Operator: Good day, and thank you for standing by. Welcome to the Comfort Systems USA Q3 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Accounting Officer. Ma'am, please go ahead.
Julie Shaeff: Thanks, Michelle. Good morning. Welcome to Comfort Systems USA's Q3 2026 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.
Julie Shaeff: Joining me on the call today are Brian Lane, Chief Executive Officer, Trent McKenna, President, and Bill George, Chief Financial Officer. Brian will open our remarks.
Brian Lane: 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 results that exceed even our recent record results. We earned $13.91 per share this quarter, which is $5.66 more than we earned in the same quarter last year. Our mechanical business had an extraordinary increase in activity levels and profitability, and our electrical segment, once again, achieved spectacular organic revenue growth at very high margins. 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 $17.8 billion. As a result of continuing strong demand, we achieved an eighth consecutive sequential backlog increase.
Brian Lane: We continue to book work with good margins and good working conditions for our valuable people, and we enter Q4 of 2026 with $8.4 billion more in backlog than last year at this time. I am happy to announce the acquisition of two companies on 1 August: Boys Electrical, located in Melbourne, Florida, and Neopod, a modular company for the healthcare industry based in New Braunfels, Texas. We are thrilled to have these two companies join the Comfort Systems USA family of companies and expect that they will contribute over $100 million in annual revenue at good margins. Today, we increased our quarterly dividend by $0.10 to $1 per share, and we actively purchased shares during the quarter. With solid bookings and great demand, we expect continuing growth and strong results for the remainder of 2026 and 2027.
Brian Lane: In a moment, Trent and Bill will discuss our results and outlook, but I want to first discuss another announcement that we made yesterday. Last night, we announced Bill's decision to retire from the company after 30 years of amazing service. Bill helped found the company in 1997 and has led the financial strategy of the company since 2005. As importantly, since 2008, Bill has led the extraordinarily successful acquisition efforts of the company. Since 2011, Bill has also worked with many of our companies in an operational leadership role. I am deeply grateful to Bill for his steady leadership, thoughtful advice, and the integrity that he has brought to Comfort Systems USA every day. He has been a great partner to me. I, along with the rest of the leadership team, wish Bill the absolute best in his well-deserved retirement.
Brian Lane: Bill will be transitioning from the CFO role shortly after we report our 2026 results, and then will continue with the company for a period to transition his other roles. We also announced that Julie will be promoted to CFO as Bill's successor, and I also want to congratulate her. Julie has been an integral member of our finance and accounting team for many years, and I have the utmost confidence that she is the perfect person to lead the organization through Bill's transition. Before Bill discusses our results, I have asked him to also give his thoughts about the upcoming changes. Bill?
Bill George: Thanks, Brian. It's a poignant day for me, and I do want to take just a few minutes and explain why I am utterly confident
Bill George: That Comfort Systems USA will continue to have the best management team in our industry long after I'm gone. Over 30 years, I've done a lot of things at Comfort: legal, financial acquisitions, operations. The main three things I do today are financial, operational, and acquisitions. The great news is that in the financial area, our depth is extraordinary. Frankly, it's amazing. Right down the line, starting with Julie, we are stacked with unbelievable talent in our financial area. And honestly, the day after I leave this role, Comfort Systems will still have the best CFO in construction and the best finance department in construction. You guys know Julie. I've been hearing from people for the last 24 hours, how happy and relieved, both internal and external, how happy and relieved they are that Julie will be our next CFO.
Bill George: Operations is the part that I'll miss the most, but the good news is that our business isn't run in Houston. It's not even close to being run in Houston. It's run in the field. As long as we maintain our culture and stay out of the way of the great companies we have, we'll always be fine. I want to spend just a little more time commenting on acquisitions. Every acquisition we've ever done at Comfort Systems USA was done by a team of people, and every company we've ever bought, we pick companies. We certainly qualify companies, but we don't pick companies. They pick us. We give them unlimited time and unlimited access to do due diligence on us.
Bill George: The reason that we continually win in the acquisition area, frequently buying companies at lower prices than other people are offering them, is because we have worked so hard to make Comfort Systems the best place on planet Earth for somebody who has made their life's work building a great contractor, a home for their legacy. If we continue doing that, we'll continue winning, because that's why we win in acquisitions. After I leave, we'll continue to have a great team. We have a Vice President of Acquisitions who was carefully selected as a person with the right judgment and temperament to sit in the middle of the team and facilitate things. He's somebody who won't get in the way of Comfort's message, which is all I've ever tried to do. The people who do our acquisitions include Brian Lane.
