Legence (LGN) risk factors, FY2025 10-K

Risks Related to Business

1. 01Economic downturns in the markets in which we operate may materially and adversely affect our business because our business is dependent on levels of construction activity
2. 02have long lifecycles from conception to completion, and the bulk of our performance generally occurs late in a construction project’s lifecycle
3. 03If we do not compete and evolve effectively in our target markets, our operating results could be harmed
4. 04Misconduct and errors by our employees, subcontractors, partners or third-party service providers could harm our business
5. 05It is important for us to accurately estimate and control our contract costs, particularly with respect to our fixed-price contracts, so that we can maintain positive operating margins and profitability. Our services are primarily provided on a fixed-price basis
6. 06A failure to secure new contracts may adversely affect our cash flows and financial results
7. 07If we fail to complete a project in a timely manner, miss a required performance standard or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability or subject us to liquidated or other damages
8. 08The fact that we outsource various elements of the services we sell and use materials and equipment produced by third parties in our projects subjects us to the business risks of our subcontractors and suppliers, which could have a material adverse impact on our operations
9. 09Our clients often rely on third party financing to pay for their projects, and this capital might not be available on acceptable terms or at all
10. 10As of December 31, 2025, we had backlog and awarded contracts of approximately $3.7 billion
11. 11In order to secure contracts for new projects, we face a variable selling cycle that requires resource commitments and has a lead time before we realize revenues
12. 12Certain contracts may give customers the right to modify, delay, curtail, renegotiate or terminate existing contracts at their convenience at any time prior to their completion, which may result in a decline in our profits and revenue
13. 13From time to time, we may perform work beyond the initial scope of some of our contracts. If these clients do not approve these change orders, our results of operations could be adversely impacted
14. 14If we experience delays and/or defaults in client payments, we could be unable to recover all expenditures
15. 15If we fail to promote, maintain or enhance our brands in a cost-effective manner, we may lose market share and our revenue may decrease
16. 16We place significant decision-making powers with our brands’ management, which presents certain risks
17. 17The loss of senior management or other key employees, or failure to implement effective succession planning strategies, may have a material adverse impact on our business
18. 18Competition for our employees is intense, and we may not be able to attract, integrate or retain the appropriate number of qualified employees needed to support our business
19. 19We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs
20. 20We may be required to contribute additional cash to meet our benefit obligations associated with multiemployer pension plans in which we participate
21. 21Our profitability could suffer if we are not able to maintain adequate utilization of our workforce
22. 22Our clients have been and could be impacted by the availability and prices of commodities, services, equipment and materials
23. 23The loss of one or a few clients could have an adverse impact on us
24. 24The nature of our business exposes us to potential liability for warranty, engineering and other related claims and our insurance policies may not provide adequate coverage
25. 25Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations
26. 26Legal proceedings, investigations and disputes could result in substantial monetary penalties and damages, especially if such penalties and damages exceed or are excluded from existing insurance coverage
27. 27If our goodwill or other intangible assets become impaired, then our profits may be significantly reduced
28. 28Our use of the cost-to-cost input method of accounting could result in a reduction or reversal of previously recorded revenue or profits
29. 29Changes in accounting rules and regulations could adversely affect our financial results
30. 30We have identified material weaknesses in our internal control over financial reporting which could, if not timely remediated, adversely affect our ability to accurately and timely report our financial results

Risks Related to Growth and Acquisitions

1. 31As a growing company with a relatively limited operating history at our current scale, we face various risks, uncertainties, expenses and difficulties. Our business is dependent on our ability to effectively continue to develop, maintain and scale our platform
2. 32We may not be able to achieve expected returns from our growth strategy
3. 33If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business
4. 34From time to time, we may evaluate and potentially consummate acquisitions or other strategic business combinations, which could require significant management attention, disrupt our business and adversely affect our financial results
5. 35We may have difficulty integrating the operations and personnel of any acquired company
6. 36We may acquire other companies, which could result in dilution to our shareholders or otherwise impact our financial position
7. 37Delaware law and our organizational documents may impede or discourage a merger, takeover or other business combination with us even if the business combination would have been in the short-term best interests of our stockholders
8. 38Increases and uncertainty in our health insurance costs could adversely impact our results of operations and cash flows
9. 39If we expand our operations internationally, we could be subject to new challenges and risks and our financial results could be adversely affected

