Legence Corp. Class A Common stock 2026 Q2 Earnings Call

Please go ahead. Thanks, Daniel, and good morning, everyone.

Welcome to Legence second quarter 2026 earnings call. With me today are Jeff Sprau, Chief Executive Officer, Stephen Butz, Chief Financial Officer, and Steve Hansen, 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. All materials can be found on the investor relations section of the company's website, wearelegence.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.

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 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. 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 risk 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 is worth noting that this sector also includes semiconductors, an area where we are 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.

On our quarterly results, Stephen will go into greater detail, but at a high level, total revenue of $1.3 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. Total backlog and awards ended the quarter at a record $5.7 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. Our consolidated book-to-bill ratio for the three months ended June 2026 was 1.2 times. Book-to-bill over the last 12 months was 1.4 times. As our markets evolve, particularly the data centers and technology market, the award sizes have grown quite significantly.

In fact, it is 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 of 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. During the second quarter, we grew our fabrication capacity by about 200,000 square feet, putting our current capacity at 1.5 million square feet. We expect to add another 100,000 within the next couple of 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 The Bowers Group, we will have grown our fabrication capacity by over 1 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 have 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 3 times net leverage last September. In just three quarters, we have essentially cut our financial leverage in half, with pro forma net leverage now standing at 1.5 times. This reduction was achieved during a period when Legence completed our largest acquisition in company history, namely Bowers in the DMV. At 1.5 times net leverage, we are 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. Of course, we will be disciplined with our evaluation of these opportunities. With that, let me turn the call over to Stephen.

Thank you, Jeff, and good morning, everyone. I will begin with a review of second quarter 2026 results in comparison to second quarter of 2025. Following my review of our historical results, I will 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 billion and $262 million, an increase of $663 million 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.

Program and project management service revenues grew by 17%, with particularly strong growth in state and local government as we are working on several large projects in Washington, D.C., 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.