Legence Reports Q2 2026 Results: Full Earnings Call Transcript

On Thursday, Legence (NASDAQ: LGN ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. 3 billion, a 111% increase year-over-year, with over half of the growth being organic.

2%. 7 billion, up 105% year-over-year, driven by strong demand in data centers and technology markets. The acquisition of Bowers significantly contributed to revenue and backlog growth, with Bowers adding approximately $300 million in revenue. 8 billion and EBITDA guidance to $565-$585 million, reflecting strong execution and backlog growth.

The company continues to expand its fabrication capacity and workforce, with plans to add 100,000 square feet to its fabrication facilities. 5 times, enhancing its financial position to pursue further acquisitions. Management emphasized the robust demand in mission-critical building systems and the positive outlook for diverse end markets, including life sciences, government, and education. Full Transcript OPERATOR Good day and thank you for standing by.

Welcome to the Q2 2026 Legence 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 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, Son Van, Vice President of Investor Relations.

Please go ahead. Son Van, Vice President of Investor Relations Thanks, Daniel, and good morning, everyone. Welcome to Legence's second quarter 2026 earnings call. With me today are Jeff Sproul, Chief Executive Officer, Steven Butts, Chief Financial Officer, and Steve Hanson, Chief Operating Officer.

This morning we issued a press release that covers our second quarter 2026 financial results and posted a presentation that accompanies the earnings release. com. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors contained in our SEC filings. Our actual results could differ materially, and we undertake no obligations to update any such forward-looking statements.

During this call we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. Please refer to our quarterly earnings presentation for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, let me turn the call over to Jeff. Jeff Sproul, Chief Executive Officer Thank you, Son, and thanks everyone for joining today to discuss our second quarter performance and current outlook for Legence.

As we have talked about on our past earnings calls, the demand environment for mission-critical building systems continues to be robust. This strength is evident in the exceptional growth and in both our record revenue and backlog. Excluding the impact of acquisitions, organic revenue growth was nearly 60% while backlog and awards grew organically by over 35% year over year, and when we include acquisitions, revenue more than doubled with similar growth in total backlog. As you would expect, the data center and technology end market led this growth.

Recent discussions with our data center clients suggest continued brisk demand over the next several years. These discussions suggest no change in the pace of activity from what was discussed at the beginning of the year, and in some cases speed to market has actually accelerated. Within the data centers and technology end market, it's worth noting that this sector also includes semiconductors, an area where we're also experiencing solid revenue growth.

Our growth extends to other core markets as well, including life science and healthcare, education, and state and local government, all of which are experiencing solid high single- to double-digit organic revenue growth year to date. Also worth noting is our activity level in manufacturing, which is embedded in our other end market category. While this end market represents less than 3% of our overall revenue base, it is experiencing very strong revenue growth and is now about equal to the size of our mixed-use market. We expect reshoring to favorably impact our manufacturing end market in the coming years.

As I mentioned before, I really like our exposure to diverse end markets, understanding that growth rates between markets can ebb and flow. By intentionally focusing on attractive, higher-growth, target-rich sectors that align well with our mission-critical services, this diversity can offset to a degree some of the volatility of each market. We of course value every client relationship and strive to deliver exceptional outcomes on every project. This customer-first philosophy has served us well for decades, and in some cases over a century, and is the foundation of the reputation, trust, and long-standing partnerships that we built across our broad client base.

3 billion increased by 111% year over year, and over half of this growth was organic. In a similar fashion, adjusted EBITDA grew by 114% year over year. Adjusted EBITDA margins expanded by almost 90 basis points sequentially. 7 billion, up 105% year over year and 5% sequentially.

We saw strong growth in backlog in both segments. Notably, our engineering segment backlog grew by 27% year over year and 11% sequentially, mostly on an organic basis. 2 times. 4 times.

