Comfort Systems USA, Inc. (FIX) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance, robust backlog growth, and effective capital allocation. The Q&A section reinforces this with details on sustainable service revenue growth, effective workforce management, and a sold-out modular capacity for 2026. While management provided some vague responses, the overall sentiment is positive, driven by strong demand and strategic execution. Given these factors, the stock price is likely to see a positive movement over the next two weeks.
Key Financial Performance
Earnings Per Share (EPS) $8.25 per share this quarter, which is double what we earned in the same quarter last year. The increase is attributed to a sharp increase in profitability in the mechanical business, higher profitability in the electrical segment, and favorable developments in some late-stage projects.
Revenue $2.5 billion for the third quarter of 2025, an increase of $639 million or 35% compared to last year. Electric segment revenue grew by 71% and mechanical revenue increased by 26%. The growth is driven by strong demand and exceptional execution.
Gross Profit $608 million for the third quarter of 2025, $226 million higher than 1 year ago. Gross profit percentage grew to 24.8% this quarter compared to 21.1% for the third quarter of 2024. The increase is due to great ongoing execution and favorable developments in certain late-stage projects.
Operating Income $379 million for the third quarter of 2025, an increase of just over 86% from last year. Operating income percentage surged to 15.2% this quarter from 11.2% in the prior year. The increase is attributed to higher revenue and improved margins.
Net Income $292 million for the third quarter of 2025, or $8.25 per share, compared to $146 million or $4.09 per share in the third quarter of 2024. The increase is due to higher revenue, improved margins, and favorable project developments.
EBITDA $414 million for the third quarter of 2025, a 74% increase from $238 million in the third quarter of 2024. The increase is attributed to strong revenue growth and improved profitability.
Free Cash Flow $519 million for the third quarter of 2025, and year-to-date free cash flow is $632 million. The increase is due to strong operational performance and higher profitability.
Backlog $9.4 billion at the end of the third quarter, a record high. This represents a $3.7 billion or 65% year-over-year increase, with $3.5 billion of the increase being same-store. The growth is driven by strong bookings and exceptional demand for services.
SG&A Expense $230 million for the quarter, or 9.4% of revenue, compared to $180 million or 9.9% of revenue in the third quarter of 2024. The increase is mainly due to ongoing investments in people to support higher activity levels.
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Operating Highlights
Acquisition of new companies: Acquired FZ Electrical and Meisner Electric, adding strong industrial and healthcare capabilities, respectively. Expected to provide over $200 million in incremental annual revenue and $15-$20 million of annual EBITDA.
Modular business expansion: On track to have 3 million square feet of modular space by early 2026, with potential for further investments based on strong demand.
Backlog growth: Backlog reached a record $9.4 billion, a $3.7 billion increase year-over-year, with $3.5 billion of the increase being same-store.
Sector revenue distribution: Industrial customers accounted for 65% of revenue, with technology increasing to 42% of revenue. Institutional markets (education, healthcare, government) contributed 22%, and commercial sector 13%.
Revenue and profit growth: Revenue for Q3 2025 was $2.5 billion, a 35% increase year-over-year. Gross profit rose to $608 million, with margins improving in both mechanical (24.3%) and electrical (26.2%) segments.
Service revenue growth: Service revenue grew by 11%, now accounting for 14% of total revenue, with strong profitability.
Dividend increase and share repurchase: Quarterly dividend increased by 20% to $0.60 per share. Spent $125 million year-to-date on share repurchases.
Credit facility amendment: Increased borrowing capacity to $1.1 billion with favorable terms, extending maturity to October 2030.
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Risk or Challenges
Market Conditions: The company faces potential risks from economic uncertainties and market conditions that could impact demand for its services, particularly in the industrial and technology sectors.
Competitive Pressures: The company operates in highly competitive markets, which may pressure margins and require continuous investment in capabilities to maintain market share.
Regulatory Hurdles: Potential regulatory changes or compliance requirements could increase operational costs or limit business activities.
Supply Chain Disruptions: While not explicitly mentioned, the reliance on construction and modular projects could expose the company to supply chain risks, especially in sourcing materials and skilled labor.
Strategic Execution Risks: The company’s aggressive growth strategy, including acquisitions and modular investments, carries risks related to integration, execution, and achieving projected synergies.
Economic Uncertainties: Dependence on industrial and technology sectors makes the company vulnerable to economic downturns or sector-specific slowdowns.
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Guidance & Outlook
Revenue Growth: For the fourth quarter of 2025, same-store revenue is expected to grow in the high-teen percentage range compared to the same quarter last year. For the full year 2026, same-store revenue growth is projected to continue, likely in the low to mid-teens percentage range, with growth weighted more heavily in the first half of the year.
Profit Margins: Profit margins for 2026 are expected to remain strong, consistent with the ranges achieved in recent quarters.
Backlog and Bookings: The company enters the fourth quarter of 2025 with a record backlog of $9.4 billion, a 65% year-over-year increase. Same-store backlog is 62% higher than at the same time last year. Project pipelines remain at historically high levels, with strong bookings in the technology sector.
Modular Business Expansion: The company plans to achieve 3 million square feet of space in its modular businesses by early 2026 and will consider additional investments based on strong demand.
