FPS

As a reminder, this conference is being recorded. It is now my pleasure to introduce Kate Africk, Head of Investor Relations. Thank you. You may begin.

Thank you, operator, and thank you everyone for joining us today for Forgent Power Solutions' Third Fiscal Quarter 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, and adjusted net income.

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.

Thank you, Kate, and good morning, everyone. We appreciate the continued interest and engagement from our shareholders and the broader investment community. I'm excited to share more about what differentiates Forgent and how we are creating value both for our customers and our shareholders. As is our practice, I'll begin with a summary of our fiscal third quarter results and provide an update on the business. I'll then turn the call over to Ryan, who will review our fiscal third quarter financial results and updated fiscal 2026 guidance. Turning to slide five. We continued to deliver strong commercial and financial performance in Q3, with revenue growth accelerating both year-over-year and sequentially, even as we grew from a larger base. Revenue increased 103% to a record $379 million.

Adjusted EBITDA rose 96% to a record $85 million, and adjusted net income grew 132% to a record $55 million. Importantly, adjusted EBITDA margin expanded 200 basis points sequentially to 22.4% in the quarter, driven primarily by increased leverage on SG&A, along with improved labor and overhead absorption. Our financial performance reflects our focus on the high-growth end markets as well as our exceptional product breadth, manufacturing depth, and customization capabilities, which together we believe enable us to grow faster than the overall market, gain share, and generate attractive margins. Turning to slide six. There are five key takeaways we have for shareholders and investors coming out of Q3. First, demand for our products continues to exceed our expectations, and we are raising our fiscal 2026 guidance to reflect the strength of that demand.

The fundamentals across our core data center and grid markets remain exceptionally strong, and we see sustained strong market growth. The feedback we are getting from customers is consistent. Investment budgets are expanding, project pipelines are growing, and the need for customization speed and scale manufacturing is only becoming more important. We are taking share. Across our three primary end markets, data center, grid, and energy-intensive industrials, we estimate aggregate market growth of approximately 20% annually. We have been growing at 3x to 5x that rate, which speaks to the strength of our execution and the relevance of our value proposition. Customers are increasingly choosing Forgent because we can deliver highly customized solutions at scale with some of the shortest lead times in the industry. We believe that combination is highly differentiated, and we expect it to continue to drive share gains over time.

Fourth, we believe we are still in the early stages of our margin expansion opportunity. In the third quarter, we delivered 200 basis points of sequential adjusted EBITDA margin improvement, and we expect to build on that progress with further sequential margin expansion in the fourth quarter. Lastly, we are beginning to transition from cash consumption towards cash generation. Operating cash flow improved meaningfully in the quarter, and as our current capacity expansion program nears completion and capital intensity begins to step down, we expect cash flow dynamics to continue improving with increasing cash generation potential as we move into fiscal 2027. Moving to slide seven. I'll provide more context on the strength of demand we're seeing in the business.

In the third quarter, we delivered record bookings of $867 million, up 308% year-over-year and 14% sequentially, building on what was an already record level of bookings in the second quarter. Order growth was led by our data center and grid customers, reflecting continued strength in our core end markets. Importantly, our year-over-year bookings growth accelerated in the third quarter, even as we grew from a larger base. That underscores both the magnitude and durability of the demand we are seeing. Our book-to-bill ratio was 2.3x in the quarter despite delivering record revenue. This highlights not only the strength of current demand, but also the increasing visibility we have in the future periods.

As of March 31st, 2026, backlog was at a record of nearly $2 billion, up 157% year-over-year and 33% sequentially. This is the highest backlog level in Forgent's history and provides strong visibility into future revenue as customers increasingly move to secure production capacity well into fiscal 2027 and beyond. Turning to slide eight. Given the strength of the demand environment and our continued execution, we are raising our guidance for fiscal 2026. Importantly, the low end of our updated guidance ranges for revenue and adjusted EBITDA is now above the high end of our prior ranges, which reflects the momentum we are seeing across the business.

We now expect $1.35 billion-$1.39 billion in revenue, $70 million higher than prior guidance, $310 million-$320 million of adjusted EBITDA, $10 million higher than prior guidance, and $197 million-$207 million of adjusted net income, $7 million higher than prior guidance. At the midpoint, our updated guidance implies stronger year-over-year growth across all key metrics, including 82% revenue growth, 86% adjusted EBITDA growth, and 128% adjusted net income growth. We are operating in a very strong demand environment. Our objective is to always grow faster than the market by taking share. Slide nine highlights two of the metrics we use to measure that progress.

Starting on the left-hand side of the page, Powertrain Solutions are integrated combinations of custom products designed to work together as a system. When we deliver a Powertrain Solution, we are addressing a broader set of the customer's needs and capturing a larger share of their overall project spend. In the third quarter, Powertrain Solutions revenue increased 248% year-over-year to almost $100 million and more than doubled sequentially. That growth reflects our ability to expand our role with customers by delivering more comprehensive, higher-value solutions across the powertrain. While we are seeing strong growth across our product portfolio, Powertrain Solutions remains the fastest-growing part of the business. It is also contributing to higher average customer spend, which increased 109% year-over-year and 20% sequentially. Average customer spend is an important metric for us for two reasons.

First, it tells us we are broadening customer engagement and unlocking the full potential of our product portfolio. Second, it indicates that we are capturing a greater share of project spend, increasing our relevance to customers, and expanding our presence across more of the powertrain. The strategy behind these results is very deliberate. We are engaging with customers early in their planning process in leading with our engineering capabilities. When we work hand-in-hand with customers to design their powertrain, it naturally creates opportunity to deliver multiple product categories and integrated solutions. We are also leveraging our strength in medium-voltage switchgear and transformers to create pull-through demand across the rest of our portfolio. This remains a significant opportunity for Forgent, and we believe we are still in the early stages of realizing its full potential. Slide 10 provides an example of how our strategies are translating into customer wins.

During the quarter, we secured a greater than $100 million Powertrain Solutions order from a new NeoCloud customer for the first building of what is planned to be a multi-gigawatt plus data center campus. Our scope includes medium-voltage switchgear, medium-voltage transformers, low-voltage switchboards, and service, representing a fully integrated Powertrain Solutions. What differentiated Forgent to this win? First, we engaged early with our engineering team, which allowed us to solve design challenges upfront and build credibility with the customer. Second, our broad portfolio enabled us to deliver a fully integrated solution rather than a collective of individual products, making it easier and more efficient for the customer to work with us. Third, we tailored our solutions to the customer-specific requirements. Finally, our speed from concept to uptime was best in class, reinforcing the value of our execution model with delivery starting just six months after the PO.

Slide 11 highlights a different large and strategic order, this time from a repeat customer, where we are providing over $100 million of low-voltage equipment across multiple data center campuses throughout the U.S. While this order does not meet our definition of a Powertrain Solutions order, given it involves just a single product category, the strategic importance of the win is just as compelling. To provide some context, Forgent had previously supplied medium-voltage transformers to the customer, establishing a strong track record of understanding their unique technical requirements and delivering to specifications and timeline. That performance laid the groundwork for a broader opportunity as the customer rapidly scaled development across multiple sites with timeline certainty as a top priority.