Bill George: They include our CEO, our President, our Chief Operating Officer, our regional leaders. Our head of innovation is very important in acquisitions, a guy named Briston Blair. Most important, the thing that makes us win in acquisitions is our field leadership. They are always involved in the acquisitions that we do. When we buy companies where there is overlap, we face that and solve that before we buy a company. We do not have mysteries, and we will figure things out later, and I think we will continue to do that. I think Comfort Systems acquisitions is on a great roll. I think that will continue. I think we will continue to be a trustworthy, disciplined company that does acquisitions with conviction. Above all, we will be patient. I would say the key to our acquisition program is that we refuse to be hurried.
Bill George: We are fast, actually, and when we are ready to go, we go, but we never have to hurry. I am very confident about the future of acquisitions at Comfort Systems. I just want to say one more thing about Comfort, which is how great Comfort is and why I believe it will stay great, and that is our people and our culture. This company is filled from top to bottom with amazing people. I do not think there is anybody who understands that as well as I do, and there are a lot of people who really understand it in Houston. Every one of our crucial functions is led by a great leader: tax, internal audit, risk management, treasury, insurance, every one of them.
Bill George: People on this call will never meet the great people we have, people with names like Adam and Amy and Ana and Barbara and Byron and Elvira and George, Ela, Jay, Jordan, Julie, Judy, Michael, Wayne, and more. I could not possibly name them all. The unbelievable group of people with very long tenures at the company, very dedicated to our company and very dedicated to its culture. Then we have perhaps even surpassing that at our subsidiaries, at our companies in all of these states, Texas, North Carolina, New York, Florida, South Carolina, Kentucky. Did I mention Texas? We have unbelievable groups of people who have pooled together to create something that is unmatched in their markets, and that culture has led to the staying power that we have in all our markets.
Bill George: It has led to us making money every year of our existence, to us having free cash flow every year of our existence, to us being the best positioned when markets became great to really take advantage of it. Everything I have just described is what created the great results that I am going to review right now. With that, revenue for Q3 2026 was $3.8 billion, an increase of $1.3 billion or 54% compared to last year. Electrical segment revenue grew by 85%, and mechanical revenue grew by 43%. Through 9 months, our same-store revenue increased 47%, and we expect full-year same-store revenue will also be in the mid 40% range. We estimate that our same-store full year 2027 revenue will grow in the mid 20% range. Gross profit was $934 million for Q3 2026, $327 million higher than one year ago.
Bill George: Our gross profit percentage remained consistent at a strong 24.8% this quarter. Quarterly gross profit percentage in our mechanical segment increased to 25.1% this quarter, compared to 24.3% last year. Despite electrical segment revenue growth of over 80%, margins in our electrical segment slipped to 24.3% this quarter as compared to 26.2% in Q3 2025. Last year, we noted that our electrical results were positively impacted in Q3 by discrete gains, including when a customer emerged from bankruptcy. Those gains improved electrical segment margins last year by approximately 1.8%, and without that effect, electrical margins were roughly flat. We currently expect that 2027 gross profit margins are likely to continue in the strong ranges that we've achieved in average over recent quarters.
Bill George: SG&A expense for the quarter was $314 million, or 8.3% of revenue, compared to $230 million, or 9.4% of revenue in Q3 2025, and we continue to invest to support our extraordinary growth. Our operating income increased by 65% from last year, from $379 million in Q3 2025 to $625 million for Q3 2026. Our operating income percentage increased to 16.6% this quarter from 15.5% in the prior year. Our year-to-date tax rate was 23%, and we expect our tax rate to continue to be around 23% for the rest of 2026 and in 2027. After considering all these factors, net income for Q3 2026 was $489 million or $13.91 per share, as compared to net income for Q3 2025 of $292 million or $8.25 per share.
Bill George: Thanks to great execution by our people, EBITDA increased by 61% to $668 million this quarter from a strong $414 million in Q3 2025. Our trailing 12-month EBITDA is now approximately $2.3 billion. Free cash flow for Q3 2026 was $806 million, and year to date, our cash flow is roughly $2 billion. In addition to strong earnings, we benefited from advantageous payment terms and favorable collections from large technology customers. Our cash flow this quarter was also higher due to $166 million in income tax payments that we were able to defer until Q4 this year. In addition to the modular expansions that are underway, we invested over $100 million in CapEx to expand pre-fabrication facilities for our traditional construction business.
Bill George: We estimate that full-year CapEx will be 45% of revenue, and we're likely to continue to incur CapEx at elevated levels during H1 2027. We actively purchased our shares this quarter. In year to date, we've returned $349 million to our shareholders, and we've retired approximately 212,000 shares. Once again, expressing my gratitude to the people I mentioned earlier and to the people on this call who've supported us for so long, I'm going to turn the time over to Trent. Trent?
