Comfort Systems USA, Inc. (FIX) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone, and thank you for joining Sidoti & Company's June 2026 Small-Cap Conference. My name is Julio Romero, and I cover industrials and engineering construction names at Sidoti & Company. Really pleased to be able to host Comfort Systems USA, their ticker is FIX. With us today is Trent McKenna, President and Chief Operating Officer; and Chrissy Nelson, Director of Investor Relations. So we'll start with management giving us a brief overview of the company, and then we'll go right into some Q&A. If you have any questions, feel free to type them into the Q&A section at the bottom of your screen. Happy to ask on your behalf if time permits. With that, Trent and Chrissy, thank you so much for being here.

Thanks.

Thanks, Julio. I'm going to just dive in and give a quick overview of the company. To understand what we are, we're a leading national mechanical, electrical and plumbing installation service provider, a little over $10-plus billion yearly in revenue. 75% of our mix is industrial, over 23,000 employees currently. And we've had a history of profitable growth, cash flow. We have unmatched modular capabilities, which I'm sure everyone will find of interest as we talk about those and answer questions with regard to that. And we've maintained a lot of financial stability over the history of the company with a very, very strong balance sheet. We're only in the 48 states, about 197 locations, 143 cities. Right now, as everyone on this listening would probably anticipate, we're seeing very strong demand in technology with data centers and chip manufacturing. We also continue to see strong demand with life sciences and pharmaceuticals as well as food processing, both human and pet. Manufacturing continues to be a good end market for us as well as health care and energy storage. The trends that we feel very strongly about over the next several quarters, technology, onshoring, modular. And of course, we continue to grow our service business. One way to understand what we do just at a very, very high level, right, is any building that needs any type of mechanical plumbing and/or electrical, we can do both the construction and the service, and we can take it all the way from the very early stages of development all the way to the life cycle of the building at any stage, we can play a very important part in the value proposition. Additionally, our modular business continues to grow. And that -- just to understand that, we have off-site fabrication at every one of our businesses, and that -- but we don't consider that part of our modular. Our modular business is a volumetric modular business. It's housed in Houston at a company we call TAS and then in Greensboro at EAS. And those two companies represent our modular revenue. In total, in '26 -- year-to-date for '26, our modular revenue represents about 17% of total revenue. It continues to grow, but the rest of our business also continues to grow alongside it. Technology breaks up to about 56% and manufacturing, 19%. The rest is divided amongst a few other end markets. As you think about our modular business, we are working with two of the hyperscalers on programs that they have, and we have programmatic approaches with them. And those, we continue to work with them to expand and also, at the same time, meet the needs they have. And so we are -- by the end of this year, we'll be up to 4 million square feet of modular capacity. And that's 4 million square feet of space for our modular facilities. And that's something we continue to look at whether we would continue to expand that or not, that would follow along with whether we get advanced purchase commitments from customers that we continue to talk to. In addition to those 2 hyperscalers, obviously, we talk to others as well. Is there anything that we would add to what I just...

From a capital allocation perspective, after reinvesting in the business, which is our first best use of capital, we're increasing our modular capacity this year. So after that, we spent about 70% of our cash flow in acquisitions, which we think is our best path to growth. Our headcount, we can kind of grow in sort of mid- to high single digits over a long period of time. We are getting some outsized success in growing that head count right now. But over a long period of time, we think that's about how we can grow and then the remainder is between dividends and share buyback.

We'll turn it over to questions.

Yes. Excellent. Great rundown. Maybe to start it off, you had a tremendous first quarter, right? Same-store revenue growth of 51%, record backlog, $12.5 billion. You talked about technology being one of the key end markets driving the growth. Maybe you could speak to what is driving the growth in the backlog as well and the visibility beyond reported backlog and what kind of end markets are driving the growth there as well?