Our ability to offer dedicated capacity and start deliveries within just five months of PO with minimal execution risk, enabled by our vertically integrated manufacturing model and supply chain control, gave us a clear advantage. The relationship expanded from an initial transformer order to low-voltage switchboards as well, with additional opportunities in the pipeline, illustrating how strong execution can drive increased scope, increased wallet share, and longer-term enterprise-level relationships. Taken together, these orders reinforce that our strategy is working across both new and existing customers and across different product mixes. We are increasing our relevance with customers, capturing more of their spend and positioning Forgent for continued growth as we scale. Moving to slide 12. Earlier, I mentioned that we believe we are still in the early innings of our margin expansion opportunity. This page helps explain why.

From the second quarter to the third quarter, gross margin increased 30 basis points. That improvement was driven by operating leverage on higher revenue despite the impact of growth-related costs, including under-absorbed fixed costs and one-time start-up costs at our new facilities, as well as under-absorbed labor costs associated with accelerated hiring. To put that in context, absent those growth-related costs, gross margins would have been approximately 180 basis points higher. The key takeaway is, while gross margin improved in the quarter, we believe there is still meaningful opportunity ahead. As these growth-related costs moderate and as new capacity becomes more fully utilized, we expect gross margins to continue improving in the years ahead. Where we did see the full benefit of operating leverage was in SG&A.

SG&A, as a percentage of sales, declined 230 basis points quarter-over-quarter, reflecting revenue growth outpacing operating cost growth. We expect that dynamic to continue, which should contribute to further margin expansion in future periods. The key takeaway is that we expect to deliver further sequential margin expansion in the fourth quarter, and we believe there is meaningful opportunity to continue expanding margins over time. We are already seeing that leverage materialize in SG&A, and we expect to see it increasingly in gross margins as our new facilities continue to ramp and move toward full production rates. Turning to slide 13. Increasing operating leverage is also beginning to translate into improved cash flow. While we expect to continue making meaningful working capital investments to support our revenue growth, we are now reaching a scale where the business is starting to generate significant operating cash flow.

In the third quarter, operating cash flow improved by $37 million year-over-year to $29 million. We are expecting operating cash flow to continue to grow over time. Importantly, we also expect free cash flow to inflect as we complete our current capacity expansion plan toward the end of this year and capital intensity begins to step down. As free cash flow increases, it will provide us with greater flexibility to pursue strategic M&A opportunities to complement our product portfolio and augment our growth. The transition towards cash generation represents an important milestone for Forgent and a direct outcome of the strategy we have been executing. With that context on the trajectory of margins and cash flow, I'll now turn it over to Ryan to walk through our financial results in more detail.

Thanks, Gary. I'll walk through our third quarter financial results and then discuss our updated outlook. As Gary mentioned, the quarter reflects strong execution against accelerating demand with revenue growth, margin expansion, and improving cash flow all progressing at or better than expectations as we continue to ramp our production volumes. Turning to slide 15. Revenues in the quarter were $379 million, an increase of 103% versus last year, all organic. Growth continued to accelerate both year-over-year and sequentially, even as we scaled off a substantially larger base. This performance reflects a combination of strong end market demand and continued share gains, supported by progress on our production ramp. Similar to last quarter, growth was led by our data center and grid end markets, both of which more than doubled year-over-year. We also saw broad-based strength across the portfolio.

Revenues for all of our offerings increased year-over-year, led by continued strong growth in custom products and Powertrain Solutions. Custom products revenues increased 82% year-over-year to $259 million, representing 68% of total revenues. Powertrain Solutions revenues grew 248% year-over-year to $99 million, representing 26% of total revenues, up from 16% of our mix last quarter. Our standard products revenues increased 53% year-over-year, and services revenues grew 4% year-over-year, representing 3% and 2% of total revenues respectively. Services remain a strategic priority for us, and we are actively pursuing greater monetization of commissioning and related services as we deliver higher volumes of new equipment.

Although services is still at an early stage, we see attractive long-term potential as we continue to invest in the offering and as our installed base expands. Overall, third quarter revenues exceeded our expectations, reflecting accelerated growth driven by market demand and share gains as we execute our production ramps. Turning to slide 16, I'll walk through adjusted EBITDA and margin performance for the third quarter. Adjusted EBITDA was $85 million, up 96% year-over-year, driven primarily by strong revenue growth. Gross profit increased 92% year-over-year, while SG&A increased 145%, reflecting investments in sales, operations, and engineering to support our rapid growth, as well as incremental costs associated with being a public company. Adjusted EBITDA margin was 22.4% for the quarter. On a sequential basis, adjusted EBITDA margins expanded 200 basis points.

Adjusted EBITDA margins benefited from 30 basis points of sequential gross margin expansion, driven by higher production volumes as growth-related costs at our newer facilities declined as a percentage of sales. The larger contributor to the sequential margin expansion, as we expected, was greater leverage on SG&A expenses. While SG&A grew nominally, it declined by 230 basis points as a percentage of sales. In summary, adjusted EBITDA margins expanded sequentially in the third quarter, consistent with our expectations, and we expect sequential expansion again in the fourth quarter as higher production volumes drive further absorption and SG&A leverage. With that context on Q3 profitability, let's turn to our updated outlook. On slide 18, I'll start with our outlook for the fourth quarter. After a strong execution in the third quarter, our expectations are now higher for the fourth quarter.

For the fourth quarter of fiscal 2026, we expect revenues of $392 million-$432 million, representing a 73% growth year-over-year at midpoint, as well as continued strong sequential growth as production volumes increase further. We expect adjusted EBITDA of $100 million-$110 million, representing a 145% year-over-year increase at midpoint, and margins expanding to around 25% with incremental operating leverage as our production ramp continues. Lastly, we expect adjusted net income of $67 million-$77 million, more than tripling year-over-year. Overall, the fourth quarter outlook reflects continued strong demand, increasing scale, and the operating leverage that's beginning to emerge as we move through the second half of the year. Next, I'll discuss our full fiscal year 2026 guidance on slide 19.

We expect revenues in the range of $1.35 billion-$1.39 billion, representing 82% year-over-year growth at the midpoint. We expect adjusted EBITDA of $310 million-$320 million, representing an 86% year-over-year growth at midpoint, and adjusted net income of $197 million-$207 million, reflecting 128% growth at the midpoint. This implies an adjusted EBITDA margin of approximately 23% for the full year, modestly higher year-over-year. As discussed, margin performance reflects strong volume growth in the early stages of operating leverage as we scale. In addition to price, we expect continued leverage across SG&A and improved absorption of labor and overhead to more than offset tariff impacts.

Overall, our full year outlook reflects a combination of accelerating demand, increasing scale, and improved profitability, and positions the business well as we move into fiscal 2027 with greater capacity, visibility, and earnings power. With that, I'll turn it back to Gary for closing remarks.

