Comfort Systems USA - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered record results: revenue $2.17B, diluted EPS $6.53, gross margin 23.5%, operating margin 13.8%; backlog reached $8.12B, up $1.23B sequentially and $2.35B YoY.
• Against Wall Street consensus, FIX significantly beat: revenue by ~$0.20B, EPS by ~$1.70, and EBITDA by ~$77M; estimate coverage was robust (7 estimates for Q2) [Values retrieved from S&P Global]*.
• Management raised full-year same‑store revenue growth outlook from high single-digit (Q1) to mid‑teens (Q2) and guided 2H25 tax rate ~23%; quarterly dividend increased to $0.50 (from $0.45).
• Demand led by technology/data centers and strong execution in mechanical and electrical; service revenue up 10% and modular capacity targeted at ~3M sq ft by early next year, supporting continued strength into 2026.

What Went Well and What Went Wrong

What Went Well

• “First time that our quarterly revenue has exceeded $2 billion… earned an unprecedented $6.53 per share… backlog… grew to a new high of $8.1 billion”.
• Margins expanded sharply: gross margin 23.5% (vs 20.1% LY), operating margin 13.8% (vs 10.2% LY); both mechanical (22.9%) and electrical (25.3%) segment margins improved YoY.
• Strong cash generation and capital returns: free cash flow $222M in Q2; dividend raised to $0.50; active buybacks year-to-date; net cash >$250M even after repurchases and acquisition.

What Went Wrong

• Discrete working capital normalization from advanced modular customer payments completed, removing a transient tailwind to cash conversion going forward (cash flow to approximate after-tax earnings).
• SG&A rising with growth (to $210M, 9.7% of revenue) reflecting necessary investment in people and capabilities; leverage moderated vs prior periods.
• Macro/tariff ambiguity persists; management notes pricing/supply-chain is “day-to-day hand-to-hand combat,” though teams are handling well; no formal margin guidance beyond “strong ranges”.

Transcript

Speaker 4

Good day, and thank you for standing by. Welcome to the Q2 2025 Comfort Systems USA earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star 11 on your telephone. You will then hear an automated message advising that 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 Schaef, Chief Account Officer. Your line is open.

Speaker 3

Thanks, LaTonya. Good morning. Welcome to Comfort Systems USA's second quarter 2025 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.

Joining me on the call today are Brian Lane, President and Chief Executive Officer; Trent McKenna, Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.

Speaker 7

Okay. Thanks, Julie. Good morning, and thank you for joining us on the call today. We had a fantastic quarter with amazing execution by our teams. This is the first time that our quarterly revenue has exceeded $2 billion. We earned an unprecedented $6.53 per share this quarter, which is an increase of 75% compared to a year ago. Our mechanical business had a sharp increase in profitability, and our electrical segment was higher as well. Service revenue and profits also increased by double-digit percentages. Our bookings were strong, and our backlog at the end of the quarter grew to a new high of $8.1 billion. Demand remained strong, especially in technology, and we continue to book work with good margins and good working conditions for our valuable people. We are going into the second half of 2025 with significant same-store growth in both sequential and year-over-year backlog.

I am happy to announce the acquisition and welcome Right Way Plumbing, a great plumbing business based in Florida that we expect will earn $60-$70 million per year in revenue. We also increased our quarterly dividend by $0.05 to $0.50 per share, and we actively purchased shares during the first half of 2025. Despite a backdrop of tariff ambiguity and economic uncertainty, we feel fortunate to have good demand, especially for large and complex projects. Thanks to our amazing people. We expect continuing strong results in 2025 and continuing success into 2026. Trent will discuss our operations and outlook in a few minutes, and I will make a few closing comments after our Q&A. First, I will turn the call over to Bill to review our financial performance. Bill.

Speaker 2

Thanks, Brian. Our second quarter results are remarkable, with 19% same-store revenue growth, sharply higher margins, and over $220 million of free cash flow. We also achieved more than $300 million in quarterly EBITDA for the first time ever, and that's a 50% increase over the same quarter one year ago. Revenue for the second quarter of 2025 was $2.2 billion, an increase of $363 million, or 20% compared to last year. Electric segment revenue grew by 49%, while mechanical segment revenue increased by 13%. Through six months, same-store revenue has grown by 17%. Currently, our best estimate is that for full year 2025, our same-store revenue increase will remain in that mid-teen range. Gross profit was $510 million for the second quarter of 2025, $146 million higher than one year ago.

