan of UBS. Josh, your line is open.

Josh Chan: Hey, good morning, guys. Congrats on a really good quarter. I guess it's yeah, it's clear that your demand environment is really strong. So could you just talk about kind of the your workforce, you know, their willingness to continue to work more, make more, but kinda keep working hard and then you know, what you're seeing on the recruit recruiting front.

Trent McKenna: That's a great question, Josh, because that's what really is the secret to you know, conference system's long-term success is making sure that it continues to be the best place for a craft, you know, professional to work. And you know, I think our companies do a really great job of being the employer of choice in their markets. Then, you know, what we've and we've talked about this previously, but what, you know, what we've done with our staffing company that's internal to the to the organization has really helped us be able to flex up and down and take care of our, you know, our core workforce as we've, you know, moved through, especially these larger projects.

Additionally, we get a lot of collaboration on jobs. So we have more than one of our operating companies on projects, and they're able to share labor in ways that it has also been able to help us. But, yeah, it's a it's certainly an all of the above approach when it comes to talent right now because everybody's constrained as far as being able to recruit and find. But I think we're getting, our fair share, if not more, of the of the talented craft professionals in America right now.

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

Brian Lane: Yeah. You know, you know, that's a good question. I think they're doing a great job. You know, selecting what's available in their markets with still pretty diverse as you can tell by the pie chart of the different industries we serve. We've kept good balance. Obviously, tech is you know, red hot right now, so we're we're trying to service those customers the best we can. But we are keeping a pre our you know, our fingers in all the pies, everything but commercial. Right? Office buildings is slow. Everything else has got good activity.

And I think they're selecting I think as Bill said in his script where the best working conditions for our people are gonna pay for the risk and the service that we provide.

Bill George: One of the best operators in the world who works for us. Made the point recently that we don't decide what needs to be built. We just make sure we're the best people to build it.

Josh Chan: So

Bill George: Scott also said, I'll take any job you have as long as it rhymes with Addison.

Brian Lane: He was kidding. The second part is just kidding. That's right. Yeah. Absolutely. We have to just do the work that's there for us and be the best people to do it.

Trent McKenna: Yeah. And that's why, you know, Josh you know, if you think about the bigger picture, training is crucial in here. At all levels of this organization, from the field up to project management leadership, make sure our folks throughout the organization are well prepared to address the market.

Josh Chan: Yeah. I appreciate the color, guys, and congrats again on a really strong quarter.

Brian Lane: Right. Thank you.

Operator: And our next question will be coming from Brian Brophy of Stifel. Your line is open, Brian.

Brian Brophy: Thanks. Good morning, everybody. Congrats on the nice quarter. Appreciate the update on the modular capacity expansion plans. Can you provide an update on what you're seeing on modular from a competitive standpoint? Are you seeing any new entrants in the space? Curious your latest thoughts on how you're feeling about your leadership position there. And I guess to what extent are any changes in the competitive environment driving, I guess, some of this leaning into more capacity? Thanks.

Bill George: So I will say our customers continue to encourage people to develop competitive capacity for us. They've had some of the best companies in the world work on that with mixed results. We don't think that we're you know, what we do is can't be done by someone else. We just our goal is to just be so good at it that you'd be crazy to buy it from somebody else. So I hope that answers your question.

Brian Brophy: Okay. And then that's helpful. And then, I guess, anything to call out on the health care end market? It looks like that was really the only other end market that grew meaningfully outside the tech this quarter.

Brian Lane: Yeah. I mean, we're seeing I think we mentioned it in the last few quarters, Brian, that we're seeing some, you know, new build hospitals get built. Heavy in the South for sure, Florida. So we are seeing a number of opportunities both on expansion of hospitals, new build, and also surgical centers or, you know, the smaller outpatient type facilities you see. So, yeah, we are seeing some strength in health care. Been pretty consistent for a little over a year now.

Brian Brophy: Thanks. I appreciate it. I'll pass it on.

Brian Lane: Thank you. Yep.

Operator: And our next question will be coming from Sam Snyder of Northcoast Research. Your line is open.

Sam Snyder: Hey, guys. Great job, obviously. I just had a question on modular like everybody else. It seems like I was wondering, you know, what has sort of changed or what could change going forward, that has made Modular respectively a bigger part of the business. And then is there anything that you see down the road that you know, maybe that maybe that changes? Ten percent's good. I kinda surprised it's not more, but, just curious your thoughts there. Why ten and there anything you see down the down the line? Where that might change?

Bill George: One thing people misunderstand about modular, it's very easy to think about it as a separate product line. And it is a it is a it is a different way of doing something. So anything that we do modularly, and we've done not this tech. We did pharma. Pharma was our main product our main customer for Modular for many years. Is something that is also being done that day in a thousand locations in The in a stick-built way. So modular is a way of delivering product that a building. That is being built in, you know, in the traditional ways as well. It has certain really unique advantages relating to speed and flexibility.

