Comfort Systems USA's Q3 2025: Contradictions Emerge on Modular Capacity Utilization, Capital Allocation, and Backlog Timelines

Date of Call: October 24, 2025

Financials Results

• Revenue: $2.5B, up $639M or 35% YOY
• EPS: $8.25 per share, up ~102% YOY (vs $4.09 in Q3 2024)
• Gross Margin: 24.8%, compared to 21.1% in Q3 2024
• Operating Margin: 5.5% (operating income $379M, up ~86% YOY), compared to 11.2% in Q3 2024

Guidance:

• Q4 2025 same-store revenue expected to grow in the high‑teen range vs prior year.
• Full‑year 2026 same‑store revenue likely to grow low‑ to mid‑teens, weighted to H1.
• 2026 profit margins expected to remain in the strong ranges seen recently.
• Tax rate expected around ~23% for remainder of 2025 into 2026.
• Recent acquisitions expected to add >$200M revenue and $15–20M annual EBITDA; capital allocation prioritized toward M&A and opportunistic buybacks.

Business Commentary:

• Revenue Growth and Profitability Improvement:
• Comfort Systems USA reported revenue of $2.5 billion for Q3 2025, up 35% compared to the previous year, with a 33% same-store revenue growth.

• The growth was driven by a 71% increase in electrical segment revenue and a 26% rise in mechanical segment revenue, along with favorable developments in late-stage projects.

• Backlog and Booking Analysis:

• The company's backlog reached a record $9.4 billion at the end of Q3, with a 15% sequential and 65% year-over-year increase.

• The strong bookings, particularly in the technology sector, contributed to the backlog's growth, indicating robust market demand.

• Dividend Increase and Share Repurchase:

• Comfort Systems USA increased its quarterly dividend by 20% to $0.60 per share and spent $125 million on share repurchases year-to-date.

• The dividend increase and share repurchases reflect the company's strong financial position and commitment to returning cash to shareholders.

• Service Revenue Growth:

• The company's service revenue grew by 11%, with faster growth in construction, contributing to a 14% share of total revenue.
• This growth is supported by investment in sales and execution by field teams, leading to increased service contracts and maintenance work.

Sentiment Analysis:

Overall Tone: Positive

• "We earned $8.25 per share this quarter, which is double what we earned in the same quarter last year." Backlog grew to a record $9.4 billion; CFO: "Revenue for the third quarter of 2025 was $2.5 billion, an increase of $639 million or 35% compared to last year." Management repeatedly cites strong bookings, record EBITDA ($414M), and unusually strong free cash flow ($519M).

Q&A:

• Question from Adam Thalhimer (Thompson, Davis & Company, Inc., Research Division): 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?
  Response: Pipeline and bidding remain robust and match Q3 bookings/revenue; no let‑up in opportunities.

• Question from Adam Thalhimer (Thompson, Davis & Company, Inc., Research Division): 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?
  Response: Priority is deploying cash into acquisitions when conviction exists and using free cash flow for buybacks; will seek other shareholder returns if excess cash becomes persistent.

• Question from Sangita Jain (KeyBanc Capital Markets Inc., Research Division): 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?
  Response: No extraordinary advances; Q3 was a catch‑up quarter and cash flow generally tracks net income over time.

• Question from Sangita Jain (KeyBanc Capital Markets Inc., Research Division): 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?
  Response: Bookings across businesses; bookings pushed farther out mainly due to modular—non‑modular bookings are expected to start within the next year.

• Question from Julio Romero (Sidoti & Company, LLC): 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?
  Response: Philosophy unchanged—only take work we can handle with our skilled workforce; comfortable with current wins and pricing.

• Question from Julio Romero (Sidoti & Company, LLC): 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?
  Response: Growth is primarily via Comfort Systems companies collaborating regionally; occasional external partners, but emphasis is on repeat, proven partners.

• Question from Julio Romero (Sidoti & Company, LLC): 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?
  Response: Mostly doing more with existing customers; preference for long‑standing, reliable customers.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): 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?
  Response: Recruiting/hiring critical—company attractiveness, pay and benefits drive recruitment; productivity gains, apprenticeship programs and access to contract labor support continued growth.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): 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?
  Response: Yes — the 3 million sq ft modular capacity is effectively sold out.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): 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.
  Response: The $15.5M write‑up was in the electrical segment; special closeouts occurred in both segments and boosted the quarter but results would still have been strong without them.