Our gross profit percentage grew to a remarkable 23.5% this quarter compared to 20.1% for the second quarter of 2024. Quarterly gross profit percentage in our mechanical segment jumped to 22.9% this year compared to 19.2% last year. Margins in our electrical segment also increased significantly to 25.3% as compared to 23.6% in the second quarter of 2024. We currently expect that gross profit margins will continue in the strong ranges that we have averaged over recent quarters. SG&A expense for the quarter was $210 million, or 9.7% of revenue, compared to $180 million, or 9.9% of revenue in the second quarter of 2024. SG&A increased mainly from ongoing investments in people to support our higher activity levels. Our operating income increased by just over 60% from last year, from $185 million in the second quarter of 2024 to $300 million for the second quarter of 2025.

With improved gross profit margins, our operating income percentage surged to 13.8% this quarter, from 10.2% in the prior year. Our year-to-date tax rate was 20.7%. Our effective tax rate in the first quarter was lower due to interest we received on a delayed refund by the IRS that was associated with our 2022 federal tax return. We received that $118 million refund in April 2025, which included $11 million of interest. Excluding this item, our effective tax rate would have been approximately 23% year-to-date, and we expect our tax rate for the second half of 2025 to continue to be in that 23% range, with our full-year effective rate a bit lower due to the discrete benefit recorded in the first quarter. In July 2025, the federal government enacted major tax reform legislation.

However, we currently do not expect that the new and amended provisions will have any significant impact on our operating results or cash flows. After considering all these factors, net income for the second quarter of 2025 was $231 million, or $6.53 per share. That compares to net income for the second quarter of 2024 of $134 million, or $3.74 per share. This is an over 70% improvement from last year's already very strong showing. EBITDA increased to $334 million this quarter from a strong $223 million in the second quarter of 2024. This 50% increase reflects great execution by our workforce and strong demand in our markets. As of June 30th, our 12-month trailing EBITDA exceeds $1 billion for the first time ever. Free cash flow for the second quarter of 2025 was $222 million.

This quarter's cash flow includes two discrete cash flow items that largely offset each other. As previously discussed, we received a $118 million tax refund in April 2025 that was related to our 2022 federal tax return. In addition, the remaining impact of our long-awaited cash flow turnaround of the advanced customer payments from our modular operations completed this quarter. As expected, the advanced payment position that we enjoyed for several quarters has now roughly normalized, and we expect that starting now and over time, our cash flow should once again approximate our after-tax earnings, subject to the quarter-to-quarter and seasonal variances that are typical in our industry. We purchased additional shares this quarter, and year-to-date, we have spent $111 million. Buying approximately 326,000 shares. Even after funding share repurchases and our Right Way Plumbing acquisition, we are in a net cash position of more than $250 million.

Considering our strong cash prospects, we remain in a great position to reward our shareholders and fund additional growth. That is all I have got on financial information. Trent, take it away.

Speaker 3

Thanks, Bill. I'm going to discuss our operations and outlook. Our backlog at the end of the second quarter was a record $8.1 billion, a large sequential and year-over-year increase. Since last year, our backlog has increased by $2.4 billion, or 41%. And $2.2 billion of the increase was same-store. On a sequential basis, backlog increased by $1.2 billion, or 18%, of which $1.1 billion was same-store. Second-quarter bookings were especially strong in the technology sector, both in our traditional construction business as well as the modular part of our business. We are entering the second half of 2025 with same-store backlog 37% higher than at this time last year, and our project pipelines remain at historically high levels. Industrial customers accounted for 63% of total revenue in the first half of 2025, and they are major drivers of pipeline and backlog.

