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Good day, and thank you for standing by. Welcome to the first quarter 2026 Legence earnings conference call. 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 first quarter 2026 earnings call. With me today are Jeff 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 wanna 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 obligations 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 Jeff.

Thank you, Son, and thanks to everyone for joining today to discuss our first quarter performance and current outlook for Legence. It's 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. On our first quarter results, Stephen will go into greater detail, but at a high level, total revenues more than doubled year-over-year to just over $1 billion.

To put that into perspective, Legence generated $1.2 billion of revenue for all of 2022. We've 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, healthcare, education, and state and local government also posted solid gains.

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.

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. The addition of Bowers not only expanded our mechanical presence in the D.C. Virginia region, we also diversified our client base in this end market, increasing our presence with certain hyperscalers and co-locators. 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 1.2 times.

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. 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+ engineers and consultants to deliver projects at the highest standards for our clients across both segments. While we're always mindful of having the right people necessary to execute 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 wanna be from a functionality and efficiency standpoint, we are largely up and running on 1.3 million sq ft 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're 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're in a great position to capitalize on this trend. With that, let me turn the call over to Stephen.

Thank you, Jeff, and good morning, everyone. For the remainder of our call, I'll begin with a review of first quarter 2026 results in comparison to first quarter of 2025. Following my review of our historical results, I'll make some brief remarks about our current guidance, discuss our balance sheet and liquidity position before handing the call back to Jeff. Starting with the first quarter of 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 has given us a chance to apply best practices and continuously improve our delivery model and efficiencies. As we gain in efficiency, one of the outcomes is that we're 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 system 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'll cover later in my remarks.

Breaking down our latest quarterly revenue growth at the segment level, starting with Engineering and Consulting. The segment revenue grew by 14%, most of which was organic, to $166 million. Program and project management service revenues grew at a robust 75%, with particularly strong growth in K–12 schools, as we're working on several large projects in Pennsylvania, Virginia, and West Virginia. We also saw additional activity in data centers and technology. 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 healthcare, 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 first quarter of 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 of 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.

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 the first quarter of 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 of 2026, compared to approximately $111 million and 21.9% in the first quarter of 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 engineering and consulting segment. This was somewhat offset by the strong margin improvement in the INM segment.

Delving into margins at the segment level, first quarter of 2026 Engineering and Consulting adjusted gross margin was 33.2%, down from 40.7% in the first quarter of 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 the 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 non-cash 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 non-cash 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, though, adjusted SG&A as a percentage of revenue improved significantly to 8%, down from 12.6% in the year ago quarter as we benefit 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 of 2026, an increase of 132% from first quarter of 2025 levels. Adjusted EBITDA margin for the first quarter of 2026 improved by approximately 133 basis points to 11.4% compared to the year ago quarter.

Depreciation and Amortization totaled $42 million in the first quarter of 2026, up from $29 million in the year ago quarter, with the increase largely due to incremental amortization and depreciation that stemmed from the Bowers acquisition. Interest expense net of interest income was $16 million for the first quarter of 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 pre-tax income during the first quarter of 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-20% 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 $20 million 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-$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 $20 million 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 payments 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 comp, and other non-cash items, changes in working capital and capital spending, exceeded $100 million in the first quarter of 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 end in 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%.

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 1.2 times. 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'd 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+ 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-$4.3 billion, up roughly 10% from our previous guidance range of $3.7 billion-$3.9 billion that we presented during our fourth quarter report on March 27th, 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-$490 million, up from $400 million-$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. Moving to our balance sheet, liquidity, and leverage. We ended the first quarter with $245 million of cash, up from $230 million at the end of 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 the end of 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 1.8 times, compared to 2.9 times just nine months ago, pro forma for the application of IPO proceeds, which were used to repay debt. Barring 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, though as always, we will take a disciplined approach to our evaluation of any opportunities. This concludes my remarks, and I'll now turn the call back to Jeff.

Thanks, Stephen. In closing, and before we get to the Q&A, our first quarter performance was a great start to the year. We continued 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'm 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 de-lever and puts us in a good financial position to be flexible with future M&A opportunities.

I'd 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'll now open the call up to questions. Operator?

Our first question comes from Adam Bubes with Goldman Sachs. Your line is open.

Hi, good morning.

Good morning, Adam.

Yeah.