Trent McKenna: Thanks, Bill. Before I start, I just want to thank you for the time I've been able to work with you over the last 22 years, and for taking the chance and hiring me back 22 years ago. I appreciate it, Bill. I'm going to discuss our operations and outlook. Our backlog at the end of Q3 jumped to a record $17.8 billion. Since last year at this time, our backlog has increased by $8.4 billion or 90%. On a sequential basis, backlog increased by $3.8 billion or 27%. Q3 bookings were especially strong in the technology sector, both in our traditional construction business as well as the modular part of our business. Industrial customers accounted for 76% of total revenue in the first nine months of 2026, and they are major drivers of pipeline and backlog.
Trent McKenna: Technology, which is included in industrial, was 59% of our revenue, a strong increase from 42% in the prior year. Our modular operations continue to grow with our established customers, and we are building products for new customers, including a frontier lab and colo providers. Although we have not yet entered new arrangements that we would consider programmatic, we continue to explore deeper partnerships with these and other potential strategic partners. Institutional markets, which include education, healthcare, and government, remain strong and represent 16% of our revenue, and the commercial sector provided about 8% of revenue. Most of our service revenue is for commercial customers. Overall, our companies continue to execute at high margins. However, this quarter we experienced a higher proportion of equipment and materials in our cost mix that augmented our sequential revenue growth but dampened sequential margins. Construction accounted for 90% of our revenue.
Trent McKenna: With projects for new buildings representing 75%, and existing building construction 15%. We include modular in new building construction, and year to date, modular was 17% of our revenue. We remain on track to have over 4 million square feet of space in our modular businesses by the end of 2026, and with ongoing orders and investments to meet that demand, we expect to have approximately 6 million square feet of capacity by the end of 2027. We also continue to evaluate further investments based on continuing strong demand and customer needs. Service revenue was higher by 13% this quarter, but with faster growth in construction, service represents 10% of total revenue. Service profitability was stronger than ever this quarter, and service remains a growing and reliable source of profit and cash flow.
Trent McKenna: 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 25,000 employees for their hard work and dedication. I will now turn it back over to Michelle for questions. Thank you.
Operator: Thank you. As a reminder, to ask a question at this time, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Adam Thalhimer with Thompson Davis. Your line is open. Please go ahead.
Adam Thalhimer: Hey, good morning, guys. Congrats on another great quarter. Julie, congrats.
Julie Shaeff: Thank you.
Julie Shaeff: on your promotion. And Bill.
Bill George: Thank you.
Bill George: Congrats to you on your retirement. You will be missed, Bill. Hey, Trent, I want to start with you on the sequential margin decline. Can you give a little bit more color on that, and how should we think about that as we look ahead to margins in the next few quarters?
Trent McKenna: Yeah. I will jump in, and then I am sure Bill will want to add a little bit, too. But sequentially, we carried a higher proportion of equipment and materials in our cost mix this quarter. So, that is going to add revenue, but equipment does not carry the margin our labor does. So the percentage comes down even as the dollars go up. Anyway, the way I think about it, I would be careful about focusing on one quarter. Some of this is a little bit lumpy depending on what the mix is, and that is what we experienced in the prior quarter.
Bill George: Yeah. There are other things that contributed to the slight decline. One of the things that happens is after we do acquisitions, we have purchase adjustments. Certain of those purchase adjustments relate to the changes in the WIP schedule for jobs that were ongoing at the time we closed. Because of that, those purchase adjustments roll through our costs. Those adjustments were like $12 million higher in Q3 than they were in Q2. So that was a straight hit to margins. We have one large company in electrical. It is over half of our electrical segment. That company had gross margins in the 30s in Q2, and their gross margins were still unfathomably high in Q3, and above average for our company, but they were not in the 30s. There are discrete things that happened.
Bill George: I think the business has never been better. The other thing is, when you see this kind of a jump in revenue, like 80% organic revenue growth in the electrical, you know a couple of things. One, you know you got a big denominator for your fraction, but you also know that we are early in a lot of jobs, and we do not pull out high margins early in jobs, right? We just wait and we keep contingency. We wait and see how they go. I do not think there is anything but good news in this quarter, Adam.
Adam Thalhimer: Bill, just to pull on that thread a little bit. When you say we are early in jobs, when should we think about the portfolio maturing a little bit?
Bill George: We have reached a point today where it is really hard to answer that question because some of these jobs are multi-year.
Trent McKenna: Yeah.