Before we open it up for questions, let me close with a few brief thoughts. First, let me say thank you to all of our employees, customers, and investors. All three constituents have trusted Forgent in different ways, and we don't take any of that lightly. Second, this was another strong quarter for Forgent as we continue to establish our track record in the public markets and position Forgent as a trusted partner delivering customization at scale with speed. The quarter reflected accelerating demand, expanding customer relationships, and continued strong execution as we scale the business. Third, the progress we outlined today across orders and backlog, revenue growth, margin expansion, and the transition towards cash generation reinforces our confidence in the trajectory of the business. We look forward to our fiscal fourth quarter call when we will provide our outlook for fiscal 2027.

With that, we are happy to take your questions. Operator?

Thank you. At this time, we will conduct our question-and-answer session. To get through as many questions as we can with the time remaining all questionners should limit themselves to one question. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participant using speaker equipment it maybe necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question comes from Julian Mitchell with Barclays. Please state your question.

Thanks very much. Good morning. Maybe my question really is about the revenue outlook for the next 12 months. Really to understand, you know, when we look at the recent backlog and orders trends, they suggest very significant revenue growth in the year ahead. Is there anything you'd highlight to us on sort of lead times extending or anything like that may put a low ceiling on the ability of revenue to catch up to kind of quarterly orders? You know, I think orders have been running at 2:1 versus revenue the last three quarters. Anything you could flesh out there, maybe help us understand how much of that March backlog should ship in the next 12 months.

Hey, good morning, Julian, it's Gary. Couple dimensions to that answer here. One is, I mean, let's start with that order to revenue number of 2:1. That is really quite remarkable. You're right, it's the second quarter in a row we've achieved that on a trailing three quarters. It is above that number. Couldn't be happier with the way both sides of that equation on the order and the revenue side is shaping up for us. That's number one. Number two is if you look at the profile and the shaping of that backlog, we are certainly starting to see orders drop in that are, you know, it used to be 9-12 months, now it's probably 12-15-ish months on average.

That really is not as much a function of our lead time as much it is us engaging with our customers early and them locking in capacity. Most of the shipment profile is it's a little bit to do with our lead time, but it's more around to do the customer's project and when they want that product. That's sort of dimension two. The third one, just to quantify that a little bit, you know, obviously what was in backlog at the end of March also had our fourth fiscal quarter in there. There's a big chunk of that, and we can back into the math based on the guide. You know, I would say, you know, 55%-60% of what is in backlog right now is scheduled to ship in 2027.

You know, the other chunk of that is gonna be in fiscal Q4. The other chunk of that is gonna be out in 2028. You know, we still have book and build business to capture in 2027, but that is all part of the pipeline and part of the roadmap. I think those are the three best dimensions I can give you to answer that question.

Great. Thank you.

You're welcome.

Your next question comes from Joe Ritchie with Goldman Sachs. Please state your question.

Hey, guys. Good morning.

Morning, Joe.

Ryan, you gave some of the headwinds associated with margins this quarter. It looks like you guys are expecting margins to ramp about 300 basis points sequentially. Pretty good incrementals on that, I think around 60%. I guess two-part question. What gives you the confidence that some of the headwinds that you saw this quarter dissipate in your fiscal fourth quarter? How do you think about the trajectory for 2027? Thanks.

Just maybe a couple points here, Joe. We did have a little bit of the headwinds that we kinda talked about or that you mentioned here for Q3. Overall, the sequential margin improvement of 200 basis points we felt very good about. You know, we continued to see good operating leverage as our top line continued to grow. As we think about, you know, Q4, you know, we continue to see strong top-line growth. That operating leverage certainly is a benefit that we expect to see come through the business. You can see the improvement in the EBITDA margins for Q3 to Q4, where we expect another 200 basis points of improvement.

You know, I think we feel very good about our ability to achieve that. If you think about Q4, we do have some benefit to certain mix dynamics that will drive some of the incremental margins that we have in the, in the fourth quarter. We think that that's, you know, probably slightly above what we would view as kind of a normalized run-rate as we go into next year. As you think about 2027, we'll be providing more detail on what that looks like in our next earnings call. We'll be able to share some additional detail at that point, Joe.

Great. Thank you.

The next question comes from Julien Dumoulin-Smith with Jefferies. Please state your question.

Hey, team. This is Tanner on for Julian. Could you discuss trends you're seeing specifically in order activity for grid-related equipment? Like, what's the mix you're seeing for generation adjacent equipment orders versus that of traditional T&D? Perhaps on the generation side, has there been any impact from evolving customer sentiment toward or away from development of certain types of generation resource? Thanks.

Yeah. Hey, Tanner. Couple pieces there. One is, for the most part, we are relatively agnostic to the generation type. Whether that is coal or gas or nuclear or alternative energy, you know, we are relatively agnostic. The one dimension that increments us up, though, is in that alternative energy space because there are more not only changes, but there's step function changes in voltage that needs to take place when you have alternative energy. That is a net good guy for us. When you take a look at our overall grid business, we definitely are seeing growth in that sector, not only in the revenue, but backlog and the order rate.

Secondly, you know, if you double-clicked on that a little bit, there is still a heavy amount of not only grid reinvestment going on, but also parts of that renewable supply chain that are a tailwind for us that we are capturing as well. Those are the couple of things I'd say on that one.

Great. Thanks.

Thank you. Your next question comes from Nigel Coe with Wolfe Research. Please state your question.

Great. Thanks a lot. Good morning, and thanks for the question. Obviously a lot of inflation out there. Just wondering how price cost is tracking. Then perhaps talk about tariffs and, you know, how the change in the tariff regime has been impacting you guys. I'm actually curious how maybe just remind us what kind of backlog protection you have against rising inflation and tariffs. Thanks.

Yeah, sure, Nigel. Let's split that in two there for a second. On the tariff piece, the changes that kicked in 45 days ago or so were generally neutral-ish for us. Couple products got a little bit worse, couple products got a little bit better. On average, it was sort of a neutral exchange for us at this point in time. That's number one. Price cost, it is always to really pinpoint price cost because of the custom nature of our product set.

To the best of our ability, we think we are, again, neutral to probably slightly, we have pretty good visibility on both of those, but this is where vertical integration really helps because that flat bill of material and flat supply chain, we have really pretty good visibility as to what's going on, and there's not a latent impact to indoor supply chain. That's a secondary benefit of being vertically integrated. On the last piece, you know, we handle this in a couple of different ways. One is when we get an order from our customer, we do a pretty good job of turning around and securing that supply in our supply chain very quickly. That's mode number one.

Mode number two is, in the majority of contracts we've signed over the last 9-12 months, most of those have some form of tariff and inflation protection clause in there. At that point, it becomes a commercial decision whether we want to actually do that or not. Sometimes we do, sometimes we don't. The summation of all of that is price cost, generally neutral. The latest tariff, you know, as of 45 days ago or so, generally neutral-ish. You know, that hasn't really impacted the P&L at this point, either in a good or a bad way. It's just been just that, just neutral.

Great. Thanks, Gary.