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

Yeah, I'll take the first part of that, and Jeff will probably jump in on the second. I mean, certainly the improved leverage profile does give us and improve our flexibility to do acquisitions sooner. That said, I wouldn't expect another acquisition the size of Bowers in the very near term. As we discussed at the time we announced the Bowers acquisition, you know, we're gonna be very focused on executing on a, you know, successful integration, which we're well along the way there, made a lot of great progress. Bowers is exceeding expectations. We're gonna continue to keep our eye on the ball with Bowers. You know, I think over the medium term, it certainly does give us more flexibility to do some larger scale M&A.

Yeah, that's exactly right, Stephen. Certainly on the E&C front, Adam, we love bolt-on or tuck-in acquisitions that add customers, add capacity, add expertise in given markets and systems. I'd expect we will continue to do that as we have historically. Stephen is exactly right. You know, optionality is a huge word for us, and having the option to be able to pursue some larger or some might even call transformative acquisitions, now that we've proven that we can de-lever in a rather quick fashion, really helps us as we look at the market and look at our pipeline of opportunities. We're super picky in terms of the requirements that fit in our family, in terms of the right marketplace and the right geographies and the right profitability and the right services and the right outlook.

There's a lot of boxes to tick, so to speak, but having the capability to be able to act quickly now is really a great position to be in.

Great. Then second question, just wanted to ask on the data center growth, you know, backlog. Obviously, this provides really nice visibility over the next 12 months. Based on your discussions with clients and visibility into bid pipeline, what's your visibility on duration and magnitude of data center-driven growth beyond 12 months out?

Yeah, it's a great question. We continue to have conversations daily, weekly with our data center clients, and we're getting further and further visibility into that backlog. We've got orders in some of our fabrication stuff that go out to the end, you know, Q4 of 2028. We continue to help them and plan and spend their CapEx as they move forward.

Great. Thanks so much.

Thank you.

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.

Morning.

Hey, morning. You know, the order activity continues to be robust in INM. You've got the visibility extending. Can you maybe 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?

Yeah. You know, our capacity ebbs and flows, you know, with the demand and schedules from our clients. We have capacity to continue to grow, and take on more opportunities, you know, we see a lot of strength in that market, the OSM market, you know, our clients moving to very rural areas and the size and complexity of these projects is really driving that business. We feel really strongly about it, and we have the capacity to continue to grow it. Obviously, if demand continues to get larger, we'd have to look at further expansion, that is always on our forefront of our minds.

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

Great. Thanks for that color. You know, I too will follow up on the M&A angle, given the nice delevering position here. As you weigh platforms for inorganic growth, maybe this is an offshoot of Adam's question, but I wanted to ask this in the context of growth versus margin. You know, with Bowers, you saw an opportunity to target growth primarily with, you know, a longer-term margin expansion opportunity. Even within INM, how do you expect to consider margin accretion or margin improvement from an organic front and opportunities that you're seeing in the market? Thanks.

Yeah. You know, we like all four service lines that we participate in today. You know, they each have a differing margin profile. You know, we're certainly open to expansion within any of those. As Jeff mentioned, we're picky. We look for companies that have strong margins within those service lines or, you know, if we see an opportunity to improve their margins in those service lines, that would also be a factor that we would consider. I wouldn't say that we would shy away from, for example, another business that has a large installation and fabrication component, which would be our lowest margin profile of all our core service lines. As you can see from Bowers, you know, that can add significant shareholder value with the overall accretion it can bring.

We've been able to increase our margins kind of despite what could have been seen as a headwind there.

All right. Great. Thank you very much.

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

Yeah. Thanks. Good morning, everybody. Nice quarter. There was a notable sequential jump in the life sciences and healthcare backlog, it looks like, based on some of the disclosures in the deck. It appears only some of that was related to Bowers. Just any color, any other color you can provide on what's driving that. Thanks.

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

Yeah. That's great. That's helpful. If you wouldn't mind touching on the fab-only growth that you saw in the quarter. Any update on how much that accounts for as a percentage of revenue at this point, and just how you're thinking about the outlook there for the rest of the year? Thanks.

Sure. It's continued to grow as expected as a percentage of the installation maintenance segment. I think it's in the fourth quarter we were in, near the 20% area, and you know, it's increased into the low 20s. We'd expect that to probably continue to gravitate higher in the near term.

Appreciate it. I'll pass it on.

