LGN, Legence Corp.

Will it survive?

• Can it pay its interest? 0.6×
  Does not cover its interest
  Operating income $62M ÷ interest expense $102M
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? $606M · 9.8× operating profit
  Heavy net debt
  Cash $230M − debt $836M
  What this means

  Netting $230M of cash and short-term investments against $836M of debt leaves $606M owed, about 9.8× a year's operating profit (13.6× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 41d
  Tight
  DSO 84 + DIO 2 − DPO 45 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital —
  Not enough data
  Industry peers: median 10%
  What this means

  The filing data didn't include the inputs for this check.

• Owner-earnings margin 1%
  Thin through the cycle
  3-yr median margin, range 0%–9%; latest $219M = operating cash $257M − maintenance capex $38M
  Industry peers: median 6%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 9% of revenue this year, a 1% median across 3 years. Treating stock comp as the real expense it is (less $68M of SBC) leaves $151M.

• Are earnings backed by cash? $257M
  Loss, but cash-generative
  Net income ($60M) · cash from operations $257M

  In the filing’s words The filing discloses a material weakness in its financial controls — the reported numbers here, and the record built on them, are only as reliable as the controls that produced them.

  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

• Investing or harvesting? 0.38×
  Harvesting
  Capex $38M ÷ depreciation & amortization as filed $100M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• How much of next year is already sold? 82%
  Most of next year is contracted
  Contracted and not yet earned $2.8B, of which the filing expects 75% within twelve months = $2.1B against revenue of $2.6B
  What this means

  Remaining performance obligations are revenue the customer has committed to and the company has not yet earned — the nearest thing a software business has to an insurer's float. The headline total is a duration figure and can mislead badly on its own, because a contract signed for seven years counts the same as one signed for one. What matters is the part the filing itself expects to recognise within twelve months, shown here against a year of revenue. Where a company does not tag that band, both figures are withheld rather than shown half-told.

• Is the buyback buying ownership, or mopping up? 2.6%
  Stock pay, share count unread
  Stock compensation $68M (fiscal 2025), 2.6% of revenue · no repurchases
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 1 of 3 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $2.6B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Near
  Current ratio ≥ 2× · 1.57×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Miss
  Debt ≤ working capital · $836M vs $402M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-0.63/share (latest year $-0.83), the averaged base the calculator's gate runs on, and book value is $5.48/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.