Forgent Power Solutions Q4 2026 Earnings Call Transcript

Forgent Power Solutions (NYSE:FPS) reported fourth-quarter financial results on Tuesday. The transcript from the company's fourth-quarter earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=B5qbaqzq

Summary

Forgent Power Solutions Inc. reported record Q4 2026 revenues of $462 million, an increase of 94% year-over-year, and a full-year revenue increase of 89% to $1.42 billion.

The company's strategic initiatives focused on expanding Powertrain Solutions capacity, with plans for a new facility in Tijuana to meet growing demand for modular solutions.

Forgent provided fiscal 2027 guidance with expected revenue growth of 76% and adjusted EBITDA growth of 86%, highlighting strong backlog coverage and continued market share gains.

Operational achievements included a fivefold expansion in manufacturing capacity and significant hiring to support growth, doubling the workforce within a year.

Management emphasized robust demand, strategic capacity expansions, and potential M&A opportunities as key priorities for fiscal 2027.

Full Transcript

OPERATOR

Greetings and welcome to the Forgent Power Solutions Inc. Q4 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad, and we ask you please ask one question, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press 0 on your telephone keypad.

It's now my pleasure to turn the call over to Kate Efric, Head of Investor Relations. Kate, please go ahead.

Kate Efric, Head of Investor Relations

Thank you, Operator, and thank you everyone for joining us today for Forgent Power Solutions' fiscal fourth quarter and full year 2026 earnings call. With me today are Gary Niederpruem, our Chief Executive Officer, and Ryan Fiedler, our Chief Financial Officer. On this call, management will be making forward-looking statements based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of various factors, including those discussed in today's earnings release and during this conference call and in our latest filings with the Securities and Exchange Commission, each of which can be found on our website. Today's presentation also includes references to non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted earnings per share. You should refer to the information contained in the Company's earnings release and presentation for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.

With that, let me turn the call over to Gary.

Gary Niederpruem, Chief Executive Officer

Thank you, Kate, and good morning everyone. As is our practice, I'll begin with our fourth quarter financial highlights and a business update. Then, since this is our year-end call, I'll spend a few minutes reviewing our full year results against the commitments and priorities we outlined during our IPO process earlier this year. After that, I'll turn it over to Ryan to walk through our fourth quarter and full year financial results in more detail.

Then I'll conclude with a discussion of our strategic priorities for the coming year and provide our fiscal '27 guidance. Turning to Slide 5, we closed fiscal 2026 with the strongest quarter in Forgent's history, delivering record quarterly revenues, adjusted EBITDA and adjusted net income. Fourth quarter revenues increased 94% to a record $462 million, adjusted EBITDA increased 163% to a record $113 million and adjusted EBITDA margin expanded 200 basis points sequentially to 24.4%.

Importantly, Q4 represented the second consecutive quarter of significant margin expansion, which aligns with the expectations we set throughout the year. Adjusted net income increased 275% to $77 million. For the full year, revenues increased 89% to $1.42 billion, adjusted EBITDA increased 91% to $323 million, and adjusted net income increased 136% to $208 million. These results reflect the strength of our value proposition and our team's unwavering commitment to delivering for our customers and our shareholders.

Taking a company public, expanding manufacturing capacity fivefold, and doubling revenue all in the same year while continuing to meet our customer commitments is an extraordinary achievement. I'm incredibly proud of and grateful to our employees for their exceptional skill and dedication. Thank you, Forgent family. Turning to Slide 6, I'll frame our business update for the quarter around seven takeaways. First, we continue to see strong demand for our products and solutions and we are managing that demand effectively.

That is reflected in our performance relative to guidance, with each of our KPIs exceeding the high end of our guidance—guidance that, as a reminder, we raised in May. Second, our commercial strategy continues to drive growth well above the market, a clear indication that we are gaining share and our rate of growth is still increasing despite our significantly larger scale. To put that in perspective, fourth quarter revenue growth exceeded our full year growth rate by approximately 500 basis points.

We also booked more than $1.5 billion of orders in the quarter alone. That's more than our total revenue for all of fiscal '26. Third, we are delivering on the margin expansion we committed to. Adjusted EBITDA margin increased 200 basis points sequentially for the second consecutive quarter, primarily due to operating leverage as volumes grew. Fourth, our scale is beginning to drive significant cash generation, resulting in our operating cash flow increasing approximately two and a half times in fiscal '26 versus fiscal '25.

Fifth, demand for modular solutions is growing rapidly. Customers increasingly want to shift work from the field to the factory in order to reduce reliance on field labor and accelerate speed to power. This trend benefits Forgent in two important ways. It expands our addressable wallet by allowing us to capture value that historically would have been performed by contractors on site, and it plays directly to our strengths as one of the few companies with the capability to deliver these types of integrated solutions at scale.

Our momentum in this area is evident in our fourth quarter Powertrain Solutions booking and in our backlog, which is now approximately 40% Powertrain Solutions. Sixth, we already have sufficient demand visibility to justify adding manufacturing capacity beyond the expansion we recently completed. We plan to make an incremental investment at our Tijuana campus to increase Powertrain Solutions capacity, and we are again accelerating hiring in the first quarter to prepare for a significant production ramp in the quarters ahead.

Finally, the quality and depth of our demand visibility are the strongest in our company's history at this point. Last year we entered fiscal 2026 with $850 million of backlog. Today our backlog stands at $3 billion, more than 3.5 times higher, placing us in a fundamentally stronger position as we enter fiscal '27 and providing substantially greater confidence in our outlook for the year ahead. Moving to Slide 7, let me put some numbers around the demand environment.