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

Yeah. Hey, guys. Thanks for taking the questions. Wanted to start with the E&C segment margins, 33% or so this quarter. It looks like the E&C margin over the past few quarters has been kind of in the low 30s or so and maybe behind the historical kind of mid-30s margin. I was wondering if you could maybe comment on where you think margin will be for E&C this year, and maybe what's the timeline to get back to, more of that normal, margin. Thanks.

Yeah, no. Great, great question. You know, as we pointed out, 1st quarter last year was really an outlier when we look back over the last four or five years. You know, our more typical margin range has been from low 30s to, you know, say 37% or so. We're kind of falling squarely right in the middle of that now. You know, the gravitation a bit lower the last few quarters than, say, from the 35%, 36%, 37% range has been a higher growth rate in program and project management. We certainly provide a lot of engineering services, you know, in that.

You know, we lead with the engineering, but because of the overall size of the project management activities in there, you know, it's just a lower margin service line. I would expect going forward, it to remain more in that historic range of low to mid-30s%.

Got it. That's helpful.

Quarter-to-quarter.

Got it. Got it. As my follow-up, just a clarification and maybe some more detail on the equipment costs. You know, just looking at it from a % of revenue, it looks like it was up a bit, you know, at $283 million. I was wondering how much of that is sort of low margin pass-through on some of the equipment and, you know, if you sort of exclude that, how would the underlying gross margins trend sort of look like? I was wondering if you could maybe provide some more detail on that. Thanks.

Yeah. You know, and, and that's why we've broken that out historically, that and the subcontractor costs because, you know, we typically wouldn't expect to get the same margin as we do on our labor on both of those activities. But it really varies. You know, sometimes something might be a pure pass-through. Other times, you know, someone might be able to get 10% or 5%, you know? There's not one specific, you know, margin number we can give you on that pass-through, but it, but it is typically much lower than our overall margin that we'd expect to generate on our 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.

Hey, Michael.

Jeff, in your pre-prepared remarks, you talked about in the engineering and the consulting business, some gaining traction with some of your data or technology customers. Maybe you can elaborate a little bit about what that means and how that impacts maybe the mix of business or the tempo of bookings over the next few quarters.

No, it's really a function of leveraging our experience and relationships with a lot of these customers that we've had for decades, and our ability to take an INM relationship in the semiconductor space and introduce them to our E&C capabilities as they look to either expand their facilities or actually greenfield facilities. We've been able to leverage those relationships and now offer this integrated service offering to them. I would expect that to continue. That's part of the thesis of Legence in general, is to be more relevant and more sticky and provide more end-to-end services to our clients. That was a really great example for us. Now, historically, E&C's markets have been in other markets, such as healthcare and state and local government and K–12 and higher education schools.

To be able to really expand that, their market set is really exciting for us. You know, it's in these high tech customers, you know, their credibility is a big deal for you to gain new business. To be able to leverage credibility that has been well-earned, hard-earned for decades, and introduce a complimentary service is really been great to see. It's a big focus internally as we look at opportunities and share cross-selling tactics and training and that, and that sort of thing. I don't have a number I could quote you in terms of predictions, but it's absolutely the trend that we're supportive of and we'll be pushing hard going forward.

That sounds good. To follow up, you mentioned or Stephen mentioned your bookings, you had accelerated bookings in Q4 that took a little bit from, say, Q1. Maybe you can look at the pipeline and your conversion cadence and how that may flow through the next few quarters. I'd assume, given what we're seeing in the marketplace, customers want things done yesterday as opposed to tomorrow.

Well, that's true. You know, the timing of the bookings, though, again, a quarter is a short period, so we certainly look at it over a little bit longer period. You know, if you average the first quarter and the fourth quarter, very robust at 1.5 times. You know, we don't typically forecast a book-to-bill, but we're not really seeing a slowing in the data market.

No, I agree, Stephen. From a pipeline standpoint, as we've put some real chunky bookings into our backlog. Even though we don't report on pipeline, we've been able to replenish it and keep it strong. We feel positive that that trend will continue.

Just to pile on there. Certainly in the case of data centers and modular construction, by the time we get called in, that project is well underway. So you're right, Michael, in terms of when they say, "Hey, we need your help here," it's go time, right? It's a quick turnaround, and that's actually to our benefit. Our ability to be quick to scale, quick design, and quick to manufacture is a differentiator. That's the reality. If you wanna participate in that business, you have to have that skill set.

Excellent. Thank you, gentlemen.

Thank you.