Technology, which is included in industrial, was 40% of our revenue, a substantial increase from 31% in the prior year. Manufacturing revenues were strong but declined modestly as our businesses chose to book a higher proportion of technology-related projects, particularly data center construction. Institutional markets, which include education, healthcare, and government, remain strong and represent 24% of our revenue. The commercial sector, which is a smaller part of our business, provided about 13% of revenue. Most of our service revenue is for commercial customers. Construction accounted for 85% of our revenue, with projects for new buildings representing 58% and existing building construction 27%. We include modular in new building construction, and year-to-date, modular was 18% of our revenue. We currently have over 2.7 million sq ft of building capacity dedicated to our modular business. And we expect to have around 3 million sq ft by early next year.

Service revenue was up 10% and is 15% of total revenue. Service profitability was strong this quarter, and service continues to be a growing and reliable source of profit and cash flow. As mentioned before, we are entering the second half of 2025 with a backlog that is 37% higher on a same-store basis than we had at this time last year, and we have superb teams working hard for our customers every single day. Thanks to the dedication and hard work of our employees across the country, we are optimistic about our future. I want to close by joining Brian and Bill in thanking our over 20,000 employees for their hard work and dedication. I will now turn it back over to LaTonya for questions. Thank you.

Speaker 4

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A roster. Our first question will be coming from Sanjita Jain of KeyBank Capital Markets. Your line is open.

Good morning. Thank you for taking my questions. Appreciate the update on the modular square footage. Can you tell us how you're thinking about the extent of expansion in your modular capabilities and your thoughts on possibly adding a third location?

Speaker 0

Sanjita, I would say that we like what we've been doing, which is adding incremental capacity in a way that's measured and really spending even a bigger focus, or at least as much focus, on improving productivity and automation in our existing spaces. I think the kind of growth you've seen, as long as the market supports it and as long as the amazing people who run these two businesses for us are convinced that they have the bandwidth to implement it, as long as those things hold true, we'll probably continue the same kind of incremental build-out. It feels as if that demand is there, to say the least, actually. I don't know. I hope that answers your question. As far as a third location, that's something we think about on a long-term basis. We have two pretty great locations, right? We're right in the middle of the Mid-Atlantic.

Houston is pretty well located, especially for the markets that these things need to go to. Even considering the states you have to drive through, because that's a consideration because different states have different load requirements. I'm not sure that's a high priority for us right now, but we're very open-minded to it.

Got it. If I can follow up, I know you said that the reconciliation bill maybe does not necessarily directly apply to what you do, but the bonus depreciation does help many of your customers, as probably the Trump executive order on AI. Can you talk a little bit about if you've had any initial conversations with your customers around that?

Yeah. The bonus depreciation helps them and us. Some. I would say that I would not view that as an important driver for us at a time when we're already experiencing demand at far outskirts of what we could possibly do. Anything that makes people a little hungrier is good, right? I wouldn't consider that an important consideration.

Got it. Appreciate your thoughts, Bill.

Speaker 4

Thank you. One moment for our next question. Our next question will be coming from Akash Singh. Your line is open. Moving forward, our next question will be coming from Julio Romero of Sedoti & Company. Your line is open.

Yes. Hello. Good morning. This is Alex on for Julio. Congrats on the quarter.

Speaker 2

All right. Thank you.

My first question, maybe we could start with just some color on growth for the remainder of 2025. I know backlog and revenues have grown meaningfully even over the historical comps that you've mentioned that were a little tougher. How's your confidence if this sort of continues positively into 2025 and 2026 and maybe some of the conversations that have led to that?

Speaker 3

Alex, you know how our backlog's always very lumpy, right? We don't spend a lot of time thinking about that and when jobs land kind of on a timescale. What we're really looking at is kind of our future pipelines. What we see right now is very robust pipelines. They continue to be robust even with all the bookings we had in the second quarter. Yeah, things are still very bullish with regard to future work. Hey, Alex, this is Brian. I'm just going to jump in. Also, service, right? Bill and Trent mentioned we're getting good growth in service. It's about a B and 2 business for us now, growing about 10% this last quarter. That's been nice consistent growth, both from a revenue and profitability standpoint. And onto the construction growth.

