S-1: Legence Corp. Secondary Offering Amidst Growth & Losses

Selling stockholders offer 7 million Class A shares as Legence Corp. reports strong revenue growth and a major acquisition, but also increased net losses and internal control weaknesses.

Summary

• Selling stockholders are offering 7,000,000 shares of Class A Common Stock, with underwriters holding an option for an additional 1,050,000 shares; Legence Corp. will not receive any proceeds from this sale.
• The last reported sale price of Class A Common Stock on Nasdaq was $47.50 per share on December 8, 2025.
• For the nine months ended September 30, 2025, revenue increased by 16.9% to $1,812.8 million, compared to $1,550.4 million in the same period of 2024.
• Net loss for the nine months ended September 30, 2025, was $(22.6) million, a significant increase from $(9.4) million in the prior year period.
• Adjusted EBITDA for the nine months ended September 30, 2025, grew to $211.8 million, up from $172.8 million in the same period of 2024, with Adjusted EBITDA Margin improving to 11.7% from 11.1%.
• Total backlog and awarded contracts reached $3.1 billion as of September 30, 2025, representing a 29% increase over the same date last year.
• Legence Corp. entered into an Equity Purchase Agreement on November 13, 2025, to acquire The Bowers Group, Inc. for approximately $475 million, comprising $325 million in cash, approximately 2.55 million shares of Class A Common Stock, and a $50 million deferred consideration.
• Bowers Group generated approximately $767 million in total revenue, $69 million in net income, and $72 million in EBITDA for the twelve months ended September 30, 2025, with an estimated $1.3 billion in backlog and awarded contracts.
• Credit facilities were refinanced on October 30, 2025, extending the Term Loan Credit Facility maturity by three years to December 16, 2031, and reducing its applicable interest rate by 25 basis points to SOFR plus 2.25%.
• The Revolving Credit Facility was increased from $90.0 million to $200.0 million and its maturity date extended by approximately four years to September 22, 2030, with an interest rate set at SOFR plus 2.25%.
• A material weakness in internal control over financial reporting was identified in the design and implementation of general information technology controls (GITCs) for multiple business units, specifically regarding user access controls and segregation of duties.

Sentiment

Score: 6

Explanation: While the company demonstrates strong operational growth, increasing backlog, and strategic acquisitions, the rising net losses and identified material weakness in internal controls present significant concerns. The secondary offering by selling stockholders, without proceeds to the company, also suggests a lack of immediate capital need for operations from this specific offering, but the overall financial health needs careful monitoring due to the losses and control issues.

Positives

• Strong revenue growth: 16.9% for the nine months ended September 30, 2025, reaching $1,812.8 million.
• Increased Adjusted EBITDA: $211.8 million for the nine months ended September 30, 2025, up from $172.8 million in the prior year period.
• Improved Adjusted EBITDA Margin: 11.7% for the nine months ended September 30, 2025, compared to 11.1% for the same period in 2024.
• Significant backlog and awarded contracts: $3.1 billion as of September 30, 2025, marking a 29% year-over-year increase, providing future revenue visibility.
• Strategic acquisition of The Bowers Group, Inc. for approximately $475 million, adding substantial revenue ($767 million) and EBITDA ($72 million) based on preliminary unaudited financials.
• Favorable credit facility refinancing: Extended maturity dates for Term Loan (to December 16, 2031) and Revolving Credit Facility (to September 22, 2030), and reduced interest rate on Term Loan by 25 basis points.
• Focus on high-growth end markets: Data centers, life sciences, healthcare, education, and advanced manufacturing, which are growing faster than overall nonresidential building investments.
• High net revenue retention: 121% from 2021 to 2024, indicating strong client relationships and ability to grow revenue from existing clients.
• Significant client diversity: No single client accounted for more than 5% of revenues from 2021-2024, mitigating client concentration risk.
• Proven acquisition strategy: Completed approximately 20 acquisitions since December 2020 with a consistent integration playbook, demonstrating ability to expand service offerings and geographic footprint.