Yes. So we have right now across all of our businesses, we have as good a visibility as ever with regard to future work. And technology is driving a lot of that visibility, but we also see in manufacturing and health care, we also see some pretty good visibility. And what I would kind of classify in government and education, it's sort of the normal level of visibility we have. But well out into the future, we can see projects that are being proposed and brought online. And then from our perspective, a lot of what we're already working on is multiphased projects, and we anticipate being able to have really good opportunities as the next phases start to break ground. So all in, our pipeline is very robust, very strong going into the future.

Excellent. And so you talked about as good as visibility as ever in the multiphase projects that you see. Does that kind of give you the confidence that this current demand is multiyear and longer than one would expect? Or what else would give you kind of that confidence this is kind of -- the demand is pretty durable here?

Yes. I mean the confidence comes from our conversations with our customers. And in the -- really anyone who is building data centers right now for any reason, and that includes hyperscalers, includes colo, includes the frontier labs, the whole swath of data center builders. They all are projecting build well into the future. And so that gives us a pretty high degree of confidence. And then when you just look at trends, right, you look at onshoring trends, you look at the pharmaceutical trends that are occurring, that also gives us a great amount of confidence. And then in health care, I think we still are seeing a need to -- especially in certain parts of the country, you're seeing a need to build out health care infrastructure for an aging population and a changing demographic. And so I think because of that, you also have -- you have some long-term visibility into the future.

Got it. And I guess on the technology front, how should investors think about the breadth of the data center opportunity across mechanical, electrical, plumbing, service and modular over the next several years?

I think -- I mean, at this point, right now, it's more about the work -- the opportunities that we have to pass on than it is the opportunities we're taking, right? There are so many opportunities at this time. It's really a matter of allocating resources to the right opportunities to where we have the best chance of success and the best chance of favorable outcomes for our stakeholders. So from my perspective, when I think about it, it's -- I've never seen a demand curve quite like what we're seeing, right? And just logically, I think to myself, okay, at some point, it has to change. But at this point, we see no change of it at all. It just continues to go out into the future.

And to provide some context to the size of the opportunity, like you hear all of the announcements from the hyperscalers, what their CapEx plans are, about 80% of that is going to be spent on the actual chips and servers. And then the remaining 20% is what is actually being built in the data center. And then our scope of work is about 50% to 60% of that 20%.

Got it. Very helpful there. so obviously, you're passing on a lot of work, right? But you're also bringing on increased capacity to take on more work. So one of the biggest takeaways from the first quarter was the step-up in the expected '26 CapEx to about 5% of sales. I think for context, I don't believe you've ever -- it's ever surpassed 2% of sales in any given year since you guys have gone public in '97. On the first quarter call, you talked about buying a building in Houston. You talked about other building investments potentially later in the year. If you could go into a little bit more into what you're investing in specifically this year.

Yes. And that's back to what I said during the opening, right, we'll be -- we intend to be at 4 million square feet of capacity by the end of the year. And some of that CapEx expenditure is buying out leases and buying the buildings that we already occupy. So it's not a one-to-one expansion. It's really using some capital to be able to invest in those buildings. And then what that gives us the ability to do is bring in the modernized robotics and different automation equipment to help us be even more efficient with our build-out in modular. And so that's the focus of a lot of that additional capital expense -- capital expenditures that we're going to be doing by the end of the year.

So to get from 2% to 5% modular build-out, 1.5% to 2% that we normally on CapEx, partly vehicles and then some incremental investments in our shops.

Got it. And it's interesting that some of the CapEx is spent towards buying out existing leases, some of that you already are operating in. But good context about kind of the primary driver for that step-up being operational, right, having control over the building, you can configure the building however you like. You probably are more likely to invest in the building going forward. And to what extent does fixing the buildings also create some financial flexibility for you, whether it's through asset value or collateral support or just greater optionality. Does that factor into the capital allocation framework at all or...

I think at the end of the day, we're talking max 5% of revenue. So from a total perspective, I think it is still fairly insignificant on the spend. I think the opportunity comes with trust on the operations side of being able to optimize the way our team think they need to be able to...