As our markets evolve, particularly the data centers and technology market, the award sizes have grown quite significantly. In fact, it's not uncommon these days for some of the larger bookings to exceed $100 million. These bookings can come in waves, with some of the large projects burning pretty quickly. All these factors can create some volatility in our quarterly net bookings and book-to-bill ratio, which is why we like to also look at the book-to-bill ratio over a 12-month period.

Overall, we feel confident in our ability to continue to grow total backlog as the year progresses based on what we see in our opportunity pipeline. Our confidence in the future is also reflected in our revised guidance for full year 2026, which Stephen will walk you through shortly. To support the execution of our growing backlog, we continue to grow and invest in our workforce. Total employee headcount is now close to 11,000 at the end of July, including approximately 8,000 skilled technicians and craftspeople.

As demand for our services continues to grow, we expect to further expand our labor force. Combined with our continuous efforts to drive operational efficiencies, optimize workforce scheduling, and stay selective on our project pursuit, these efforts position us to better serve our customers going forward. Our fabrication footprint is a big part of our efficiency efforts. 5 million square feet, and we expect to add another 100,000 within the next couple weeks and are looking at opportunities to expand even further.

There are a lot of efficiencies that we can implement in our square footage through the use of advanced tooling, automation, optimization of floor spacing, and flexibility with labor shifts, among other levers. I should also note that the capacity expansion is based on existing demand that we see in our backlog when adding this incremental capacity. With the organic expansion that we have completed over the past year and the capacity that came with Bowers, we will have grown our fabrication capacity by over a million square feet across our key geographies.

Our third-party fabrication demand continues to be concentrated on data center and, to a lesser extent, pharmaceutical clients. More recently, we've seen increased demand from semiconductors and memory chip clients. Before handing the call to Stephen, I want to point out the continued improvement to our net leverage. During our IPO process, we heard from the investment community about the importance of having a strong balance sheet and, as a result, prioritized the entire IPO proceeds toward debt reduction.

This allowed us to exit the IPO at three times net leverage last September. 5 times. This reduction was achieved during a period when Legence completed our largest acquisition in company history, namely Bowers in the DMV. 5x net leverage, we're in a great financial position to pursue other attractive, impactful acquisition opportunities that meet our strategic and financial objectives.

Our M&A pipeline has never been as active as it is today, and of course we'll be disciplined with our evaluation of these opportunities. With that, let me turn the call over to Stephen. UNKNOWN, Chief Financial Officer Thank you, Jeff, and good morning, everyone. I'll begin with a review of second quarter 2026 results in comparison to second quarter of 2025.

Following my review of our historical results, I'll provide a brief update on our current guidance and discuss our balance sheet and liquidity position before turning the call back to Jeff. Starting with the second quarter 2026, we generated revenue of $1,262,000,000, an increase of $663,000,000, or 111%, from the year-ago quarter. The Bowers Group acquisition contributed approximately $300 million of revenue. Excluding Bowers, our revenues grew by nearly 60% year over year.

Looking at our latest quarterly revenue growth at the segment level, starting with Engineering and Consulting, segment revenue increased by 6% to $207 million, which was mostly organic. , South Carolina, Colorado, and Minnesota. We also saw strength in data centers and technology. Engineering and Design revenues declined by 4%, with the decrease mainly attributable to soft demand from our sustainability consulting services for mixed-use clients, primarily large owners of commercial real estate.

Our sustainability consulting business has experienced softer market conditions over the past several quarters, reflecting both broader challenges across the commercial real estate sector and evolving client demand for these services. Because impairment testing reflects our longer-term forecast—but the near term is often underpinned by customer contracts—the downward trend we've seen in backlog for those services was a key consideration and led to our decision to impair goodwill and other intangibles for this business during the second quarter.