And we think that they're as the years pass, if you look forward in time, Modular will become a more and more important modality. For delivering especially complex projects in The United States. But, as far as what percentage it takes, I just think it's a for now, at least for tech where it we're being pretty much bought out. Is it is a vector that allows them to do even more than they could have done if they ignored this opportunity. But I don't you know? So I think people there may be a day when people are trying to decide, well, who's which way of doing this is gonna win.

I think that will not be in my lifetime. I think it's it's a it's a really great modality for accomplishing things. There are projects that have certain characteristics for which it's really has an almost irresistible advantages But I do think people it's really important that people understand it's a way of doing not a different thing that's being done. A building is a building is a building is a building.

Sam Snyder: That's really helpful. Thank you. And then I had a kind of switching gears. Looking at price cost, do you see, you know, your, your supplier trying to pass on cost that you know, really aren't there. And, you know, I they're probably not getting that by you, as a larger contractor, but just kind of curious on you know, are you able to get some, concessions from customers based on based on that sort of the tariff, you know, scaries right now, or is it really just passing through? And if it to the extent that it does or it doesn't? It just passes through equally.

Bill George: What kind of people do you think we are? Business. Business people. Yes. Business people. Yeah. Yo. This is the real world. People wanna be compensated for what they do. They use talking points to justify getting the best price that they can. I believe there are, for sure, people who are using these conversations to justify price increases. And I also believe there is a lot of there is a lot of people absorbing stuff. So I just think it's just like when things happened during COVID, people would say, are you seeing delays from COVID? And it was that's a hard question to answer because we always see delays.

I don't think I've ever seen a building built Well, there I virtually have been ever seen a building built that was finished on the goal day to finish it. From in the first conversation. So we always see delays. We always see price negotiations and bouncing around. And the you know, and people, they're all of their it's a it's a complex situation with lots of factors. So I guess the answer is yes. And no.

Sam Snyder: Got it. Thank you so much. Very helpful. No. That's okay. I think it's just the gross margins are so good. I'm just looking for any reason why that might not continue.

Bill George: There's not we're not we don't have some clever trick right now that's kinda sneaking some money out the outside. It's just that our guys are really they're valuable. They're hardworking. They can they can provide you with something that's hard to get your hands on and great customers are willing to pay for it.

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

Sam Snyder: That's fair. That's fair.

Bill George: Alright. I'll pass along. Thank you.

Brian Lane: Alright. Thank you.

Operator: And our next question will be a follow-up from Brent Thielman of D. A. Davidson and Company. Your line is open, Brent.

Brent Thielman: Hey, thanks. I just had I guess, a quick question on the semi fab market and anything that may be coming down the pipeline there, and maybe you can comment on pharma as well. There's been a number of announcements out there. And you know, how real of an opportunity that can be down the line for you.

Trent McKenna: Yeah. Those are those are all very strong in pipeline right now. We've got a lot of prospects that are out there. I mean, nothing that, you know, is, that I comment on, but it's that's all larger stuff, and it's very lumpy. Like, you get it or you don't. Some you get it at a small contract, and then the remainder of the value of the contract is done in change orders over time. So it's, you know, one of those things it's it's hard to see it going through, in and out of backlog, but at the same time, our pipeline is showing very strong opportunities in both pharma and fab. And chip fab.

Brent Thielman: Okay. And then maybe just more of a nuanced question, but you know, when I look about that revenue by activity type, existing building construction's actually been outgrowing new construction for the past four quarters. And I guess I think about data centers being largely a greenfield, I just was curious why that is in the results.

Bill George: You know, so much of our work is industrial now. And in The United States, an awful lot of industrial is adding on to existing capacity as opposed to greenfield. Even in the tech area. So that's been a trend actually for a long time. As we become more and more industrial. Because the reality is if you're building phase three of something for us, that's an existing sort of thing. Yeah. So some of that's just, like, it's a little bit definitional, and it's also just the nature of the industrial world.

Brent Thielman: Okay. But so in that regard, the margins wouldn't really be different. I've always thought of existing as having higher margins to it. But if you're doing phase three of something, it's in some way still a green field. It would still have us

Bill George: the big the big differentiator there is what percentage of the project is materials and subcontracts. And that would perform more like a traditional new building if it's a if it's an extension. Know what I mean? So I guess I would agree with that. Right now, margins are so good across the board that those distinctions are a little hard to even make.

Brent Thielman: Fair enough. Thanks for taking the extra one. Thanks, guys.

Brian Lane: Right. Take care. Thanks.

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

Brian Lane: Thank you. In closing, I want to reiterate my gratitude for the amazing dedication and excellence of the teams we have across our nation. Serving our customers every day. Demand is strong, and our people are rising to the challenges of addressing the robust need for their unique skills. As Trent mentioned, we feel that conditions are good for us to continue to perform. And as Bill indicated, we have the resources and the commitment to lean into delivering for our employees, our customers, and you, our shareholders. Thank you for your confidence. And have a great rest of this rest of the summer. Thank you.

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

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,019%* — a market-crushing outperformance compared to 178% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of August 4, 2025

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends Comfort Systems Usa. The Motley Fool has a disclosure policy.