Legence Corp. Class A Common stock (LGN) Earnings

Management highlights

- Overall Market & Growth Trajectory • Robust demand for mission-critical building systems continues, with record revenue and backlog. Total revenue more than doubled YoY including acquisitions, with nearly 60% organic revenue growth; backlog and awards grew over 35% organically YoY and 105% total YoY. • Data center and technology is the primary growth driver, with solid growth also in semiconductor end markets; other core end markets (life science/healthcare, education, state/local government) deliver high single-digit to double-digit organic growth year-to-date. • The small but fast-growing manufacturing end market (currently <3% of total revenue, equal in size to the mixed-use market) is expected to benefit from long-term reshoring trends. • Diverse end market exposure offsets individual market volatility, aligning with the company's strategy of targeting attractive high-growth mission-critical sectors. - Operational Capacity & Workforce Investments • Total headcount reached nearly 11,000 employees at end of July 2026, including ~8,000 skilled technicians and craftspeople, with further expansion planned to meet growing demand. • Fabrication capacity grew by 200,000 square feet in Q2 2026 to 1.5 million total square feet; an additional 100,000 square feet will be added in the near term, with further expansion planned. Total capacity has grown by over 1 million square feet in the past year from organic expansion and the Bowers acquisition. • Capacity expansion is supported by existing backlog demand, concentrated in data center, pharmaceutical, and increasingly semiconductor/memory chip clients. Additional automation, advanced tooling, and flexible shift scheduling create further efficiency within existing footprint. - Balance Sheet & M&A Strategy • Pro forma net leverage has been cut in half since the September 2025 IPO to 1.5x, even after completing the company's largest ever acquisition (Bowers in the DMV region). The company received credit rating upgrades from S&P (B+ to BB-) and Moody's (B-1 to BA-3), reducing term loan interest costs by a total of 50 basis points to SOFR plus 175. • The strong balance sheet positions the company to pursue attractive strategic acquisitions, with the M&A pipeline currently at its most active level ever; management will remain disciplined in evaluating opportunities. - Backlog Performance • Total backlog and awards ended Q2 2026 at a record $5.7 billion, up 5% sequentially. Q2 2026 book-to-bill was 1.2x, and 1.4x for the trailing 12 months; large project sizes (often over $100 million) can create quarterly volatility, so longer-term book-to-bill is a more reliable metric.

Guidance

- Third quarter 2026 guidance is set for consolidated revenue of $1.225–$1.275 billion, and adjusted EBITDA of $150–$160 million. - Full year 2026 revenue guidance was raised sharply to $4.7–$4.8 billion, a 13% increase at the midpoint from the prior guidance range of $4.1–$4.3 billion. - Full year 2026 adjusted EBITDA guidance was raised approximately 20% to $565–$585 million, up from the prior range of $470–$490 million. The upward revision reflects Q2 outperformance, growing backlog, current project timing expectations, and continued strong operational execution. - Full year 2026 capital expenditure guidance was increased by $15–$20 million to a total of $40–$45 million for the second half of 2026, driven by additional spending to outfit new fabrication capacity; total capital spending remains at ~2% of expected full year revenue, consistent with historical levels. - Second half 2026 net interest expense is expected to average ~$15 million per quarter; Q3 2026 depreciation and amortization is expected to be similar to Q2 2026 levels of $44 million.

