Legence Corp.LGN
Legence Corp. Leases Disclosure
Leases
The Company leases real estate, vehicles, and equipment under various arrangements. Certain real estate operating leases are under non-cancelable agreements with entities owned by members of its management team and/or Parent interests holders.
The Company's operating leases primarily consist of real estate and equipment leases while finance leases primarily consist of vehicle leases. Many of the real estate operating leases contain options to renew or terminate the lease, generally at the Company's discretion. Lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. The Company does not have any leases that have not yet commenced that create significant rights and obligations for the lessee.
The Company has short-term leases ranging in terms of 12 months or less. The majority of the Company's short-term leases relate to facilities and equipment used on construction projects. Construction equipment leases are generally entered into at agreed upon hourly, daily, weekly, or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such leases are considered short-term in nature unless it is reasonably certain that they will be leased for a period greater than 12 months. The below tables present information for lease positions, lease expense, cash flow and other information, and maturity of lease liabilities.
Lease position: Supplemental balance sheet information related to operating and finance leases was as follows (in thousands):
| December 31, | |||||||||||||||||
| Balance Sheet Classification | 2025 | 2024 | |||||||||||||||
| Finance leases | |||||||||||||||||
| Assets | |||||||||||||||||
| Finance lease assets | Property and equipment, net | $ | 10,965 | $ | 7,444 | ||||||||||||
| Liabilities | |||||||||||||||||
| Current finance lease liabilities | $ | 3,747 | $ | 2,548 | |||||||||||||
| Long-term finance lease liabilities | 6,895 | 4,668 | |||||||||||||||
| Total finance lease liabilities | $ | 10,642 | $ | 7,216 | |||||||||||||
| Weighted-average remaining lease term in years: | |||||||||||||||||
| Operating leases - related parties | 5.5 | 6.3 | |||||||||||||||
| Operating leases | 5.6 | 6.5 | |||||||||||||||
| Finance leases | 3.1 | 3.1 | |||||||||||||||
| Weighted-average discount rate: | |||||||||||||||||
| Operating leases - related parties | 7.8 | % | 7.8 | % | |||||||||||||
| Operating leases | 7.2 | % | 7.5 | % | |||||||||||||
| Finance leases | 7.2 | % | 8.1 | % | |||||||||||||
Lease expense: The components of lease expense recognized in the Consolidated Statements of Operations are as follows (in thousands):
| Consolidated Statements of Operations Classification | Year Ended December 31, | ||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||
| Finance lease expense: | |||||||||||||||||||||||
| Amortization expense | Depreciation and amortization | $ | 3,752 | $ | 2,460 | $ | 2,397 | ||||||||||||||||
| Interest expense | Interest expense, net of capitalized interest | 670 | 474 | 381 | |||||||||||||||||||
| Operating lease expense - related parties | Cost of revenue | 960 | 882 | 510 | |||||||||||||||||||
| Operating lease expense - related parties | Selling, general and administrative | 4,365 | 4,024 | 2,408 | |||||||||||||||||||
| Operating lease expense | Cost of revenue | 1,637 | 2,921 | 2,511 | |||||||||||||||||||
| Operating lease expense | Selling, general and administrative | 19,431 | 11,533 | 7,456 | |||||||||||||||||||
| Short-term lease expense | Cost of revenue | 24,541 | 19,096 | 13,867 | |||||||||||||||||||
| Short-term lease expense | Selling, general and administrative | 773 | 1,153 | 1,508 | |||||||||||||||||||
| Variable lease expense | Selling, general and administrative | 2,874 | 1,642 | 2,338 | |||||||||||||||||||
| Total lease expense | $ | 59,003 | $ | 44,185 | $ | 33,376 | |||||||||||||||||
Cash flow and other information: Supplemental cash flow and other information related to operating and finance leases was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases - related parties | $ | 5,387 | $ | 4,763 | $ | 2,866 | |||||||||||
| Operating cash flows from operating leases | $ | 17,846 | $ | 11,986 | $ | 9,601 | |||||||||||
| Operating cash flows from finance leases | $ | 666 | $ | 468 | $ | 380 | |||||||||||
| Financing cash flows from finance leases | $ | 3,843 | $ | 2,460 | $ | 1,937 | |||||||||||
| Supplemental noncash information: | |||||||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities - related parties (1) | $ | — | $ | 3,429 | $ | 13,317 | |||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 40,530 | $ | 31,452 | $ | 795 | |||||||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 7,589 | $ | 4,732 | $ | 2,752 | |||||||||||
| Right-of-use asset modifications for operating leases | $ | 4,012 | $ | 2,844 | $ | 3,846 | |||||||||||
Maturities of lease liabilities: The following table presents maturities of lease liabilities and reconciles future lease payments on an undiscounted cash flow basis to the lease liabilities in the Consolidated Balance Sheet as of December 31, 2025 (in thousands):
| Year ending December 31, | Operating Leases | Finance Leases | |||||||||
| 2026 | $ | 29,518 | $ | 4,357 | |||||||
| 2027 | 30,082 | 3,572 | |||||||||
| 2028 | 27,155 | 2,616 | |||||||||
| 2029 | 23,564 | 1,199 | |||||||||
| 2030 | 18,789 | 43 | |||||||||
| Thereafter | 25,175 | — | |||||||||
| Total minimum lease payments | 154,283 | 11,787 | |||||||||
| Less: Amount of lease payments representing interest | (29,221) | (1,145) | |||||||||
| Lease liabilities | $ | 125,062 | $ | 10,642 | |||||||
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.