Fourth quarter bookings reached $1.5 billion, a new company record, increasing 375% year over year and 73% sequentially. Order strength was broad-based across all three of our end markets, led by data centers and extended across both custom products and Powertrain Solutions. Year-over-year bookings growth was higher in the fourth quarter than the third quarter, despite comping to a much higher prior year result. Our book-to-bill ratio reached a new record of 3.3 times, also on a much larger revenue base.

Backlog increased to $3 billion at year end, an all-time high, up 256% year over year and 53% sequentially. The fact that Forgent set new records for bookings and backlog for seven consecutive quarters underscores the durability of the demand we are seeing, our continued share gains and the strength of our visibility on future revenue growth. Turning to Slide 8, when I joined Forgent in 2025, our data center business was largely focused on selling point products—individual pieces of equipment—and we primarily reached the market through EPCs, engineering firms and OEMs that acted as intermediaries.

Since then, we have made deliberate investments in our sales and engineering capabilities to engage end customers directly and support a broader, more integrated set of solutions across the powertrain. You can see that progression on the slide. We started with EPCs, engineering firms and OEMs, then expanded into regional colocation providers, national and international colos and neo-cloud customers. Each step moved us closer to the end user and increased the portion of customer spend available to us.

Our next major step is to enter the frontier AI labs and hyperscalers shown on the right side of this slide. We received our first direct order from a frontier AI lab in the fourth quarter and we have also signed an MSA with a hyperscaler. We view these milestones as proof points and, more than that, as the foundation for meaningful direct orders from both of these customer types as fiscal '27 progresses. The key takeaway is that we are still in the early innings of expanding our direct customer base in the data center market.

We have already demonstrated the ability to move upmarket from intermediated point product sales to direct engagement with some of the most technically demanding data center customer types in the world. But we believe the hyperscaler and frontier AI lab opportunity remains largely untapped for Forgent and represents a significant organic growth opportunity for us over the next 24 months. Building on that progression, Slide 9 gives you a concrete example of what this move upmarket looks like in practice.

This recent win with a frontier AI lab demonstrates that Forgent now has a seat at the table with the largest electrical equipment providers in the industry. This customer is pursuing one of the largest AI infrastructure buildouts in the US. These programs are highly technical, qualification standards are rigorous, and proper engagement is paramount. Securing this award reflects the strength of our engineering capabilities and the quality of our solutions and our growing credibility with the most demanding data center customers.

Importantly, this is only the initial award. The customer's first campus alone is expected to exceed 1 gigawatt and the broader opportunity for additional orders is measured in multiple gigawatts. So while this win is meaningful on its own, we view it as an even more important proof point of our ability to penetrate frontier AI customers directly and build a foundation for significantly larger opportunities ahead. Turning to Slide 10, let me zoom out to a shift that is reshaping how our customers build—the move towards more modular solutions.

As a reminder, a modular solution is a prefabricated, factory-built system such as power, cooling or compute modules that can be deployed on site much faster than traditional field-built infrastructure. It shifts work from the construction site to a controlled manufacturing environment, reducing reliance on field labor, improving quality and scalability and accelerating speed to power. Our data center customers tell us that modular construction can compress portions of the build schedule by roughly 30% to 50% versus traditional field-built construction.

The chart on the left highlights the shift that has already occurred and what is expected through 2030. In the cloud era, modular and prefabricated construction accounted for only 10% to 20% of data center construction. Today it is approximately 40% and third-party research expects it to grow to 60% by the end of the decade. That continued shift is a significant positive for Forgent. It expands our addressable wallet by allowing us to capture value that historically would have been performed by contractors on site, and it plays directly to our strengths as one of the few companies capable of delivering these types of integrated solutions at scale.

We are winning in modular solutions for three reasons that are difficult for competitors to replicate. First, we are vertically integrated all the way back to sheet metal fabrication. That gives us a meaningful advantage on cost, lead times and customization compared with competitors that rely more heavily on third-party suppliers. Second, we have deep in-house engineering capabilities which allow us to deliver highly customized solutions tailored to each customer's specific requirements.

In other words, we can offer the speed and efficiency of a modular factory-built solution without compromising the level of customization our customers need. And third, proximity matters. These are large, complex systems. An E-house can be approximately 60 feet long and weigh as much as 50 tons, so having manufacturing capacity close to key customers can make a significant difference in delivery time, logistics complexity and shipping costs. With facilities located near every major data center hub in the country, we believe we are uniquely positioned to serve customers quickly, efficiently and at scale.

The strength of those capabilities, aligned with clear market demand, is reflected in the Powertrain Solution results shown in the middle of this page. Powertrain Solutions revenue grew 187% year over year and 48% sequentially to $147 million in the fourth quarter. Put simply, we nearly tripled the size of that business in just six months. That growth is well ahead of the demand assumptions that supported our original capacity expansion plans. In response to that momentum, today we announced an incremental investment to build a dedicated 385,000 square foot Powertrain Solutions facility in our Tijuana, Mexico campus.

To put that size in perspective, it will be roughly 80% the size of our largest plant today, so it's a very meaningful expansion. Once complete, the new facility will increase our Powertrain Solutions manufacturing capacity by more than 50%, bringing it to over 1 million square feet. It will also increase our total revenue capacity to approximately $5.8 billion, an increase of about $800 million. We expect the new facility to come online in the fourth quarter of fiscal '27.

