Legence Corp. Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the First Quarter 2026 Legence's Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1. 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, Investor Relations. Please go ahead.

Thank you, Daniel, and good morning, everyone. Welcome to Legence's first quarter 2026 earnings call. With me today are Jeffrey Sprau, our Chief Executive Officer; Stephen Butz, Chief Financial Officer; and Steve Hansen, Chief Operating Officer. This morning, we issued a press release that covers our first quarter 2026 financial results and posted a slide 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 risks and uncertainties, including those identified in our Risk Factors contained in our SEC filings. Our actual results could differ materially and we undertake no obligation to update any such forward-looking statements. During this call, we will refer to certain non-GAAP financial measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our quarterly earnings presentation for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, let me turn the call over to Jeffrey.

Thank you, Son, and thanks, everyone, for joining today to discuss our first quarter performance and current outlook for Legence. It has only been 1.5 months since our last earnings call, and the themes that we spoke about then are still applicable today. These themes include a very healthy demand environment for mission-critical building systems, particularly in the data center and technology end market; our strong project execution; our ability to attract talented labor; and the impact that M&A can bring to accelerate our growth. All of these factors contributed to our strong first quarter results that exceeded quarterly guidance, as well as provide the underpinning to raise our full-year 2026 guidance. Our first quarter results, Steve will go into greater detail, but at a high level, total revenues more than doubled year over year to just over $1 billion. Now to put that into perspective, Legence generated $1.2 billion of revenue for all of 2022, so we have grown revenue at an incredible pace over the past three years. Our historic growth was roughly split evenly between organic growth and through acquisitions. This was the case in our latest quarterly results where our acquisition of Bowers accounted for just under half of the year-over-year revenue gains with organic growth essentially making up the other half. Excluding the impact from Bowers, revenues increased by a robust 57% year over year, with the majority of this growth coming from the installation and maintenance segment. While data centers and technology clients drove our growth, other key end markets such as life science, health care, education, and state and local government also posted solid gains. The engineering and consulting segment revenue growth was a bit more broad based across our end markets, and that segment is seeing more traction with our data center and technology clients. Adjusted EBITDA grew by 132% year over year, reflecting the contribution from Bowers as well as overall growth in our existing businesses. EBITDA margins expanded by over 130 basis points as we benefited from strong project execution, particularly with our installation and fabrication projects, and better leverage of our SG&A costs. Total backlog and awards ended the quarter at a record $5.4 billion, up 104% year over year, which reflects the inclusion of Bowers. Excluding Bowers, backlog and awards grew by 36% from a year ago. Now on a sequential basis and pro forma for the inclusion of Bowers' backlog, we added approximately $200 million of net new backlog on top of the $1 billion in revenue recorded during the first quarter. Most of the increase in backlog and awards came in the installation and maintenance segment, driven by the data center and technology market. While the addition of Bowers not only expanded our mechanical presence in the DC Virginia region, we also diversified our client base in this end market, increasing our presence with certain hyperscalers and colocators. Engineering and consulting backlog rose by 13% on a year-over-year basis, driven by state and local government and education clients. The resulting book-to-bill ratio for the three months ended March 2026 was 1.2x. While this is lower than the book-to-bill experience in the fourth quarter, realize that we had several very large awards that from a timing standpoint were booked at the end of last year. This added to backlog growth and elevated book-to-bill in the fourth quarter but also impacted what we would have otherwise booked in the first quarter. Now setting aside the timing aspect of when awards are booked, the underlying growth that we expect in our end markets, particularly in data centers and technology, remains very robust, and we feel confident in our ability to continue to grow total backlog as the year progresses based on what we see in our pipeline. We continue to grow our labor force to meet the strong demand that we see in the end markets that we serve. In April, we crossed over 10,000 full-time employees at Legence. This includes approximately 7,400 skilled technicians and craftspeople, which is over 1,000 more than what we began the year with. They work alongside our 1,200-plus engineers and consultants to deliver projects at the highest standards for our clients across both segments. While we are always mindful of having the right people necessary on our projects, we do not expect labor to be a material constraint on our ability to grow. Finally, on our fabrication capacity and expansion plans, while there are some advanced tooling installations and other operational items that we need to complete to get where we want to be from a functionality and efficiency standpoint, we are largely up and running on 1.3 million square feet of fab capacity today. At this level of capacity and the operational flexibility that we have with this capacity, we feel good about our ability to execute on our current book of business with some room to meet the additional demand that we see in our pipeline. Our fabrication business continues to be driven by our technical cooling systems for data centers and will likely continue to be the case for some time. With that said, we are seeing additional indications of interest for fabrication services with our pharmaceutical and semiconductor clients. As the benefits of fabrication and modular construction are recognized by more mission-critical markets, and given our relationships with many of the most technologically innovative companies in the world, we are in a great position to capitalize on this trend. With that, let me turn the call over to Steve.