Thanks, Nigel.

Thank you. Your next question comes from Jeff Hammond with KeyBanc Capital Markets. Please state your question.

Hey, good morning, everyone.

Good morning, Jeff.

It's good to see the cash flow flip positive. Just how should we be thinking about, you know, free cash flow conversion as we move into fiscal 2027? You know, just how you're thinking about working capital needs within that. Then, you know, I think you put and you've stated kind of we're gonna step down to 1%, but what would it take to really start to contemplate any kind of incremental, you know, capacity adds given how strong things are? Thanks.

Yeah, sure, Jeff. A couple pieces there again. One is, I would say from a macro standpoint, we're really pretty happy with how that current capital expansion plan has come along. If you just think about what we said we were going to do in terms of the spend and what that is providing us in the factory, we are right on track to the point where we should be meaningfully complete with that $205 million expansion by the end of this fiscal year. There'll be just a little bit that bleeds over into the first half of next fiscal year, but we will be meaningfully complete. That's number one.

Number two is, you know, we are in the middle of assessing our 2027 plans right now to determine what capital really looks like for FY 2027. I think that 1%-1.5% number is probably a pretty good number based on everything we see. You know, the thing that would increment it up is purely just the demand profile and the mix of that demand profile. Everything we see right now, I think, you know, the guide rails that we've given in the past is pretty much still the right guide rails at this point in time.

Jeff, maybe just to answer on top of that on the working capital side. You know, we continue to see ourselves in that 10%-15% range. You know, we were kind of in the midpoint of that this quarter, if you look at the detail behind that. We still have opportunity for us to continue to improve on that side, and we're actively working it. That will also, you know, continue to be something as an opportunity for free cash flow generation as time goes on.

Great. Thanks.

Your next question comes from Andrew Obin with Bank of America. Please state your question.

Hi, this is David Ridley-Lane on for Andrew. Look, I'm not gonna ask you if you can continue this 2+ times book-to-bill, but just wanna confirm that you would expect to be adding to backlog in the fourth quarter and that within that growth that you're seeing, now that that backlog is now covering over one year, to maybe building on the last question, would you consider increasing your down payment requirements for orders maybe to help with some of that working capital dynamic? Thank you.

Yeah, David, that was a beautifully crafted way of not asking the question and asking the question at the same time. You know, kudos to you there. Let's on the orders and backlog, you know, I don't think we're gonna guide on a quarterly basis here to what that orders and backlog number would be. I think clearly from the sentiment we had in the prepared remarks and just the overall demand environment, look at the pipeline is pretty robust at this point in time. I would leave it at that. The reason I would leave it at that is it is still really hard to predict when an order is going to actually come in from our customer on a month-to-month or quarter-to-quarter basis.

I don't wanna set any false expectations and have something slip out a day or two. Likewise, if something gets pulled in, we're not gonna celebrate it too much. I would just say demand environment is pretty robust, and we feel good about the pipeline as it sits at this point in time. Then on your second question, you know, what we're seeing in FY 2027 is a continuation of all the things that we're seeing in FY 2026. That pipeline or that backlog is getting extended a little bit, again, not because of our lead times, but more because of the project lead times from the customer base.

You know, you look at over the next, you know, 15 months, we have, you know, decent visibility into everything that we think we need to execute on.

Thank you. Your next question comes from Chigusa Katoku with JPMorgan Chase. Please state your question.

Hi. Thanks for taking my question. I'm just gonna take a stab at this, but, in terms of your orders, I think you highlighted $200 million wins this quarter. Do you see that as lumpiness, and is this quarter like a high watermark for orders? If you have any color here, and, you know, order backlog trends from here, that would be great. Thanks.

Yeah, Chigusa, I would double down on the comments that we made to David's question just a second ago in terms of not won't guide to any order number, but would certainly suggest that demand, the market demand, and more importantly, our ability to take share in that market demand continues to be really, you know, pretty good for the foreseeable future. Not sure how that portends to an exact order number at any given quarter, but the macro backdrop is certainly, you know, positive. Then in terms of the $200 million order number as you referenced there, I don't think that's as much lumpiness as it is, you know, these projects are just getting larger and larger. Not only are the projects getting larger, but we are fulfilling more of our product set within those projects.

I think, in general, you will see our order sizes continue to gravitate up because of the project size growing and our ability to sell across the portfolio growing. Both of those dynamics will lead to, you know, a larger order number as we continue to go forward.

Great. Thank you.

For sure.

Thank you. Your next question comes from Chris Snyder with Morgan Stanley. Please go ahead.

Thank you. I appreciate some of the prior commentary that on the project business, customers are ordering a bit further out than maybe they were six or 12 months ago. I would imagine that, you know, there's some level of book-and-ship and quick turnaround business for you guys as well, whether it's same quarter or kind of next quarter delivery. I guess my question is, does the company still have incremental capacity to serve that demand? I guess I'm really trying to get at, like if some of that quick ship demand comes through in Q4, is there upside to the revenue forecast guide or are you guys starting to maybe run up against some of your own capacity? Thank you.

Yeah, sure, Chris. On the book-and-bill piece of it, there is a little bit of flow business, and when I say flow, that is sort of intra-quarter orders that we would book and then that we would ship and be able to transact within the quarter. It is a relatively small number in the grand scheme of things, though, and it typically comes in either in a few low-voltage products or in some of our dry type transformer business. Again, it's a pretty small number in the grand scheme of things. That's number one. Number two is, you know, I think the guide that we gave in terms of the bracketed ranges is what we feel comfortable with, one, knowing the visibility we have at this point in the quarter.

Two, you know, I don't think we're hitting any ceiling on our ability to ship. You know, typically what it is the customers either don't need those products. If somebody dropped in a huge order, they don't need it in three or four weeks. For the most part, I think our supply and demand balance is just that. It's pretty balanced for where we sit at the moment.

Makes sense. Thank you, Gary. Appreciate that.

Thanks, Chris.

Your next question comes from Noah Kaye with Oppenheimer. Please state your question.

Hey, morning, Gary, Ryan, Kate. Thank you all for taking the questions. you know, there are growing power bottlenecks on the grid, and we've seen this rise in behind the meter power configurations, you know, for the data centers. I think it's as much as a third of the gigawatts in the planning queue right now. You've written this as really a content growth opportunity for the company. Can you talk a little bit about where your pipeline sits now in terms of targeting behind the meter, and how you think of your wallet share opportunity there?

Yeah. good morning, Noah. Yes. anecdotally, here's what I would say. Any behind the meter opportunity is a net good guy for us. you know, at some point, the grid will come back and interconnect it, but that's gonna be, you know, 5-7 years from now. In that period of time, the more behind the meter opportunities they are, regardless of what the power source is, whether it's solar, whether it's natural, [again], turbines, you know, that is a good thing for us because it's another spot where electricity needs to be either stepped up or stepped down and distributed. At this point in time, we do see opportunities growing in the behind the meter realm in both for natural gas turbines as well as in alternative energy ways.

Generally, that is a good trend for us.

All right. Thanks, guys.