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

Good morning, guys, and thank you for taking the question. Just a two-parter for me. On the modular business first, what sort of margin profile does that business have, even in context to the rest of I&M, if you could, just to get a sense of the mix impact there, if that could either be accretive or not to margin going forward?

Yeah. We don't disclose the margin separately, you know, on that. I would say though that it is accretive. It's, you know, our margin profile is higher when we're doing custom fab work than a large in-install job. It is, you know, it benefits to us that percentage of fab is increasing.

Understood. More just a high level question on free cash flow. I guess first, how are you guys thinking about free cash flow for this year? Second, you know, obviously there's been a trend of your business just being less working capital intense over the last several quarters. In that vein, you know, if this were to be structural, I guess, what do you think it could mean in terms of your longer term free cash flow profile? If there's a way to think about that or not, be it free cash flow margin or conversion. I know you guys talked about more than 85% Adjusted EBITDA conversion this quarter, but is that something that we could anchor to going forward? What should that look like?

Yeah. Good, good question. You know, it's not something we specifically guide to, but just when thinking about some of the puts and takes, we do certainly have good momentum in the business and, you know, even at the time of the IPO, we talked about the fact that we saw our conversion rate increasing from historic levels going forward. And it has, and certainly the debt pay down helps. Better working capital management was something that we talked about that we were focused on. We've seen the benefits of that. All that said, the first quarter, you know, we grew revenues tremendously and still had a benefit from working capital. I don't know that I would, you know, guide to that every quarter.

Though with our custom fab work, we do tend to typically get a higher level of prepayments than we do on other work. That's a trend that we would still expect to continue. I think when you're growing revenue at such a high rate, probably typically, quarter in, quarter out, maybe expect working capital to be a bit of a use of cash.

Thanks.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that is star 11 to ask a question. Our next question comes from Oliver Davis with Rothschild & Co Redburn. Your line is open.

Hiya. Hi, guys. Good morning. Just two from me. I just wonder if you could provide, you know, any color on end market growth organically, particularly data centers and anything else that you'd call out? Secondly, you know, how should we think about, you know, adjusted SG&A as a percent of sales going forward, you know, particularly in the context of the relative growth rates of E&C and I&M? Thanks.

You wanna start with this one?

I'll start with the second question and then hand it to Steve. You know, on adjusted SG&A as a % of revenue, I think we'd expect it to probably gravitate down if we're continuing to grow revenue at double-digit pace. You know, that's obviously a key factor. We are gonna need to grow our G&A, but we'd expect when we're growing at a double-digit pace on the top line that it wouldn't grow at quite the same pace, and so should continue to see some economy to scale over time.

On end market growth in the data center and technology, right? We're seeing that we're about 30% organic growth in there. I'd point out that we're continuing to grow all of our other end markets as well. As a percentage of revenue, you know, they take a hit because the data center technology is large. On a true dollar basis, we're seeing growth in all of our end markets, you know, maybe except what we would call commercial real estate. It's a soft market right now and not a key market that we're pursuing day in and day out.

Okay. Thanks.

Thank you. Our next question comes from Chris Song with Wolfe Research. Your line is open.

Hey. Good morning, gentlemen. Congrats on a nice quarter. Just going back to M&A. Given all the hype and interest around MEPs for data centers, are you seeing valuations for M&A targets rise? Like, is price becoming a larger factor?

Yeah, it's a good question. You know, maybe a little bit. You know, we don't have, obviously, visibility into every single deal and every single process. I think people realize that the systems that are going into these data centers are really, really critical, and the good providers are delivering a ton of value. You know, as a really vague but general statement, I think they're probably going up a little bit. I don't, however, think they're going up so much that they would not be attractive to pursue. Of course, like any, whether it's MEP or E&C or any consultancy, we're always gonna look at sort of the value that they would bring from a pricing perspective. We don't see anything that's prohibitive for us from a pursuit perspective.

Okay. Thanks. Just on my follow-up. On your revised guide, I mean, can we use 1Q as, like, a run rate to, like, thinking of E&C revenue annualizing to, let's say, $660 million, and then I&M to, like, $3.5 billion to get to that, you know, $4.3 billion revenue range? Is that a fair split for, like, your two segments?

I think, for E&C, we still have a bit of seasonality, so I probably wouldn't take the first quarter as a kind of an annualized type figure to take. I&M is probably, you know, quite a bit less cyclical, or seasonal, I should say. You know, that's probably gonna be driven more so by our backlog and awards, scheduling.

All right. Thank you, guys.

Thank you. 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. 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.