Negatives

• Increased net loss: Net loss grew to $(22.6) million for the nine months ended September 30, 2025, from $(9.4) million for the same period in 2024, indicating a worsening bottom line.
• Recurring goodwill impairment charges: $17.8 million in 2024, $5.1 million in 2023, and $23.4 million in 2022, suggesting potential overvaluation of acquired assets or underperformance of reporting units.
• Identified material weakness in internal control over financial reporting related to general information technology controls (GITCs), user access controls, and segregation of duties, posing a risk to financial reporting accuracy.
• Significant existing indebtedness: The company's ability to make scheduled payments depends on future performance and compliance with restrictive covenants.
• Potential for substantial, immediate lump-sum payment of approximately $349.6 million under the Tax Receivable Agreement if it terminates early, which could negatively impact liquidity.
• No intention to pay dividends, which may affect the market value of Class A Common Stock for certain investors.
• The secondary offering by selling stockholders means the company will not receive any proceeds, limiting its direct capital benefit from this transaction.

Risks

• Economic downturns in the markets in which the company operates may materially and adversely affect its business due to dependence on construction activity.
• Failure to compete and evolve effectively in target markets could harm operating results.
• Misconduct and errors by employees, subcontractors, partners, or third-party service providers could significantly impact the business.
• Cost overruns, inflation, and delays, particularly with fixed-price contracts, could significantly impact results and profitability.
• Failure to secure new contracts may adversely affect cash flows and financial results.
• Inability to complete a project in a timely manner, miss required performance standards, or otherwise fail to adequately perform could lead to project losses or damages.
• Reliance on subcontractors and third-party equipment/material providers subjects the company to their business risks.
• Clients' inability to obtain third-party financing for projects could limit the amount of work available.
• The company may not recognize all revenues from its backlog and awarded contracts or receive all anticipated payments.
• A variable selling cycle for new projects requires resource commitments with no certainty of success or recovery of expenses.
• Certain contracts may give customers the right to modify, delay, curtail, renegotiate, or terminate existing contracts at their convenience.
• Unapproved change orders for work performed beyond initial contractual requirements could adversely impact results of operations.
• Delays and/or defaults in client payments could lead to unrecovered expenditures.
• Failure to promote, maintain, or enhance brands in a cost-effective manner may lead to market share loss and decreased revenue.
• Placing significant decision-making powers with brands management presents risks, including slower problem identification or misalignment with overall business strategy.
• Loss of senior management or other key employees, or failure to implement effective succession planning strategies, may have a material adverse impact.
• Intense competition for employees and potential labor shortages could lead to higher wages and increased costs.
• Subject to work stoppages, union negotiations, labor disputes, and other matters associated with its labor force.
• May be required to contribute additional cash to meet benefit obligations associated with multiemployer pension plans.
• Profitability could suffer if the company is not able to maintain adequate utilization of its workforce.
• Clients could be impacted by the availability and prices of commodities, services, equipment, and materials, affecting demand for the company's services.
• The loss of one or a few significant clients could have an adverse impact.
• Exposure to potential liability for warranty, engineering, and other related claims, with insurance policies potentially not providing adequate coverage.
• Unavailability or cancellation of third-party insurance coverage would increase overall risk exposure and disrupt business operations.
• Cybersecurity incidents, including cyberattacks, breaches of digital security, information technology system failures, and network disruptions, may result in information theft, data corruption, operational disruption, and/or financial loss.
• Challenges with properly managing the use of AI, as well as uncertainty regarding its legal and regulatory landscape, could result in reputational harm, competitive harm, and legal liability.
• Legal proceedings, investigations, and disputes could result in substantial monetary penalties and damages, especially if they exceed or are excluded from existing insurance coverage.
• If goodwill or other intangible assets become impaired, profits may be significantly reduced.
