Episode Details

Legence Corp. (LGN) Q2 2026 — Q2 2026 (ended June 30; 8-K accepted 7:23am ET Aug 13, BEFORE the open): revenue $1.262B vs a $1.074B estimate, GAAP EPS -$0.37 vs a $0.37 bar, adjusted EBITDA $154.6M (+114%), gross margin 17.4% from 21.5%, backlog $5.67B (+105%), FY26 guidance raised to $4.7B-$4.8B. The stock fell 7.9% that session to $63.24, then closed at $66.375. Legence doubled revenue to $1.26 billion, doubled backlog to $5.67 billion and raised full-year guidance - and the stock fell 7.9% that morning. The same filing impaired $41.1 million inside Engineering and Consulting, citing lower demand for sustainability services. THE CALL: AVOID (3/5, REAL BUSINESS, THEME PRICE) — base-case value ~$38 vs ~$66.375 today. KEY METRICS: - CALL: AVOID, 3/5. Fair value about $38 vs the $66.375 close on Aug 14 - roughly 43% below. Bear $21, base $38, bull $54, weighted 25/50/25 on an 11.0% base-case discount rate. A separate frame agrees: 10x 2028E adjusted EBITDA of $715M, net of debt and the tax agreement, is $57. The Street disagrees - 8 buy, 1 hold, 0 sell across 9 firms, median target $99. - THE QUARTER (3 months ended Jun 30, 2026): revenue $1,262.1M, UP 110.7%, against a $1,073.9M estimate - a 17.5% beat. Adjusted EBITDA $154.6M, up 114.1%, a 12.2% margin vs 12.1%. GAAP loss per share $0.37 against a $0.37 profit bar. Gross profit $220.2M at 17.4%, from 21.5%. Strip the impairments and operating income was $34.5M, a 2.7% margin. - THE MIX - THE WHOLE EPISODE: Engineering and Consulting revenue grew just 5.5% to $206.9M and its gross profit FELL 12.4% to $56.1M. Installation and Maintenance grew 162.0% to $1,055.2M. Engineering is now 16.4% of revenue, from 32.7%. Existing-building work fell from 68.5% of revenue to 37.8%. Data centers went from 35.9% to 62.5%, or $789.5M. - THE IMPAIRMENT: $21.6M of goodwill plus $19.5M of long-lived assets, $41.1M in total, all in ONE reporting unit inside Engineering and Consulting. The 10-Q gives the cause twice: a decline in projected cash flows driven by lower customer demand for sustainability services. FY2025 carried another $25.0M, so $46.6M has come off in twelve months. - BACKLOG AND GUIDANCE: backlog and awarded contracts $5.67B, up 104.6%; book-to-bill 1.2x vs 1.3x. But contracted remaining performance obligations are $4.02B, so $1.65B (29%) is awarded, not contracted. Installation is 80.2% of backlog, from 68.0%. FY26 guidance raised to $4.7B-$4.8B and $565M-$585M. Q3 revenue midpoint $1.25B is BELOW Q2. - BALANCE SHEET AND VALUATION: cash $292.0M, total debt $1,026.4M, net leverage 1.6x - genuinely low. First-half free cash flow $152.6M; receivables plus unbilled improved from 104 to 94 days. Share count is 108.1M fully exchanged (76.9M Class A plus 31.2M Class B), so market cap is $7.17B, not the $8.03B screens show. TRA owed $342.7M. EV/EBITDA 13.8x. What to watch: UP: Engineering and Consulting revenue back above 15% growth with adjusted gross margin over 32%, or the shares near $46 (20x owner earnings). DOWN: a second impairment in that segment, or book-to-bill under 1.0x. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.