{"url_path":"/sec/lgn/10-q/2026/item-3","section_key":"item-3","section_title":"Item 3 Quantitative and Qualitative Disclosures About Market Risk","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-14","source_url":"https://www.sec.gov/Archives/edgar/data/2052568/0002052568-26-000017-index.html","accession_number":"0002052568-26-000017","cik":"0002052568","ticker":"LGN","issuer_name":"Legence Corp.","edgar_url":"https://www.sec.gov/Archives/edgar/data/2052568/0002052568-26-000017-index.html","primary_entity_key":"0002052568","primary_entity_name":"Legence Corp."},"word_count":362,"has_tables":true,"body_markdown":"Item 3. Quantitative and Qualitative Disclosures About Market Risk\n\nIn the normal course of business, we are exposed to financial risks such as changes in interest rates and inflation risk associated with our input costs. We utilize derivative instruments, classified as cash flow hedges, to manage interest rate exposures on our floating rate debt.\n\nInterest Rate Risk\n\nOur exposure to market risk for changes in interest rates relates primarily to our long-term debt. The interest expense associated with our long-term debt will vary with market rates. We seek to mitigate this risk with an appropriate amount of fixed rate debt obligations through interest rate derivative contracts that fix the interest rate on the respective floating rate debt obligations. Without taking into consideration the effect of our interest rate swap agreements, based upon our outstanding principal amount of floating rate debt of $995.3 million as of March 31, 2026, and $797.8 million as of December 31, 2025, an increase in the current interest rate levels of 1.0% would result in an increase in our annual interest expense of $10.0 million and $8.0 million, respectively.\n\nInflation Risk\n\nRising or consistently high rates of inflation, including as a result of geopolitical tensions and trade wars, have the potential to increase costs of labor and other inputs for our services. We have experienced, and may experience in the future, higher than expected inflation, including escalating transportation, commodity and other supply chain costs and disruptions. If our costs are subject to significant inflationary pressures, we may not be able to offset such higher costs through price increases, which could adversely affect our business, results of operations or financial condition.\n\nCredit Risk\n\nFinancial instruments that potentially subject us to a concentration of credit risk consist principally of contract assets and accounts receivable. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated losses. We may also require prepayments for certain of our services. Concentrations of credit risk with respect to our receivables are somewhat limited due to the large number of customers comprising our customer base and their dispersion among many different geographies."}