Moving to Slide 12, as I mentioned at the outset of the call, I want to spend a few minutes reflecting on where we were when we began our journey as a public company, where we stand today a little over seven months later, and what that progress means for our shareholders going forward. This page really highlights how far the company has come in just one year. Forgent is a bigger, broader and better positioned company today across nearly every dimension than it was in fiscal '25.

We ended fiscal '26 with approximately $3 billion of backlog—more than 3.5 times the $850 million we had at the end of fiscal '25. Just as importantly, our backlog now represents more than 2 times our fiscal '26 revenue, compared with roughly 1 times revenue at the end of fiscal '25. That gives us a fundamentally stronger starting point and significantly greater visibility as we enter the new fiscal year. We also nearly doubled the size of the company in 12 months, with revenue increasing 89% to $1.4 billion and adjusted EBITDA increasing 91% to $323 million.

Importantly, we delivered that growth while also expanding margins, demonstrating the operating leverage in our model as we scale—even while absorbing the additional costs that naturally come with rapid growth. Our fastest growth came in data centers where demand remains exceptionally strong, but we also continued to deliver growth across each of our end markets: data center, grid and industrial. This is an important point because it reinforces one of the key messages from our IPO—Forgent has multiple ways to win; we are not dependent on a single end market, customer or growth factor. Finally, we meaningfully expanded the breadth of our offering. Powertrain Solutions increased from 13% of revenue in fiscal '25 to 25% in fiscal '26, reflecting strong customer demand for more integrated modular solutions. We also continued to expand our service businesses by attaching startup and commissioning work to a meaningful portion of the equipment orders in our backlog.

At year end, our service backlog was approximately three times our FY26 service revenue, underscoring the significant growth opportunity ahead for this business. Together, these shifts expand our addressable market, deepen our customer relationships and position Forgent to capture more value across the lifecycle of the infrastructure we provide. So the takeaway from this slide is pretty straightforward. Compared with where we stood a year ago, Forgent is bigger, more profitable, more visible, and better positioned for sustained growth.

Turning to Slide 13, internally, we place a lot of emphasis on doing what we say we're going to do. We hold ourselves accountable to the commitments we make to one another, and we believe shareholders should hold us to the same standards on the commitments we make externally. Over the next four slides, we will walk through the commitments we made during the IPO process and what we have delivered since then—financially, commercially, operationally and with our people.

Starting with financial performance, as is customary, we shared a fiscal '26 forecast with research analysts in conjunction with our IPO process on December 21st. Those forecast figures are shown in the gray area on this slide and our actual results are shown in blue. We meaningfully exceeded that forecast on both revenue and adjusted EBITDA. And we did so while scaling the business at an unprecedented pace, expanding our manufacturing footprint, adding headcount and building the SG&A infrastructure required to operate as a public company.

For fiscal '26, revenue was $150 million or 12% above that forecast. Adjusted EBITDA was $18 million or 6% above that forecast. And excluding startup costs and the under-absorbed labor and overhead associated with bringing new capacity online, adjusted EBITDA was $34 million or 11% above that forecast. These results also exceeded the high end of the guidance we initiated in March and raised in May. So from a financial standpoint, the scorecard is clear—we exceeded our commitments.

Turning to Slide 14, during the IPO process, we outlined a very deliberate commercial strategy designed to deliver growth in excess of our underlying markets. The strategy was straightforward: focus on attractive end markets supported by long-term megatrends, expand the customer wallet available to us, win a larger share of that wallet and take share from competitors by delivering shorter lead times and greater engineering value. In fiscal '26, we executed that strategy exceptionally well.

The chart on the right breaks down our growth by end market, showing the contribution from both customer count and average revenue per customer, and then compares our revenue growth to the estimated growth rate of the underlying market. Starting with data centers, revenue grew 161% year over year. That growth was driven by an 18% increase in customer count and a 121% increase in average revenue per customer. Said differently, we added customers, but more importantly we significantly expanded the scope of what we are delivering to those customers.

That resulted in growth that was roughly four times the market, which we estimate grew approximately 37%. In Grid, revenue grew 69%, driven by a 7% increase in the customer count and a 58% increase in average revenue per customer. That represents approximately seven times the market growth rate, based on our estimate that the grid market grew about 10%. And in Industrial and Other, revenue grew 11%, approximately 300 basis points faster than the market growth rate.

Our customer count declined as we high-graded our mix of customers, but average revenue per customer increased 28%, demonstrating our ability to deepen relationships with our largest industrial customers. The pattern across all three end markets is consistent. We are not simply benefiting from market growth; we are adding customers, expanding our share of wallet with existing customers, and increasingly selling more complex, higher-value solutions—that includes more prefabricated and integrated offerings and engineering offerings across the full powertrain rather than delivering individual point products.

This is exactly what we said we would do. We positioned Forgent in markets with powerful secular tailwinds. And then we executed commercially to grow well in excess of those markets. So from a commercial standpoint, the scorecard is very clear—we delivered on the strategy we laid out to investors and we are meaningfully outperforming the market. Next, on Slide 15, let's turn to operations and assess what we delivered against the commitments we made during the IPO process.

We said we would invest in capacity to capture demand, offer some of the shortest lead times in the industry, and deliver customization at scale through vertically integrated, flexible manufacturing. And that is exactly what we did. Across fiscal '25 and '26, we invested approximately $190 million to bring more than 1.8 million square feet of new manufacturing capacity online across multiple campuses. In total, we expanded our footprint from roughly 480,000 square feet to 2.3 million square feet, roughly equating to a fivefold increase in manufacturing capacity.