And can you give us maybe like an example, if I could push you for example or 2 of like what you can do to optimize the facility, some ideas you might have? And are those like pilots? Or are those kind of you're ready to roll them out as soon?

Those are all things that we're either using or yes, they wouldn't even be pilot. They're all things that we're using already in existing facilities that we would then be expanding out to additional facilities.

Like for example, we bought a line cutter in one of our modular facilities recently that allows them to cut the sheet metal at a certain [indiscernible] specification. It took 10 guys out of the operation that were able to be redeployed somewhere else in the...

Understood. Maybe the buildings you're buying that you're not currently leasing now, kind of the new buildings that you're buying, is there a time line that investors can expect from when you deploy the spend to those new buildings or those new factories to maybe when they'll begin to directly generate revenue?

Well, they'll start directly generating revenue fairly quickly. But for them to be fully up to speed and running at the capacity and the efficiency that we want to see, it's a 1 to 2 quarter type of build-out that is required to get it right. And to be honest, it's more like a 2 to 3 to get it really, really finely tuned and humming the way you want it to be because there's a lot of just kind of learning curve and ability to kind of fix the way that you're doing the line over time. It's just like any other manufacturing process, it gets better and better the more you're producing the thing. And so it's a little tough to put an exact time line, but I think that's a good rule of thumb.

It's more weighted towards the back half of the year for sure. And one thing I do like to remind investors too, we bring on capacity, it's not all exactly operating, so you can't do a linear growth to revenue. You have to remember that sometimes we're building out storage and those types of things, too. So the math should smoothly follow, but it's not going to be a direct correlation.

Yes. I think even on the last call, you said something about areas to paint the modular units.

Way down like good, like there's a lot that goes into it.

Yes. Last call, you talked about trialing some new customers as well. How much of the new capacity you're bringing on is for kind of existing for potential new and then kind of how much is TBD and kind of to be determined?

Well, all the capacity we're bringing on right now for existing commitments that we have.

And on the call, we were talking about a new customer that we're doing some hyperscale data center work for. It wasn't really a trial for a new hyperscaler. We're always doing some development work with customers out there. So I think there's always a little bit of capacity that's reserved for that, but it wasn't a trial for a new hyperscaler.

Got you. And then you guys have obviously very long-standing relationships with your existing customers, and you prioritize those extremely well. If a new -- what would a new customer need to do or what needs to happen for like -- for a new customer to kind of get on your list, right, to build a longer term, as you called it, a programmatic relationship similar to what you have with your existing customer base?

So I mean, if you think about a brand-new customer, what ends up happening is they're already building in a certain way. And then they tend to then say, okay, are there ways that we can get these buildings online faster, more dependably, more reliably with better track record. And then that's when the customer starts talking to us. And then to be completely candid, practically speaking, the way that usually occurs is someone has left an organization that already has seen the value of modular and then has come to a new organization and brought that knowledge with them and then is inviting us in to kind of very, very early talks about this is the way we currently deliver. Can we use a modular delivery in part to deliver more dependently and faster. And depending on what they exactly want to do with their program, it could be a very long period of time when we're talking to them about, okay, this is trying to help them understand the value proposition or it could be a really quick start-up. It really depends on what their appetite is and where they're coming from already on the curve of understanding how you can make this happen.

Got it. And I guess curious from -- sorry, I'm trying to rephrase the question. So it's still a conversation about modular, like it's not you're competing against other modular competitors. It's should we go traditional stick built construction versus modular, and that's when kind of the conversation goes with you guys?

Yes. With regard to us, if someone is talking to us early stages and trying to -- it's not -- they're not talking to 3 other modular providers. They're talking to us because they believe we have the expertise to deliver on what they need. And then we're helping design and figure out a program for them that would make sense for them to be successful for their delivery systems that they want to make sure that they maintain. And so it's a constant conversation with a lot of these groups. And you understand from their perspective, they're looking at it like this is how we're doing it. There's always risk of change. So it takes time to get them comfortable with this is a better way to deliver what you're trying to make that.