Thanks, Noah.

Thank you. Ladies and gentlemen, there are no further questions at this time. With that, we will now conclude today's Forgent Power Solutions fiscal third quarter 2026 earnings conference call. You may disconnect your lines at this time. Thank you all for your participation.

Greetings and welcome to the Forgent Power Solutions Fiscal Second Quarter 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. If anyone should require operator assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kate Africk, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and thank you everyone for joining us today for Forgent Power Solutions second fiscal quarter 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, and adjusted net income.

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, I will turn the call over to Gary.

Thank you, Kate, and good morning, everyone. Given that this is our first earnings call as a public company and that we have many new investors listening in, I'll begin with a brief introduction to Forgent and what makes us unique before I turn it over to Ryan to discuss our second quarter 2026 results. I'll pick it back up to provide an update on our markets, growth initiatives, and operational dynamics, and Ryan will wrap up with our fiscal 2026 guidance. Let's turn to slide 5.

Forgent is a leading designer and manufacturer of electrical distribution equipment used in data centers, the power grid, and energy-intensive industrial facilities. The category encompasses all of the equipment that is needed to deliver electricity safely and efficiently from the power plant all the way through to the end device. Electrical distribution equipment is not an optional purchase.

Customers have to buy it, and because it has a high consequence of failure, reliability and safety are more important to the customer than price. The market for electrical distribution equipment is very large and includes everything from power plants to your home. We focus on the most technically demanding segments of the market. Said differently, we make the equipment for the highest value applications that are the hardest to do. What are some of those? It's data centers, semiconductor fabs, battery energy storage projects, all areas that are seeing tremendous investment now. Those applications are hard, and only a few companies can do them because they require a significant amount of upfront engineering work. You also have to comply with multiple standards, and therefore making this equipment requires specialized labor.

Because of the safety aspect, these have to be zero-defect products, and oftentimes customers require them to be made in the U.S., either because of cybersecurity or to be eligible for incentives, which is a big benefit to us. When you combine these mission-critical products targeted at technically demanding applications that only a few companies can do, you get the financial profile that you see on this page. Over the last 12 months, we've generated $1 billion of revenue, $212 million of adjusted EBITDA, which is a 21% margin, and we had a $1.5 billion backlog at the end of December 31, 2025. Now, on slide six, there are three things that really differentiate our business from other companies in the industry. The first is our market focus.

Approximately 85% of our revenue comes from three end markets, data centers, grid, and industrial. Each has seen a step change in infrastructure investment. Data centers are being fueled by cloud and AI demand, the grid by modernization and replacement of aging assets alongside new generation to meet load growth, and industrial by the reshoring of manufacturing driven by trade policy and geopolitics. We believe this focus exposure positions us to grow materially faster than the broader electrical equipment industry, while our diversification across all three end markets gives us multiple ways to win. The second thing that differentiates us is our combination of product breadth and manufacturing depth. We make everything our customers need in-house, and we have the capacity to meet their demand at scale.

That means that we can take share from our competitors who can't deliver fast enough because they rely on third-party suppliers for key equipment categories or just don't have the capacity at all. The third thing that differentiates us is our focus on custom products. Approximately 90% of our revenue comes from engineer-to-order products. Engineer-to-order means products that are designed to a customer's specification rather than built from a standard pre-config design. To put our focus on customization in context, our average batch count is 15. Batch count is how many units we manufacture per design. For most of our peers who focus on standard products, that number would be in the hundreds or even thousands. Focusing on custom products allows us to earn higher margins because customers are willing to pay more to get it their way.

The result of our differentiated market focus, scaled manufacturing capacity, and customization capabilities is that we can grow faster than the overall market, take share from our competitors, and earn attractive margins. Each of those themes are reflected in our fiscal second quarter results, which Ryan will address next. Over to you, Ryan.

Thanks, Gary. I'll begin with the highlights of the second quarter, then I'll discuss the key drivers of revenue and adjusted EBITDA in the period. Turning to slide eight. We had very strong commercial and financial performance in the second quarter. Revenues increased 69% year over year. Adjusted EBITDA rose 51% to 20.4%. Adjusted EBITDA margin and adjusted net income increased 66%. Turning to slide nine. Revenues in the quarter were $296 million, an increase of $121 million versus the prior year's quarter. To put that into perspective, the year-over-year increase by itself exceeded the total revenues we generated in some quarters of fiscal 2024. All of the growth in revenues in the period was organic and reflects both growing demand for electrical distribution equipment and market share gains.

Our ability to deliver this level of growth was driven in part by the investments we made in capacity at our campuses in Minnesota, Texas, and Tijuana. Sales of all offerings grew in the second quarter versus last year. Custom products grew 59% to $235 million, or 79% of our revenues in the quarter. Powertrain solutions, which included combinations of custom products that are integrated together to work as a system, more than tripled to $46 million, or 16% of our revenues in the quarter. Standard products and services grew at 13% and 5% respectively, and represented 3% and 2%, respectively, of our revenues in the quarter. Services accounted for a low percentage of our revenues today, but is an area we are investing in and expect to grow in the future. Turning to page 10.

Adjusted EBITDA in the quarter was $60 million, an increase of $21 million versus the prior year's quarter. Significant increase in adjusted EBITDA was driven by a 60% increase in gross profit, partially offset by increased selling, general and administrative expenses to support growth across operations, engineering and sales, and to support public company functions. Adjusted EBITDA margins were 20.4% in the quarter and include the impact of approximately $4.2 million of under-absorbed labor, $1.2 million of under-absorbed fixed overhead, and $600,000 of one-time startup costs for our new campuses. The one-time startup costs related primarily to office and service trailers, as well as generators that we rented in the period while our new campuses in Texas and Maryland were being completed.

The under-absorbed overhead related primarily to rent for campuses not yet operational, and the under-absorbed labor costs related to hires made during the quarter to support production plan for future periods. We have accelerated our hiring plans to support greater than anticipated demand, and we expect to have additional under-absorbed labor in fiscal Q3 as we continue to onboard new manufacturing employees. We are providing this detail to help investors understand the drivers of margin. However, we do not add these growth-related costs back in our calculation of adjusted EBITDA. We expect margins to expand sequentially in Q3, and again in Q4 as startup costs roll off and labor and overhead absorption improves as our new campuses ramp to planned run rates. With that, I'll turn it to Gary.

Turning to slide 12. I'll start by highlighting the main takeaways from the second quarter and then turn to what we are seeing in our markets, how we are executing against our growth strategy, and what we're focused on operationally as we move through the next few quarters. The big takeaway is simple: Demand is running ahead of our expectations. Orders were up 268% in Q2, and that strength was broad-based, but especially in data center and grid. We're seeing both a growing market and continued share gains, which speaks to the unique value proposition that we offer. Customization at scale with some of the shortest lead times in our industry. To keep up, we're hiring and manufacturing faster than planned.

