Okay. Morning, everybody, and thank you for joining the Sidoti June 2025 Small Cap Conference. My name is Julio Romero, and I'm the Industrials, Building Products, and Engineering Construction Analyst at Sidoti that covers the name. Really pleased to be able to host Comfort Systems USA. Their ticker is FIX. With us today is Julie Schaef, Chief Accounting Officer and Senior Vice President, and Trent McKenna, Chief Operating Officer. So we're going to do a quick overview of the company, and then we'll hop into Q&A. If you have any questions for the company, feel free to type them into the Q&A section at the bottom of your screen, and I'm more than happy to ask on your behalf. With that, Julie, Trent, thanks so much for being here. Good morning, everybody. Happy to be part of the conference. I'll just give some opening remarks just to level set everyone as far as what Comfort Systems is and what we are is really an assembled workforce. We have about 19,000 employees. About 85% of them have tools in their hands. They're pipe fitters, welders, electricians. They're skilled craft professionals that do work on complex projects throughout the United States. We are primarily in the mechanical and electrical sector. We do construction where we'll construct the new buildings or existing buildings, and we'll also service buildings for their HVAC and electrical needs. We are non-union, so we're largely in some second-tier cities. We're in places like Birmingham and Little Rock and Syracuse, New York. We're also in some larger cities in the South, such as Houston, Dallas, Orlando, and Phoenix, performing these construction projects. We have about 48 operating companies throughout the U.S. I would say 40 of those companies do work within about a 100-150 mi radius of their core office, and the remaining six companies do a lot of traveling. They'll travel to remote locations to build, in a lot of cases, some of these larger projects that are not being built right in metropolitan areas. We're building things outside of large cities, outside of Phoenix, outside of Dallas, maybe in Sherman, Texas, in Lubbock, Texas, and different geographies. We're about 62% industrial now. A little more than half of that is technology, where we do work on data centers and chip manufacturing facilities. The rest of our industrial is doing things like pharmaceutical builds. We're doing a very large pharmaceutical build outside of Indianapolis right now. We'll also do food production. We'll do batteries. All those things are, again, in that industrial sector. We're also very strong in institutional. We do work in healthcare, which for us is largely hospitals and some urgent care facilities. We're seeing strong demand in that sector. We'll do a lot of university work for different universities, whether it be labs. We'll do dorms, stuff of that nature. We have about 15% of our revenues is in commercial, but we don't do a lot of commercial construction. It's primarily on the commercial side. We're doing service work, where we have about $175 million worth of maintenance contracts where we'll go in on an annualized basis, where we'll go in and service the equipment for our customers and, as a result, get some pull-through work. That's really who we are. With that, I'll just turn it back over to Julio for some Q&A. Excellent. Julie, thank you so much for the rundown. I guess I'll kind of stay on the topic you mentioned about your end markets and just asking about customer demand, what you're seeing on that front across the end markets. Maybe to start, maybe with data center CapEx, which is obviously the favorite topic of the day. On the first quarter call, you mentioned no slowdown on the demand front from data center CapEx. Can you just talk to what you're seeing there? Yeah. Julio, we're continuing to see kind of that same level of demand, right? Like we just do not see much slowdown, if any, and none, really. That is just that. Our pipelines continue to be very robust with data center. That is both because it is important to note, it is both our modular data center business, and it is also just our traditional construction data center business. Both sides of the business are still very, very robust, and the pipeline continues to be robust well into the future. Yeah, I mean, no changes from what we talked about on the call. Any evolution as to what you're seeing as to the skill set that customers are asking to bring from installing liquid cooling versus airside cooling HVAC solutions? They're kind of, from my perspective, they're using the same contractors, frankly, on that. What they're really interested in as an owner, data center owners are a very demanding owner, right? They want to make sure that their project is done the way they want it and on time, and schedule is important to them. They're also a very understanding owner, though, about the fact that that's not free, right? From my perspective, the reason why I'm phrasing it that way is because it requires that you have a team that's skilled, that you have a team that's good, that can deliver on the project because they don't have patience for teams that fall short. They're really interested in quality in their contractors. That really provides us a nice entrée into what they're looking for because we have a lot of, especially when our companies collaborate and work together to provide the customer's needs, that really helps us kind of really set ourselves apart as really high value into the market, right? They are recognizing that, and that's why I think our pipelines continue to be so robust. Excellent. Super helpful there. You mentioned that the data center owners are very demanding, do not have a lot of patience. Are they going directly to you to enlist you with