Company: LGN
Filing Date: 2025-12-09
Form Type: S-1
Source: 0001193125-25-312729
Chunk: 143

Company: Legence Corp.
Filing Date: 2025-12-09
Form: S-1
Chunk 143
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 Company’s revenue and profit recognition in each year at the balance sheet date depends on the accuracy of
management’s estimates of the cost to complete each project as well as variable consideration. There are several factors that can contribute to changes in estimates of contract cost and profitability, such as changes in project scope, input
costs and productivity, among others. Such factors may cause fluctuations in gross profit and gross profit margin from period to period. These changes may have a significant impact on the financial statements. At the time a loss on a contract
becomes probable, the entire amount of the estimated loss is accrued. Management monitors for circumstances that may affect the accuracy of its estimates, and material changes in estimates are disclosed accordingly.

Goodwill

Goodwill represents the
excess of the purchase price over the fair value of identifiable assets and liabilities of the acquired business. Goodwill is not subject to amortization but is tested for impairment at the reporting unit level, which represents the operating
segment level or one level below the operating segment level for which discrete information is available. Goodwill is evaluated for impairment on an annual basis in the fourth quarter of the fiscal year and on an interim basis if events or
circumstances arise which indicate that the carrying value of goodwill may not be recoverable from future cash flows.

Fair values of
reporting units are estimated based on a market approach and an income approach. The income approach utilizes discounted future cash flows and assumptions critical to the fair value estimate of the discounted cash flow model include the revenue
growth rate, forecasted EBITDA margin and discount rate. The market approach utilizes market multiples of invested capital from comparable publicly traded companies. The market multiples from invested capital include revenue; book equity plus debt;
and earnings before interest, provision for income taxes, depreciation and amortization. Three reporting units with total goodwill balance of $247.2 million had estimated fair values that exceeded values ranging from 11.3% to 13.3%. As of
December 31, 2024, except for these three reporting units and the reporting unit discussed below, all other reporting units had estimated fair values that exceeded their carrying values by at least 24%.

During the year ended December 31, 2024, it was determined the carrying amount of goodwill for one reporting unit in the
Engineering & Consulting segment exceeded fair value, resulting in goodwill impairment charges of $17.8 million. The impairment was primarily driven by a decline in projected cash flows due to lower revenue projections. During the year
ended December