Thank you, Jeffrey, and good morning, everyone. For the remainder of our call, I will begin with a review of first quarter 2026 results in comparison to 2025. Following my review of our historical results, I will make some brief remarks about our current guidance, discuss our balance sheet and liquidity position before handing the call back to Jeffrey. Starting with 2026, we generated revenue of $1.038 billion, an increase of $506 million or 105% from the year-ago quarter. The Bowers Group acquisition contributed a little over $240 million of revenue. Excluding Bowers, our revenues grew by approximately 57% year over year. Our first quarter 2026 revenues surpassed our guidance, primarily due to outperformance in the installation and maintenance segment, with very strong project execution and fabrication as a key driver. The larger scale of data center projects in particular gave us a chance to apply best practices and continuously improve our delivery model and efficiencies. As we gain efficiency, one of the outcomes is that we are able to complete and ship product ahead of schedule, all while maintaining our high quality standards. As a result, our clients are able to install and commission our systems sooner, allowing us to release contingencies earlier than expected, effectively pulling forward some revenue that was originally expected in later periods and also lift our margin profile. Increased confidence around this dynamic is also behind why we are raising our full-year 2026 guidance, which I will cover later in my remarks. Breaking down our latest quarterly revenue growth at the segment level, starting with engineering and consulting, segment revenue grew by 14%, most of which was organic, to $166 million. Program and project management service revenues grew at a robust 75%, particularly strong growth in K-12 schools, as we are working on several large projects in Pennsylvania, Virginia, and West Virginia. We also saw additional activity in data centers and technology. However, engineering and design revenues declined by 8%, largely due to a very tough comparable prior year quarter that included some strong revenues from commercial solar advisory services, coupled with softer demand in the current period for sustainability consulting from mixed-use clients. We are hopeful that sustainability consulting will pick up in future periods as backlog for this service has increased since year-end 2025. Moving to installation and maintenance, segment revenue of $872 million increased by 142% versus the year-ago quarter. Roughly half of this growth was from the addition of Bowers, with the remaining growth largely organic. Installation and fabrication services accounted for the majority of segment growth, increasing by 162%, driven by the inclusion of Bowers and robust organic growth with data center and technology clients. The segment also experienced attractive organic growth in life science and health care, in part reflecting our work on some larger hospital projects. Maintenance and service revenue increased by 60% year over year. When excluding the impact of Bowers, this service line still grew at a robust rate in excess of 20%. This high growth rate was due in part to a somewhat softer 2025 comparison, but also reflected healthy increases in education, hospitals, and semiconductor clients, the latter of which are included in our data center and technology end market classification. Turning to gross profit, consolidated gross profit for the first quarter 2026 increased by 67% to approximately $186 million. Similar to our fourth quarter results, gross profit includes stock-based and other compensation expense related to legacy profit interest units where the payment of this expense is borne by entities outside of Legence Corp, essentially the legacy pre-IPO shareholders. As a reminder, the settlement of legacy profit interest does not impact Legence Corp either in the form of cash outlay or the issuance of additional common shares. Because these profit interest units are mark-to-market, any significant changes to our share price will have a material impact on this expense, as it did in 2026. Excluding the impact of profit interest expense, adjusted gross profit on a consolidated basis totaled approximately $194 million and adjusted gross margin was 18.7% for the first quarter 2026, compared to approximately $111 million and 21.9% in 2025. The lower adjusted gross margin was primarily due to a revenue mix shift