Legence (LGN) Q1 FY26 earnings call: guidance and Q&A

With leverage below 2x, does Legence see scope for larger M&A like Bowers, and what are the considerations for M&A in E&C vs. I&M?

The improved leverage provides flexibility for larger acquisitions in the medium term, though not immediately after Bowers. Legence is open to bolt-on acquisitions in E&C for customer/capacity/expertise, and is now in a better position to act quickly on larger opportunities, while remaining selective.

“Optionality is a huge word for us and having the option to be able to pursue some larger or some might even call transformative acquisitions, now that we've proven that we can delever in a rather quick fashion really helps us as we look at the market and look at our pipeline of opportunities.”

asked by Adam Bubes · answered by Jeffrey Sprau

What is the visibility on the duration and magnitude of data center-driven growth beyond 12 months?

Visibility is extending, with some fabrication orders going out to end of Q4 2028. Daily conversations with data center clients provide further planning and CapEx spending insights.

“We've got orders in some of our fabrication stuff that go out to the end Q4 of '28, and we continue to help them and plan and spend their CapEx as they move forward.”

asked by Adam Bubes · answered by Steve Hansen

How adequate is the current modular capacity with Bowers integrated, and what considerations for further expansion?

Capacity is sufficient to continue growing and taking on more opportunities, with strong demand in the OSM market. Further expansion would be considered if demand continues to grow, leveraging new square footage, automation, and increased throughput from learning curves.

“Our capacity ebbs and flows with the demand and schedules from our clients. We have capacity to continue to grow and take on more opportunities.”

asked by Unknown Analyst · answered by Steve Hansen

E&C segment margins are in the low 30s, below historical mid-30s. What is the outlook for E&C margins this year and timeline to return to normal?

The prior year's Q1 was an outlier. The current low 30s margin is within the typical range of low 30s to 37%. The shift is due to higher growth in lower-margin Program & Project Management services. Margins are expected to remain in the historic low to mid-30s range.

“Our more typical margin range has been from low 30s to, say, 37% or so. We're kind of falling squarely right in the middle of that now.”

asked by Derek Soderberg · answered by Stephen Butz

Elaborate on E&C gaining traction with data center/technology customers and its impact on business mix/bookings.

This traction leverages existing I&M relationships to cross-sell E&C capabilities for facility expansion or greenfield projects. It's a key part of Legence's thesis to provide integrated, end-to-end services, expanding E&C's market beyond traditional healthcare/government/education.

“It's really a function of leveraging our experience and relationships with a lot of these customers that we've had for decades and our ability to take an I&M relationship in the semiconductor space and introduce them to our E&C capabilities as they look to either expand their facilities or actually greenfield facilities.”

asked by Michael Dudas · answered by Jeffrey Sprau

What is the margin profile of the modular business relative to the rest of I&M, and is it accretive to margins?

The company does not disclose separate margins for modular business but confirms it is accretive. The margin profile is higher for custom fabrication work compared to large installed jobs, and the increasing percentage of fab work benefits overall margins.

“Our margin profile is higher when we're doing custom fab work than a large installed job. So it is -- benefits to us that, that percentage of fab is increasing.”

asked by Miguel Marques · answered by Stephen Butz

Are valuations for M&A targets, particularly MEPs for data centers, rising due to hype, making price a larger factor?

Valuations are likely going up 'a little bit' as the value of critical systems in data centers is recognized. However, the increase is not prohibitive, and Legence remains selective, evaluating the value targets bring from a pricing perspective.

“I think people realize that the systems that are going into these data centers are really, really critical and the good providers are delivering a ton of value. And so as a really vague but general statement, I think they're probably going up a little bit.”

asked by Christopher Senyek · answered by Jeffrey Sprau