Good day, and welcome to the Third Quarter 2025 Comfort Systems USA Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Michelle. Good morning. Welcome to Comfort Systems USA's Third Quarter 2025 Earnings Call. Our comments today as well as our press releases contain forward-looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based upon the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our 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. A slide presentation is provided as a companion to our remarks and is posted on the Investor Relations section of the company's website found at comfortsystemsusa.com. Joining me on the call today are Brian Lane, President and Chief Executive Officer; Trent McKenna, Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.

All right. Thanks, Julie. Good morning, and thank you for joining us on the call today. Our amazing teams across the country continue to deliver excellent results for our customers, and they have delivered financial results that far exceed even our recent outcomes. We earned $8.25 per share this quarter, which is double what we earned in the same quarter last year. Our mechanical business had a sharp increase in profitability, and our electrical segment was higher as well. We also had favorable developments in some late-stage projects that contributed to our great results. Construction is driving most of our results, but service revenue and profit also grew by double-digit percentages. Our bookings were strong, and our backlog at the end of the quarter grew to a new high of $9.4 billion. As a result of exceptional demand for our services, we achieved a second consecutive same-store backlog increase of more than $1 billion despite significant third quarter burn. We continue to book work with good margins and good working conditions for our valuable people. We entered the fourth quarter of 2025 with $3.7 billion more in backlog than last year at this time. I'm happy to announce the acquisition of 2 companies on October 1. FZ Electrical, a contractor with strong industrial capabilities located in Grand Rapids, Michigan; and Meisner Electric, a contractor based in Boca Raton, Florida, with strong capabilities in health care and other attractive markets. We are thrilled to have these 2 companies join the Comfort Systems USA family of companies, and we welcome them. Today, we increased our quarterly dividend by 20% to $0.60 per share, and we have actively purchased shares during 2025. With solid bookings and great demand, we expect continuing growth and strong results in 2025 and 2026. Trent will discuss our operations and outlook in a few minutes, and I will make closing comments after our Q&A. But first, I will turn the call over to Bill to review our financial performance. Bill?

Thanks, Brian. Our third quarter results were remarkable in every way with 33% same-store revenue growth, sharply higher margins, EPS up by over 100% from the prior year and a surge of over $500 million in quarterly free cash flow. We achieved more than $400 million in quarterly EBITDA for the first time ever, and that's a 74% increase over the same quarter 1 year ago. So we'll start with revenue. Revenue for the third quarter of 2025 was $2.5 billion, an increase of $639 million or 35% compared to last year. Electric segment revenue grew by 71% and mechanical revenue increased by 26%. Through 9 months, same-store revenue increased 23% and currently, our best estimate is that fourth quarter same-store revenue will grow in the high-teen range as compared to the same quarter last year. For full year 2026, we expect same-store revenue growth to continue most likely by a percentage in the low to mid-teens and weighed more heavily to the first half of the year. Gross profit was $608 million for the third quarter of 2025, $226 million higher than 1 year ago. Our gross profit percentage grew to a remarkable 24.8% this quarter compared to 21.1% for the third quarter of 2024. Quarterly gross profit percentage in our mechanical segment increased significantly to 24.3% this year compared to 20.3% last year. Margins in our electrical segment also grew to 26.2% as compared to 23.9% in the third quarter of 2024. Great ongoing execution augmented by favorable developments in certain late-stage projects drove us to higher margins in both segments. Our largest single discrete project development was recognizing $16 million of previously deferred revenue on a project as a customer emerged from bankruptcy. We currently expect that 2026 profit margins are likely to continue in the strong…