• The use of the cost-to-cost input method of accounting could result in a reduction or reversal of previously recorded revenue or profits.
• Changes in accounting rules and regulations could adversely affect financial results.
• Failure to remediate any material weaknesses or to maintain effective internal control over financial reporting could adversely affect the ability to accurately and timely report financial results.
• As a growing company with a relatively limited operating history at its current scale, faces various risks, uncertainties, expenses, and difficulties.
• May not be able to achieve expected returns from its growth strategy.
• Inability to maintain corporate culture as it grows could lead to loss of innovation, collaboration, and focus.
• The preliminary financial information of Bowers is subject to change.
• Consummation of the planned acquisition of Bowers is subject to regulatory approvals and other closing conditions, the failure or delay of which may prevent or delay the acquisition.
• Significant amount of existing indebtedness and ability to make scheduled payments or refinance obligations depends on many factors beyond control.
• Restrictions placed by credit facilities and other debt instruments may limit ability to finance future needs or adapt business plan.
• Variable rate indebtedness subjects the company to interest rate risk, which could cause debt service obligations to increase significantly.
• Incurrence of additional indebtedness may affect business and restrict operating flexibility.
• A downgrade in debt rating could restrict ability to access the capital markets.
• May not be able to maintain sufficient bonding and letter of credit capacity to successfully bid on and win some contracts.
• May incur liability to clients under ESPCs if projects do not meet promised performance standards and energy use reductions.
• Despite current indebtedness levels, the company and its subsidiaries may still be able to incur substantially more debt, exacerbating leverage risks.
• Business and clients' businesses are subject to a variety of federal, state, and local laws and regulations, which could adversely affect results.
• Non-compliance with applicable laws could lead to loss of licenses, permits, or other sanctions.
• Reduction or limitation of federal, state, and local government incentives for building new facilities or energy efficiency upgrades could impact project scope and demand for services.
• Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact results of operations and financial condition.
• Changes in U.S. trade policy, including the imposition of tariffs and resulting consequences, may have a material adverse impact.
• As government contractors, the company and its brands are subject to specific rules, regulations, and audits, with potential for being barred from future government contracts.
• Environmental, health, and safety laws could impose significant additional costs and liabilities.
• Exposure to risks relating to occupational, health, and safety matters and operation at project sites involving a high degree of operational hazards.
• Increasing scrutiny, regulatory requirements, and changing expectations from various stakeholders with respect to sustainability and ESG matters may impose additional costs or expose to reputational risks.
• May be unable to achieve current or future climate commitments and other goals, or may incur substantial costs in meeting such commitments.
• Business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made problems.
• Climate change and related environmental issues could have an adverse impact, particularly for headquarters and project sites in active earthquake zones or areas susceptible to physical risks.
• Sole material asset consists of membership interests in Legence Holdings, dependent on distributions to pay taxes, TRA payments, and corporate expenses.
• Future sales of Class A Common Stock in the public market could reduce the market price, and additional capital raised through equity or convertible securities may dilute ownership.
• Underwriters may waive lock-up restrictions in the future, which could adversely affect the price of Class A Common Stock.
• Terms of subsequent financings may adversely impact stockholder equity.
• If securities or industry analysts do not publish research reports or publish unfavorable research, the price and trading volume of Class A Common Stock could decline.
• Requirements of being a public company, including compliance with Exchange Act and SOX, may strain resources, increase costs, and distract management.
• Blackstone controls a significant percentage of voting power, limiting the ability of other stockholders to influence corporate matters.
• Blackstone is not limited in its ability to compete with the company, and corporate opportunity provisions could enable Blackstone to benefit from opportunities otherwise available to the company.
• As a controlled company, Legence Corp. qualifies for exemptions from certain corporate governance requirements, which, if utilized, could reduce protections for stockholders.