your services? Do they go through the GC? Just talk about kind of how that dynamic works. In the modular side of the business, 100%, they're going directly to us, right? That whole piece of that business, that all is direct to the data center customer. On the traditional construction side, it's generally they're going through a general contractor, and then that general contractor has a team that we're part of, right? Sometimes there are projects where the general contractor's being told, like, "You're going to use this. You're going to use this comfort company for the electrical. You're going to use this comfort company for the mechanical." There are relationships that are that good with some of these data center builders. A lot of times, we're just working with a general contractor and putting together a team and then proposing on the project. Excellent. Maybe focusing on the modular portion of the data center demand for a little bit. Can you talk a bit about the customer base that you have in modular, how that has evolved, and do you see that mix changing at all in terms of potentially adding more hyperscalers, potentially adding more colocation customers, and how you see that kind of shaping up over time? If you think about it, historically, our modular business, right, it was not data centers. It was pharma, and it was other logistically challenged projects and things like that. Now we still continue to have a pharma business inside of our modular construction business. We continue to hold capacity for that so that we maintain our relationships in those end markets. It is just the data center customers have become so much more, they just want more and more of our modular output, right? We have two hyperscalers that we have, we have one that has a very deep relationship with us, and then we have one that we continue to deepen the relationship with. We continue to talk to all of the hyperscalers, continue to talk to all of the big builders of data centers. These projects, these programs, because they have to become programs, take a long time to develop. They're not the kind of thing that you start talking about, and you have a contract in hand a month later. It's a long process to get the owner comfortable with this type of delivery. It's not the way that construction generally is done in the U.S. It's becoming more and more accepted, but it's a slow process. We continue to focus on all avenues around where we think we can add value with the modular delivery. It's just a matter of getting people who are very used to doing it a certain way to start to buy into like, "This is the way that it can be done. Yeah. Construction people are famously known for being first to adopt a new technology. Yeah. There is a reason that they're so risk-averse, right? You get it wrong, you only get to build the building once, right? If you get it wrong, you can't fix it. That's part of the problem, right? That's right and totally fair. You mentioned modular kind of didn't start out as data center oriented. It just eventually was where the mix went over time. If I was a potential modular customer of Comfort Systems, regardless of what market I was in, how do I go about winning your services? How did data centers kind of win your services? Was it through bidding a better price? Was it for things they did to make your employees happy? Just talk a little bit about how these customers are going about trying to win your services. Julie, do you want to take a little bit of that or you can? Sure, sure. Yeah. I think it's definitely price is part of it, commitment. The hyperscalers that we're working with have made some pretty significant commitments to us. Hence is why we doubled our capacity back in 2023 and saw the result of having just about 2 million sq ft of capacity starting in 2023. One thing I think that's been really helpful for us is that historically, when we were doing it for pharma, each individual unit was very customized. It was individual. A lot of design went into building a certain particular modular for one or two instances where, with the way the hyperscalers are working, it's much more programmatical, which has been good for us and good for them too, is that now every couple of years, they'll change the program, but they'll want units built the same way for a period of time to do, whether it's in some back when we first started doing work with some of the hyperscalers, it was a combination of both doing the of having the mechanical within the building, but also having some of the use for the servers were in the same rooms. Now they're much more denser. In most cases, it's like a central utility plant where we're building the same central utility plant over and over again that they ship to different locations throughout the U.S. I think it's a combination of commitment, pricing, and then this programmatic system has been, I think, good for both of us. Trent, I don't know if you have anything to add as far as. No, yeah, that's it. That covered the answer. Very helpful. Then there is the programmatic kind of, I do not want to say repetitive, but kind of repetitive nature of doing that over and over. I imagine that naturally, you gain efficiencies if you get better at doing that over time, and that has been part of the margin uplift for you folks. Is that fair? Yeah. I think there's some fairness there. I mean, obviously, though, at the end of the day, the customer is very, very, very aware of what our costs are and that we're getting efficiencies, right? And they're demanding that. They want us to be more efficient on the 30th version of that module than the first, right? And so there's only so much margin uplift that's available to us in that respect. For sure. Where are you guys on the capacity