Thank you for standing by and welcome to the Comfort Systems USA Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Julie Schaaf, 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 security laws and regulations. But what we will say today is based upon the current plans and expectations of Comfort Systems USA. So 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. The 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 three billion dollars we are in twelve dollars and fifty three cents per share this quarter which is an increase of ninety two percent compared to a year ago a 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 free in favorable working conditions for our valuable people and we entered the second half of 2026 with increased sequential and year-over-year backlog i want to welcome my newest acquisition hunt electric a transaction we mentioned last quarter and that closed on may 1st hunt is a great electrical business based in utah and we expect hunting will contribute about 250 million of annualized revenue we also increased our quarterly dividend by 10 cents to 90 cents per share thanks to our amazing people we expect strong 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.
Thanks, Brian. Our results were once again extraordinary, with 44% same-store revenue growth, approximately $1 billion in free cash flow, an 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 six months, same-store revenue has grown 47%, and we estimate that 2020 2026 same-store revenue growth will likely finish with a full-year increase that is in the mid to high 30 percent range 844 million for the second quarter of 334 million higher but percentage grew to a noteworthy 25.9 percent this quarter compared to 23.5 percent 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 profit percentage actually increased from twenty five point two percent in the first quarter to twenty five point nine percent this quarter that percentage in our mechanical segment jumped to twenty five point six percent this year compared to twenty two point nine percent last year margins in our electrical segment also increased by a full percentage point to twenty six point four percent compared to twenty five point three percent 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 two hundred and eighty seven million compared to two hundred and ten 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, 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. It was 22.5% and benefited from a discrete tax item in the second quarter. We expect our full year affects the tax rate. 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 two billion dollars. 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 by funding and acquisition and big capital investments we are in a net cash position of over 1.8 billion better position than ever to reward our shareholders and invest and 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 percent and 5.6 billion of the increase was same store on a sequential basis backlog increased by 1.6 billion or 13 percent 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 co-location providers. In institutional markets, which include education, health care, and government, remain strong and represent 17 percent of our revenue the commercial sector now a smaller part of our business provided 8 percent of our revenue the construction accounted for 90 percent of our revenue with projects for new buildings representing 75 percent and existing building construction 15 percent we include modular and new building construction and year-to-date modular it was 17% of our revenue. We now have over three and a half million square feet of building capacity dedicated to our modular business, and we are on track to have more than four 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 five 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 this 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 I want to close by joining Brian and Bill and 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.
Thank you. And our first question for today comes from the line of Adam Talhammer from Thompson Davis. Your question, please. Hey, good morning, guys. Congrats on another amazing quarter.
Hey, Bill, maybe you can help us understand the puts and takes to cash flow, you know, how we should be looking at a billion of free cash flow in a single quarter and what that tells us about your cash flow prospects.
Yeah, that is a really extraordinary number, like two and a half times our earnings, right? And over time, our cash flow will match our net income plus a little because we do have some non-cash expenses. The interesting thing about this, there is definitely an element of advanced cash. People who know us will recall a year or two ago, we received a lot of orders, and we were able to bill, you know, a percentage of those orders far ahead of when we would actually incur the cost. We began 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. When they see that the work is getting done, you know, on time and well. So it was, 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.
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 then we 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, you know, after the big purchases. And, of course, a patient commitment to acquisitions is still a part of our, you know, of our capital allocation conviction.
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. Thanks, guys.
Yeah, we've been having some success with some pilot contracts, just small contracts with both Frontier Labs and also with co-location providers. And the hope is that those will lead to future programs.
Thank you. And our next question comes from the line of Adam Bubes from Goldman Sachs. Your question, please.
Hi, good morning. 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 a 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's 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, every time, and these are big buildings, right? 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, you know, we don't know what decisions we're making as time passes. We'll try to make what's best for the business.
And, you know, as far as out into the future, you know, one thing, we're not going to invest in buildings just on speculation. We expand, you know, when customers provide us meaningful multi-year 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, you know, when we're bullish long-term about what the opportunities are in the industry we're in.
Great. And then I think your 10Q shows changes in estimates on projects possibly impacted Q2 revenues by around 7.7%. I think that's close to double the impact a year ago. Two-part question, you know, 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, you know, 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 a 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. You know, 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, you know, in some ways, the risk is bigger, right? The number of jobs we have over 40 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, you know, we've had every year since 2005. 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?
Yeah, that's helpful. Appreciate all the color.
I'd like to just add on one thing. You know, when you look at an estimate and how well we do in the field, we are really fortunate to have elite tradespeople that are doing this work who get out of the field and, you know, 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.
Great point. There's some amazing execution.
Our next question comes from the line of Sangeeta Jain from KeyBank. Your question, please.
Good morning. Thank you for taking my questions. Yes. Bill and Brian and Trent, can I ask if you guys are evaluating your projects any differently or with greatest 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. The 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, you know.
You know, 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 letdown whatsoever. And our goal is just to really be a great partner for them in helping them achieve delivered compute. So the answer, absolutely no sign of a letdown.
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 in other industries or maybe reserving some for potential large customers coming up for current customers okay so even that expansion from four to five is still for the existing customers yes okay got it thank Thanks.
Thank you. And our next question comes from the line of Julio Romero from Sidonia & Company. Your question, please.