• Question from Joshua Chan (UBS Investment Bank, Research Division): 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.
  Response: No unique structural change—backlog is lumpy; this quarter simply had many opportunities crystallize into documented bookings as customers committed earlier.

• Question from Joshua Chan (UBS Investment Bank, Research Division): 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?
  Response: Preference is to serve long‑standing, proven customers rather than prioritize new relationships.

• Question from Timothy Mulrooney (William Blair & Company L.L.C., Research Division): 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?
  Response: Majority of reported backlog represents work already started or that will begin within 12 months; GAAP backlog is conservative and requires price/scope/contract to be recorded.

• Question from Timothy Mulrooney (William Blair & Company L.L.C., Research Division): 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.
  Response: Service growth driven by focused sales collaboration and execution; it steadily converts from new construction over time and is a reliable, day‑to‑day profit and cash source.

• Question from Brian Brophy (Stifel, Nicolaus & Company, Incorporated, Research Division): 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?
  Response: Headcount increase includes acquisitions; organic hiring historically runs high single digits due to apprenticeship/state ratio limits—company aims to grow responsibly.

• Question from Brian Brophy (Stifel, Nicolaus & Company, Incorporated, Research Division): 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.
  Response: Investing in robotics, turntables and AI‑enabled software; 48 test beds allow scalable innovation and measurable productivity/quality gains.

• Question from Brian Brophy (Stifel, Nicolaus & Company, Incorporated, Research Division): 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.
  Response: Pharma pipeline is strong with long lead times; recent large bookings include pharma but technology currently dominates resource competition.

• Question from Sangita Jain (KeyBanc Capital Markets Inc., Research Division): 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.
  Response: No material scope change—electricians handle power regardless; main difference is scale/density (more copper, switchgear, cooling), not a different skill set.

Contradiction Point 1

Modular Capacity and Utilization

It involves differing statements about the utilization and expansion plans for modular capacity, which is critical for operational efficiency and future growth.

Is modular capacity effectively sold out, and when do you expect it to be fully utilized? - Brent Thielman(D.A. Davidson & Company)

2025Q3: Yes, the modular capacity is effectively sold out. - Trent McKenna(COO)

How are you planning the expansion of your modular capabilities, and do you consider adding a third location? - Sangita Jain(KeyBanc Capital Markets)

2025Q2: We prefer incremental growth by focusing on productivity and automation. Demand is strong, and our current locations in Mid-Atlantic and Houston serve us well. - William George(CFO)

Contradiction Point 2

Modular Capacity Utilization

It involves differing statements about the utilization of modular capacity, which could impact revenue projections and operational efficiency.

Is modular capacity sold out, and will it be fully utilized soon? - Brent Thielman(D.A. Davidson & Company)

2025Q3: Yes, the modular capacity is effectively sold out. - Trent McKenna(COO)

Tom SIZE of Morningstar: What are your final thoughts? - desconocido(Operator)

2025Q1: Right now, we're in a situation where we have some modular jobs, which we couldn't get done in 2024 because we were missing some key components, classified as engines. We're just now starting to get those engines in place. - Trent McKenna(COO)

Contradiction Point 3

Capital Allocation Strategy

It involves differing statements about the company's capital allocation strategy, which could impact investor expectations and financial decisions.

How are you allocating capital given the record net cash in Q3? - Adam Thalhimer(Thompson, Davis & Company, Inc., Research Division)

2025Q3: Our capital allocation thinking hasn't changed since 2007. We prioritize acquiring opportunities we believe in, buying back shares with good prospects, and aggressively deploying cash in acquisitions. Even with a large cash balance, our reputation and commitment to good outcomes allow us to find opportunities to deploy cash effectively. - William George(CFO)

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2025Q1: We are entering 2025 with a strong balance sheet and a disciplined capital allocation strategy that will focus on taking advantage of our attractive acquisition opportunities. - Brian Lane(CEO)

Contradiction Point 4

Backlog and Project Timelines

It involves differing statements about the timing of backlog projects, which could impact revenue expectations and operational planning.

Is the backlog growth primarily driven by modular or traditional construction? - Sangita Jain(KeyBanc Capital Markets Inc., Research Division)

2025Q3: Bookings are broadly spread across all businesses, with modular bookings set to start within the next year. Most projects, except for modular, will begin in 2026. - Trent McKenna(COO)

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2025Q1: Of the $6.7 billion backlog at the end of last year, we started 77% of it in the first quarter. That leaves us with $1.5 billion of backlog to start over the course of the year. - Trent McKenna(COO)