The cost of that labor shows up immediately, but it takes time for new hires to get trained and to reach full productivity, so margins can dip during the hiring phase and then improve as output ramps. We saw that impact in the second quarter, as Ryan talked about earlier, and it may continue into the third quarter, but we still expect sequential margin expansion in Q3 and Q4 as productivity and volumes ramp.

Turning to slide 13. Let me step back for a moment and talk about the markets we serve, what we're seeing in the demand today, the key trends shaping customer spend, and how that sets up for our outlook over the next few quarters. In data center, AI and cloud build-outs are driving sustained high-growth demand for electrical infrastructure. Power availability remains a key bottleneck, which is pushing spending upstream into substations and utility interconnect equipment.

At the same time, higher power density are increasing equipment content per megawatt and shortening retrofit and replacement cycles. In grid, we continue to see steady baseline growth and demand for transformers and switchgear related to modernization and replacement of aging infrastructure. Incremental demand is coming from new generation and interconnection activity, solar, gas, and large load additions, all of which require significant substation equipment. We're also seeing rising reliability and resilience requirements, which also play into more demand for battery energy storage systems. In an industrial, electrification and reshoring are supporting increasing demand for electrical distribution equipment. Customers are also adopting smarter gear with monitoring, controls, and predictive maintenance features which support higher ASPs. Tighter requirements around energy efficiency, power quality, and uptime are driving incremental demand for conditioning and protection systems.

Overall, these trends create a very favorable backdrop for Forgent, characterized by accelerating demand, more content per megawatt, and greater visibility. Moving to slide 14. You see that backdrop reflected clearly in our bookings and backlog. In the second quarter, we booked $762 million of orders. To put that in context, that's more than our total revenues for all of fiscal 2025, and it represents 268% year-over-year and 66% quarter-over-quarter growth. The order increase was led by data centers followed by the grid. Within data centers, we're seeing demand from a broad mix of colos and neo clouds, including platforms that serve hyperscalers. In grid, we're seeing strong demand from utility customers, where we believe we're gaining share, as well as from developers building solar, battery energy storage systems, gas generation, and related interconnection infrastructure.

Our book-to-bill ratio in the second quarter was 2.6, reflecting the pace of the demand acceleration that we are seeing. As of December 31, 2025, backlog was $1.5 billion, twice last year's level and 45% higher than at the end of September. Given current order activity, we expect backlog could meaningfully increase again in Q3. Importantly, our growth isn't being driven by the market alone. We're also taking share. On slide 15, we highlight two of the ways we track wallet share. Of equipment, they typically drive larger orders and capture a greater share of customers' electrical infrastructure spend. Powertrain solutions were our fastest-growing offering in the second quarter, up 230% year-over-year, an increase to 16% of revenues, up from 8% last year. The second way we measure wallet share is average customer spend.

Customer spend with us increased 99% year-over-year and 21% sequentially, which is another clear indicator that we're winning a larger share of wallet. We believe we're still early in our share gain opportunity. We're only beginning to fully leverage two key advantages, our expanding manufacturing depth and our strength in longer lead time products like medium voltage switchgear and transformers. As our full capacity expansion comes online, we expect to be one of the few suppliers that can deliver custom products at scale with short lead times. When you can consistently beat the competition on lead time, it becomes much easier to win. We're also using our edge in medium voltage switchgear and transformers to pull through additional products with the goal of capturing more of the total project scope, not just the hardest to source items.

Page 16 puts some numbers around how powerful that pull-through can be. All facilities have medium voltage and low voltage equipment in their electrical infrastructure. A data center project will typically buy $6-$7 of low voltage equipment for every $1 of medium voltage equipment. Forgent has long been recognized as a leader in medium voltage, but historically, we didn't always pursue or win the low voltage scope of a project.

One of my first priorities when I joined the company was to change that because of the growth opportunity it unlocks. The example on this page clearly demonstrates that. During the second quarter, we worked closely with a data center customer who approached us initially to buy medium voltage transformers. We were able to expand the order to include not only the low voltage scope for the project, but also the entire e-house and integration work.

That expansion increased the size of the order by about seven times. To put that in perspective, if we had achieved similar pull-through across all of our data center customers in fiscal 2025, our data center business would have been roughly two and a half times larger. That's hundreds of millions of dollars of incremental revenue potential. We were able to win because we could deliver multiple equipment categories on the timeline required, including more than 180 MW of power through e-houses with complex specs. We closed the deal in 45 days, and we expect to begin deliveries over the next few months. This is the playbook we're looking to replicate across more customers going forward. Turning to the operational dynamics slide on page 17, there are two key messages.

Our capacity expansion is on track, and we're accelerating hiring to meet growing demand, which can create short-term margin headwind as new teams ramp. On the left, you can see our capacity expansion plan. As of December 31st, 2025, we spent about $132 million of the roughly $205 million program, with approximately $73 million remaining. When fully completed, this expansion supports up to $5 billion of capacity for revenues versus the $1 billion of LTM revenues we generated through December 31st. We expect to deploy the remaining CapEx primarily in the second half of 2026, and once the program is complete, CapEx should step down towards maintenance levels of roughly 1% of revenues, meaning the CapEx drag on free cash flow should begin to ease.

On the right, we've accelerated our hiring plan to keep pace with stronger than anticipated demand. Manufacturing headcount increased 80% year-over-year, which is faster than our 69% growth in revenues in the quarter. That greater than one-to-one relationship reflects deliberate staffing ahead of higher production requirements. The trade-off is a temporary labor absorption lag. We incur costs immediately, but new hires take time to train and to reach full productivity.

As Ryan spoke about earlier, the combined impact of labor and overhead under absorption and startup cost impacted our gross profit and adjusted EBITDA by approximately $6 million in the quarter. Putting it together, as our capacity build-out finishes and the new campuses and hires reach steady state productivity, we expect sequential margin expansion in Q3 and again in Q4. With that, I'll turn the call back over to Ryan to discuss our outlook.

Thanks, Gary. Turning to slide 19. Given we're midway through the year, I'll focus on our second half outlook, and then I'll round out the discussion with what that means for the full year. We expect revenues in the range of $695 million-$745 million, adjusted EBITDA in the range of $175 million-$185 million, and adjusted net income in the range of $115 million-$125 million. At midpoint, this represents 70% year-over-year organic growth in revenues, 109% year-over-year growth in adjusted EBITDA, and 173% year-over-year growth in adjusted net income. Our outlook for continued strong revenue growth is supported by our $1.5 billion backlog.

We expect the vast majority of our current backlog will be delivered over the next 12 months, providing excellent visibility through fiscal year-end and into fiscal 2027. With higher volumes, improving overhead and labor absorption, and disciplined SG&A growth, we expect adjusted EBITDA and adjusted net income to more than double in the back half and margins to increase substantially year-over-year. Moving to slide 20. The takeaway for full year 2026 is that we anticipate accelerating growth for both revenues and adjusted EBITDA on top of the 56% and 71% growth that we delivered in fiscal year 2025, respectively. As a reminder, all quota growth figures are 100% organic.