front as of today? In the modular perspective. The modular, yeah. At the end of 2024, we had 2 million, sorry, end of 2023, we had 2 million sq ft. We announced during the last quarter call that we had up to about 2.5 million sq ft of capacity. A little bit of that is storage. We are continuing, just like we said, we are making incremental capacity increases. We will add 100,000 sq ft at the location in North Carolina and the location in Houston. We will continue to do that as it makes sense. We are up, like I said, right now, we are about 2.5 million sq ft. Gotcha. Can we talk about project complexity a little bit? Regardless of what end market is kind of driving demand, data centers is obviously continuing to be strong, but these projects are becoming larger and they're becoming more complex, and there are more intricacies and more things demanded of you as they become more complex. Is that the common thread that ties the fabric of where your project mix is going kind of regardless of end market? If you could speak to that. Yeah. That's definitely what we're focused on because we want to be one of maybe two or at most three contractors looking at a project. For us to do that, it's all about complexity. That's what kind of winnows the field down to just one of a few contractors that can do it. The way we've been approaching that at Comfort is a lot of it's through collaboration. There are multiple projects inside of our current work that more than one Comfort company is working on together, right? That really helps us because that provides an ability to deliver for a customer that a regional competitor or a local competitor just doesn't have that scale or capacity. The other ways that we're doing that complexity is through training and through technology, making sure that we scale that across our company. Finding the best talent, right? It's really all about having the best skilled tradespeople in the markets that we serve. That's kind of an all of the above approach. You've heard me say that before a million times, Julio. We try every single way we can to penetrate our markets to get the best people to want to work for us. Part of that's just driving a culture that skilled tradespeople want to be part of, right? Because craft professionals, they have desire. They have They have desires to work on certain types of projects and with certain types of teams. We have to make sure that we keep our culture aligned with what they want because they're the most important part of driving the business to success. That's pretty fascinating. Do you guys partner with any universities or anything of that nature? Yeah. In most of our, if not almost all of our markets, we have some sort of relationship with either a community college or a technical trade school. What that usually ends up looking like is we usually provide an instructor over to one of their courses. That is someone from our group that has years and years in the trade. They'll teach the class, and then it's a nice way for us to pull in the best candidates into the company. That is how we continue to revitalize that pipeline. We do other things as well, but that's a really, really effective tool for us, those partnerships. Understood. You talked about technology as well as something you continuously invest in. Can you maybe talk about any investments you've made in terms of BIM, in terms of digital project management tools, and where you are there? Yeah. I got to be careful because if Brian Lane finds out how many people we have in the BIM team, he'll make me cut it. No, I'm just kidding. We've grown a lot on our BIM side. We believe that anything technology-related on a project, it requires BIM to be really effective, right? The better you are at building information modeling, the better you're going to be at any kind of technology that's being introduced into the construction industry. You alluded to it earlier. The construction industry is a slow adopter, right? We never want to be, we're never on the cutting edge, but we always want to be ahead of our competition. The way we become confident in the fact that we're staying out in front of our competition is we partner with venture capital in the Bay Area, and we make sure that we're partnered with them in a way that we're getting the ability to see a lot of these early-stage construction-focused technology companies. That really helps us make sure we stay out in front of anybody who we're competing with on technology. That's really interesting. Very, very interesting. Maybe just back to the end markets a little bit. Healthcare is something I think that you guys mentioned on the last call is something that might be evolving from any market perspective. If you could talk to that a little bit. Yeah. I'll start with that one, Trent. Back with Obamacare, there was some uncertainty as far as what is the healthcare industry going to look like. As a result, there was really a slowdown as far as new construction of hospitals at that time. There was still some retrofit going on to existing facilities, but really not new capital going into the build of hospitals. You fast forward through COVID, and I think after COVID, people realized, "Man, we need to have more hospitals." We have baby boomers that are continuing to age. As a result, we're just seeing a fair number of hospitals being built throughout the United States. We like doing that kind of work. We have a number of subsidiaries that are really good at building hospitals. The other piece of it is urgent care facilities. We're seeing more and more urgent care facilities being built, and we're part of that build also. Now, pharma, I get the question a lot. Pharma is actually sitting in manufacturing for us. So healthcare really is that