to the installation and maintenance segment as a result of the addition of Bowers and the high growth rate in this segment, as well as lower gross margins in the engineering and consulting segment. This was somewhat offset by the strong margin improvement in the I&M segment. Delving into margins at the segment level, first quarter 2026 engineering and consulting adjusted gross margin was 33.2%, down from 40.7% in 2025. As mentioned, the year-ago quarter was a tough comparison in E&C as we had a few projects which generated very high margins that were not replicated in the latest quarter. Furthermore, the segment gross margin reflected a significant revenue mix shift toward the program and project management service line, which accounted for 41% of segment revenue, compared to only 27% in the year-ago quarter. Program and project management services typically generate a lower margin profile than engineering and design due to the bigger ticket nature of these expenses and high subcontractor pass-through costs of this service line. The installation and maintenance segment generated an adjusted gross margin of 15.9%, up from 14.3% in the year-ago quarter. Adjusted gross margin improvement was driven by strong project execution within the installation and fabrication service line. We also benefited from economies of scale with our support costs within this segment. Turning to SG&A, this expense includes approximately $32 million of stock-based and noncash compensation expense, the vast majority of which, almost $29 million, was related to the legacy profit interest that is paid for by entities outside of Legence Corp. Excluding the impact of stock-based and noncash compensation expense, as well as a little over $1 million of acquisition and strategic initiative expenses that are part of SG&A, the adjusted SG&A expense was $83 million, up from $64 million in the year-ago quarter. This increase was primarily due to the inclusion of Bowers, higher general headcount to support our growth and operate as a public company, as well as higher lease expenses. More importantly, adjusted SG&A as a percentage of revenue improved significantly to 8%, down from 12.6% in the year-ago quarter. We benefited from greater economies of scale with these costs relative to our strong revenue growth. All in all, we generated adjusted EBITDA of $118 million in the first quarter 2026, an increase of 132% from the first quarter 2025 level. Adjusted EBITDA margin for the first quarter 2026 improved by approximately 133 basis points to 11.4% compared to the year-ago quarter. Depreciation and amortization totaled $42 million in 2026, up from $29 million in the year-ago quarter, with the increase largely due to incremental amortization and depreciation that stem from the Bowers acquisition. Interest expense, net of interest income, was $16 million for the first quarter 2026 and declined by $13 million from a year ago primarily due to our lower average debt balance than the year-ago period. Turning to income tax, even though we had pretax income during the first quarter 2026, we reported an income tax benefit of $13 million. This is largely due to the release of a valuation allowance on our deferred tax assets of approximately $20 million, which flipped income tax from an expense to a benefit. Partially offsetting the release is that a number of expense items are not tax deductible, such as the profit interest expense and certain amortization within our corporate tax-paying subsidiary group. We currently estimate our effective tax rate, or ETR, for the full year 2026 to be in the mid-20s to low-30% range. Though this will be substantially affected by any future profit interest expense, which is difficult to forecast due to the mark-to-market nature of this expense. Beyond 2026, we expect our ETR to gradually gravitate toward the low-30% range, though in any given year our ETR could be impacted by discrete items that may not be deductible for tax purposes. Regarding cash taxes, our current estimate for 2026 is in the high-20s to mid-$30 million range. In addition to our cash tax payments to federal and state jurisdictions, we currently expect to make a TRA payment of around $8 million to $9 million related to our 2025 operating activity sometime in late 2026 or early 2027. Our TRA payment related to estimated 2026 activity is under evaluation, but preliminary estimates put this range anywhere from the high-20s to low-$30 million range, with this