Segment performance

Legion operates two core business segments: 1) Engineering and Consulting: Q2 2026 segment revenue reached $207 million, an increase of 6% year-over-year, with nearly all growth organic. This accounts for ~16.4% of total consolidated revenue. Within the segment: Program and project management revenue grew 17% YoY, driven by strong demand from state and local government and data center/technology clients, and now makes up 51% of segment revenue (up from 46% YoY). Engineering and design revenue declined 4% YoY, primarily due to soft demand for sustainability consulting services for mixed-use commercial real estate clients. Adjusted gross margin for the segment was 31.1%, down 210 basis points from 33.2% YoY, driven by the mix shift toward lower-margin program and project management services. 2) Installation and Maintenance: Q2 2026 segment revenue hit $1,055 million, an increase of 162% year-over-year. This accounts for ~83.6% of total consolidated revenue. Within the segment: Installation and fabrication revenue grew 189% YoY, driven by strong organic growth across data center/technology, life science/healthcare, education, and state/local government, plus a $300 million revenue contribution from the acquired Bowers Group. Maintenance and service revenue grew 58% YoY, with 20% organic growth excluding Bowers, across all end markets except mixed-use. Adjusted gross margin for the segment was 16.1%, essentially flat compared to 16.2% YoY, offsetting mix shifts between higher-margin maintenance and lower-margin installation. Consolidated total Q2 2026 revenue was $1.262 billion, up 111% YoY, with 60% organic growth excluding Bowers. Adjusted EBITDA was $155 million, up 114% YoY, with an adjusted EBITDA margin of 12.2%, up 20 basis points YoY and 90 basis points sequentially.

Risks & headwinds

- Soft market conditions for sustainability consulting services to mixed-use commercial real estate clients have persisted for multiple quarters, leading to a goodwill and intangible asset impairment charge for this business unit in Q2 2026. - Larger project award sizes create lumpiness and volatility in quarterly net bookings and book-to-bill ratios. - Tight labor markets across the U.S. create ongoing hiring pressure, though management notes it has so far been able to recruit sufficient skilled labor to meet demand. - Non-deductible legacy profit interest expenses distort the reported effective tax rate through 2026 and into 2027, making the headline tax rate not meaningful for analysis.

Analyst Q&A

• Q: What was the size of largest Q2 2026 data center projects, what is the current geographic footprint, and what is the outlook for bookings for the rest of 2026? /

  A: The largest data center projects booked this quarter ranged from $175 million to $200 million, including both turnkey full builds and third-party fabrication work. Core current regions for on-site installation are California, Phoenix, and the DMV, with fabrication facilities shipping prefabricated components nationwide. Management recently expanded into Texas and sees a strong overall pipeline with a positive bookings trajectory for the balance of the year.

• Q: Can you comment on the 2027 growth outlook after the strong 2026 acceleration, and address working capital needs and fabrication capacity requirements to support this growth? /

  A: Management says growth momentum is continuing to increase, driven by larger project sizes that only a small number of firms with sufficient scale, labor, capacity, and technical expertise can accommodate. Diverse end market exposure and reshoring-driven manufacturing growth further support sustained growth. Working capital is now at normalized levels after early post-IPO improvements, with modest cash use expected alongside continued growth; higher prepayments for modular fabrication work partially offset this need. Current fabrication capacity is 1.5 million square feet with existing room for growth via additional shifts, and 100,000 additional square feet will be added soon, with further expansion tied to backlog growth.

• Q: What margin can be expected from the existing backlog, how much of revenue is expected to come from modular prefabrication long-term, and what is the impact on overall margins? /

  A: Backlog margins are generally similar to current realized P&L margins, with no material shift in underlying service line pricing. Fabrication-only work has held at a low 20% share of installation and maintenance segment revenue for the last three quarters, with both fabrication and full installation growing at similar rates. Third-party fabrication carries higher margins than full installation work, so a growing mix of fabrication is a positive for long-term overall margins, supported by increasing demand for prefabrication for rural projects with limited local labor.

• Q: How big can the semiconductor end market get long-term, and is onshore wafer/ingot capacity investment an attractive opportunity? /

  A: Semiconductor revenue grew over 50% YoY in Q2 2026, but it is still much smaller than the data center business. The core capabilities required for semiconductor projects (large, complex custom mission-critical systems) match the company's existing strengths built in data center, biotech, and semiconductor markets, so the long-term outlook is positive. Management is interested in serving large clients pursuing onshore capacity but does not see this as an outsized, disproportionate opportunity at this time.