Future Outlook

Legence Corp. intends to continue growing revenues by focusing on high-growth end markets such as data centers, life sciences, advanced manufacturing, healthcare, and energy efficiency upgrades. The company plans to increase its 'wallet share' with existing high-value clients through enhanced processes and intensified marketing, and aims to boost recurring revenues by expanding its maintenance and service business, including hiring additional sales staff and technicians. Strategic bolt-on acquisitions are expected to continue, expanding geographic footprint and capabilities, potentially including attractive international markets. Capital expenditures are projected to increase in future periods due to investments in fabrication capacity expansion. The ultimate financial impact of the 'One Big Beautiful Bill Act' remains uncertain, pending regulatory guidance and further interpretation.

Management Comments

• Our business is growing rapidly as data centers, manufacturers, pharmaceutical companies, hospitals, schools and universities make investments in both new and existing facilities to support growing demand for their products and services, reduce energy costs and increase resiliency.
• We believe that providing a one-stop solution for engineering, installing and maintaining MEP systems results in lower total cost, fewer change orders and faster turnaround times for our clients and higher win rates, better customer retention, incremental margin and more recurring revenue for us.
• We believe our focus on data centers, manufacturing facilities and energy efficiency upgrades positions us to benefit from increasing investment in data centers, the reshoring of manufacturing, rising power prices and accelerating load growth.
• We believe there are a limited number of companies with our capabilities and expertise which positions us to win market share in these fast-growing sectors.
• We believe our national footprint allows us to serve growing clients wherever they are located.
• We believe the large number of clients that we serve, combined with our small average job size, reduces our dependence on any single client, as well as the impact that any individual project has on our profitability.
• Historically, our smaller jobs have earned higher margins than our larger jobs. We believe 80% of our jobs meet or exceed our initial margin estimates.
• The average length of our relationship with our top 10 clients is 26 years, with many greater than 40 years, and our net revenue retention of clients from 2021 to 2024 was 121%, reflecting our ability to grow revenues from the same clients over time.
• Our management team has an average of more than 25 years of experience growing high performing service businesses.
• We believe by applying a consistent playbook to integration, we minimize disruption to our operations and maximize revenue synergies.
• We believe that our culture has been and will continue to be a critical contributor to our success.
• We believe these benefits are generally consistent with those offered by other companies and specifically with those companies with which we compete for employees.
• We believe that employment agreements with severance benefits are necessary to attract and retain the talent necessary for our long-term success, and view the severance benefits provided to our named executive officers as recruitment and retention devices that help secure the continued employment and dedication of our named executive officers, including when we are considering strategic alternatives.
• The Company is not aware of any known contingencies, claims or lawsuits that will have a material effect on its financial position, results of operations or cash flows other than those described herein.
• Management is not aware of any changes in the ability of the Company to meet these guarantees and does not expect to incur significant losses related to these guarantees in the foreseeable future.

Industry Context

Legence Corp. operates in the engineering, consulting, installation, and maintenance services market for industrial, commercial, and institutional buildings, specializing in MEP systems. The industry is experiencing significant growth driven by increasing investments in data centers (tripled from $7 billion in 2021 to $23 billion in 2024, forecast 22% CAGR to 2029), continued reshoring of U.S. manufacturing (49% CAGR from 2021-2024), rising electricity prices (23% increase from 2020-2024), and expanding corporate sustainability goals (Sustainability Services spending expected to grow 11% CAGR from $23 billion in 2024 to $35 billion in 2028 in the Americas). MEP costs represent a substantial portion of total construction budgets, ranging from 26% for general industrial/commercial buildings to 35-39% for specialized facilities like laboratories and hospitals. The company's strategic focus on high-growth sectors like data centers, technology, life sciences, healthcare, and education positions it in market segments that are growing nearly 40% faster than overall nonresidential building investments in the U.S.

Comparison to Industry Standards

• The company's total recordable incident rate of 0.47 and lost-time incident rate of 0.09 in 2024 were 84% and 93% lower, respectively, than the most recently published U.S. Bureau of Labor Statistics overall rates for its industry, indicating superior safety performance.
• Net revenue retention of 121% from 2021 to 2024 reflects a strong ability to retain and grow revenues from existing clients, outperforming typical industry client growth rates.
• The company's growth in focused market segments (data centers, technology, semiconductors, life sciences, healthcare, and education) at a 22% compound annual growth rate from 2021 to 2024 is nearly 40% faster than the overall investments in nonresidential buildings in the United States (16% CAGR), demonstrating strong market outperformance.
• The company competes with national players like Affiliated Engineers Inc., Stantec Inc., and WSP Global, Inc. in Engineering & Consulting, and Comfort Systems USA, Inc., ACCO Engineered Systems, Inc., and Southland Industries, Inc. in Installation & Maintenance, suggesting a competitive landscape where its integrated service model aims to provide an advantage.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in various claims and legal proceedings incidental to its normal business activities, which it believes will not have a material adverse effect on its business, financial condition, or results of operations.
• A $3.1 million settlement agreement, inclusive of administrative, legal, and other fees, was reached in 2023 for a class action suit related to certain employee matters, with payment made in March 2024.