Thanks, Bill. I'm going to discuss our operations and outlook. Our backlog at the end of the third quarter was a record $9.4 billion, a large sequential and large year-over-year increase. Since last year at this time, our backlog has increased by $3.7 billion or 65% and $3.5 billion of the increase was same-store. On a sequential basis, backlog increased by $1.3 billion or 15%, all of which was same-store. Third quarter bookings were especially strong in the technology sector, both in our traditional construction business as well as the modular part of our business. We are entering the final quarter of 2025 with same-store backlog 62% higher than at this time last year, and our project pipelines remain at historically high levels. Industrial customers accounted for 65% of total revenue in the first 9 months of 2025, and they are major drivers of pipeline and backlog. Technology, which is included in Industrial, was 42% of our revenue, a substantial increase from 32% in the prior year. While our manufacturing revenues declined on a percentage basis, we continue to see good demand for manufacturing, but in many cases, data center opportunities are more compelling. Institutional markets, which include education, health care and government remain strong and represent 22% of our revenue. The commercial sector provided about 13% of revenue. Most of our service revenue is for commercial customers. Construction accounted for 86% of our revenue with projects for new buildings representing 61% and existing building construction 25%. We include modular in new building construction and year-to-date, modular was 17% of our revenue. We remain on track to have 3 million square feet of space in our modular businesses by early 2026, and we will prudently consider additional investments next year based on the strong demand we are seeing in modular. Service revenue was up 11%, but with faster growth in construction, it is now 14% of total revenue. Service profitability was strong this quarter, and service continues to be a growing and reliable source of profit and cash flow. I cannot say enough about the amazing team of craft professionals that we have working hard for our customers every single day. Thanks to the teams that are working across the country, we are optimistic about our future. I want to close by joining Brian and Bill in thanking our over 21,000 employees for their hard work and dedication. I will now turn it back over to Michelle for questions. Thank you.

[Operator Instructions] Our first question comes from Adam Thalhimer with Thompson, Davis.

Congrats on another wave of record results. I wanted to ask high level on the technology side. Does the bidding activity match the bookings and the revenue growth that you saw in Q3?

Yes, Adam, the opportunities, the pipeline is still robust, matching quarter 3. There's still more opportunities that then probably can be handled out there in the market at the moment. So we've seen no let up at all in the opportunities.

And then I'm curious on capital allocation. Your free cash flow -- your net cash, I think, broke out to an all-time record in Q3. Just curious how you're thinking about that and if just accumulating cash from here wouldn't be the worst thing in the world?

Well, that's never the worst thing in the world. There are worse alternatives to accumulating cash. But we haven't changed our capital allocation thinking since 2007. We will -- to the extent we can find opportunities that we have conviction around, we will deploy most of our cash doing acquisitions. We will continually buy back our shares using a portion of our free cash flow, and we get aggressive on that when we feel like the stock has dipped to -- relative to our prospects. So for example, when it dipped earlier this year, we spent $100 million in a couple of weeks buying shares. And then we -- one point you might be making is there's so much cash now. Is it realistic for us to deploy it into acquisitions? And I think the answer is we've faced that problem on a couple of stair steps in our cash over the last few years. So far, our reputation as an acquirer and our commitment to great outcomes for the people we buy have allowed us to find good opportunities to deploy our cash. One thing people might not think about is we are growing, but the companies we're buying are growing as well. There's a certain amount of scaling going on. So I meet with companies regularly that are having -- that have results that are twice as big as they were 2 or 3 years ago. And so in a sense, the reality is the opportunity set that's facing a company with a great, deep, well-established workforce of pipe fitters or electricians is amazing. These companies are worth more today than they were 5 years ago just because of actually what's going on because of the investments they've been making in the meanwhile. And we're optimistic. We're going to just try to keep doing what we've been doing. And if we wake up with the problem of we just can't keep up with the cash, then we'll find ways to reward our shareholders in other ways.

Our next question comes from Sangita Jain with KeyBanc Capital Markets.

So a couple that I have. One is on the cash flow in third quarter, your free cash flow was especially strong. So I'm just trying to think how we should think about it for the whole year and if there were any material advance payments included in 3Q that we should be aware of?