payment likely to occur in early 2028. To the extent we have additional share exchanges, this should reduce our cash tax payment while increasing TRA payments by 85% of the reduction in cash tax. The net difference for Legence is a 15% reduction in the cash outflow. Speaking of cash flow, our free cash flow, defined as net income adding back depreciation and amortization, stock-based compensation and other noncash items, changes in working capital, and capital spending, exceeded $100 million in 2026, which translates to a conversion rate of over 85% of adjusted EBITDA. This is well above the roughly $25 million of free cash flow and 50% conversion rate in the year-ago quarter, reflecting our operating performance, lower interest burden, and improved working capital management. Switching gears now to backlog, we ended March with consolidated backlog and awards of $5.4 billion, up 104% from year-ago levels. Excluding Bowers, backlog and awards grew by almost $1 billion or 36%. Now when compared to pro forma year-end 2025, backlog and awards grew by approximately $200 million, translating to a book-to-bill for the first quarter of 1.2x. As Jeff mentioned, we closed out 2025 with some very large awards which elevated the three-month book-to-bill figure in the fourth quarter. I would also note that a book-to-bill ratio measured over a three-month period is quite sensitive to award timing, especially as our business is experiencing more elevated awards in the $100 million-plus range than we have seen in the past. In terms of our organic growth and backlog and awards, the data center and technology end market is the predominant driver, though we are also seeing growth in state and local government and education markets. Turning to our guidance, we are establishing second quarter 2026 guidance for consolidated revenue of between $1.05 billion and $1.1 billion and adjusted EBITDA between $115 million and $125 million. For full year 2026, we are increasing our revenue guidance to a range of $4.1 billion to $4.3 billion, up roughly 10% from our previous guidance range of $3.7 billion to $3.9 billion that we presented during our fourth quarter report on March 27, just seven weeks ago. As previously discussed, this increase in part reflects our current expectations on project timing and execution, as well as our outperformance in the first quarter. We are also raising our full year 2026 EBITDA guidance range to $470 million to $490 million, up from $400 million to $430 million. Our EBITDA guidance revision reflects the changes to our revenue guidance as well as a slight improvement in margin expectations, in large part based on our recent track record of outperformance and improved execution expectations. Now just a few other housekeeping items to help with your modeling efforts. Interest expense, net of interest income, for the second quarter is expected to be in the $15 million range, with full year 2026 in the high-$50 million range. Depreciation and amortization for the second quarter is expected to be slightly higher than the first quarter, with full year 2026 D&A in the mid-$170 million range. In terms of CapEx, we still expect full year 2026 spending to be in the $65 million range, two-thirds of which we would classify as for growth. Now moving to our balance sheet, liquidity, and leverage. We ended the first quarter with $245 million of cash, up from $230 million at year-end 2025. Total liquidity was $414 million at quarter end, nearly flat when compared to $424 million at year-end 2025, despite our use of cash for both the Bowers and Metrix acquisitions. Total debt at March was slightly over $1 billion, up approximately $200 million from year-end to reflect the upsizing of our term loan used to fund the Bowers acquisition. Based on pro forma last 12 months EBITDA, which would include EBITDA from Bowers between April through December 2025 prior to our ownership, our pro forma net leverage ratio is now 1.8x compared to 2.9x just nine months ago pro forma for the application of IPO proceeds which were used to repay debt. Borrowing acquisitions, we expect our net leverage ratio to continue to gravitate lower on the overall growth in the business and resulting cash generation. Based on this current leverage profile, we believe this gives us flexibility for M&A and, as always, we will take a disciplined approach to our evaluation of any opportunities. This concludes my remarks, and now I will turn the call back to Jeffrey.