Risks Related to Indebtedness

1. 40We have a significant amount of existing indebtedness and our ability to make scheduled payments on or to refinance our obligations will depend on many factors, some of which are beyond our control
2. 41The agreements governing our debt contain a number of restrictive covenants which will limit our ability to finance future operations, acquisitions or capital needs or engage in other business activities that may be in our interest
3. 42Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly
4. 43Our incurrence of additional indebtedness may affect our business and may restrict our operating flexibility
5. 44A downgrade in our debt rating could restrict our ability to access the capital markets
6. 45We may not be able to maintain sufficient bonding and letter of credit capacity to successfully bid on and win some contracts
7. 46We may incur liability to our clients under our ESPCs if our projects do not meet the promised performance standards and energy use reductions to which we are committed to under our contracts
8. 47Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our leverage

Risks Related to Regulations

1. 48Our business and our clients’ businesses are subject to a variety of federal, state and local laws and regulations, which could adversely affect our business, financial condition and results of operations
2. 49Some of our clients receive federal, state and local government incentives for building new facilities or to make energy efficiency upgrades to their buildings. If these incentives are reduced or limited, the scope for some of our projects may be impacted and there may be less demand for our services
3. 50Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our results of operations and financial condition
4. 51Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, financial condition and results of operations
5. 52We are government contractors, and our brands are accordingly subject to a number of rules and regulations, and their contracts with government entities are subject to audit. Violations of the applicable rules and regulations could result in a brand being barred from future government contracts

Risks Related to the Environment, Health and Safety

1. 53Environmental, health and safety laws could impose significant additional costs and liabilities
2. 54Increasing scrutiny, regulatory requirements and changing expectations from various stakeholders with respect to sustainability and other environmental, social and governance matters may impose additional costs on us or expose us to reputational or other risks
3. 55We may be unable to achieve our current or future climate commitments and other goals, or we may incur substantial costs in meeting such commitments and goals
4. 56Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by man-made problems such as political disruption, strikes and terrorism

Risks Related to Our Class A Common Stock and Structure

1. 57Our sole material asset consists of our membership interests in Legence Holdings (held by us directly and indirectly), and we are accordingly dependent upon distributions from Legence Holdings to pay taxes, make payments under the TRA and cover our corporate and other overhead expenses
2. 58We do not intend to pay dividends and may never pay dividends
3. 59Our sale or issuance of additional Common Stock or other equity-related securities could dilute each stockholder’s ownership interest or adversely affect the market price of our Class A Common Stock
4. 60We will be required to make payments under the TRA for certain tax benefits we may claim, and the amounts of such payments could be significant
5. 61In certain cases, payments under the TRA may be accelerated and/or significantly exceed the actual benefits we realize, if any, in respect of the tax attributes subject to the TRA
6. 62We will not be reimbursed for any payments made under the TRA in the event that any tax benefits are subsequently disallowed
7. 63able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status
8. 64In certain circumstances, Legence Holdings will be required to make tax distributions to us and the Pubco Subsidiaries, and the LGN Unit Holders, and the tax distributions that Legence Holdings will be required to make may be substantial
9. 65The price of our Class A Common Stock may fluctuate significantly, and you could lose all or part of your investment
10. 66Our Sponsor controls a significant percentage of our voting power
11. 67A significant reduction by our Sponsor of its ownership interests in us could adversely affect us
12. 68Our Sponsor may invest in other companies in the future that may compete with us. Conflicts of interest could arise in the future between us, on the one hand, and our Sponsor, on the other hand, concerning, among other things, potential competitive business activities or business opportunities
13. 69opportunities are procured by such parties for their own benefit rather than for ours. Any actual or perceived conflicts of interest with respect to the foregoing could have an adverse impact on the trading price of our Class A Common Stock
14. 70Future sales of our Class A Common Stock in the public market could reduce the market price of our Class A Common Stock, and any additional capital raised by us through the sale of equity or convertible or exchangeable securities may dilute ownership in us
15. 71If securities or industry analysts do not publish research reports or publish unfavorable research about our business, the price and trading volume of our Class A Common Stock could decline