Comfort Systems USA, Inc. (FIX) Earnings

Management highlights

- Overall Financial Performance * Q2 2026 revenue hit $3.3 billion, up $1.1 billion (44% same-store growth) year-over-year, marking the first time quarterly revenue exceeded $3 billion * Q2 2026 net income was $442 million ($12.53 per diluted share), a 92% increase from $231 million ($6.53 per share) in Q2 2025 * Q2 2026 EBITDA grew 80% year-over-year to $600 million, with trailing 12-month EBITDA reaching approximately $2 billion * Q2 2026 gross margin expanded to 25.9% from 23.5% in Q2 2025, while SG&A as a percentage of revenue fell to 8.7% from 9.7% year-over-year * Operating income grew 86% year-over-year to $558 million, with operating margin expanding to 17.1% from 13.8% in Q2 2025 * Q2 2026 free cash flow was nearly $1 billion, and the company holds a net cash position of over $1.8 billion * The company increased its quarterly dividend by $0.10 to $0.90 per share - Acquisitions and Strategic Milestones * The acquisition of Hunt Electric closed on May 1, 2026, and is expected to contribute approximately $250 million in annualized revenue * Total backlog reached a new record high of $14.1 billion at the end of Q2 2026, up 73% year-over-year and 13% sequentially; 69% same-store backlog growth year-over-year * Q2 2026 added $500 million in incremental modular backlog, with strong broad-based demand driving the increase - Operational Expansion * The company currently has over 3.5 million square feet of production capacity dedicated to modular operations, and is on track to reach over 4 million square feet by the end of 2026 * Modular capacity is planned to expand to approximately 5 million square feet by late summer 2027, with all current planned expansion allocated to existing committed customer orders * Pilot modular contracts have been secured with frontier labs and co-location providers to expand the customer base beyond core hyperscaler clients

Guidance

- Full-year 2026 same-store revenue growth is expected to land in the mid to high 30% range * Full-year 2026 capital expenditures are expected to total approximately 5% of annual revenue * Full-year 2026 effective tax rate is expected to be around 23% * Gross profit margins are expected to remain in the strong average range achieved in recent quarters * Growth rates will moderate in the second half of 2026, particularly in Q4, due to difficult year-over-year comparables from a strong H2 2025 * Modular expansion will only occur when justified by meaningful multi-year customer volume commitments, with no speculative construction of new capacity

Segment performance

1. Electrical Segment: Q2 2026 revenue grew 81% year-over-year, with a gross profit margin of 26.4%, an increase of 1 percentage point from Q2 2025. It contributed roughly 40% of total Q2 revenue. 2. Mechanical Segment: Q2 2026 revenue grew 40% year-over-year, with a gross profit margin jumping to 25.6% from 22.9% in Q2 2025. It contributed roughly 60% of total Q2 revenue. By business line: Construction accounts for 90% of year-to-date total revenue, with new building construction (including modular) representing 75% of total revenue, and existing building construction 15%. Modular operations account for 17% of year-to-date total revenue. Service accounts for 10% of total year-to-date revenue, growing 7% year-over-year. By end market: Industrial customers account for 75% of first half 2026 revenue, with technology (within industrial) making up 58% of total revenue, up from 40% in the prior year. Institutional markets (education, healthcare, government) represent 17% of total revenue, and the commercial sector accounts for 8% of total revenue.

Risks & headwinds

- No new material risks beyond those disclosed in the company's recent Form 10-K and Form 10-Q filings were explicitly discussed. The main risk factors referenced in public disclosures include project execution uncertainty, permitting and regulatory delays related to data center development (including NIMBY sentiment and local moratoriums), and general macroeconomic demand volatility. Management also noted that all forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ from current projections.

Analyst Q&A

• Q: How should investors interpret the $1 billion Q2 free cash flow number, and what are the company's capital deployment plans going forward? /

  A: The extraordinary cash flow figure is partially driven by advance billings on large orders the company received over the past couple years, plus strong customer payment terms and on-time job performance that encourages prompt payment. It is not driven by any one-off unusual item, and signals broadly healthy business operations. For capital deployment, the company will spend ~5% of revenue on owned modular production facilities (to accommodate custom equipment), continue opportunistic share repurchases, and maintain a disciplined approach to tuck-in acquisitions that align with its growth strategy. /

• Q: Are you increasing project scrutiny in response to growing NIMBY sentiment and proposed moratoriums on data center development? Does the 5 million square foot modular expansion include capacity for new customers? /

  A: The company already applies rigorous operational review to all projects, and that level of scrutiny has not changed. Core hyperscaler customers show no signs of slowing construction plans, so management sees no material letdown in demand. All of the planned expansion to 5 million square feet of modular capacity is allocated to existing customers and their committed volume. If new customer segments scale, additional capacity will be added to accommodate that growth. /

• Q: What portion of Q2's backlog increase came from modular, and how would you characterize the duration of the current backlog? /

  A: Modular operations netted a $500 million backlog increase in Q2 after accounting for work completed, which reflects consistent strong customer demand that justifies ongoing capacity expansion. Most traditional construction backlog will be completed within 18 to 24 months, while modular backlog is stretching further out as customers lock up future capacity. Management only accepts work it has the labor and capacity to complete, maintaining discipline to avoid overbooking. /

• Q: What returns do you expect on the large capital expenditures for modular expansion, and how has the competitive landscape shifted for modular? /

  A: Modular capital expenditures produce very strong returns, with typical full payback achieved within 1-2 years that easily clears internal hurdle rates. While other new entrants are entering the modular space, this is driven by customers wanting more capacity than Comfort Systems can provide, not competitors trying to displace the company. Management is focused on being the leading provider of complex modular builds rather than capturing the entire market.