We still have conviction in the long-term value that our sustainability consulting services can deliver to clients, particularly in an environment with rising energy costs. Turning now to our larger Installation and Maintenance segment, segment revenue of $1,055,000,000 increased by 162% versus the year-ago quarter. Over half of the segment's revenue growth was organic, while the remainder was largely attributable to the addition of Bowers. Installation and Fabrication services drove the majority of the segment growth, increasing by 189% year over year due to both strong organic growth and, again, a meaningful contribution from Bowers.

With respect to the organic growth, data center and technology was a key driver, but our other core markets—such as life science and healthcare and education—also saw solid organic growth in the low to mid-teens, and state and local government growth was also very strong, though from a lower base. Maintenance and Service revenue increased by 58% year over year. Excluding the impact of Bowers, this service line delivered organic growth of nearly 20%. The high growth rate was spread across essentially all of our end markets, with the exception of mixed-use.

Turning to reported gross profit, consolidated gross profit for the second quarter 2026 increased by 71% to approximately $220 million. Similar to our prior quarterly results, reported gross profit includes stock-based and other compensation expense related to legacy profit interest units, the payment of which is entirely borne by entities outside of Legence—essentially the legacy pre-IPO shareholders. As a reminder, the settlement of legacy profit interest expense does not impact Legence either in the form of cash outlay or the issuance of additional common shares.

Because these profit interest units are marked to market, any significant change to our share price will have a material impact on this expense, as it did in the second quarter. 8% in the second quarter 2025. The decrease in adjusted gross margin was primarily driven by the combined impact of a shift in revenue mix to our Installation and Maintenance segment—reflecting the addition of Bowers and the segment's higher growth rate—as well as somewhat lower adjusted gross margin within the Engineering and Consulting segment. 2% in the second quarter 2025.

The adjusted gross margin decline largely reflects a revenue mix shift toward the Program and Project Management service line, which accounted for 51% of segment revenue compared to 46% in the year-ago quarter. 2% reported in the year-ago quarter. As you would expect, there are a lot of moving parts that take us to that flat level year over year in the I&M segment, but to name a few: we saw a mix shift toward the Installation and Fabrication service line at the expense of the higher-margin Maintenance and Service line, but our overall mix of fabrication-only work within the Installation and Fabrication service line increased year over year.

Turning to SG&A, this expense includes approximately $59 million of stock-based and non-cash compensation expense, the vast majority of which—almost $54 million—was related to the legacy profit interest that is paid for by entities outside of Legence. Excluding the impact of stock-based compensation expense as well as approximately $2 million of acquisition and strategic initiative expenses, our adjusted SG&A expense was $87 million, up from $62 million in the year-ago quarter. This increase was primarily driven by the addition of Bowers and higher general headcount to support our strong growth. 3% in the year-ago quarter, as we benefit from greater economies of scale.

All in all, we generated adjusted EBITDA of $155 million in the second quarter 2026, an increase of 114% from second quarter 2025 levels. 2% when compared to the year-ago quarter. However, given the sequential comparison to first quarter 2026 adjusted EBITDA margins, which includes Bowers, we believe this is probably a more relevant comparison and yields an almost 90 basis point improvement. Depreciation and amortization totaled $44 million in the second quarter 2026, up from $29 million in the year-ago quarter, with the increase largely due to the incremental depreciation and amortization that stemmed from the Bowers acquisition.

Interest expense, net of income, was $15 million for the second quarter 2026 and declined by almost $15 million from a year ago, primarily due to lower average debt balance and average interest rates than the year-ago period. Turning to income tax, though we reported a pretax loss for the second quarter 2026, we recorded income tax expense of $11 million due to the non-deductible nature of various items, primarily the legacy profit interest expense. As a result, on a reported basis, the effective tax rate for the quarter isn't all that meaningful. This dynamic is expected to continue through 2026 and into 2027 to some degree.

Excluding the impact of these material nonrecurring and non-cash items, the normalized effective tax rate would be closer to the high 20 to low 30% range, which we would expect to gravitate towards over time. Regarding cash taxes, our current estimate for 2026 is in the mid-$50 million range.