Thanks, Steve. In closing and before we get to the Q&A, our first quarter performance was a great start to the year. We continue to execute extremely well on our projects, particularly with the larger installation and fabrication projects that allow us greater opportunities to leverage our skilled workforce and technical capabilities. This was our first quarter with Bowers, and I am really pleased with the integration progress and the financial impact that Bowers has already delivered, and we aim to improve further from here. Backlog and awards continue to grow to record levels which further de-risks our 2026 guidance and provides additional visibility into a portion of 2027. Our leverage position shows how quickly we can delever and puts us in a good financial position to be flexible with future M&A opportunities. I would like to close out our prepared remarks by acknowledging the outstanding contributions of our truly amazing employees. Your dedication and commitment to serving our customers is greatly appreciated. With that, we will now open the call up to questions. Operator?

As a reminder, to ask a question, please press 1-1 on your telephone. And wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by while we compile. Our first question comes from Adam Bubes with Goldman Sachs. Your line is open.

Hi, good morning. With leverage now back below 2x, do you see scope for larger-scale M&A in the medium term similar to something that looks like a Bowers? And any updated thoughts on puts and takes on pursuing M&A in engineering and design versus installation and maintenance?

I will take the first part of that, and Jeffrey will probably jump in on the second. Certainly, the improved leverage profile does give us and improve our flexibility to do acquisitions sooner. That said, I would not expect another acquisition the size of ours in the very near term. As we discussed when we announced the Bowers acquisition, we are going to be very focused on executing a successful integration, which we are well along the way on. We have made a lot of great progress. Bowers is exceeding expectations, so we are going to continue to keep our eye on the ball with Bowers, but over the medium term, it certainly does give us more flexibility to do some larger-scale M&A.

That is exactly right, Steve. And certainly on the engineering and consulting front, Adam, we love bolt-on or tuck-in acquisitions that add customers, add capacity, add expertise in a given market and systems. I would expect we will continue to do that as we have historically. Optionality is a huge win for us, and having the option to be able to pursue some larger or some might even call transformative acquisitions now that we have proven that we can delever in a rather quick fashion really helps us as we look at the market and our pipeline of opportunities. We are super picky in terms of the requirements that fit in our family: the right marketplace, the right geographies, the right profitability, the right services, and the right outlook. There are a lot of boxes to tick, but having the capability to act quickly now is a great position to be in.

Great. And then second question, just wanted to ask on the data center growth. Backlog obviously provides really nice visibility over the next 12 months, but based on your discussions with clients and visibility into the bid pipeline, what is your visibility on duration and magnitude of data center-driven growth beyond 12 months out?

It is a great question. We continue to have conversations daily and weekly with our data center clients, and we are getting further and further visibility into that backlog. We have orders in some of our fabrication work that go out to the end of 2028, and we continue to help them plan and spend their CapEx as they move forward.

Thanks so much.

Thank you. Our next question comes from Julien Dumoulin-Smith with Jefferies. Your line is open.

Hi, team. This is Tanner on for Julien. Good morning. The order activity continues to be robust in I&M. You have got the visibility extending. Can you walk us through your view on the adequacy of your current modular capacity with Bowers integrated and maybe what considerations could go into either further organic or inorganic investment to increase capacity?

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, and we see a lot of strength in that market, the OSM market. Our clients moving to very rural areas and the size and complexity of these projects is really driving that business. We feel strongly about it and have the capacity to continue to grow. Obviously, if demand continues to get larger, we would have to look at further expansion, but that is always at the forefront of our minds.

We continue to leverage new square footage, automation, adding shifts, and extending hours. We are benefiting from the learning curve. These are custom projects, but in the data center space they are also high volume, and we are seeing higher throughput on these jobs as we get better at them. That certainly plays into the capacity evaluation.

Great. Thanks for that color. And I will follow up on the M&A angle given the nice delevering position here. As you wait platforms for inorganic growth, maybe this is an offshoot of Adam's question, but in the context of growth versus margin, with Bowers you saw an opportunity to target growth with a longer-term margin expansion opportunity. Within I&M, how do you expect to consider margin accretion or margin improvement in organic growth and opportunities that you are seeing in the market?

We like all four service lines we participate in today, and they each have differing margin profiles. We are certainly open to expansion within any of those. As Jeffrey mentioned, we are picky. We look for companies that have strong margins within those service lines or if we see an opportunity to improve their margins in those lines, that would also be a factor. I would not say that we would shy away from another business that has a large installation and fabrication component, which is our lowest margin profile of all our core service lines, as you can see from Bowers. That can add significant shareholder value given the overall accretion it can bring, and we have been able to increase our margins despite what could have been seen as a headwind there.