Just as importantly, this was not capacity added in just one location or for just one product line. We expanded in each of our five campuses, giving us a broader, more flexible and more geographically advantaged manufacturing network. That matters because proximity to customers, particularly in large-scale modular solutions, can have a meaningful impact on lead times, logistics costs and execution certainty. The execution required to do this was significant.

We were building facilities, hiring and training employees, ramping production and adding new operational infrastructure, all while delivering for our customers in a period of exceptional demand growth. And we did all that while limiting the impact on margins as we scaled. Today, construction is complete or nearing completion across the major expansion projects, and we are progressing toward our target production rates at each campus. As those facilities continue to ramp, they provide the capacity, flexibility and speed we need to support the demand we are seeing, as well as give us opportunities to increase our margins through economies of scale.

So from an operational standpoint, the scorecard is also clear. We delivered on what we said we would do. We added the capacity, we scaled the organization, we protected customers' executions, and materially strengthened the manufacturing platform that will support Forgent's next phase of growth. Slide 16 covers our people and in many ways this may be the most important page in the deck. Scaling a business at this pace requires more than physical manufacturing capacity.

It requires the ability to recruit, train, develop and retain the talent needed to execute. During the IPO process, we committed to recruiting and retaining the direct labor required to match our expanded manufacturing capacity, growing the engineering resources needed to deliver customization at scale, maintaining a flat, accountable organization built for speed and operating leverage, and attracting leadership talent to help take Forgent through its next phase of growth.

In fiscal '26, we delivered against each one of those commitments. We nearly doubled our manufacturing headcount. We made significant investments in engineering talent—application engineering headcount grew 54% and process, field and design engineering headcount increased 78%. Those hires really matter because our ability to deliver custom-engineered integrated solutions at scale is one of the core differentiators of our business. We also strengthened our leadership team with exceptional industry talent.

We recently welcomed Juan Macias as President of Solutions and Services, Dan Esslinger as Executive Vice President of Engineering, and Joe Realy as Senior Vice President of Technical Business Development. Each brings decades of relevant experience and a strong track record from leading companies in our industry. Their expertise will help us continue executing at a high level for customers as we look to double our business again. Talent is a known constraint across our industry, particularly manufacturing and engineering.

Our focus on making Forgent an employer of choice has allowed us to scale rapidly without workforce constraints limiting our growth. That is a real competitive advantage and it reflects the strength of our culture, the opportunity we offer people, and the commitment of our teams across the company. So from a people perspective, the scorecard is clear. We invested ahead of the opportunity, expanded the talent base required to support our growth, added critical leadership capabilities, and strengthened the organization for the next stage of Forgent's evolution.

This is our scorecard for fiscal '26—commitments made and commitments met or exceeded. That matters to us, and we know it matters to our shareholders. It also raises the bar. The year ahead is more ambitious than the one we just completed, and we are starting from a base that is nearly twice as large. But we enter fiscal '27 better positioned, better resourced, and more confident in our ability to execute than at any point in our history. With that, I'll turn it over to Ryan to walk through our fourth quarter and full year financials in more detail.

Then I'll come back and cover our priorities and outlook for fiscal '27.

Ryan Fiedler, Chief Financial Officer

Thanks, Gary, and good morning, everyone. Turning to Slide 18, fourth quarter revenues were $462 million, up 94% year over year and 22% sequentially. All of that growth was organic. Revenue growth in the quarter was led by Custom Products and Powertrain Solutions for data center customers. Powertrain Solutions revenues increased 187% to $147 million. Custom Products revenues increased 73% to $292 million. Services revenue grew 69% to $12 million and Standard Products revenues grew 3% to $11 million.

Moving on to adjusted EBITDA on Slide 19, adjusted EBITDA in the fourth quarter was $113 million, more than double the prior year on higher revenues and margin expansion. In total, adjusted EBITDA grew 163%. Breaking that down, gross profit increased 109% on volume growth and favorable product mix. SG&A increased in absolute dollars, reflecting continued investment across sales, operations and engineering to support growth, but declined as a percentage of sales as revenue growth outpaced operating cost growth.

The result was adjusted EBITDA margin of 24.4%, up 200 basis points sequentially and 640 basis points year over year. That represents our second consecutive quarter of 200 basis points of sequential margin expansion. On to Slide 20 for a summary of the full year, we set records across every key metric. In fiscal 2026, revenues increased $667 million, or 89%, to $1.42 billion, adjusted EBITDA increased $154 million, or 91%, to $323 million, and adjusted net income increased $120 million, or 136%, to $208 million.

Each of those finished above the high end of the guidance we provided in May and well above the guidance we initiated in March. With that, I'll turn it back to Gary to discuss our key priorities and outlook for fiscal 2027.

Gary Niederpruem, Chief Executive Officer

Thanks, Ryan. Turning to Slide 22, let me frame how we are thinking about the year ahead. We see four major themes shaping our markets in fiscal '27, and each one ties directly to a strategic priority for Forgent. First, robust demand continues for our products and solutions. Our conversations with customers indicate that capital spending plans are being revised upward from where they were even just six months ago, and our backlog is clear evidence of that momentum.

Our first priority is to make sure we have the team and leadership capacity to capture the opportunity in front of us. That means hiring ahead of the demand and continuing to add the talent and infrastructure required to support growth, just as we did successfully this past year. Second, we continue to see opportunities to take share in this market. Customers need partners with the engineering depth to solve complex problems and the available manufacturing capacity to deliver with speed and certainty.