Specifically, for fiscal year 2026, we expect revenues in the range of $1.275 billion-$1.325 billion, adjusted EBITDA in the range of $300 million-$310 million, and adjusted net income in the range of $190 million-$200 million. At midpoint, this represents 73% year-over-year organic growth in revenues.

80% year-over-year growth in adjusted EBITDA and 120% year-over-year growth in adjusted net income. With that, I'll turn it back to Gary for closing remarks.

Thanks, Ryan. Before we open it up for Q&A, I want to recognize a few groups. First, thank you to our Forgent family for the work that brought Forgent successfully to the public markets and for the relentless customer focus and day-to-day execution that is driving strong growth and profitability. Second, thank you to our new investors. We have high conviction in the trajectory of this business, and we appreciate the support you've shown so far. Finally, thank you to our customers.

A customer-first mindset is at the core of everything we do, and becoming a public company strengthens our ability to invest and deliver for you over the long term. Looking ahead, we're building the capacity, capabilities, team, and culture for the Forgent of tomorrow, not just the Forgent of today. I'm proud of what we've accomplished, and we believe we're still in the early innings.

Thank you for your time today, and we would now like to open the call up for questions. Operator?

Thank you. At this time, we will conduct the Q&A session. In order to get through all the questions in the remaining time, please limit yourselves to one question for today's Q&A session. To ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You can press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Nigel Coe with Wolfe Research. Please state your question.

Thanks. Good morning, everyone, and congratulations on your first public company earnings release. Nice one. I'll keep this to one question. I think, Gary, you mentioned expectation that backlog in this quarter, third quarter will expand meaningfully. I'm just wondering if you could maybe put some additional color around that comment.

Good morning, Nigel, and congratulations to you. You're the first caller on our first official call, so good work to you. Here's what I would say. I don't wanna put any dollars or bookends on it, but when we met a couple of months ago, we were thinking that you know, Q3 order rates would definitely not be as robust as Q2. I'm not gonna say we're gonna get all the way to where Q2 was, but we are seeing meaningful order conversion. Pipeline still continues to grow from where we were when we met a couple of months ago. I think that word meaningful backlog expansion is pretty appropriate knowing those data points.

Thank you. Your next question comes from Julian Mitchell with Barclays. Please state your question.

Hi, good morning. Yes, I'll echo the congratulations. Maybe just a question around the sort of sequential movement within the second half. You've mentioned several times, you know, margins should be up sequentially third and also fourth quarter. Just trying to understand how back-end loaded that 25% margin guide is for the back half. You know, you did 20% in Q2, so it is a very substantive step up. Maybe help us understand how much of that is happening in third versus fourth quarter, and what's the confidence around kind of getting that step up, in light of the extra headcount acceleration and sort of cost inflation that seems to be on the rise. Thank you.

Yeah. Julian, this is Ryan. You know, good to talk to you. You know, great question. You know, first and foremost, you know, we don't give the quarterly guidance, but I will give you some additional color around this. When we think about the sequential improvement in the quarters in the back half, you know, we've had incremental volumes that will continue in the back half of this year. We do expect that we'll continue to get incremental margins, and strong SG&A leverage. You know, as you saw in the second quarter of this year, we had a significant ramp of SG&A, and while we still expect that to grow, that is not gonna be at the same rate.

Just given the fact that we're growing as fast as we are, you know, we do expect margins to increase sequentially from Q2 to Q3 and again from Q3 to Q4. That will, you know, be sequentially larger as we move into the fourth quarter. You know, as you think about the overall business, you know, we have second half EBITDA in the neighborhood of $175 million-$185 million. From an EBITDA perspective, we think about 55%-60% of that will fall into the fourth quarter.

Thank you. Your next question comes from Joe Ritchie with Goldman Sachs. Please state your question.

Hey, guys. Good morning, and I echo the same congratulations. My one question, just maybe sticking on this point, on the ramp in headcount.

Just broader question. How difficult has it been to find skilled labor? As you kind of think about, you know, your expectations with the capacity, you know, being able to fill, you know, $5 billion in revenues ultimately, how are you thinking about ramping your hiring going forward to scale with the business? Thank you.

Good morning, Joe. There's a two-part answer there to your question. The first is we have continued to have really good success in all of our recruiting and outreach programs, both from an SG&A standpoint as well as in the factory. Most of the headcount that we're adding obviously is in that direct labor and indirect labor portion. With the locations that we are in, pretty big metropolitan areas, as well as with the recruitment, the training, the retention portion, we have continued to see very good success in not only the recruitment, but the onboarding, the training, and then that retention. That's sort of the first part. The second part is, you know, there's no doubt that we will continue to hire people as the revenue scales up.

You know, today that ratio from headcount growth to revenue is greater than one-to-one. Over a period of time, that will definitely go to one-to-one, and then over a little bit further period of time, it will go to less than one-to-one as we just leverage the IDL folks that we hire into the business. So I think those are the couple of answers to that question, and thank you very much and look forward to talking again this afternoon.

Your next question comes from Steve Tusa with J.P. Morgan Chase. Please state your question.

Hi. Good morning.

Morning, Steve.

Can you guys just talk about the like the exit rate on that EBITDA in the fourth quarter? And is that you know the right thing to think about as we move into 2027? Or is there some seasonality or lumpiness of mix that you know plays in? And then one other quick follow-up. Not sure we caught this on the IPO, but your revenue recognized over time. Just maybe help us with the accounting on that and just how that you know works over 'cause I think most of your lead times are you know relatively short, but I think you recognize a decent amount of revenue over time as opposed to point in time.

Just those would be the two questions. Thank you.

Yeah. Great. Thanks, Steve. Let's take the first one first, then we can hit the second one. Look, I would say first and foremost, we are laser-focused on delivering for the rest of 2026. Don't wanna get too far into 2027, although I understand the run rate question coming out of Q4 into 2026 and what that portends for 2027. I would say at this point in time, we still feel really comfortable that, you know, 25%, north of 25% is gonna be a good annual number for us from an EBITDA margin perspective in 2027. That's the first half. The second half of your question, there is definitely going to be more and more percentage of completion as time goes on.

A lot of these big powertrain solutions are big projects, which do have percentage of completion. I do expect that the rate of the revenue growth will have more and more percentage of completion as we do these bigger and bigger, larger, more complex projects.

Thank you. Your next question comes from Julien Dumoulin-Smith with Jefferies. Please state your question.

Hey.

Hi.

Echoing the same. Congratulations, team. Thank you. Appreciate the opportunity. Look, maybe just to take it a step further, how do you think about annualizing some of the trends that you're seeing improving in the back half of the year into 2027 and onwards here? I mean, obviously, you're gonna continue to grow your footprint into that $5 billion opportunity. How would you know, describe sort of the cadence as it pertains to, you know, that ramp and sort of the step functions of opening up new sites, if you will? Can you speak to that maybe just beyond kind of the back half, as you alluded to, and what that might mean into, you know, run rate 2027 or even beyond as just setting expectations?

Again, I know it's a little bit of a rehash of the prior, but I wanna come back and press a little bit further on that, if you don't mind.