So for one thing, there wasn't an extraordinary event like there has been a few times over the last few years where we get way ahead due to some specific event or we have a turnaround where that event is sort of recalibrated. I will say that you can always expect our cash flow to be roughly equal to our net income. We are a cash business. We pay our taxes in cash. So when you see a quarter where we have cash flow above our net income, at some point, we're going to give that back. When it's below our net income, then we have cash we'll collect in the future. Through 6 months, we were behind our net income. There were some specific reasons for that, that we've discussed. In the third quarter, we had a big catch-up. We're getting fantastic payment terms. As we can negotiate good pricing and good conditions for our workers, we can also negotiate good payment terms. So we just had a great cash flow quarter, but nothing fundamental has changed. We're going to cash flow our net income.

Got it. And then if I can ask one on backlog growth. Obviously, your backlog suggests that you're booking out further than a year. Can you speak a little bit to that? And if it's primarily on the modular side or also on the traditional construction side? If it's just data center or also life sciences pharma work that you feel like you're booking out earlier and earlier?

So when -- our bookings for the quarter, right, we were broadly across all of our businesses. And there were some -- the bookings that we had in modular, those are going to -- those are pushed out farther. So those aren't going to be exactly relevant to what I'm about to say. But for the rest of our bookings, all of those bookings are going to start sometime within the next year. They might be longer-term projects because of the size of the projects, but they are all projects that are slated to begin in 2026. So when we talk about bookings out further out, that's more of the modular side of the business.

Our next question comes from Julio Romero with Sidoti & Company.

Just following up on the last question about the order acceleration. Historically, you guys are very prudent at kind of not taking on additional backlog and not getting out over your skis. I know, Trent, you mentioned a piece of the backlog growth was modular orders that were further out. But just help us think about the step-up in orders here for the last several quarters. Part of it is booking yourselves further out, but some of it is also, I guess, securing enough pricing in your bid margins to compensate for that additional risk of additional orders?

Yes. So Julio, we still have the same philosophy we've always had. We'll take on work we know we can do that we can handle with the skilled workforce that we have. So we look at each opportunity, particularly on the lodger side, make sure the timing is right, work for us that we can achieve a good product for our customers. So if you look at the timing of what we're winning, when it's coming in and can we handle it, we feel very comfortable with the workload that we have today.

And I want to add too, Julio, the collaboration between our companies is really permitting a lot of this additional booking that you're seeing. It's the companies working together to share workforces so that they can tackle projects that would otherwise have been kind of outside of their ability scope previously.

And Julio, one thing that we do have going for us is that we have folks that will travel and you see some of this work, maybe get all the West Texas, Abilene, Amarillo that we can handle because we have people that will travel to these sites.

That's very helpful. And then I know a big emphasis is being selective with regards to the specific partners you work with. And I think you guys mentioned earlier, your partners are getting bigger. They're taking on additional work. But just throwing that question back at you guys, has the pool of partners that you work with increased? Or is this just more a function of you doing more with your existing partners?

So what Trent was referring to was our companies working together. We do work sometimes with -- we worked with some companies. We worked with a company we bought, called Ivey, before we bought them. We have selected situations like that. But I think overwhelmingly, we're really talking about companies that are Comfort Systems USA companies that are 50 or 100 or 10 or 50 miles from each other.

And it's really a great point for people to come and join us. They have opportunity to work with a lot of other companies in the same industry. under the same overall structure that we have.

Yes. And I'm sorry to rephrase my question, I meant when I said has the pool of partners increased, I meant has the pool of kind of the customers that you typically have worked with increased? Or are you doing more with existing customers?

I would say there aren't many people in the United States we haven't done work for in the past. If they've done work in the past, we've probably done it. So that's kind of a hard question to answer, but it's mostly -- there is a definite preference for people who we have a history of succeeding together with. We have rough projects, we don't want to do work with those people anymore. We want to do work with the people that we have great projects with over and over. Brian, did you -- I mean...

Our next question comes from Brent Thielman with D.A. Davidson & Company.