Very helpful, Colin. Thank you. I think kind of rising above consistent growth, you had very nice earnings performance. I think you wrote about anticipating solid earnings for the remainder of 2025 and into 2026. Could we get a little color there? Is solid sort of a statement of continuing where we are now, or is that a little bit more from historicals? Just a little color would be helpful.

Speaker 0

We have a lot of work to do. We think our guys are the best in the world at doing it. Our customers want it. They're willing to pay for it. I think we just feel pretty great about at least the foreseeable demand and our ability to profitably meet it. We don't really have additional guidance on margins and stuff. These margins are pretty eye-popping, and we're still digesting them. We're still pretty darn bullish about our prospects going forward.

Speaker 3

Yeah. Alex, if you look at these, our gross margin is 23.5%, which is strong. So we're getting a good combination of pricing, which is out there, as well as the execution has been just terrific. I think we're pretty optimistic about our results over the end of this year into next year for sure.

Great. Very exciting results again and a lot more questions, but we'll jump back in the queue. Thank you.

Speaker 2

All right. Thank you.

Speaker 4

Our next question will be coming from Brent Thielman of D.A. Davidson & Company. Your line is open.

Speaker 0

Thanks. Good morning. Great quarter, guys. I guess the first question, just. Trent, you commented on the manufacturing kind of customer side and that you ultimately were focusing maybe a bit more on the data center tech customers where you may get the best opportunity out of it. I guess the question is, has that market or pipeline of opportunities on that side subsided, or it's just simply your workers are fungible and you're going to best opportunities?

Speaker 2

No, it hasn't subsided. It's still strong. What really is happening is the best opportunities right now are presenting themselves more often than not on the technology side. Companies are choosing to put their skilled workforce in the best possible circumstances to be successful, and that's with the technology customers right now.

Speaker 3

Brett, just to follow on, I mean, our operating companies, I think, are doing a superb job with project selection. Stuff that we're really good at doing. In places where we're strong. You got to really tip your hat to them about the work they're bringing in here and how they're doing it.

Speaker 0

Yeah. And then on modular, I heard you say 18% of revenue year to date. Could you possibly comment maybe on the proportion modular represents in backlog today? And then also, just from a customer standpoint, is there an opportunity to add another hyperscaler to what you already have, just with the incremental capacity you're adding, or is that capacity add really to serve the existing customers you have today?

Your second question, the opportunity is there. There are people who would buy our product. Our two main customers really are our best option to sell to right now. Across our businesses right now, there's a general tendency of our guys, of our leaders, of the people who interact with our customers, to choose to do business with the customers who realize that we're trying to do something together, as opposed to trying to do something that is a fight. We're really, really choosing who we give our unbelievable and scarce resources to by the people who really want to go out there, build a good project, build it right, build it quick, work together, understand that everybody has to be paid for the risk they take. I think ultimately that's the experience we're having with those customers, and that's really, really valuable to us.

Okay. Sorry, just the question around modular proportion of backlog, is that something you could comment on, or how we might think about? What's in the book of business?

My guess would be modular is going to continue to grow, right? We're investing in new space. We're improving our productivity. There's a range of how fast it could grow. If you made me pick an over/under, I'd say now that we think that the business overall is going to grow mid-teens, I think modular should stay near that percentage. Now, having said that, I fully recognize it's grown from 4 to 6 to 8 to 10 to 12. You know what I mean? We have such good demand and opportunity in all of our businesses that it's a pretty—everybody's great at getting bigger and better. It's a pretty tough chore to become a bigger percentage of our company right now.

Okay. If I could sneak one more in, just maybe another approach to kind of the visibility question. Could you talk about the funnel or pipeline and what that looks like today as you look into 2026. And possibly into 2027? I mean, I'm sure you're having conversations about next year at this point, but is the dialogue with customers becoming much more active about opportunities into 2027 at this point?

Speaker 3

Yeah. Brent, absolutely. I mean, 2025 is full, right? You're looking at 2026, 2027 for sure looking at opportunities. Longer route. As you know, we got bigger projects that run longer. Take longer to get them done in the front end, to get them signed, sealed, and delivered. Customers are looking out 2026, 2027. It's a great time to be in the construction business, buddy.