Companies that can do both have a real opportunity to displace incumbents. That is exactly what Forgent was built to do, and we will continue to use that formula to compound market growth with share gains. Third, the shift toward modular solutions continues to gain momentum. We are one of a few companies capable of delivering customized modular solutions at scale, and with the planned expansion of our Powertrain Solutions capacity, we will have even greater ability to support that demand.

Fourth, we expect M&A-driven consolidation across our industry to continue over the next several years. We believe there will be fewer, larger and more capable players serving these markets, and we certainly intend for Forgent to be one of them. Historically, our growth has been entirely organic, driven by investments in capacity and commercial execution. In fiscal '27, we are also beginning to look outward at acquisition opportunities that could further accelerate our growth, broaden our capabilities and strengthen our market position.

Taken together, those four priorities—talent, share gains, capacity and acquisitions—form the foundation of our fiscal '27 plan. Turning to Slide 23, I'll walk through our fiscal '27 guidance. We expect revenue of $2.4 billion to $2.6 billion, representing 76% growth at the midpoint. We expect adjusted EBITDA of $575 million to $625 million, representing 86% growth at the midpoint and implying an adjusted EBITDA margin of approximately 24%, up from 22.7% in fiscal '26.

We also expect adjusted EPS of $1.26 to $1.40, representing approximately 95% growth at the midpoint. There are a few key points I'd highlight in terms of how to think about this outlook. First, with production slots allocated across fiscal '27, our backlog covers more than 90% of our revenue guidance, with the remainder of our backlog scheduled to deliver in fiscal '28. We also continue to reserve a modest amount of capacity for strategic book-and-ship orders, which enables us to maintain short lead times, support priority customers and capture incremental demand as it emerges.

Second, we expect adjusted EBITDA margins to expand by more than 100 basis points year over year. The primary driver is operating leverage as higher volumes move through the capacity we already have put in place. We expect that operating leverage to more than offset any of the under-absorption associated with accelerating hiring and the startup costs for the next phase of capacity expansion that we will experience early in the year. As production ramps through the year, we expect both revenue and adjusted EBITDA to increase sequentially.

Finally, we expect adjusted EPS to grow faster than adjusted EBITDA as interest expense becomes a smaller percentage of our pre-tax income. Taken together, fiscal '27 is expected to be another year of compounding growth for Forgent—continued market growth and share gains driving the top line with operating leverage, supporting margin expansion and even stronger earnings growth. Flipping to Slide 24, given the pace of evolution in our business, we continue to assess how best to align our disclosure and guidance practices with the information investors need to understand the company's underlying trajectory.

As a result, beginning in fiscal '27, we are making two changes to our reporting and guidance cadence. First, as we've discussed earlier, our average order size has continued to increase. As a result, quarterly orders are becoming less representative of our underlying run rate than they have been historically because a single order can have a significant impact. In some quarters, order activity may suggest growth that is above full-year trend, while in others it may understate the momentum we are seeing in the business.

With that in mind, we will no longer report orders and backlog on a quarterly basis. We will continue to provide orders and backlog annually as part of our year-end disclosures. Second, in place of quarterly orders and backlog, we will begin providing quarterly revenue and adjusted EBITDA guidance for the next fiscal quarter on a rolling basis. Consistent with that change, today we are providing guidance for the first quarter of fiscal '27 in addition to the full-year guidance I just discussed.

I would also note that this approach is consistent with the disclosure practices of many of our peers. Before walking through the specific Q1 guidance ranges, I want to highlight two key factors that shaped our outlook for the quarter. First, as I mentioned on the prior slide, nearly all of our full-year revenue guidance is already covered in backlog. Delivering against that backlog, while also positioning Forgent for continued growth, requires us to make investments early in the year—in Q1—that will translate to approximately $10 million of one-time costs that we do not expect to fully absorb until production ramps in subsequent quarters.

In many ways, this is similar to what we experienced in the second quarter of fiscal '26. Demand for our products and solutions is growing faster than originally planned and we are investing in people and capacity to capture that incremental opportunity. Second, a significant portion of our backlog is scheduled for delivery in Q2, Q3 and Q4. As a result, revenue is expected to be more heavily weighted towards those quarters than Q1. Together, those factors translate to guidance for Q1 revenues of $445 to $465 million and adjusted EBITDA of $90 to $100 million.

At the midpoint, that is 61% revenue growth and 46% adjusted EBITDA growth year over year. Turning to Slide 25, we are transitioning to significant cash generation. Operating cash flow increased approximately two and a half times in fiscal '26 to $109 million from $45 million in fiscal '25. We expect another substantial step up in fiscal '27 with operating cash flow of more than $300 million. Cash flow will be weighted more heavily toward the second half of the year, reflecting first-half investments in working capital and facilities required to support the production ramp.

At the same time, capital intensity is declining meaningfully as the major capacity investments we made over the last two years begin to scale. Capital expenditures were 11% of sales in fiscal '25, declined to 8% in fiscal '26, and are expected to step down to roughly 3% of sales in fiscal '27, inclusive of the incremental Powertrain Solutions investment we announced this morning. As free cash flow builds, our first priority for capital allocation will be M&A opportunities that complement our product portfolio, expand our capabilities and accelerate our long-term growth.