Related Party Transactions

• Transactions with entities associated with Legence Holdings and the Blackstone Fund, including revenue from contracts ($3.0 million in 2023 and $6.0 million in 2022) and a portion of the company's term loan held by these entities.
• The Legence Holdings LLC Agreement governs the interests and rights of LGN Unit Holders, including tax distributions and exchange rights, and permits certain Existing Owners and/or their affiliates to engage in business activities that may compete with the company.
• The Amended and Restated Certificate of Incorporation grants Blackstone rights to designate or nominate directors based on its ownership percentage.
• A Registration Rights Agreement grants the Aggregators and certain Existing Owners registration rights for Class A Common Stock.
• An Exchange Agreement allows LGN Unit Holders (including Legence Parent) to exchange their LGN Units and corresponding Class B Common Stock for shares of Class A Common Stock or cash.
• A Tax Receivable Agreement (TRA) with Legence Parent and Legence Parent II (TRA Members) provides for payments of 85% of net cash tax savings realized from certain tax attributes.
• Blackstone Securities Partners L.P., an affiliate of Blackstone, acted as an underwriter in the IPO, underwriting approximately 3.9 million shares.
• A Directed Share Program in the IPO allocated 396,103 shares of Class A Common Stock to certain related parties, including employees and director Terrence Keenen.
• Indemnification agreements have been entered into with current directors and officers.
• The company has various lease agreements with entities owned by members of its management team and/or Parent interests holders.
• Certain related party promissory notes were issued in connection with acquisitions, with holders being former owners who became employees or Common Interests holders.

Stakeholder Impact

• Shareholders: Potential for dilution from future equity issuances, volatility in stock price, no expected dividends, impact of TRA payments, and influence of controlling stockholder (Blackstone). The current secondary offering does not provide direct capital to the company.
• Employees: Subject to labor shortages, union negotiations, multiemployer pension plans, and the company's stock-based compensation plans. The company prioritizes employee development and safety.
• Customers: Benefit from the company's one-stop solution for MEP systems, deep technical expertise, and national footprint. However, they may be impacted by economic downturns affecting construction activity, availability of third-party financing, and potential project delays.
• Suppliers/Subcontractors: Exposed to business risks of subcontractors and suppliers, including delays, material shortages, and pricing fluctuations.
• Creditors: Impacted by the company's significant indebtedness, restrictive covenants, interest rate risk, and potential debt rating downgrades. The recent credit facility refinancing aims to improve terms.

Next Steps

• Continue to develop and implement sustainability initiatives and regularly report on them to stakeholders.
• Implement and monitor a remediation plan for the identified material weakness in internal control over financial reporting.
• Complete the acquisition of The Bowers Group, Inc., which is subject to customary closing conditions including regulatory approvals, with a potential termination date of March 13, 2026, if conditions are not met.
• Manage the $50 million deferred consideration for the Bowers acquisition, due on December 31, 2026, which may be paid in cash or Class A Common Stock.
• Monitor developments and evaluate the ultimate impact of the 'One Big Beautiful Bill Act' on financial statements, pending regulatory guidance and further interpretation.
• Continue to pursue bolt-on acquisitions to expand geographic footprint and capabilities, including in attractive international markets.
• Enhance processes and intensify marketing initiatives to grow wallet share with existing high-value clients.
• Increase recurring revenues by growing the maintenance and service business, including hiring additional sales staff and technicians.
• Prepare for an expected increase in future capital expenditures due to investment in fabrication capacity expansion.

Key Dates

Recommendation

Legence Corp. demonstrates strong operational growth in high-demand sectors, evidenced by increasing revenue and backlog, and strategic acquisitions like Bowers Group. The recent refinancing of credit facilities also improves its financial flexibility. However, the company's persistent net losses, coupled with significant goodwill impairment charges in recent years, raise concerns about profitability and asset valuation. The identified material weakness in internal controls also presents a risk to financial reporting reliability. While the long-term market trends are favorable, these financial and operational challenges warrant a cautious approach. Investors should monitor the company's ability to return to profitability, remediate internal control issues, and successfully integrate acquisitions before considering a stronger position.

Keywords

MEP systems, HVAC, Engineering services, Installation services, Maintenance services, Data centers, Life sciences, Healthcare, Education, Energy efficiency, Sustainability, Construction, Acquisitions, SEC filing, S-1, Secondary offering, Blackstone, Corporate governance, Risk management, Financial reporting, Credit facilities, Tax Receivable Agreement