Speaker 0

Very good. I'll pass it on. Thank you.

Speaker 4

One moment for our next question. Our next question will be coming from Adam Thalhammer of Thompson Davis. Your line is open, Adam.

Hey, good morning, guys. Congrats on the record quarter. I basically wanted to pick up with where Brent left off. I mean, rephrase the question. Within the current backlog, how much of that work would be scheduled for 2027 plus?

Speaker 0

A lot. I don't think we have a precise number.

Yeah. A lot.

Yeah.

Speaker 3

Yeah, the statement we made, Adam, about we're feeling good going out is because we're seeing both in backlog and what we're looking at is healthy.

Speaker 0

If you do a little math, you have to realize that. If we're telling you we're going to grow mid-teens, the backlog's pushing farther out.

Yeah.

Or we'll be higher percentages of that.

Understood. The growth that you've seen at Walker Electrical, how much of that is occurring in their traditional North Texas market versus work in other areas of Texas or even outside of Texas?

Speaker 3

Right now, all their work is in Texas, and it's in the four what I call major markets: Dallas, Houston, Austin, and San Antonio. Though they're very strong—North Texas, Dallas, etc.—the other three markets are strong. It's probably one of the—probably if you talk to them a few times since they've been in business—that all four of their major markets have been strong, Adam.

Speaker 0

I want to—Walker is killing it. It is amazing what they are doing. All of our other electricals are just killing it as well. It is important to understand. One of the nice things for us is that because we bought all of our electricals in the last five years or so, five or six years, we bought them at a time when we already had developed a big conviction around buying companies that had exposure to the super cycle, had exposure to certain states, certain complex capabilities. If you look across Comfort Systems USA, our electricals just have a higher proportion of the companies that are tuned towards the good things that are happening right now. They are doing an amazing job taking advantage of it, as are our mechanical companies, obviously, and our service. Everybody except corporate is doing great.

Speaker 3

We're doing our bit on this call to help out.

Lastly, anything more you can say high level on pricing? Just as your technology customers are taking up more and more of your capacity, to what extent are they paying up for that?

If you look at our gross margins, our pricing's obviously very good, right? You can read them in the income statement, but pricing's good, and we're getting paid for the risk and services that we're delivering.

Adam, our project teams are really delivering efficiency effectively. We have really pushed a lot of innovations out that are helping them manage projects even more efficiently than they had previously. That is also driving that margin. To some extent, our technology customers are very good partners with regard to those endeavors when it comes to innovation.

Speaker 0

It's been a long time since we've cried about a bad job. So great work.

Speaker 3

Yeah. I'm knocking on wood on that one, Adam.

Me too. Thanks, guys.

Thanks.

Speaker 4

Thank you. Our next question will be coming from Josh Chan of UBS. Josh, your line is open.

Hey, good morning, guys. Congrats on a really good quarter, I guess.

Speaker 0

Thank you.

Yeah. It's clear that your demand environment is really strong. Could you just talk about kind of your workforce, their willingness to continue to work more, make more, but kind of keep working hard, and then what you're seeing on the recruiting front?

Yeah. That's a great question, Josh, because that's what really is the secret to Comfort Systems USA's long-term success: making sure that it continues to be the best place for a craft professional to work. I think our companies do a really great job of being the employer of choice in their markets. What we've—and we've talked about this previously—but what we've done with our staffing company that's internal to the organization has really helped us be able to flex up and down and take care of our core workforce as we've moved through, especially these larger projects. Additionally, we get a lot of collaboration on jobs. We have more than one of our operating companies on projects, and they're able to share labor in ways that have also been able to help us.

Yeah, it's certainly an all-of-the-above approach when it comes to talent right now because everybody's constrained as far as being able to recruit and find. I think we're getting our fair share, if not more, of the talented craft professionals in America right now.

That makes a lot of sense. Thank you, Trent. I guess in terms of project selection, how do you think about the approach to choose projects between the different verticals? Because obviously, technology is chosen more and more frequently. Are you okay with that? How are you talking to your operations about choosing types of projects that you want exposure to?