Finally, on Slide 26, I wanted to frame our fiscal '27 guidance against the same December forecast we talked about earlier that we had provided to research analysts for our IPO. At the midpoint, our fiscal '27 guidance is around 30% above that forecast, with revenues of $2.5 billion versus $1.8 billion, and adjusted EBITDA of $600 million versus $469 million. Our outperformance is not only continuing in fiscal '27, it is widening. And more importantly, the midpoint of our fiscal '27 revenue guidance corresponds to our forecast for fiscal '28 from our IPO model.

A little more than seven months post-IPO and Forgent is a full year ahead of the plan. Let me close with a few thoughts before we open it up for questions. We entered fiscal '26 with clear commitments to our customers and to our shareholders, and we delivered on both. And for this I want to thank all of the Forgent team members around the company. Our customers needed a partner with the engineering depth, execution certainty and available capacity to support buildouts of unprecedented size and speed.

We proved we could meet that standard and that is what's driving our share gains and unlocking opportunities with the largest, highest growth and most technically demanding players in the market. We enter fiscal '27 in a fundamentally stronger position than we entered fiscal '26—with a record backlog, deeper and direct customer relationships, more capacity coming online and the team to execute against all of it. And we are just getting started. With that, we're happy to take your questions, Operator.

OPERATOR

Thank you, and I'll be conducting a question-and-answer session. If you'd like to be placed into the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. And as a reminder, we ask you please ask one question, then return to the queue. Our first question today is coming from Andrew Hobin from Bank of America.

Your line is now live.

Andrew Hobin, Analyst at Bank of America

Yes, good morning.

Gary Niederpruem, Chief Executive Officer

Morning, Andrew. How are you doing?

Andrew Hobin, Analyst at Bank of America

I'm doing great, thank you for a good quarter. So maybe a question just about backlog quality and how it's changing as you are adding new customer types and what I'm trying to get to—you know, what's happening with pricing, terms and conditions, and also how is the timeline to conversion evolving given the evolution of your end market? So that's my first question.

Gary Niederpruem, Chief Executive Officer

Yeah, for sure. So let me unpack that a couple different ways, Andrew. So first is backlog quality is unbelievably high, which it has been the entire duration of Forgent. So anything in our backlog is a firm purchase order. So there's no LOIs, there's no MRUs. We don't book that type of stuff when it enters into backlog. So backlog is 100% firm commitments and purchase orders from our customers. That's number one. Number two is pricing remains very consistent.

There isn't any great swings up or down from what we saw over the prior quarter. So that's the pricing piece. And then number three, in terms of is anything in the market around slowdowns, pushouts? We have not heard of that for our products. Yes, in any given month or any quarter is there—you know, a crane didn't show up at site, so something gets delayed by a couple of weeks or something gets pulled in by a few weeks. That is the natural ebb and flow the business has always had.

But in terms of meaningful pushouts, we are not seeing that for our product set. And most importantly, we are not hearing anything about any massive projects being delayed or the market slowing by any means. So all of that portends to us that it's a healthy market and we continue to participate in a really very, very meaningful way in that market.

OPERATOR

Thank you. Next question is coming from Julian Demone Smith from Jefferies. Your line is now live.

Julian Demone Smith, Analyst at Jefferies

Nicely done. Again, I got to reiterate that—nice forceful statements here. Maybe just to follow up on that, can you talk about the ramp through the course of '27 in terms of your margins? Right. Obviously starting out first quarter here a little bit below, how do you think about ending the year and then, more importantly, how does that portend—if you can give us a glimpse—on how you think into longer-term EBITDA margin trajectory.

Ryan Fiedler, Chief Financial Officer

Yeah, Julian, good morning. Really appreciate it. Good question. So overall, we do expect our margins to improve as the year progresses. You know, the first quarter we're coming in at about 21% is what we're guiding to for EBITDA margins. And that obviously does include the higher investments that Gary talked about on the call. And that's really going to help us achieve that significant step up that we expect in Q2 and beyond. You know, as we move through the year, we do expect that strong volume and top line growth as the year progresses.

And with that we do expect some strong operating leverage and improving margins with a couple hundred basis points of margin expansion in Q2 from Q1 and then, as mentioned, 24% for the full year. So as you can imagine, that's going to continue to expand as the year goes on. I think it's also important to note that if you think about 2026 from Q2 to Q4, we had a significant ramp during that time period as well. And we increased our adjusted EBITDA margins by about 400 basis points over those two quarters with that volume expansion.

OPERATOR

Thank you. Next question is coming from Michael Elias from TD Cowen. Your line is now live.

Michael Elias, Analyst at TD Cowen

Great. Thanks for taking the question. I'll also say congratulations and I'll raise one—congratulations on adding Joe Realy to the team. Excellent addition, my perspective. Quick question for you is when I have conversations with, let's say, hyperscalers and large data center operators, one thing that comes up is Forgent's lead time being faster than peers, which makes me think that there's probably some kind of potential for you to do a capacity agreement, a longer-term capacity agreement where there's a progression of orders over time that rolls throughout the function of the agreement.

How do you think or how should we think about the potential for a capacity agreement? And as part of that, how should we think about the cost to Forgent of setting that up? Thank you.

Gary Niederpruem, Chief Executive Officer

Yeah. Hey Michael, good morning, and thank you for the shout out to Joe. We're really pleased that Dan and Joe and Juan all joined us. You know, one of the things we've talked about for a while—continuing to add management talent and technical and engineering talent to the team—and all three of those have hit the ground running. Just thrilled with how they've evolved just in the six weeks they've been in the business. So thank you for that, number one.