Congrats again, another great quarter. I guess, Brian, Trent or Bill, one of the questions that seems to come up often is just your ability to sustain the growth you're seeing outside of modular, just given sort of the industry labor constraints out there. You've grown same-store, call it, 20% or more for what looks to be a fourth year in a row here. And I know there's a lot of factors to the growth over the last few years. But maybe you could talk about just sort of how critical have your sort of internal recruiting, hiring efforts been in recent years in support of that growth versus job values getting bigger? And then also, I guess, is there any sort of slowdown or change you've seen in terms of your ability to bring in people to support the growth, I guess, outside of acquisitions?

Yes. So I'll go first, Brent. First and foremost, this is a good place to work, right? We treat people fair in what respect. We pay them well, and there's a good benefit package. So we're constantly recruiting. But as you can tell by our numbers, we're up over 21,000 access to another probably 35,000, 34,000 contract labors that we have. So all in all, we're constantly recruiting, but we do get people to come here and work. We also have a lot of work, which makes us a good place to work as well. So how much can we grow? We continue to train. We're improving productivity constantly. We're trying to pick the right jobs that we're good at planning them using BIM, prefab and modular help us. But the enhancement that we are achieving with the skilled workforce is the best I've ever seen in my career today.

Okay. All right. And then the 3 million square footage of space in modular that, I guess, becomes available early 2026, I think you said Trent. Is that capacity or space already effectively sold out? Or do you expect it to be soon?

Yes. The answer is yes.

Okay. Just one last technicality, if I could. The $15.5 million write-up that you called out, I think, in the filing, is that all reflected in the mechanical segment? Or I'm just trying to level set what kind of normalized margin looks like.

So that happens to be in the electrical segment. But one of the things we were basically saying is we always get these questions, did you have anything special in the quarter? Did you have jobs that closed out especially well? We have a lot of jobs now. So we almost always do. But at this point, we did have some special closeouts this quarter that were particularly helpful. That was the biggest one. So in MD&A, you're required to give an example. We gave the biggest single example, but they happened in both electrical and mechanical. We're late in some jobs. The jobs are going well. The systems are being turned on and they work well. We're able to relieve contingency. So we did -- this would have been a great quarter without those. This would have been a record quarter even without some of those pickups. Some of those pickups pushed our results a little further, and we wanted to just let people know that.

Okay. Sorry. And Bill, theoretically, you have these every quarter. It just varies. So even if we compare year-on-year, you might have had them last year?

But the last 3 or 4 quarters, we were frequently asked, did you have any special closeout? And we said nothing out of the usual. This time, we're saying we kind of had some a little more than we would -- we might normally count on having. So I would say we do have -- we had some really good stuff happened this quarter.

Our next question comes from Josh Chan with UBS.

Congrats on a really great quarter. I wanted to ask about the backlog question, but especially within the last 6 months because obviously, you've had a strong demand environment, you have labor constraint, you have labor sharing for a while now. But really over the last 2 quarters, you had these 2 consecutive $1 billion step-up in the backlog. And I was just wondering if anything is different in this last 6 months versus the longer period, I guess.

It's an interesting way you asked that question. Every quarter is different from every other quarter, right? We had some big bookings. Sometimes they're in pharma, sometimes they're -- it's never exactly the same because this is lumpy stuff, as we've said. We had a lot of really, really good opportunities get to the point where they were documented and could go into backlog this quarter. Year-to-date, it's the companies you guys know of and think about. There were some interesting ones this quarter. It's work we know are really companies that are doing work they've done over and over. So we feel great about it. But there's just such a good market. There's such a good opportunity. Our customers, they want us to commit early, so they commit early. It's just a fantastic market, and we have just unbelievably good companies.

Yes. That makes a lot of sense. I appreciate the color there. And then on modular capacity, if you were to expand kind of incrementally from here, would there be a preference to serving existing customer or I guess, demand for that? Or would there be a preference to kind of grow with other types of customers within modular?