Speaker 3

Yeah. That's a good question. I think they're doing a great job. Selecting what's available in their markets is still pretty diverse, as you can tell by the pie chart of the different industries we serve. So we've kept good balance. Obviously, tech is red hot right now. We're trying to service those customers the best we can. We are keeping our fingers in all the pies. Everything but commercial, right? Office buildings are slow. Everything else has got good activity. I think they're selecting—I think it's Bill's set in a script—where the best working conditions for our people are going to pay for the risk and the service that we provide.

Speaker 0

I mean, one of the best operators in the world who works for us made the point recently that we do not decide what needs to be built. We just make sure we are the best people to build it. So this guy also said, "I will take any job you have as long as it rhymes with Addison." The second part was kidding. First part was deadly serious.

That's right. Yeah. Absolutely.

We have to just do the work that's there for us and be the best people to do it.

Yeah. That's right.

Speaker 3

That is why, Josh, if you think about the bigger picture, training is crucial in here. At all levels of this organization, from the field up to project management, leadership, make sure our folks throughout the organization are well prepared. To address the market.

Yeah. I appreciate the color, guys. Congrats again on a really strong quarter.

All right. Thank you.

Speaker 4

Our next question will be coming from Brian Brophy of Steeple. Your line is open, Brian.

Speaker 0

Thanks. Good morning, everybody. Congrats on the nice quarter. Appreciate the update on the modular capacity expansion plans. Can you provide an update on what you're seeing on modular from a competitive standpoint? Are you seeing any new entrants in the space? Curious your latest thoughts on how you're feeling about your leadership position there. I guess to what extent are any changes in the competitive environment driving, I guess, some of this leaning into more capacity? Thanks.

I will say our customers continue to encourage people to develop competitive capacity for us. They've had some of the best companies in the world work on that with mixed results. We don't think that what we do can't be done by someone else. Our goal is to just be so good at it that you'd be crazy to buy it from somebody else. I hope that answers your question.

Okay. And then. That's helpful. I guess anything to call out on the healthcare end market, it looks like that was really the only other end market that grew meaningfully outside of tech this quarter.

Speaker 3

Yeah. I mean, we're seeing—I think we've mentioned it in the last few quarters, Brian—that we're seeing some new-build hospitals get built. Heavy in the South for sure, Florida. We are seeing a number of opportunities both on expansion of hospitals, new-build, and also surgical centers, the smaller outpatient type facilities you see. Yeah, we are seeing some strength in healthcare. Been pretty consistent for a little over a year now.

Speaker 0

Thanks. I appreciate it. I'll pass it on.

Speaker 3

Thank you.

Speaker 4

Thank you. Our next question will be coming from Sam Snyder of North Coast Research. Your line is open.

Speaker 7

Hey, guys. Great job, obviously. I just had a question on modular like everybody else, it seems like. I was wondering what has sort of changed or what could change going forward that has made modular, respectively, a bigger part of the business? Is there anything that you see down the road that maybe that changes? 10% is good. I'm surprised it's not more, but just curious your thoughts there. Why 10%? Is there anything you see down the line where that might change?

Speaker 0

One thing people misunderstand about modular, it's very easy to think about it as a separate product line. It is a different way of doing something. So anything that we do modularly—and we've done not just tech. We did pharma. Pharma was our main customer for modular for many years—is something that is also being done that day in 1,000 locations in a stick-built way. Modular is a way of delivering a product that—a building that is being built in the traditional ways as well. It has certain really unique advantages relating to speed and flexibility. We think that as the years pass, if you look forward in time, modular will become a more and more important modality for delivering especially complex projects in the United States.

As far as what percentage it takes, I just think for now, at least for tech, where we're being pretty much bought out, it is a vector that allows them to do even more than they could have done if they ignored this opportunity. I don't—so I think people—there may be a day when people are trying to decide, well, which way of doing this is going to win. I think that will not be in my lifetime. I think it's a really great modality for accomplishing things. There are projects that have certain characteristics for which it really has almost irresistible advantages. I do think it's really important that people understand it's a way of doing something, not a different thing that's being done. A building is a building is a building is a building.