Bill George: I will say you begin to see profit changes when you are 40%, 60%, 70% complete. These big jobs, the way that you recognize revenue in our industry is you estimate the remaining cost it is going to take you to finish a contractual obligation. Early in a job, you do not know what is going to happen. You do not know how much it is going to rain. You do not know what the people who are working next to you as other subcontractors are going to do. So companies that stay in business, they keep money in the job for the things they do not know. As you get deeper and deeper into those jobs, you begin to get a better view. For us, historically, we have had net gain on jobs every year of our existence, and they have been bigger than ever lately. So I would say this quarter, definitely early in jobs.
Bill George: I'd say next quarter will be on average early in jobs, although there's always closeouts in Q4s to some extent, just because of the nature of years ending and what customers want you to do. I guess it's hard to say. I think we'll get back to average H1 of next year.
Adam Thalhimer: Okay. Then, obviously unbelievable awards in the quarter. In terms of what's driving that, would you say that's your traditional data center customers or there are some new customers starting to creep in?
Trent McKenna: Yeah. There are definitely new customers creeping in and demand is just very strong. I think part of it's our customers are committing earlier and for larger scopes because they know that capacity like ours is scarce right now. We continue to be really selective in what we're looking at. So yeah, it's kind of all of the above. It's a market right now where the governor isn't demand, the governor's really just labor, the ability to be able to get the labor to the work. Our customers realize that, so they're wanting to lock up our capacity. That's why you see what the backlog's doing.
Bill George: You know what, Adam, it's a real tribute to the folks out there working, the quality of work they're doing that we're getting this much repeat business from very sophisticated customers. Really tip your hat to the folks and what they're producing.
Adam Thalhimer: Thanks, guys.
Bill George: All right. See you.
Operator: Thank you. Our next question is going to come from the line of Adam Bubes with Goldman Sachs. Your line is open. Please go ahead.
Adam Bubes: Hi, good morning. You talked about building some modular products for new customers, including frontier labs and colo providers. Can you just clarify, is the 6 million square feet of capacity you expect by 2027, is the incremental 1 million square foot versus what you targeted by midyear, is that related to frontier labs or new colos or is that primarily your two hyperscaler customers? Can you just expand on the engagement, those conversations with the frontier labs and colos? What are they asking from you in terms of scope of work, potential output?
Trent McKenna: Yeah. The answer to this, the build-out that we just talked about, the $6 million, is based on our current programmatic build-outs with the customers that we already have. On the new customer front, yes, we are building product for frontier labs and colo providers. That is real work, and we are proud of it, but we have not yet entered arrangements with them that we would call programmatic, and we are not going to call them that until we believe they are programmatic. The build-out that we have announced is all for existing capacity that is with our current customer base in modular.
Bill George: If you are living in the paradigm of the last 30 years, like I sometimes do, you might say, "Oh, they have not yet sold business to these people." The reality is, we have not yet reached terms where we are willing to accept business from these people. Right now, one of the things that is front and center for us is the ability to pay. Typically, our programmatic people have made five-year volume commitments to us, and then we have gone out and spent large amounts of CapEx to build space that is going to primarily build their product. I think not just in modular, but across our business, we have a long history and a long set of experience that really, really takes into account the financial strength of our counterparties.
Bill George: Not that these people do not have financial strength, because they do, but we think there are various considerations as you compare the customers that we do work for.
Trent McKenna: Yeah. One other thing, too, and I am sure I am not telling you anything you have not already realized, but modular is 17% of our revenue. It is growing, but staying 17% because the rest of our business is also seeing really great demand as well.
Adam Bubes: Got it. All super clear. Then Bill, you referenced the projects in sort of earlier stages of completion. If you look at catch-up adjustments, the impact on revenues this quarter, I think it stepped down to 4.5% from closer to 8% of revenues in the H1 of the year. Am I thinking about this right? Because if you kind of strip those impacts out, it looks like underlying gross margins actually continue to increase sequentially. Is that the right way to think about core execution? Does that give you confidence baseline margins can continue to expand as new projects mature?
Bill George: Well, I was with you all the way to the last sentence because we do not represent that margins will go up in the future. We do know that things that have been driving them up are still apparent for us, and if anything, they are at least as strong as ever. I will say what you said plus things I can see that nobody could see unless they were sitting in Julie's or Michael's seat, such as this point about the mix in our cost that Trent mentioned of, by a couple percentage points, our cost of goods sold has more material and equipment passing through it. There is nobody who runs a business for us who worries about their return on wire. They worry about their return on electricians and plumbers. Our gross profit per hour worked continues to get better. So I agree, and more.
Adam Bubes: Great. Thanks so much, and congrats, Bill and Julie.
Julie Shaeff: Thanks.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Sangita Jain with KeyBanc. Your line is open. Please go ahead.