Yeah. No problem, Julien. Thanks for the double click there. Let me start with that last piece of it. So again, I think from what we are seeing today in the pipeline with the order conversion that we had clearly in fiscal Q2 with what we've seen for the first half of fiscal Q3, plus the acceleration of pipeline, plus knowing all of the capacity that we are adding at this point in time, we do believe FY 2027 is shaping up to be a really very, very solid and healthy year. How that breaks down by quarters, first half, second half, all too early to tell. That margin profile we gave earlier, something in that 25%, north of 25%, I think is going to be a good number.

Like always, we will continue to grow into that footprint, and so I think there will continue to be expansion from that standpoint. I think outside of that, you know, that's probably the most color that I can share on 2027 at this point, because as stated earlier, we are really heads down. We've got, you know, two of the three months of Q3 executed. We got four more months we got to deliver, and that's where the majority of our focus is at this point. Appreciate the question and look forward to talking to you again later this afternoon.

Thank you. Your next question comes from Chris Snyder with Morgan Stanley. Please state your question.

Thank you. I wanted to just ask about where you think the company's revenue capacity will be, you know, as you exit this year. I know the $200 million CapEx program will come to a close. I know that gives you guys, you know, the ability to get up to five. It sounded like from some of the prior commentary that you still will be adding in labor, you know, into fiscal 2027 to support that growth. I guess just like, you know, where do you think the company will be at from a revenue, you know, capacity perspective, just given the labor piece, you know, as we exit this year? Thank you.

Yeah. Good morning, Chris. You're right. We will be materially complete with that $205 million capital expansion program by the end of this fiscal year, which will afford us the ability to have the infrastructure, the fixed costs in place to support up to $5 billion in revenue. That is 100% correct. You know, from a labor standpoint, we will continue to add labor as that revenue goes, and so we can modulate that based on how we see any given quarter. You know, clearly, at this point in time, we think we will have grown sequentially Q3 and Q4, not only from a revenue standpoint, but also from an EBITDA standpoint. I think that revenue line will continue to accelerate as we get into FY 2027.

How much of that, what that labor efficiency and utilization is all just gonna be a function based on customer timing and when they want those projects executed. I think that's probably the best answer I can give you on that one at this point.

Your next question comes from Jeff Hammond with KeyBanc Capital Markets. Please state your question.

Hey, good morning, guys. Congrats. Just wanted to hit on lead times. You know, in your IPO presentation, you gave good lead time color by category, kind of where you were versus peers. I'm just wondering, as you're seeing, one, all this robust demand and order growth, if you're seeing any movement on your lead times, and then conversely, if you're seeing any lead times getting better anywhere from an industry perspective. Thanks.

Yeah. Thanks, Jeff. I would say two things. One is the overall macro answer is not a whole lot of movement, even whether it's in the market or within our lead times. That's number one. Number two is, so therefore, we do believe that we are delivering inside of market expected lead times in almost every one of our major product categories. Then number three is, I think that powertrain solution win that we highlighted on the call is a really good pressure test of that in that, you know, you guys have seen how large some of these e-houses are and how the complexity of them. To be able to deliver 180 megawatt in, you know, five, six month lead time is really, you know, pretty much world-class.

That's why I feel very good about the lead time advantage that we continue to have in the market, and that is largely predicated on the fact that we did put that expansion in place early, and we are hiring that labor in order to accelerate it. I think it was very prescient of us to execute on the vast majority of that $200 million expansion that we're doing, and that's the reason why our lead times are still well inside of market expected lead times.

Thank you. Your next question comes from Noah Kaye with Oppenheimer & Co. Inc. Please state your question.

Hey, congratulations, all. Two-part from me. First, building on the lead time comment you just made, Gary. You know, we did see in the orders from the industry this quarter, you know, just a bit of an elongation of the customer project timing, customers getting a little bit more visibility earlier because of the long lead time on getting power availability. I know your lead times are still a key differentiator, but are you seeing any elongation in terms of expected customer deliveries? How do we think about the conversion timing of the backlog to revenue? I know you said most of them are 12 months, but just curious if there's any shift there.

The second part is really just to understand how to think about operating cash flow generation and working capital as we get into the back half.

Yeah, sure. Thank you, Noah. I'll take the first one, and then I'll have Ryan take the second one. I would say it's pretty consistent. Yes, there are definitely some projects. You know, just when one project may push out, another project gets pulled in. When you put it all on balance, it's pretty much the same. The vast majority of everything we're seeing in our backlog right now is going to convert in FY 2026 and FY 2027. You know, there might be a little bit of tail at the end of that, but the vast majority is going to be in 2026 and then throughout FY 2027.

I would say that, you know, that 12-month-ish, nine-12-month-ish, you know, sort of turnover of the revenue base is still probably a pretty good number from everything we've seen today. That's the first part, and then I'll let Ryan address your second part here.

Yeah. Thanks, Gary. You know, certainly, you know, good question. You know, on the operating cash flow standpoint, you know, we expect that we're gonna be positive in the second half of this year. I think it's important to note that we are investing heavily in our business. We've talked a lot about the growth, and we're nearing completion of our expansion growth CapEx. We have about $73 million left in the second half of this year, and that wraps up in June. I think it's really important to note that once that is complete and we move into 2027, the cash flow will inflect, and we do expect to start to generate some strong, you know, operating and free cash flow starting in 2027, given the fact that that will be wrapped up at that time.

Thank you. The next question comes from Michael Elias with TD Cowen. Please state your question.

Great. Thanks, and echoing the congratulations. For my question, yeah, today we have NVIDIA GTC. Jensen's gonna be providing an updated roadmap on the GPU side. You know, as you think about the technology roadmap for GPUs, you know, how do you see the product offering for Forgent evolving on the electrical side, particularly on the low voltage side? Any color there would be helpful. Thank you.

Yeah. Thanks, Michael. I don't know if you're at GTC, but if you are, enjoy that. It always is illuminating to hear what Jensen has to say, for sure. On the LV side for us, I think there's two primary pieces. One is there's no doubt that the amperage and the overall power density is going to increase. If you look at, you know, PDUs or RPPs, which is a very specific product line, in the low voltage category, you know, a couple years ago, we probably sold on average over 400-500 amp units. Today, the average is probably 1,000-1,200, and we're actually designing 1,500-1,600 amp units there. There's no doubt that power density is the first thing that we're solving for.

You know, over a period of time, you know, we will continue to make sure those AC LV products also are able to accept DC. How you do that is a little bit more nuanced, but we've demonstrated we can do that already with the DC distribution units that we are selling to mate up with fuel cells. Those fuel cells have native DC power that comes out of that, so we have DC distribution products that do mate up with that. I think over a period of time, we will continue to augment the AC-based offerings to include DC, but that's certainly further down the runway at this point in time. We're focused on expanding the density of the AC first, and then we'll get into DC.

I think those are the two biggest ways that we'll see that GPU change the LV profile for us.

Thank you. That was the last question on today's Forgent Power Solutions fiscal second quarter 2026 earnings call. You may now disconnect. Thank you.