sector is focused on hospitals and urgent care. Got it. I have a question here on the webcast from the audience here. It's just in the opening remarks, you mentioned, Julie, a large pharma project. Can you talk to that a little bit more? Yeah. Yeah. Suna Industrial primarily focused on chip manufacturing in 2024. Their largest project they're working on right now is the GLP-1 drug outside of Indianapolis. There are a number of firms working on that, but we're doing a lot of the underground and the piping associated with that project. Got it. Maybe if you guys could talk to reshoring a little bit, how that's benefiting what you classify as industrial, your end markets as a whole, and how you see that as a multi-year growth driver. Yeah. I mean, I think my take on that is that we spent 30 years offshoring U.S. industry, and we're now really beginning to engage in reshoring. That started before, I think it started coming out of COVID. I think the Biden administration poured a little bit of fuel onto it with some of the legislation that was passed. I think the tariffs, if anything, are just continuing to make people understand this is the right direction for at least part of their supply chain, right? I think you're just going to continue to see more and more reshoring, which is really good for us. It fits our geography really well because most people are reshoring to right-to-work states, and that's where we have a large part of our workforce. That's helping us a lot from that perspective. Very helpful. Thinking about your new construction services, both on a modular and non-modular side, what stage are you guys in the project? Are there any adjacencies either before or after your portion of the project that could potentially be an adjacency, not near term, but over time, either on an organic or inorganic basis? Julie, did you want to? Yeah. I'll let you do that. Yeah. I mean, I think there always are, right? There's a lot of things that go into a building, right? There's always adjacencies here, there. And we look at them, but we're really confident in our approach to the mechanical, electrical, plumbing side of the business. We continue to see really good opportunities in M&A there, right? As far as adjacencies go, we're focused on our strategy of being really great at mechanical, electrical, and plumbing. We continue to march forward with that strategy. Yeah. I will say on the electrical side, we have, again, about 48 companies. Only five or six of them are electrical companies. There is a lot of opportunities to continue to grow acquisitions in that electrical sector. Got it. Understood. Can you talk a little bit about Century Contractors, what you did in January? Yeah. A really great industrial piping company outside of Charlotte that we acquired. They have already started to integrate with our companies that are in that footprint. They'd already done, to be frank, they were already well-known to all those companies because they'd been on projects together. Really great team that we've known for a while. Finally, just the right time to sell. Great transaction. Really excited about having them on board. They'll really, I think, from where they'll be, it'll be a helpful thing. One thing to understand about the businesses we acquire is that our industry is very fragmented, and it's very siloed. It's very hard for these individuals who run these companies when they're private to know exactly what their markets look like, what other people are doing in their markets, etc., etc. When they come on board at Comfort and they get the benefit of all the information that we can provide them, it immediately makes them better business leaders from the standpoint of just having the information. Because a lot of times construction, it's what you don't know, right? You just don't know what you don't know. All these people then come into Comfort, and then they go, "Oh my goodness, all this information helps them understand how they can maximize the value of their business." I think Century's early stages, but that's very much in the process of that integration. It is exciting to see. Got it. Really helpful there. I'll take a couple more from the webcast here. Are you seeing any challenges with hiring and retaining in-the-field talent, and how often are you increasing wages? Yeah. I mean. Go ahead, Trent. No, you go ahead. Yeah. I mean, that's something that's probably the most important thing we're doing every single day is retaining and trying to hire people. We are, since probably 2015, we've been giving really good raises to the field folks. In some cases, you have to give them twice a year just to make sure we're competitive and having really good medical benefits and 401(k) benefits and stuff of that nature. Another way to retain people is just to continue to give them challenging work to work on, continue to train them, continue to invest in technology to make their work even more productive. I mean, at the end of the day, what Comfort Systems is, is an assembled workforce, and that's our most important asset. Every single day, every one of our companies is working to pick projects based upon trying to find the best projects for our employees. When we're picking projects, I would say we're looking at three things. We're looking at projects that are really good for our employees, that they will enjoy working on, that are good, safe projects, that are easy to get to. I think we're also looking for projects working with really good owners and really good general contractors that value what we do, that run good projects, good, safe projects that are run efficiently. We're also, of course, looking at price and trying to get the best gross profit per man-hour. We're really looking at all three of those