Legence Corp.

Good day and thank you for standing by. Welcome to the Q2 2026 Legence Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Son Vann, Vice President of Investor Relations. Please go ahead.

Thanks, Daniel, and good morning, everyone. Welcome to Legence's 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 risk 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 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. And 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's worth noting that this sector also includes semiconductors, an area where we're 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've 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 markets, The award sizes have grown quite significantly. In fact, it's 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. 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. And we expect to add another 100,000 within the next couple 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've completed over the past year and the capacity that came with Bowers, we will have grown our fabrication capacity by over a 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've 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, prioritize the entire IPO proceeds toward debt reduction. This allowed us to exit the IPO at three times net leverage last September. In just three quarters, we've 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. And at 1.5 times net leverage, we're 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. and of course we'll be disciplined with our evaluation of these opportunities.