Sangita Jain: Great. Thank you. Good morning. Congratulations, Bill, and congratulations, Julie. I just want to ask on the mechanical backlog, which saw a more meaningful jump than the electrical backlog, and I was wondering if you could break down the makeup of that, whether it may be modular and the traditional business.
Bill George: Backlog's really lumpy. I don't think there's any different trend between the two. I just think in any given quarter, one might book more, one might book less. Well, one might book vastly more, and the other might book even more vastly more, the way things are going. But at some point, I don't think there's any differential there. Let's say we have 40 businesses, 20 are highly exposed to the super cycle. Those people have more work than they can do. They're choosing how much they take. It's really astonishing that our backlog went up this much in summer months.
Brian Lane: Yeah.
Bill George: Think about the burn. Look at our revenue. That's a really, really crazy amount of bookings. I will say, what's also crazy about it is that Brian Lane approved it. Brian Lane and Trent get on calls for the biggest jobs, and they talk through what are we doing to make sure we're safe. We have a whole program for large projects where we monitor them even more closely. By the way, we're not kidding ourselves that anybody in Houston is performing anything, but we do really try to stay on top of it. Our backlog's the best it's ever been, Brian.
Brian Lane: Best I've ever seen it, Bill, and the activity level out there is as strong as I've ever seen it.
Bill George: Yes.
Sangita Jain: All right. Can I ask a follow-up on this, on backlog? Given that you are booking, it seems, larger projects, how should we think about the duration of that backlog? I know historically it has been under a year, but can you tell us how that has changed in recent quarters?
Brian Lane: Yeah. I think if you look at the backlog we are winning now, we are obviously winning larger projects, and I think the timeframe is probably pushed out to 18 to 24 months, as opposed to 10 years ago, nine months was the best look-see we had for sure. But the size of these jobs, the duration of them, where they are, has extended the backlog to roughly 18 to 24 months. I think, Sangita Jain, would be a good framework.
Sangita Jain: Got it. Thank you, Brian.
Brian Lane: Yeah. And one, and-
Sangita Jain: Go ahead.
Trent McKenna: No, I was just going to say, Sangeeta, one way to look at it is just that when I look at the backlog right now, what it did in the quarter, demand is just for what our people do remains well in excess of what the industry can actually deliver, and we are being able to do and we are being asked to do and deliver more of it than ever before. So that is what I really take away from how strong the backlog was in this quarter.
Sangita Jain: Noted. Thank you, Trent.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Brent Thielman with Oppenheimer and Co. Your line is open. Please go ahead.
Brent Thielman: Hey. Thank you, Bill, Julie. Of course, congrats to both. Great career here, Bill. I guess, I want to pick up maybe, Bill, where you were talking a little bit on Comfort Systems USA's focus on quality of customers, so to speak. Obviously data center, balance sheets, financing is a big topic in the market. Maybe if you could talk us through how you look at that, your operations look at that, how corporate looks at it and scrutinizes those customers, and I guess especially with regard to the pipeline of new potential projects. It sounds very healthy. I'm assuming that includes companies with available financing to push this through. If you could just talk to that.
Bill George: It's very textured. You have the ultimate customer, but outside of modular, and I know this came up in the context of modular, but outside of modular, the payment obligation is actually typically coming from a large national GC, right? Then in modular, we do get mobilization payments, and then we have payments upon delivery. At this point, we're vastly ahead with our programmatic customers, and based on very open with each other negotiations. The other thing that you look at is the labor that you're doing, whatever you're building, are you building something that other people would want, right? Because we have lien rights in our business where we get to. They go back to the English common law, right, 1,000 years ago, where we have the right to seize the building if we don't get paid.
Bill George: One of the things that we learned to look at over the years is this a building that there would be many, many people who would want? Or is this a building like we're involved in a wafer construction, a construction of a plant that made wafer using a certain technology where we knew that that large and very expensive building would be pretty useless to anybody but the person building it. We, in that case, asked for very special terms where we were paid every 2 weeks, and we had the right to leave on very short notice. There are many, many things that you take into account when you try to figure this out.
Bill George: By the way, there are people rolling into modular now who are taking large books of business who we think are agreeing to payment terms where they are banking some people. If we lose work on that basis, we don't mind it.
Brent Thielman: Okay. Maybe another point of concern out there, just with the technology or data center project opportunities that are out there that you are looking at that are not reflected in huge backlog today, presumably over the next few years. I guess any sense for how many of those you are looking at already have power connections figured out?
Brian Lane: Pretty much, the things we are looking at as prospects, the power connection is usually already solved.
Bill George: If anybody stroked a check for us to do design work, to make our engineers.