I would say we always have a preference towards meeting the needs of the people who have been great partners for us over years. And in the case of one of the ones you would be referring to more than a decade. So we'll always have a preference towards great customers as opposed to new customers. Having said that, we are -- we talk to new customers. We have opportunities. As you know, we added a customer. But if you were asking me the question, would our guys rather do work with people who they have a great relationship with or find out how good somebody else is, they'll take the sure thing.

Our next question comes from Tim Mulrooney with William Blair.

I hate to go back to this backlog question and beat it to death, but I'm newer to the company here. So I just want to make sure I understand how this works. How much of your backlog, excluding that modular piece, would you expect to start at some point over the next 12 months? I'm just trying to understand how much of this backlog is actually being pushed out versus just elongated due to the larger projects?

So I'm really glad you asked. The majority of the backlog numerically is jobs that have already started. It's the work left to finish on jobs that have already started. When Trent says everything is going to start within a year, he means all the new bookings. We don't have new bookings. Really many of the new bookings have already started at some level in the sense that we're doing preliminary work, underground work. We have engineering we're billing for. But it is -- this is really a -- because the definition of backlog in sort of what's called a remaining performance obligation under GAAP is so strict. You really don't put something into the reported backlog number until you have a price, a scope and a legally binding obligation that can be audited. We are -- almost any project that we put into our backlog, it was awarded to us a quarter, 2 quarters, 3 quarters ago. We received a phone call saying, this is your work, long before it shows up in backlog. So I hope that helps because it's not like -- we're not like a manufacturing company that's selling stuff we're going to start producing far in the future. You can't really price the building until it's been designed. You can't really design a building until you're about to start it. So...

Yes. No, that's really helpful, Bill. I guess, a more firm picture for a more firm backlog. That's helpful. So my other question just really quick is actually something I don't hear discussed a lot on these calls, but I'm curious to learn more is that service revenue piece. I mean it's up 11%. You said it's like 14% to 15% of your revenue. It's not insignificant. I don't hear it talked about a lot. What's driving that strength in the revenue growth there, and it sounds like -- and in the profitability? And is there some sort of conversion like when your new construction is stronger that brings along some service? Or are those pretty much not correlated? Just any color on that piece of the business.

So the service business continues to be strong. There's a lot of investment in sales force collaboration, making sure that we're going after the right parts of that market. Across the board, we're just seeing broad strength in that business, and it's execution driven. We have a lot of people -- the service business, it's really -- it's a day-to-day kind of bunt single doubles business. It's not like the construction business where you add a lot to your backlog at once. It's small maintenance contracts, pull-through work that comes from that. To your point, it's converting new work to service contracts over time. So it is the kind of business that just by its nature, doesn't grow quite as episodically as the construction business. But what you've got is you've got some real strength in that from the teams out in the field that are making it happen.

Our next question comes from Brian Brophy with Stifel.

Congrats on a nice quarter. Just wanted to follow up on some of this headcount discussion. I think the over 21,000 employees implies a little bit over 15% headcount growth since the end of 2024. It obviously seems to be an important enabler of some of the organic growth we've seen here this quarter. Just could you help us understand how sustainable that pace of hiring could be, assuming demand remains healthy here?

That number does include some acquisitions. So -- but I would say the majority of that was 15 points were added by our companies. And we don't -- we would never tell you, oh, we can regularly add 12% to our workforce of craft workers. We had a really good 9 months. We're confident we can -- we have -- on any given day, we have apprenticeship programs going on that we really are trying to get as many people as we can legally put into them involved in. There are like state-mandated ratios where you can only have a certain number of apprentices per journey persons. So we're trying to grow as fast as we can. I think high single digits is what we've accomplished over a long period of time. We're pretty proud of that, by the way, because that means you're creating or you're helping people create themselves as electricians and pipe fitters and that's good for them. That's good for us. That's good for the U.S.