things when we're making a project selection. Very helpful. As we head into the summer months, I imagine the calls for service and maintenance and repair kind of rev up a little bit. Can you talk a little bit about the service business, maybe how sometimes in the summer there's changes from a seasonality standpoint and just overall where you are with the service business? Yeah. No, you hit the nail on the head. The service business starts to ramp up when it gets to be 90 degrees in cities and things, and then it continues through to that. There's a lot of demand service that occurs during that time. We're really focused on growing that business sustainably, which is growing that maintenance base. We really want to see that grow and continue to grow and then continue to just be able to work with the type of owners that we want to work with, find the type of buildings that our people like and want to service. At the end of the day, it's a multi-point strategy. If you look at our service business, it's been performing really, really well. It's just been outstripped by the speed with which construction is growing. That is a little bit M&A as well because the last several acquisitions did not have service. That is also driving a little bit of that when you see the delta between the rates of growth. We feel really good about our service business. It continues to grow. We continue to invest in it. One of the things we think sets us apart in the service business is that we have a centralized kind of, I do not want to call it a help desk because it is much more than that. It is the ability to help a service technician who is on-site virtually diagnose the fail condition and fix it without having to leave the site. That is a huge advantage that we have because we have the ability to pull all that data up from all of these service calls that we perform. Really, across any manufacturer, any piece of equipment, we're able to then build a triage approach to how to fix that device. That really helps a service technician who's seeing it's a challenging job to be a service technician on top of a roof or in a central utility plant and looking to try to figure out how to fix the thing. He's got a customer who's probably yelling at him. It's hot. He needs to get it fixed. He's in there trying to figure it out, and it might be the first time he's looking at that piece of equipment. It's nice that we have this database and technology platform for them that then helps them really diagnose the fail state and then fix it while they're there on-site. It's a huge success. We've been investing in that for years now. Continues to be successful. Continue to invest in it. It'll continue to set our service business apart from our competitors. Excellent. I want to squeeze two more questions in the last 90 seconds we have or so. Number one is just you've talked in the past about the business maybe becoming less seasonal as a result of doing more work indoors. How does that affect when investors think about your traditional seasonality versus what it's looking like going forward? Does that affect kind of the way your backlog ramps from a seasonality perspective at all as well? Yeah. Yeah. I mean, I just think, like you said, we're less seasonal. 19% of our work is modular. We're also doing so much more work. So much of our company and our activities are from Richmond down through Texas. So there's just less winter associated with those. We're working on a lot more longer projects, larger projects that are going through the whole cycle, not just when I first started at Comfort years, decades ago, 25 years ago, really, a lot of our work started in the first quarter. We really ramped up in the second and third quarter and closed out in the fourth quarter. Now we're really seeing projects really closing out radically through the year because of the size of them. There's definitely less seasonality, both at the revenue line as well as the gross profit margins that we see because of that. Now, there is going to be higher activity levels to some degree in the second and third quarter. And as Trent mentioned, services, it's a growing part of our business from a dollar standpoint. Now, percentage-wise, it's been smaller only because construction's been so strong. But we definitely are less seasonal. As far as backlog, backlog is lumpy, and it's hard to predict. I will say, in general, it was much more exasperated historically. We generally do still see a lot more bookings and orders in the fourth and first quarter and then much more revenue activity and a little bit less order and activity during the second and third quarter. I think the seasonality is still there, but just not as pronounced. Understood. And then just last one that I'll squeeze in here is just it's conference season, so I'm sure you've been in front of a lot of folks lately. What are you surprised you don't get asked often? Because you probably hear the same questions from us all the time. So what doesn't get asked that you think folks should be asking about you guys? I think people, I would say, Julie, that I think people understand us pretty well and they ask the questions. I'd definitely ask if I was in their shoes, right? I mean, I think some of the intangibles that people don't ask about is the culture that we're able to drive. I get it. That's not measurable. You can't put it in a spreadsheet, etc., etc. It is a big differentiator because the craft professionals that work for us, they care about that. They deeply care about the culture that we're driving towards. That's something that, yeah, we don't get asked that a lot, but I understand why, right? Excellent. I'll leave it there. Julie, Trent, thanks so much for taking the time. Great. Thank you. Thanks.