Are there -- is there like a certain top 3 or 4 items like on a checklist that they're looking for you guys to hit on the modular side?

Yes. It's speed, dependable, cost, safety. And I think those would be the top 4 that you're talking about.

Super helpful there. I'm curious how meaningful the maintenance and service opportunity can be to the installed base that's being created across some of the data centers and the projects you're currently working on now? And then how much of an advantage is it for Comfort to capture that wallet share by nature of you guys constructing the data center, constructing the modular units versus not being the ones to construct the units?

The service opportunity for us is going to be broad across all the -- so it won't be tied to the modular units, it will be tied to the data centers in general. So the data centers are going to be -- over time, they're going to represent a very attractive market for us in service. And we continue -- we have some agreements in data centers currently. We continue to sell into that end market, and we'll continue to do it. I will say this in the early stages of the data center coming online, the OEMs tend to have a better foothold inside that data center than we can. But over time, I believe that those -- especially where they're being located in such rural and remote locations, I think we'll be able to have a very good opportunity to be a service provider to the data centers that are currently being constructed.

I'm curious why that would be like a little bit -- if you could expand on why the OEMs would be.

Because they are packaging warranty obligations with the machinery, with the equipment. And so that's obligating the data center owner to then use them in warranty.

Got it. You mentioned the remote locations that they're being built. That's obviously a big kind of topical factor. You talked about strength in West Texas, but you're also seeing strength in other areas. Can you speak to that a little bit in areas that aren't...

Yes. We're building -- I mean we're building data centers right now in Mississippi, small towns in Mississippi, West Texas, where we've already talked about. We have some proposed data centers that we're looking at of all places, Florida. which I would never -- I mean, they've always said they didn't want to build data centers in Florida because of the hurricane risk, but they are going to be building data centers in Florida. So they're really all over at this point. And it's a real opportunity for us because of our acquisition of Kodiak several years ago, providing us that traveling workforce that's been able to really help us flex into some of these locations that require a lot of people in a remote area. Additionally, we have a lot of companies that are really just really great at traveling inside of Comfort. And so that's really helped us as well to attack those opportunities.

About 20% of our headcount will travel.

Got you. And then as they're expanding to different geographies, right, there's different complexities and different obstacles that arise in each one. Just talk about how you're your current kind of suite of services is positioned to handle that? And maybe what the portfolio may need in the future?

Yes. So I mean, I'll start with what we're doing. So I think your question was specifically focused on remote.

Absolutely. Yes.

And so those are often done collaboratively. So we'll have more than one Comfort company coming together to make that work. It's just logically, it makes sense, right? You can have companies partnering to be able to meet the needs of the customer. And then we'll supplement that with a traveling workforce. That might be a company's own traveling workforce that might be Kodiak, our labor provider. And what we're doing and what we bring to the table is the expertise of being able to -- from start to finish on the project, bring the best professionals, the best project managers, the best design professionals to really help the customer understand what it's going to take to get this thing done and then at the same time, be able to execute on it. And that's what our customers are valuing right now, and that's why our backlog continues to grow because they see that as dependable delivery. There are a lot of companies out right now that are probably getting a little over their skis and trying to chase the data center work. And I think a lot of our customers rely on us because they know that we are focused on what we can actually perform and do successfully for them.

Yes, absolutely. And you have a very -- you talked about the base of skilled labor that you have. But as kind of the opportunity set continues to grow and expand, talk about what you guys are doing to expand your base of skilled labor or project managers to kind of stay ahead of it or at least in sync with it.