Yeah, let's go back just a little bit. So if you go back, you know, just 18 months ago or so, we had really two primary routes to market, which were the OEMs and then the EPCs. As you think about where we have evolved the business in the last 18 months and where we will over the course of the next quarter or two, we will have all six to seven major routes to market and cohorts covered. As part of that, certainly depending on the maturation of where we are in the sales cycle with that customer, there's a spectrum of opportunities with all of those.

It could be anything from selling point products all the way up to integrated solutions. And you know, some customers will want us to go right from a standstill all the way to a run. Some are going to be more in that crawl-walk-run mentality. But based on everything we see today, there is dialogue—meaningful dialogue—going on with all types of those cohorts around anything from individual POs all the way to making longer-term commitments. So we're in the throes of that conversation with several of those customers.

And then from a cost standpoint, you know, we think from what we see today for the year, we have covered that incremental cost that we may need to have in terms of adding more talent, adding more program management, certainly the people in the factory. We think we have that covered in the plan that we've laid out today. So if something drastically changes, then we'll revisit. But for right now, feel really pretty comfortable around the costs that we have in the plan that we presented to be able to do business with all those cohorts.

OPERATOR

Thank you. Next question is coming from Luke Junk. Your line is now live.

Luke Junk

Good morning. Thanks for taking the question, Gary. Hoping you could just double click on recent order trends underpinning Powertrain Solutions now being 40% of the backlog and maybe broadening out a little bit—just what it says about repeat engagement with customers and building a more durable industry position overall. Maybe said differently, just how you think about the potential to more permanently displace some of the incumbents out there. Thank you.

Gary Niederpruem, Chief Executive Officer

Yeah. Good morning, Luke. Yeah. Look, we have grown the business here based on two things. One is adding additional customers to the fleet. But almost even more than that, the outsized growth has come from increasing the average revenue per customer. So historically, if we would have sold just a point product to a customer, we are now selling those customers either multiple product lines or selling them integrated solutions. So the fact that those customers that we did business with a year or two ago are spending anywhere from 30% to 100% more with us, I think is a true testament to us being able to not only expand the portfolio with them, but getting in in a deeper engagement way by selling more and more of those integrated solutions. So really, really happy with how we've continued to progress and evolve existing customers by selling more of the share of that wallet.

OPERATOR

Thank you. Next question is coming from Joe Richie from Goldman Sachs. Your line is now live.

Joe Richie, Analyst at Goldman Sachs

Hey, guys, good morning and kudos on the great end of the year. I wanted to ask about the PTS capacity expansion. So from what I remember from the IPO, you had at least like four locations where you had modular solutions, I guess, and then clearly had capacity for up to $5 billion of revenue. I guess, why the decision to expand capacity now and then also specifically in Tijuana?

Gary Niederpruem, Chief Executive Officer

Yeah, Joe, you're 100% right on how we position it and what you remembered in terms of what we added. Historically, we've been very open to say, you know, while that $5 billion number—the incremental 1.8 million square feet, which took us to a total of 2.3 million square feet—should take us, you know, a couple of years to fill up. But we also said that if there is a product line or two that's running hotter than we even anticipated, we would not be afraid to come back and add some additional growth capital to expand that footprint again.

And that's exactly what we saw here. From what we have seen historically, what is in the backlog and when we look at the pipeline out over the course of the next couple of years, Powertrain Solutions—whether that is an E-house, whether that's a modular skid—really seems to be the dominant deployment mechanism for a lot of our customers. So at that point, you know, we sort of said, why wait? We see it, we feel it, we hear it, we're in the conversations with those customers.

And it's just the right thing to do now to stay ahead of the curve so we can keep those lead times inside of the market expected lead times in the rest of the competition. So those are the things that really brought us the greatest visibility as to why we'd want to do it now.

OPERATOR

Thank you. Our next question is coming from Chigusa Kotoku from JPMorgan. Your line is now live.

Chigusa Kotoku, Analyst at JPMorgan

Hi, good morning. Congrats on a great quarter and thanks for taking my question. So I wanted to ask on mix—as Powertrain Solutions grow as a percentage of your portfolio, how should we think about the impact to your margins? Are there increasing complexities and inefficiency, supply chain challenges that you have to deal with? Any color here would be great. Thanks.

Gary Niederpruem, Chief Executive Officer

Yeah. Good morning, Chigusa. Thank you. So, yeah, look—no doubt Powertrain Solutions is a little bit more of a complex beast than selling a point low-voltage transformer or selling a point low-voltage switchgear. No doubt about that. But the margin profile at this point, from a product standpoint as well as from an end-customer standpoint, is all sort of still within a standard deviation. We haven't seen too much change there, either by product or by customer segment.

The one thing that we continue to educate people on is, in a solutions-oriented world—excuse me—there is sometimes the need to buy third-party gear. Sorry, your question got me choked up. Clearly there is a need to buy third-party gear, and sometimes that third-party gear you can't mark up as much as you would your own organic content. So from time to time we will take solutions business that has third-party gear in it that just won't afford us the margin that an organic margin would.

But by and large, if you strip that phenomenon out, when it is our content in an E-house or on a skid, relative to some of the other point products that we have, the margin rates are really all within standard deviation of each other.

OPERATOR

Thank you. Next question is coming from Noah K from Oppenheimer. Your line is now live.

Noah K, Analyst at Oppenheimer

Hey, good morning. Great, great stuff. Thank you for taking the questions. There's such an incredibly dynamic aspect to how power architectures are shifting in this industry and specifically data center. And so as you start to generate meaningful cash flow and you focus on M&A as your strategic capital allocation priority, can you give us some parameters around how you're thinking about your technology-related portfolio needs? And can you give us any parameters around financial criteria that you would target for potential acquisitions?