Speaker 7

That's really helpful. Thank you. I had a—kind of switching gears—looking at price cost. Do you see your suppliers trying to pass on costs that really aren't there? They're probably not getting that by you as a larger contractor. Just kind of curious, are you able to get some concessions from customers based on sort of the tariff scaries right now? Is it really just passing through? To the extent that it does or it doesn't, it just passes through equally.

Speaker 0

What kind of people do you think we are?

Speaker 7

Business people.

Speaker 0

Yeah, y'all. This is the real world. People want to be compensated for what they do. They use talking points to justify getting the best price that they can. I believe there are for sure people who are using these conversations to justify price increases. I also believe there is a lot of—there is a lot of people absorbing stuff. I just think it's just like when things happened during COVID, people would say, "Are you seeing delays from COVID?" That's a hard question to answer because we always see delays. I don't think I've ever seen a building built—well, virtually, I've never seen a building built that was finished on the goal date of finish it in the first conversation. We always see delays. We always see price negotiations and bouncing around. The—and people, all of their—it's a complex situation with lots of factors.

I guess the answer is yes and no.

Speaker 7

Got it. Thank you.

Speaker 0

Sorry to not give you a very helpful answer.

Speaker 7

That's okay. I think it's just the gross margins are so good. I'm just looking for any reason why that might not continue.

Speaker 0

Yeah. We do not have some clever trick right now that is kind of sneaking some money out the side. It is just that our guys are really—they are valuable. They are hardworking. They can provide you with something that is hard to get your hands on, and great customers are willing to pay for it.

If we had a clever trick, we wouldn't tell you.

Speaker 7

That's fair. That's fair. All right. I'll pass it along. Thank you.

Speaker 0

All right. Thank you.

Speaker 4

Our next question will be a follow-up from Brent Thielman of D.A. Davidson & Company. Your line is open, Brent.

Hey, thanks. Just, I guess a quick question on the semi-fab market and anything that may be coming down the pipeline there. Maybe you can comment on pharma as well. There's been a number of announcements out there. How real of an opportunity that can be down the line for you.

Speaker 0

Yeah. Those are all very strong in pipeline right now. We've got a lot of prospects that are out there. I mean, nothing that I'd comment on, but that's all larger stuff, and it's very lumpy. You get it or you don't. Sometimes you get it at a small contract, and then the remainder of the value of the contract is done in change orders over time. It's one of those things; it's hard to see it going through. In and out of backlog. At the same time, our pipeline is showing very strong opportunities in both pharma and fab and chip fab.

Okay. And then maybe just more of a nuanced question, but when I look about that revenue by activity type, existing building construction's actually been outgrowing new construction for the past four quarters. I guess I think about data centers being largely greenfield. I just was curious why that is and the results.

Much of our work is industrial now. In the United States, an awful lot of industrial is adding on to existing capacity as opposed to greenfield, even in the tech area. That has been a trend actually for a long time as we become more and more industrial. The reality is, if you're building phase three of something for us, that's an existing sort of thing. Some of that is just like it's a little bit definitional, and it's also just the nature of the industrial world.

Okay. In that regard, the margins would not really be different. I have always thought of existing as having higher margins to it. If you are doing phase three of something, it is in some way still a greenfield.

It would still have as the big differentiator there is what % of the project is materials and subcontracts. That would perform more like a traditional new building if it's an extension. You know what I mean? I guess I would agree with that. Right now, margins are so good across the board that those distinctions are a little hard to even make.

Fair enough. Thanks for taking the extra one. Thanks, guys.

All right. Thank you.

Thanks.

Speaker 4

I would now like to turn the conference back to Brian Lane for closing remarks.

Speaker 3

All right. Thank you. In closing, I want to reiterate my gratitude for the amazing dedication and excellence of the teams we have across our nation, serving our customers every day. Demand is strong, and our people are rising to the challenges of addressing the robust need for their unique skills. As Trent mentioned, we feel that conditions are good for us to continue to perform. As Bill indicated, we have the resources and the commitment to lean into delivering for our employees, our customers, and you, our shareholders. Thank you for your confidence, and have a great rest of the summer. Thank you.

Speaker 4

This concludes today's conference call. Thank you for participating. You may now disconnect.