Brian Lane: Because of where we sit in the cycle, right? We are a pretty late cycle player in the design of a building. For our traditional construction business, I am not aware of a lot of things in that we are looking at prospect pipeline-wise where the power has not already been solved.
Bill George: I got to tell you, it really hasn't delayed anything we're seeing. Brent, a lot of these data centers are generating their own power anyway. So these folks are going to solve their problem one way or another.
Brent Thielman: Okay. Just a quick technical question. The operating margins in the mechanical segment have come up a lot this year, including Q3. Is that primarily due to better profit margins in modular compared to last year, at least on an operating basis? Essentially, are you getting better fixed cost leverage there, and that's the big-
Bill George: In the mix. That's the single largest driver in the mix. There are actually higher margins out for the 9 months, for sure, in pretty much all parts of that work. But modular has really closed the gap with the rest of the business to come really up to parity with our average margins. Of course, mathematically, that changes the mix.
Brian Lane: I am just going to throw props to one company that's doing an unbelievable job on piping, really throughout the country. Their margins have improved significantly and are doing a heck of a job.
Brent Thielman: Yeah. Very good. Okay. Thanks, all. Appreciate it.
Operator: Thank you, and one moment for our next question. Our next question will come from the line of Josh Chan with UBS. Your line is open. Please go ahead.
Josh Chan: Hi, good morning, and congrats, Bill and Julie. Both truly very well deserved. Congrats. My first question, could you talk about the magnitude of the orders that you took in in the quarter? It's billions of dollars more than you're taking in any other quarter. So, I know that the demand is obviously really strong, but just what drove that decision, the confidence around being able to phase it out and things of that nature?
Bill George: Yeah.
Brian Lane: Yeah. Josh, the first part of that is that the timing of the work, we can handle. We have the personnel to do it. The locations are working in our favor. The most important thing is you slash your labor availability over when it's got to go. As Bill said earlier, when we work with our operating companies looking at these opportunities, where they are, we're very confident we can handle all the work we have right now with the forces we have. We're also very fortunate, the company of this size, that the companies collaborate, work together. Add that on to have a good traveling workforce. When you add all that up, we're very confident in executing the level of backlog we have today.
Josh Chan: Sure. Yeah, that is great to hear and obviously great backlog. I guess my follow-up, could I ask about the margin comment about the mix of materials? I obviously understand the mathematical reason for that, but over the years, it is very rare for you to call out that mix as a driver. I was wondering if anything large specifically happened this quarter where that mix was more impactful than usual.
Bill George: Material and equipment was about 2% higher than it had averaged in the first six months. The only other time we brought that up was during COVID, because there was so much inflation in materials and equipment. I think the dollars of them just became such a bigger part of our cost mix. I think in this case, a big part of it is the earliness of the job. A lot of stuff gets delivered earlier in a job, you are doing very long pipe runs and things like that. I think some of that actually comes back to the earliness of the job. Some of it is just, it is lumpy, and that is just the way it is. Chief Trent, what do you tell me?
Brian Lane: Yeah, everything you said, Bill.
Bill George: Yeah
Brian Lane: is correct. It is really where the large projects are in their life cycle and where we are in ordering that equipment.
Josh Chan: Okay, great. Thanks for the color and congrats on the quarter.
Brian Lane: Thanks.
Bill George: Thanks.
Operator: One moment for our next question. Our next question will come from the line of Tim Mulrooney with William Blair. Your line is open. Please go ahead.
Tim Mulrooney: Yeah, thanks for taking my questions. Good morning. The first question I wanted to ask about is on the backlog, obviously very strong result, but we don't have insight into the individual conversations that you're having. I am wondering, with all the political rhetoric around data center moratoriums heading into the election, other regulations that governors are proposing around data center construction, just curious if you've seen any change in any project schedules or push out in the pipeline in any of the states.
Bill George: I would say, having talked to one of our biggest companies in the last day or two, the answer is generally no. I haven't literally, I don't know of a project where one of these considerations has changed its trajectory. I will say, I think on a more macro level, I have a sense, and I've talked with people who have given me this sense, this may push more of the work nationally into more friendly jurisdictions. If you were a large hyperscaler and you were laying your bets on which states you wanted to do work in, I think where you place your bets, where you go do your work and make your commitments is going to be influenced by your perception of whether the governor in that state wants people in that state to have jobs, right?
Bill George: I am not saying it has no effect, but I do not think at a micro level we have seen any effect whatsoever.
Brian Lane: Tim, I can tell you, for the work we have today, what we are seeing here at Comfort Systems USA, we have not been delayed by any moratorium.
Trent McKenna: One thing more to think about too is that modular is even less exposed because it ships to wherever the customer site is. So that is also something to keep in mind for that 17% of our business.