Thank you. Our next question comes from Brian Brophy with Stifel. Your line is open.

Yes, thanks. Good morning, everybody. Nice quarter. There was a notable sequential jump in the life sciences and health care backlog based on some disclosures in the deck, and it appears only some of that was related to Bowers. Any other color you can provide on what is driving that?

Thanks. We noted in the past that coming out of COVID there was some hangover in the life science end market with the overbuild through that period, and we are seeing that open back up. RFQs have been increasing and we've been able to book a couple of really nice large projects with clients that we have been with for decades. We expect that to continue. We are seeing more activity in that market, and some of that is also in our fabrication service line. We are doing both installation and fabrication in that market, so it is really positive right now.

That is helpful. Do you mind touching on the fab-only growth you saw in the quarter? Any update on how much that accounts for as a percentage of revenue at this point and how you are thinking about the outlook there for the rest of the year?

It continued to grow as expected as a percentage of the installation and maintenance segment. In the fourth quarter we were near the 20% area, and it has increased into the low twenties. We would expect that to probably continue to gravitate higher in the near term.

Appreciate it. I will pass it on.

Thank you. Our next question comes from Derek Soderberg with Cantor Fitzgerald. Your line is open.

Hey, guys. Thanks for taking the questions. I wanted to start with the E&C segment margins at around 33% this quarter. It looks like the E&C margin over the past few quarters has been in the low 30s or so and maybe behind the historical mid-30s margin. Can you comment on what you think margin will be for E&C this year and timeline to get back to a more normal margin?

Great question. The first quarter of last year was really an outlier when we look back over the last four or five years. Our more typical margin range has been from the low 30s to around 37%, and we are kind of falling squarely in the middle of that now. The gravitation a bit lower in the last few quarters versus the 35 to 37% range is due to a higher growth rate in program and project management. We certainly provide a lot of engineering services in that work, but because of the overall size of the project management activities, it is a lower margin service line. I would expect going forward for the segment to remain more in that historic range of low- to mid-30s.

Got it. That is helpful. As my follow-up, a clarification on the equipment cost. Looking at it as a percentage of revenue it was up a bit at $283 million. How much of that is lower-margin pass-through on some of the equipment and if you exclude that, how would the underlying gross margins trend look?

That is why we have broken that out, because historically that and subcontractor cost typically do not have the same margin as our labor. It really varies—sometimes something might be a pure pass-through; other times there might be 5% to 10% margin. So there is not one specific margin number we can give you on that pass-through, but it is typically much lower than our overall margin on labor.

Got it. Super helpful. Thanks, guys.

Sure. Thank you.

Thank you. Our next question comes from Michael Dudas with Vertical Research Partners. Your line is open.

Good morning, gentlemen.

Good morning, Michael.

Jeffrey, in your remarks you talked about in the engineering and consulting business some gaining traction with some of your data and technology customers. Can you elaborate a little bit about what that means and how that impacts the mix of business or the tempo of bookings over the next few quarters?

It is a function of leveraging our experience and relationships with a lot of these customers that we have 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 greenfield facilities. We have been able to leverage those relationships and offer an integrated service offering. Historically, E&C's markets have been other markets such as health care and state and local government and K-12 and higher education. To be able to expand into these high-tech customers is exciting for us. Credibility is a big deal to gain new business, and to leverage hard-earned credibility to introduce complementary services has been great to see, and it is a big internal focus in terms of cross-selling, training, and tactics. I don't have a specific number to quote, but it is an ongoing trend we will push hard going forward.

That sounds good. To follow-up, you mentioned you had accelerated bookings in Q4 that took a bit from Q1. Looking at the pipeline and conversion cadence, given what we see in the marketplace, customers want things done quickly. Is that the right way to think about timing and flow over the next few quarters?

