Legence (LGN) Q2 FY26 earnings call: guidance and Q&A

What is the size of the largest projects being added to backlog, the makeup of data center customers, and the outlook for bookings for the rest of the year?

The company is seeing strong bookings in data centers, with some TFO projects ranging from $175M to $200M, and solid bookings in off-site manufacturing. The pipeline remains strong, and this positive trend is expected to continue.

“We've had some really strong bookings in the data centers, specifically in some TFO projects, which follow after base builds. They're ranging anywhere from the $175 million range to between $200 million range there as well as in our off-site manufacturing, third-party manufacturing, we've had some solid bookings there as well.”

asked by Adam Bubes · answered by Steve Hansen

How does the current acceleration in order book and strong results portend for 2027, and can the company compound off these elevated levels?

The momentum continues to increase due to strong demand drivers, larger project sizes, and the company's diverse service lines and customer base. The ability to accommodate large, complex projects with extensive resources and technical expertise positions them well for continued growth, supported by diversity in end markets like manufacturing reshoring.

“The momentum continues to increase, Julien, and it's remarkable. And I think it's a function of, of course, amazing demand drivers. It's also a function of the fact that these projects are getting bigger.”

asked by Julien Dumoulin-Smith · answered by Jeffrey Sprau

What are the working capital needs as the business accelerates, and how large does modular capacity need to be to adequately serve the accelerating outlook?

Working capital is now closer to normalized levels after prior improvements, with modest cash use expected. Customized fabrication modules tend to generate higher prepayments. Current fabrication capacity is 1.5 million square feet, with plans to add another 100,000 square feet. The company can leverage multiple shifts and automation within existing footprints and will continue to expand based on incoming demand.

“We're probably now much closer to what I'd call normalized levels. This quarter, it was a modest use of cash. I'd expect with revenue growth that to continue to be the case generally.”

asked by Julien Dumoulin-Smith · answered by Stephen Butz

How do gross margins in backlog compare to current P&L, and what share of revenues will be modular/prefab in the next few years, impacting overall margin potential?

Gross margins in backlog are generally similar to current realizations, with no dramatic change in pricing. The mix of fab-only work within I&M revenue has been in the low 20% range for the last three quarters, growing at a similar rate to large installation projects. Fab-only work yields nicely higher margins than full installation jobs, which could positively impact overall margins over time.

“Our gross margins and backlog are generally similar to what our current or recent realizations are. We haven't seen a dramatic change in pricing across the service lines versus, say, what we would have reported this quarter or even last, if that answers your question.”

asked by Charles Albert Dillard · answered by Stephen Butz

Can the semiconductor segment become as large as data centers in a few years, given the substantial investments by companies like Intel and TSMC?

Semiconductor revenue growth was stellar at over 50% this quarter, but still pales in comparison to data centers. However, the characteristics required for success in semiconductors (complex, large, custom, high-volume systems) align perfectly with Legence's expertise, as they grew up in this space. The outlook is good, and they are well-positioned to capitalize on these announcements.

“the characteristics required for success in the semiconductor and the memory space are the same characteristics you need for success in data centers. They're complex systems. They're really, really big. They're custom, but they're high volume.”

asked by Joseph Osha · answered by Jeffrey Sprau

With data centers becoming a larger portion of the mix, does the company have a threshold in mind for the right mix, or will it capitalize on opportunities even if the mix gets larger?

The company aims for growth to be additive across all markets, satisfying demand without excluding other customers. While a balanced mix is ideal, the priority is handling all opportunities effectively. If data centers grow to 60%, 65%, or 70% of the mix, it's acceptable as long as they can manage all opportunities and are not turning down business in other markets. M&A could also be used to diversify the mix towards other mission-critical end markets.

“We've always wanted this growth to be an and versus an or. And I mean by that, we want to be able to satisfy demand from our customers, but not at the exclusion of our amazing customers in these other markets.”

asked by Sabahat Khan · answered by Jeffrey Sprau

Are clients looking to secure services further into the future, and how is Legence allocating resources to balance demand across customers and end markets?

Clients are increasingly looking to lock in services further out, with backlog stretching into future periods, as they recognize the need for resources. Legence benefits from being a unionized workforce, allowing them to pull trained labor nationally and deploy travelers to where the work is. They encourage earlier engagement with clients to lock in designs, headcount, and fabrication capacity, which is beneficial for both parties.

“No, it's a great question, and we are having those conversations every day with our clients. And we are seeing our backlog stretch into further out periods than we had historically because they're aware, too, right, that they need the resources to get their builds completed.”

asked by Michael Dudas · answered by Steve Hansen