Acquisitions: The acquisitions of Feyen Zylstra and Meisner Electric are expected to provide over $200 million in incremental annual revenue and $15 million to $20 million of annual EBITDA.
Service Revenue: Service revenue, which grew by 11% in the third quarter, continues to be a reliable source of profit and cash flow.
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Shareholder Return Plan
Quarterly Dividend Increase: Increased by 20% to $0.60 per share.
Share Repurchase Program: Actively purchased shares during 2025, spending around $125 million to buy approximately 345,000 shares at an average price of $363.13 per share.
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Key Q&A
Q:Does the bidding activity match the bookings and revenue growth seen in Q3?
A:Yes, the opportunities and pipeline remain robust, matching Q3. There are more opportunities than can be handled in the market currently.
Q:How is the company thinking about capital allocation given record free cash flow and net cash in Q3?
A:The company has not changed its capital allocation strategy since 2007. They focus on acquisitions, share buybacks when the stock dips, and rewarding shareholders if excess cash cannot be deployed effectively.
Q:How should we think about cash flow for the whole year, and were there any material advance payments in Q3?
A:There were no extraordinary events in Q3. Cash flow is expected to roughly equal net income. The company had a strong cash flow quarter due to good payment terms and a catch-up from earlier quarters.
Q:Can you speak about backlog growth and whether it is primarily on the modular side or traditional construction side?
A:Bookings were broad across all businesses. Modular bookings are pushed out further, while other bookings are slated to start within the next year, though some are longer-term projects.
Q:What is driving the step-up in orders and backlog growth over the last several quarters?
A:The company remains prudent in taking on work they can handle with their skilled workforce. Collaboration between companies and workforce sharing have enabled additional bookings.
Q:Has the pool of customers increased, or is the company doing more with existing customers?
A:The company primarily works with existing customers with a history of successful projects. There is a preference for repeat customers over new ones.
Q:How critical have internal recruiting and hiring efforts been in supporting growth, and is there any slowdown in bringing in people?
A:Recruiting and hiring have been critical. The company treats employees well, offers good benefits, and continues to train and improve productivity. There is no slowdown in bringing in people.
Q:Is the modular capacity for 2026 already sold out?
A:Yes, the modular capacity for 2026 is effectively sold out.
Q:What is the $15.5 million write-up mentioned in the filing, and how does it affect margins?
A:The write-up is in the electrical segment and reflects special closeouts that were particularly helpful this quarter. Such closeouts occur regularly but were more significant this quarter.
Q:What has driven the $1 billion step-up in backlog over the last two quarters?
A:The strong demand environment and good market opportunities have driven the backlog growth. Customers are committing early, and the company has strong companies to meet demand.
Q:Would modular capacity expansion focus on existing customers or new ones?
A:The company prefers to meet the needs of long-term, great partners but is open to opportunities with new customers.
Q:How much of the backlog, excluding modular, is expected to start within the next 12 months?
A:The majority of the backlog is work left to finish on jobs that have already started. All new bookings are expected to start within the next year.
Q:What is driving the 11% growth in service revenue, and is it correlated with new construction?
A:Service revenue growth is driven by investments in sales force collaboration and execution. It is not directly correlated with new construction but includes maintenance contracts and pull-through work.
Q:How sustainable is the 15% headcount growth since the end of 2024?
A:The growth includes acquisitions, but the majority is organic. High single-digit growth in workforce is sustainable over the long term.
Q:What productivity benefits are being seen from automation investments in modular?
A:Automation investments, including robots and AI-enabled software, are improving productivity, safety, and quality. The company uses its structure to test and implement innovations effectively.
Q:What is the outlook for the pharma project pipeline, especially with onshoring opportunities?
A:The pharma pipeline is strong, with long lead times for projects. The company has seen significant bookings in pharma but is currently focused more on technology projects.
Q:Does the shift to DC power in data centers impact the company?
A:The shift to DC power does not materially impact the company. Electricians handle such changes generically, and the scale of projects is more significant than technical tweaks.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether the company has increased its pool of customers or is doing more with existing ones, providing a vague response about their history of working with most U.S. companies. Additionally, while discussing backlog growth, they did not provide specific details on how much of the backlog is being pushed out versus elongated due to larger projects.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Boca Raton
Construction result
Electric contractor
Electric purchase
Electrical contractor
FZ Electrical
Florida capability
Grand Rapids
Instructions reminder
Meisner Electric
Michigan Meisner
Officer VP
Rapids Michigan
Raton Florida
SGA
Today dividend
USA family
acquisition amendment
amendment credit
bankruptcy range
booking demand
borrowing capacity
capability Grand
capability health
capacity term
care market
company Comfort
company FZ
company Meisner
company Today
consideration acquisition
development stage
position
segment development
stage project
teen
FIX Transcript
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Comfort Systems USA, Inc. (FIX) Q3 2025 Earnings Call Transcript
Positive10-24
The earnings call summary indicates strong financial performance, robust backlog growth, and effective capital allocation. The Q&A section reinforces this with details on sustainable service revenue growth, effective workforce management, and a sold-out modular capacity for 2026. While management provided some vague responses, the overall sentiment is positive, driven by strong demand and strategic execution. Given these factors, the stock price is likely to see a positive movement over the next two weeks.
FIX Slides
FIX Report
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