Legence Corp. Class A Common stock Q3 FY2025 earnings call

• Gratitude expressed for the successful IPO and new shareholders.
• Legence is a leading provider of engineering, installation, and maintenance services for mission-critical building systems, with national scale in both engineering and implementation.
• Record third quarter performance: 26% revenue growth, 39% EBITDA growth, 29% backlog growth, all organic. Book-to-bill ratio was 1.5x.
• Announcement of acquiring the Bowers Group, a premier mechanical contractor in the Northern Virginia, D.C. area with expertise in mechanical and plumbing solutions for complex building systems, including data centers. Bowers has over 1,700 employees, strong fabrication capacity, and significant data center project experience.
• Closed two tuck-in acquisitions on October 1: AZPE, an Arizona-based engineering firm, and IMD, a Colorado-based mechanical contractor, both with cross-sell potential and cultural fit.

In the third quarter of 2025, Legence's Engineering and Consulting segment had revenue of $212 million, a 9.5% increase. Engineering and Design Services grew by 11.3% due to strong growth in Life Sciences, Healthcare, and state and local government. Program and project management services grew by 7.6%. The Installation and Maintenance segment had revenue of $496 million, a 35% increase. Installation and fabrication services accounted for the majority of the growth, up 41%, driven by data center and technology work, including liquid-to-chip cooling systems. Maintenance and services grew by 12.3%. Engineering and Consulting gross margins were 31.7% in Q3 2025, down from 33% the prior year. Installation and Maintenance gross margins improved by 140 basis points to 16.3% due to exceptional project execution, particularly in fabrication for data center and technology clients.

• Fourth quarter 2025: Expect standalone revenue between $600 million and $630 million and adjusted EBITDA between $60 million and $65 million.
• Full year 2026: Expect standalone revenue between $2.65 billion and $2.85 billion and adjusted EBITDA between $295 million and $315 million.
• Bowers is expected to generate revenue between $825 million and $875 million and EBITDA between $75 million and $85 million in full year 2026, with partial year impact if closing in Q1 2026.
• Purchase price for Bowers is approximately $475 million, consisting of cash, stock, and deferred consideration.

Q: Congrats on your first quarter. I think it's clear M&A will be a part of the growth strategy. And so just wondering if you could speak to what leverage you're comfortable with on sort of like a 2- to 3-year time horizon? And any way to size the pipeline of M&A opportunities you're actively working on?

A: Stephen Butz said they came out at IPO at 3x net leverage and look to maintain below that, targeting low 2x long term. Jeffery Sprau mentioned E&C has an active pipeline of tuck-in acquisitions, while I&M is more opportunistic, focusing on high-growth industry cities, and no large M&A expected near term due to Bowers integration.

Q: Just following up on some of the commentary around the mix between the 2 markets. Obviously, this one is adding a bit more to the sort of the implementation side, the Bowers acquisition. How do you just think about the evolution of the revenue mix kind of 1, 2, 3 years out?

A: Stephen Butz said they'd like a balance, but it will ebb and flow with M&A and market growth. Jeffery Sprau emphasized being a life cycle provider with national scale in both segments for cross-sell and customer benefit.

Q: I had a first one around next year's guidance. As we look at, I guess, trying to back in an applied margin, any kind of color you can give us around what's driving that incremental expansion and then where you potentially see opportunities for upside around that guidance?

A: Stephen Butz said mix shifts by service line and end market are drivers, like more higher-margin fabrication work in Installation and Maintenance. Steve Hansen mentioned always looking to push pricing but balancing with client relationships.

Q: Stepping in for Chad Dillard. First question for me just is your I&M margins were obviously up to 16.3% this quarter. You guys mentioned better project execution. But is there any additional color you guys can offer on like what levers you pulled exactly? And if at all, how much of this was driven by like better favorable end market mix or size of projects?

A: Stephen Butz said it was a combination of exceptional project execution, late-stage projects with higher margins, favorable closeouts, and some equipment purchases that came in earlier than expected, all baked into the fourth quarter guidance.