Tim Mulrooney: Okay. That is really helpful color. Thank you. Just on the modular business, by the way, just my last question here. I am curious why you have not added any more programmatic customers in your modular business. I know you touched on this earlier, but the demand is clearly there. Could you just walk me through that decision matrix.
Bill George: Yeah
Tim Mulrooney: around that then a little bit more? Thank you.
Bill George: I will start. This happens in the real world, right? We are talking about 250,000, 600,000, 700,000-square-foot buildings that are being built out with rows of robots and automated paint booths and turntables, and have to be staffed with thousands, ultimately, of people. We think we have grown unbelievably fast. This is not scalable the way you can just print another copy of software. Honestly, we have tended to stick with our two big customers who have kept us happy together for, in one case, for 20 years because we know them. It works. They want more than we can buy. They cannot buy enough from us to the point where they are looking at other sources of supply. The other side of that question is, why would we divert from a sure thing to sort of a mystery, right?
Trent McKenna: Yeah. Yep.
Tim Mulrooney: Makes total sense. Thanks for the color, guys.
Trent McKenna: All right. Thank you.
Operator: Thank you, and one moment for our next question. Our next question is going to come from the line of Julio Romero with Sidoti & Company. Your line is open. Please go ahead.
Julio Romero: Thanks. Hey, good morning, and again, Bill, congrats on your retirement, and Julie, congrats on the CFO role. Well deserved. Hey, Trent, you mentioned earlier that your customers understand that labor is the governor. I guess if that's the case, what lever would expand that fastest? Would it be training? Would it be modular automation or digital field tools? And what kind of growth in your headcount does mid-20s growth in 2027 require?
Trent McKenna: It's going to require growth. I mean, we're over 25,000 today, right? And we've grown that kind of the way we've always done it, right? Where our companies strive to be the best place for craft professionals to work. We pay well, we train relentlessly, and we are always trying to keep people busy on good projects with good conditions. That's what a craft professional's interested in. Obviously, our traveling workforce has helped a lot in this, and our contract craft operations at Kodiak and Pivot have helped as well. And acquisitions like Hunt and Boyce have already let us put people where the work is, right? So there's a lot of ways we're doing it. And our companies, we have planned. The one key thing about us is that if we've taken work, it means labor planned against every dollar in that backlog. So that's one thing about us.
Trent McKenna: When we look at something, to Bill's point earlier, where he talked about Trent and Brian looking at work, the question is always, "Well, do we have the labor to do it?" Then it is labor planned before we ever agree to it. As we look into the future in that mid-20s, we will have to add people, but we will just do it the way we have always done it. The easiest way to kind of sum that up is we want to be the best place for a craft professional to build their career. We will continue to try to be that place. There is a lot of things that go into that, but that is the easiest way to understand it.
Brian Lane: I have been doing construction a long time, probably more than I want to remember. We really do treat people with respect and feeling here, and I think that really matters when you bring people in and they stay with us. I think it is really important what the culture of this company is and how we get people to go work where they go work.
Trent McKenna: Yeah. If it is okay, Brian, I want to add to that because if you look at what our people, the 25,000-plus just did over the last three months, they were working in the hottest months of the year.
Brian Lane: Yeah.
Trent McKenna: Many of them were on the road away from their families.
Brian Lane: They still delivered safely, on schedule, with great quality for our customers. I just want to take my hat off to them and commend them on the work that they performed and how grateful I am for what they have done.
Julio Romero: Thanks. Really helpful there. Then maybe just asking again about what you mentioned earlier about programmatic relationships, typically involving multi-year volume commitments and enough visibility to support CapEx. Earlier, I know to another question you stated why would you divert from the two large programmatic customers, but I guess what would you need to see from one of the newer customers before they could kind of graduate to programmatic, and how important is the financial strength of the customer in those considerations?
Bill George: Yeah. I would say that the two things that you would look for are the nature of the commitment and the payment timing, right? Payment timing. Also, you actually take into account many of these newer customers are really. They are new to building modular hot aisle containment or modular chiller plants. One great thing about them is they are willing to really listen to our experience and build stuff. If we build stuff that is constructible and versatile, that gives us a lot of comfort as well that it is valuable to them or to someone else. Maybe more importantly, the capacity that we set up to build for them has a lot of outlets. None of it is mysterious. You could sit and think of it. Nobody here is a genius who has thought of something new. It is exactly what you would think.
Julio Romero: Very helpful. I will pass it on, and congratulations again.
Bill George: Thanks.
Brian Lane: Thanks.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Kurt Yinger with D.A. Davidson. Your line is open. Please go ahead.