Gary Niederpruem, Chief Executive Officer

Yeah. Good morning, Noah. Look, I think you're right. As we continue to transition to a business that generates not only cash, but a meaningful amount of cash, we are simultaneously ramping up our inorganic activities. There's a number of different things we're looking at. We've been pretty consistent in saying that there are some things in our portfolio we think we can round out with product line extensions. Certainly, service is very clearly at the top of that list.

And I also wouldn't rule out some geographic expansion at some point as well. So I think those are going to continue to be the three themes that you see from us. And for us, yes, there needs to be a financial profile and metrics that are met. But most importantly, it has to be the right strategic fit. And so we're not going to do anything just for financial engineering, and we're also not going to buy a business that is losing money just because it's strategic.

So for us, it has to be both the strategic fit and pass the financial parameters that we have.

OPERATOR

Thank you. Next question is coming from Jeffrey Hammond from KeyBanc Capital Markets. Your line is now live.

David Tarantino

Hey, morning. This is David Tarantino on for Jeff. Maybe just following up on the sales cadence for the year. It sounds like you have really strong visibility from the backlog, but can you frame for us how much is dependent on your ability to continue to ramp supply chain and labor and how you level set this within the guide?

Gary Niederpruem, Chief Executive Officer

Yeah, sure, David. So I would say '27 is going to be a year much like '26 in terms of every quarter we're going to have to continue to add hundreds of employees. If you take a look at the employee base at the end of '25, it was probably roughly 1,800 people. We finished '26 right around 3,500 or 3,600. So we've demonstrated we almost effectively doubled the workforce over that 12-month period of time. I don't know if we will double it again by the end of '27.

But the point is we have demonstrated that we can hire, onboard, attract, retrain, train, retain hundreds and hundreds and hundreds of people every quarter. And I think that's the exact same playbook that we will execute in '27. So we've demonstrated we can do it, and I think it's going to be a continued rinse and repeat every week, every month, every quarter. And we've found that we've gotten that muscle pretty taut at this point in time. So I feel very good about all the work that we are doing there, and I think that will be the single biggest thing.

Supply chain—yeah, like anything, there's always a few bumps in the road, but there isn't anything habitual that says this part went from, you know, 50 weeks out to 100 weeks. There's nothing like that. It's just more you got to manage it, you got to stay on top of it. So it's hard. But I think we've demonstrated that we can do it and we fight every day to make sure we continue to do it even better than we did the day before.

OPERATOR

Thank you. Next question is coming from Nigel Ko from Wolfe Research. Your line is now live.

Nigel Ko, Analyst at Wolfe Research

Thanks. Good morning, everyone. Thanks for the question. So, Gary, I want to come back to the topic of lead times. You know, I think the perception out there is that, you know, your lead times have been a big advantage versus competitors, and that's certainly what we hear as well. I'm just curious, you know, how lead times are tracking and your lead times in terms of your commitments to customers—how that's been tracking over the last six to twelve months and how you think that compares to your competitors across your major product categories.

And I'm actually wondering if you just maybe double click into that and, you know, are there any constraints in terms of labor or other constraints that's limiting your ability or lengthening those lead times as we go over the next six to twelve months?

Gary Niederpruem, Chief Executive Officer

Yeah, very good, Nigel. Thank you. Good to hear your voice here. So I would say a few things. One is, on the labor constraint, we have a number of different positions obviously we hire for—both at the SG&A line as well as in the plants at the direct and indirect level. We are continually, at the plant level, we have a massive training program and massive training dojos in every one of our facilities. So, you know, we don't really hire in people that have the skill sets that we need.

We typically hire in good people and then we train them to do what we need to do. And depending on which department they're going to go in, that training could last anywhere from weeks to months to quarters, depending on what we need to do there. So that's sort of the DL and IDL side. From an SG&A side, we worked hard—I think we had a stat in the slides that we've hired a tremendous amount of application engineering, solutions architects, process engineers, field engineers, design engineers.

We put a huge emphasis on continuing to grow the engineering and technical ranks of the company. So we're working really hard at that. I think you'll continue to see us pour gas on that fire as we get through '27. And then your first part about lead times. We still do believe that we are inside the expected lead times for every product line that we have in the industry. So even though the backlog number is much higher today than what it was, that's why we've doubled the workforce.

That's why we've added an extra 385,000 square feet down in TJ. So our goal is to continue to always keep those lead times inside market-expected lead times, and across the entire product category we still are there today just like we would have been nine months ago or twelve months ago.

OPERATOR

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Gary for any further closing comments.

Gary Niederpruem, Chief Executive Officer

Yeah, thank you, Operator. Thank you everybody for joining the call today. It was a little bit more of a lengthy prepared remarks, but we think it was important to—there was a lot of goodness, a lot of richness in those slides, not only in terms of what Q4 ended up, how the year ended up, and what that portends to what we believe is shaping up to be a great '27. Demand and commercial momentum continues at a very accelerated rate. We delivered the margin expansion that we wanted to.

We continue to invest in the business not only for today and tomorrow. And I think you can see that in the people that we've hired and the amount of technical talent that we've hired. I would be remiss if I didn't thank the entire Forgent family for everything that you have done for us and will continue to do. And with that, I hope everybody has a great day and look forward to talking to you all over the course of the next couple days and weeks. Thank you, folks.

OPERATOR

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.