Hey, good morning, gentlemen. 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. You know, 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. You know, 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, you know, sort of workforce loading.
We build it from the bottom up, Julio.
And I will say this really is an extraordinary level of growth. So 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 two quarters and particularly in the fourth quarter is a whole different, like...
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 months of RC 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?
Yeah, you know, Hunt's exactly the kind of company that we want to be successful in 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 the in that market that's a great market we know it really well and they are they're the premier you know electrical provider in that market so we're really excited to have them on board I'll pass it on thanks very much thank you thank you and our next question comes from the line of Josh Chan from UBS.
Hi, good morning, Brian. Trent, though, Julie, congrats on a great quarter. Thanks. Thanks, Josh. 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, you know, 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. Nothing is unusual right now. Or actually, I think what I would say is everything is unusual right now. It's amazing. It's an amazing time, but there wasn't some really special, unexpected thing that happened. It's just that it's the reason we're adding this square footage. There's just a very, very consistent demand from our customers to buy as much of this as we can produce.
Yep, that makes a lot of sense. And then on the backlog itself, could you just talk about the duration of the backlog? You know, are you stretching out the order book? You know, how are you managing the dynamic of the duration as you may be booking a little farther out or maybe not?
Yeah, I'll start with that. It's a tale of two cities, except 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, you know, 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 site 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. Yeah, congrats on the quarter again and the second half. Thanks.
Thank you. And our next question comes from the line of Brian Brophy from Stiefel. Your question, please.
Yeah, thanks. Good morning, everybody. Very nice quarter again. Curious, obviously the CapEx number is quite large. You guys reiterated that. But 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 two. I mean, it's unbelievable. So we don't, you know, 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 unbelievable. Think about, look at how much CapEx we've spent, and then look at how much earnings we've incrementally added. You could 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.
It'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-filled side of the business versus the modular side.
You know, 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 something like a third, a third, a third. You know, I'd say a third of it might be the advanced cash that we've gotten in the past, and the rest of it is, you know, 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 one-and-a-half standard deviations of what might have happened, setting aside the advanced cash.
And, you know, 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 wanted to 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 co-designed with our customers, we don't really, I'd say some of them are so new at it that I don't think 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 to be the best and keep a lead, earn a lead.
Appreciate it. I'll pass it on. Thanks.
Thank you. And our next question comes from the line of Gene Valise from Oppenheimer. Your question, please.
Thank you for your time. And congrats to the quarter team.
Looking at the balance sheet, what was associated with the large change in billings and access this quarter was that associated with a single customer and modular or or a collection of other customers yeah i'd say it's all of the and it's a it's emblem really it's emblematic of leverage i don't want to use the word leverage of the credibility that a lot of questions have been asked about modular capacity but just for more clarity just roughly speaking what percentage of the new capacities allocated for the legacy customers, new recent customers, 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, the new, you know, pilot in a measured way to add space and successfully thank you and one last for me um could you provide us an update on the service opportunities and data centers yeah so I mean you know right now we're very focused on what what every project we build today right you know in the data center world really becomes
tomorrow's service opportunity and we're building you know this enormous installed base for these data centers across the country and you know when you look at what it takes to properly maintain those you know there's significant technical depth and 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 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 was 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 right now yeah we've we've we've haven't a we have we've established ourselves as a provider to to one of the hyperscalers so that provides us an inroads to some of the data centers that they have um and you know we're focusing on geographies where it makes sense for us um you know some of this is you know 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 um so we're being very judicious in how we approach it but yeah we're seeing inroads thank you so much for the time appreciate it i'll pass it on thank you and our next question comes
on the line of tim milrooney from william blair your question please yeah thanks for squeezing me in here it's going to shock you but i have a question about your modular business um project you're adding uh you know you're adding so you're adding square feet you're going from four million to five million now i think it's the most recent update like um 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, you know, what kind of terms, I don't know, volume guarantees or otherwise, are you getting to de-risk the investment that you have to make in these expansions?
Yeah, so, you know, some of that was in the in this quarter and Bill already mentioned the over 500 million at you know of modular backlog that was that was added in the quarter as you know incrementally so you know that's 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 you know de-risking on that on that stuff I mean that's all about making sure that we have the volume commitments but it's the with the customer and you know with the two 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 that's really helpful so even today a part of the you know expansion from four to five you're you're booking
some of that today and you are getting volume commitment so that's really helpful thank you um my other my other question you know um it's 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, you know, if you, 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, and, you know, how that compares to the more business friendly places where you, you operate in your footprint?
Well, you know, I mean, a lot of, a lot of what we are currently having our backlog, right, was, was already planned, permitted, for late cycle, right? And then with regard to moratoriums and kind of what you're hearing, you know, with certain data centers really, you know, receiving heavy press coverage as to, like, you know, we don't want them here or there, you know, our position on that is these data centers, as many as can be built are going to get built. There might be, you know, 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, you know, certain locations that they're trying to hit. And then with regard to, you know, the stick-built part of our business, you know, I think these – I'm betting on these guys to be able to build the data centers over time. And so, you know, 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, you know, 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. Hey, thank you very much. Congrats on a nice quarter.
Thanks, Jim. Thank you. 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.
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 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. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