So we've been investing heavily in our talent teams to make sure that we have the right kind of apprenticeship programs, and we have the right sort of training internal Comfort Systems. And it's one of our benefits, right? We have the ability to scale training and programs across a much larger footprint with 23,000-plus employees. So that makes us so that our investments in that scale out at a level that really differentiate us from most of our competition. So most of our competition is more local, regionalized and unable to scale at the level that we can. So that is something that craft professionals really, really want. They want the ability to go from an apprentice all the way up to a journeyman and beyond. And that is what we can provide them is that path, that really nice career path to their time with us. And that is something that has been able to attract a level of craft professionals that's just better, right? And so that's our goal, right? We just want to have the best craft professionals in the markets that we serve and in the end markets that we serve because that's the whole game. If we have the right people doing the work and delivering the construction or service that we're providing, then we're successful.

And we've invested heavily in our recruiting platforms, too. So we're doing a lot more recruiting through avenues like Hulu and ESPN and TikTok.

I'm going to offer one of those ads now that you mentioned it. Kodiak and Pivot, right, those are the 2 platforms that I remember that have been crucial to you guys managing the labor pool and helping to expand that. Would the portfolio. I mean, would you be looking to add more things like Kodiak, like a Pivot to the portfolio? Are there more -- are those out there even?

There are a lot. There are a lot out there we look at. Our ad is going to be a mix of just -- we've organically grown Kodiak significantly since we acquired it. And Pivot was more of a -- just to understand it, Pivot was more about the technology that was housed inside of it and the small recruiting group that was part of it. It was really a talent plus technology acquisition so that we could put that on top of Kodiak. And Kodiak is the bulk of the travel craft professionals that we've been able to then utilize as we've expanded out and build to what we've become. As we look into the future, there are a handful of these types of companies that we would be interested in, and we talk to them. But a lot of times, it's just as easy for us to greenfield inorganically grow. This is not a big CapEx type business. It's just people. And frankly, really, a lot of times, it boils down to just the technology and the Rolodex type of an approach, right? And so we are continuing to grow that and grow the capacity that it has and the expertise that it has, and we've just been able to do that organically.

I don't think if you acquire another contract labor for Rolodex plus Rolodex with Kodiak equal 2, maybe 1.5, there's a lot of overlap.

That makes sense. I guess talking about technology a little bit and usage of it, where are you guys seeing the biggest opportunity for innovation internally? Like is it for robotics used in some of the modular facilities? Is it on the digital tools or on labor productivity? Just speak to that and that kind of -- how that changes the value you bring to your customers.

Yes, it's kind of all of the above what you just mentioned. So we're seeing a lot of automation in our modular. And also, I want to be clear, it's also in our off-site fabrication, too, because every one of our companies has off-site fabrication and a lot of them are using automated innovation to be able to deliver more efficiently to projects. And then digital tools on site, 10 years ago, you walk a job site and no one would have an iPad. Now you walk the job site, everybody has an iPad. There's a lot of things that we've introduced into the work stream to make sure that we're taking errors out of the work. I mean that's the biggest productivity killer is people thinking that it should be built one way when it was supposed to be built a different way. And so making sure that the people on the ground understand exactly how we want to build, conveying that all the way from the engineering architect all the way down to the person who's actually doing the install, digital tools have made that far, far more productive and far more efficient. Now we have to scale them. So that scale has really provided us a unique advantage from where we sit vis-a-vis our competitors. And that is something our craft professionals also benefit from. So once they see the benefit of these tools, that also has a stickiness where they know that if they were to go to another competing contractor, they wouldn't have access to these tools that they've become really, really comfortable with and that they have a high degree of trust in at this point.

Excellent. Great answer. What haven't we covered? What haven't we talked about that you think is worth highlighting here?

We acquired a really great electrical company in Utah that closed on May 1, and we built acquisitions for the best path to growth. Scale is getting harder, as you might imagine. But there's still a lot of really great companies out there, and our approach to acquiring, I think is going to stay the same. We're going to get to know them and take our time to do some good deals.

Excellent. Well, thank you so much for joining us. Much appreciated, and thank you to the whole Comfort Systems team.

Thanks.

Thanks for having us.

Thanks.