Okay. Yes, that's helpful. And then wondering if you could give an update on some of the automation investments you've made on the modular side. And just to what extent you're seeing some productivity benefits? Any color you can provide there would be interesting.

You want to -- Okay. Well, so more and more robots, right? So as we get more and more buildings implemented, we see the bills go by for robots we're buying. We've added turn tables. It's what Trent was saying, it's singles and doubles, but yes, no, there's a lot of automation going in. There's improvements in welding proficiency that's driven by better software, really AI-enabled software. There's just a million little things. I mean...

I'll also tell you, Brian, in terms of the history of construction, the amount of innovation and technology that's being developed and applied today leaps and bounds over what it's ever been. And it's going to be a huge help into helping us build stuff as we go forward safer, more productively and the quality is getting better every day. So...

Yes. And one of the benefits Comfort Systems has is we have 48 different test beds where we can try new things and then move them throughout the enterprise if they work. And so it's a really excellent way to be able to test and innovate and then be able to do it in a controlled way and then move it out if it's effective in one operating unit, then it will be effective across. And it's a way for us to be able to innovate inside of a construction environment without significant risk. So it's a real benefit to our structure.

Yes, that's really helpful. Last one for me. Pharma was mentioned very briefly. Just would you give us an update on kind of what you're seeing on the project pipeline side, particularly some of the onshoring opportunities that may be coming. Obviously, we've had a little bit more tariff discussion on pharma products. I'm just curious if you've seen any movement in that market.

Our biggest single booking, I think, in the last couple of quarters was in pharma, but the majority of our bookings today are in technology. It's not because there aren't pharma opportunities. It's because technology is competing for our resources and they're making a compelling case for our resources. I will also say, if you talk to -- we have a very, very strong pharma group of people that have done work in pharma for decades in the Mid-Atlantic. I've spent time with some of them recently. They say that there is a lot of planning going on projects with code names for construction along the Eastern Seaboard. But in our case, that would be the Mid-Atlantic area and especially the research triangle, the area around the research triangle. So there's a lot of work coming. Pharma has very, very long lead times. They they think and plan for years. So unless something like -- there are exceptions to that. GLP-1 boom, they're just building it as fast as they can. The COVID vaccines and all sorts of things that were needed for the COVID vaccines, very, very fast. But normal regular day-to-day pharma stuff, it develops over a long period of time. And that pipeline, the people, the smartest people in our company who know about it, say it's very, very good. Now the time may come when it's available to us, and that's not what we choose to do, right? But I think that the opportunity is out there.

Our next question is a follow-up from Sangita Jain with KeyBanc Capital Markets.

I just had a follow-up on -- as you see large data centers starting to get commissioned, I'm wondering if there's a change in the type of electrical or mechanical scope that you may be seeing because we're hearing that developers are now looking at DC power instead of AC power. And I wonder if that impacts you or if it just kind of stays outside the wall.

So we don't -- for us, electrons going through a wire, you just can't even imagine how generic that is to an electrician. He couldn't care if those electrons are -- he doesn't care if it's going to make pills or it's going to make data. So you'd be -- you just need electricians. That's a great thing about our positioning. Whatever you -- if you need to do something, you need us. And I haven't heard anybody saying that it's materially changing. The one thing you do hear is scale, like the amount of copper, the amount of switchgear, the density of cooling, just the sheer scale, people -- even very, very seasoned people are amazed by that in our organization. But as far as like those kind of tweaks, I'm not hearing anything. Trent?

No.

There are no further questions at this time. I'd like to turn the call back over to Brian Lane for closing remarks.

Okay. I just 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 as Bill indicated, we have the resources and the commitment to lean into delivering for our employees, our customers and for you, our shareholders. As we embark upon the holidays that are coming up, we won't have another call. I wish everyone the best for the rest of the year and enjoy your time with your families as the holidays come upon us. Thank you for your confidence. Have a great weekend.

Thank you for your participation. This does conclude the program. You may now disconnect. Good day.