Kurt Yinger: Great. Thank you, and good morning, everyone. I just wanted to go back to the point on capacity. I guess for those operating companies that are doing larger data center work, how much capacity, so to speak, is just left looking at the projects and backlog and how that carries you through next year? I guess what I am ultimately trying to get at is thinking about bookings the next couple quarters and whether the outsized performance this quarter maybe takes away from what we might expect looking forward.
Bill George: I think that, first of all, that question doesn't have a mathematical answer. There is no gauge, right?
Kurt Yinger: Right.
Bill George: Your willingness to stretch to accept work has to do with work, the nature of that work, the flexibility that you are given, the timing. I would say our guys, it is certainly the case that if we book more in one quarter, we might book not as much in a future quarter. My sense is our guys, they are going to continue to book the work, we will probably continue to book farther out. At this moment, the conditions are extremely supportive with no sign of that changing. I do not know. I cannot change the fact that you do not collect a dollar twice. You do not book the same job twice, right?
Brian Lane: Kurt, we do remain disciplined on what we are going to take. The big driver for us is we are not going to take work that we cannot do at a very high level. That to me is the overriding factor when we look at these things. We have world-class people out there looking to work, doing the work. We will handle what we can handle, and we will see how it goes. We will keep booking work as we go farther and farther out.
Kurt Yinger: Got it. All right. That makes sense. Then just second on capital deployment. Given the level of cash generation, I guess I am just curious, looking at historically, as a percentage of that what you have deployed towards M&A, how does kind of the current landscape look in terms of the ability to continue to do that, and how does that maybe impact the thinking or aggressiveness that we might expect from kind of a share repurchase perspective going forward?
Bill George: We look at these decisions over years, not months or quarters. We have a very, very good acquisition pipeline, but of course, pricing for acquisitions has been high. I think that might be rolling over right now with interest rates and with the continued lack of exits for certain private people, but we will see. We have always bought our shares more aggressively when they dip, right? Over a long period of time, we have used 15% to 20% of our free cash flow to buy shares. If you look over the time we have bought them since 2007, we buy a lot more during deep seek. In a 2-week period, we spent $200 million, right? The $200 million, by the way, more than a year ago, was more to us than it is today. We have spent $200 million this last quarter.
Bill George: I guess all of those things are We are trying to do exactly what you would do. We have a lot of confidence in our future, so we have a lot of confidence in stock buybacks, especially when the price is softer, and we have a really good acquisition pipeline, but we will not We will not do a deal just because we have money. By the way, 1 turn of EBITDA and cash, we have had that many times in the past. It is a big dollar amount, but it is not a big dollar amount on the scale of what Comfort is yet.
Kurt Yinger: Okay. That makes sense. Thanks for the color.
Operator: Thank you. In the interest of time, our last question is going to come from the line of Brian Brophy with Stifel. Your line is open. Please go ahead.
Brian Brophy: Yeah, thanks. Good morning. Appreciate you taking the question. Bill, Julie, congrats to you both. Bill, quite an incredible career, and Julie, very well deserved. I guess just one for me. Curious if there is any areas of geographic exposure that kind of stand out this quarter in terms of relative strength or weakness that is worth calling out. Obviously, it sounds like Texas remains quite strong, but curious if there is other regions that are notable. Thanks.
Brian Lane: Yeah. You hit it right on the head. Texas, really strong. Georgia, strong and getting stronger. We are seeing a lot in Mississippi. Louisiana, we do not do much work in, but Louisiana is strong. Then, of course, you have North and South Carolina and the southeast areas. But Texas right now is really strong. Utah is very strong. Bill, any others?
Bill George: Iowa as well.
Brian Lane: Iowa.
Bill George: Iowa's woken up.
Brian Lane: Yeah, there's a new one. Yeah.
Bill George: Yeah.
Brian Lane: If you're talking about the areas of we consider above normal strength, those would probably be the territories.
Bill George: By the way, I am not saying we will play there because we may choose other options, but Arizona is the next phases of some of the big semiconductor work is about to hit. We have opportunities there. I do not know that we will take very much of that because we are so busy in Texas. But if you are just asking about geographies, there is some monster work in Arizona.
Brian Brophy: Very helpful. I appreciate it. I will pass it on. Congrats again.
Operator: Thank you. I would now like to hand the conference back over to Brian Lane for closing remarks.
Brian Lane: All right. In closing, I want to thank our teams across the country for their dedication, skill, and excellence they bring to serving our customers every day. Demand remains strong, and our people continue to rise to the challenge of meeting an unprecedented need for their expertise. Conditions remain favorable for continued strong performance, and we have the resources and commitment to build on that momentum. Thank you for your confidence, and I hope you all have a great weekend. Thank you.
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