The timing of bookings is sensitive over a quarter. If you average the first quarter and the fourth quarter, it's very robust at 1.5 times. We do not typically forecast a book-to-bill, but we are not really seeing a slowing in the data market.

I agree. From a pipeline standpoint, when we put some chunky bookings into our backlog, we have been able to replenish it and keep it strong. So we feel positive that the trend will continue. In the case of data centers and modular construction, by the time we get called in, the project is well underway. When they say they need help, it is go time, and that's to our benefit—our ability to scale, design, and manufacture quickly is a differentiator.

Excellent. Thank you, Jeff.

Thank you. Our next question comes from Miguel Marques with Bernstein. Your line is open.

Morning, guys, and thanks for taking the question. Two-part. On the modular business first, what sort of margin profile does that business have relative to the rest of I&M, just to get a sense of mix impact—could it be accretive or dilutive to margin going forward?

We do not disclose the margin separately, but I would say it is accretive. Our margin profile is higher when we are doing custom fab work than a large installed job, so it is a benefit to us that the percentage of fab is increasing.

Understood. Second, high level question on free cash flow. How are you thinking about free cash flow for this year, and given the trend of the business being less working-capital intense, if that is structural, what could it mean in terms of longer-term free cash flow profile? You talked about more than 85% adjusted EBITDA conversion this quarter; is that something we could anchor to going forward?

Good question. We do not specifically guide to free cash flow, but at the time of the IPO we discussed that we saw conversion rates increasing from historic levels going forward, and that has happened. Debt paydown and better working capital management have helped. The first quarter we grew revenues tremendously and still saw a benefit from working capital. I would not necessarily expect that every quarter. With custom fab work, we do typically get higher levels of prepayments than other work, which is a trend we expect to continue, but when you are growing revenue at a high rate, quarter-to-quarter you might typically expect working capital to be a bit of a use of cash.

Thank you. As a reminder, to ask a question, please press 1-1 on your telephone. Again, that is 1-1 to ask a question. Our next question comes from Oliver Davies with Rothschild and Co. Redburn. Your line is open.

Good morning. Two for me. Any color on end market growth organically, particularly data centers, and anything else you would call out? Secondly, how should we think about adjusted SG&A as a percent of sales going forward, particularly in the context of the relative growth rates of E&C and I&M?

On adjusted SG&A as a percent of revenue, we would expect it to probably gravitate down if we are continuing to grow revenue at a double-digit pace. We will need to grow G&A, but when growing at a double-digit top-line rate, G&A should not grow at quite the same pace, and we should continue to see economies of scale over time.

Regarding end market growth in data center and technology, we are seeing about 30% organic growth there. We are continuing to grow all of our other end markets on a true dollar basis, though commercial real estate is soft and not a primary market for us right now.

Hey, good morning, gentlemen. Congrats on the nice quarter. Going back to M&A, given the hype and interest around MEPs for data centers, are you seeing valuations for M&A targets rise? Is price becoming a larger factor?

Good question. Maybe a little bit. We do not have visibility into every process, but people realize the systems going into data centers are critical and good providers deliver a ton of value. As a general statement, valuations are probably up a bit, but I do not think they are prohibitive. We will always look at the value they bring from a pricing perspective, and we do not see anything prohibitive from a pursuit perspective.

Thanks. My follow-up, on your revised guide, can we use Q1 as a run rate to think of E&C annualizing to about $660 million and I&M to about $3.5 billion to get to the $4.3 billion revenue range? Is that a fair split for your two segments?

I would not take Q1 as an annualized figure for E&C because there is seasonality. I&M is less seasonal, so it will be driven more by backlog and awards scheduling.

Alright. Thank you, guys. This concludes the question-and-answer session.

I would now like to turn it back to Son Vann for closing remarks.

Thank you, everyone, for attending our first quarter 2026 earnings call. A recording of this call will be available on our website in a few hours. I look forward to updating you again on our next earnings call. With that, this concludes our call.

Thank you very much.

This concludes today's conference call. Thanks for participating. You may now disconnect.