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Forgent Power Solutions (FPS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Dec 2025 (Q2 FY26)· Industrials· Mar 16, 2026

Source: earnings call transcript

Executive summary

Forgent Power Solutions Q2 FY26 — Strong Demand and Backlog Growth Driven by Data Centers and Grid

Forgent Power Solutions reported a strong Q2 FY26, driven by robust demand from data centers and grid modernization, leading to significant revenue and order growth. The company is expanding capacity and accelerating hiring to meet this demand, which is causing temporary margin headwinds due to underabsorbed labor and start-up costs. Management expects sequential margin expansion in Q3 and Q4 as productivity ramps.

Highlights

5

  • Revenue increased 69% year-over-year to $296 million in Q2 FY26.

  • Orders were up 268% in Q2 FY26, totaling $762 million.

  • Backlog reached $1.5 billion as of December 31, 2025, double last year's level.

  • Powertrain Solutions revenue more than tripled (up 230% YoY) and increased to 16% of total revenue in Q2 FY26.

  • Average customer spend increased 99% year-over-year in Q2 FY26.

Concerns

2

  • Adjusted EBITDA margins were 20.4% in Q2 FY26, impacted by $4.2 million of underabsorbed labor, $1.2 million of underabsorbed fixed overhead, and $600,000 of one-time start-up costs.

  • Expect additional under-absorbed labor in fiscal Q3 FY26 due to accelerated hiring.

Guidance & targets

CategoryTargetConfidence
Full-year FY26 Revenue
$1.275 billion to $1.325 billion
high materiality
High
Full-year FY26 Adjusted EBITDA
$300 million to $310 million
high materiality
High
Full-year FY26 Adjusted Net Income
$190 million to $200 million
medium materiality
High
Second Half FY26 Revenue
$695 million to $745 million
high materiality
High
Second Half FY26 Adjusted EBITDA
$175 million to $185 million
high materiality
High
Second Half FY26 Adjusted Net Income
$115 million to $125 million
medium materiality
High
Q4 FY26 EBITDA contribution to H2 FY26
55% to 60%
medium materiality
Medium
FY27 Adjusted EBITDA margin
north of 25%
high materiality
High
CapEx post-capacity expansion
towards maintenance levels of roughly 1% of revenues
medium materiality
High
Backlog conversion
vast majority delivered over the next 12 months
medium materiality
High
Q3 FY26 Backlog
meaningful backlog expansion
medium materiality
Medium

Segment performance

SegmentRevenueYoYQoQMargin
Custom products
Grew 59% year-over-year in Q2 FY26, representing 79% of total revenues. These are engineered-to-order products designed to customer specifications.
Percentage of total revenue: 79%
$235M59%——
Powertrain Solutions
More than tripled (up 230%) year-over-year in Q2 FY26, representing 16% of total revenues, up from 8% last year. These are combinations of custom products integrated to work as a system, typically driving larger orders.
Percentage of total revenue: 16%Percentage of total revenue last year: 8%
$46M230%——
Standard products
Grew 13% year-over-year in Q2 FY26, representing 3% of total revenues.
Percentage of total revenue: 3%
—13%——
Services
Grew 5% year-over-year in Q2 FY26, representing 2% of total revenues. This is an area of investment for future growth.
Percentage of total revenue: 2%
—5%——

FPS operating KPIs by quarter

FPS operating KPIs stated on its earnings calls, by fiscal quarter
KPIThis call Dec 2025 Q2 FY26 Mar 2026 Q3 FY26 Jun 2026 Q4 FY26Change vs prior quarter
Backlog
$1.5B 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. Source: earnings call transcript
<$2B As of March 31, 2026, backlog was at a record of nearly $2 billion, up 157% year-over-year and 33% sequentially. Source: earnings call transcript
$3B Backlog increased to $3 billion at year-end, an all-time high, up 256% year-over-year and 53% sequentially. Source: earnings call transcript
—
Orders
$762M In the second quarter, we booked $762 million of orders. Source: earnings call transcript
$867M 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. Source: earnings call transcript
$1.5B Fourth quarter bookings reached $1.5 billion, a new company record, increasing 375% year-over-year and 73% sequentially. Source: earnings call transcript
+73%
Book-to-bill ratio
2.6 ratio Our book-to-bill ratio in the second quarter was 2.6x, reflecting the pace of the demand acceleration that we are seeing. Source: earnings call transcript
2.3 ratio Our book-to-bill ratio was 2.3x in the quarter despite delivering record revenue. Source: earnings call transcript
3.3 ratio Our book-to-bill ratio reached a new record of 3.3x also on a much larger revenue base. Source: earnings call transcript
+43.5%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Total backlog $1.5B Dec 31, 2025

twice last year's level, 45% higher than end of September

Vast majority expected to be delivered over the next 12 months (FY26 and FY27).

Capital programs

Capacity expansion program underway $205M
Period spend: $73M remaining
Spent to date: $132M

Benefit:up to $5B of revenues

The program is materially complete by the end of FY26, with remaining CapEx primarily deployed in H2 FY26. This expansion supports up to $5 billion of annual revenue capacity.

Risks & headwinds

Underabsorbed labor, fixed overhead, and one-time start-up costs Q2 FY26, continuing into Q3 FY26

$6M impact on gross profit and adjusted EBITDA

Mitigation:Expect margins to expand sequentially in Q3 and Q4 as start-up costs roll off and labor and overhead absorption improves as new campuses ramp to planned run rates.

Temporary labor absorption lag Q2 FY26, continuing into Q3 FY26

Costs incurred immediately, but new hires take time to train and reach full productivity

Mitigation:Accelerated hiring to meet demand, with expectation of sequential margin expansion as productivity and volumes ramp.

What to watch in Q3 FY26

Sequential margin expansion

Q3 FY26, Q4 FY26
Current Q2 FY26 Adjusted EBITDA margin 20.4%, impacted by $6M in underabsorption/start-up costs
Target Sequential margin expansion in Q3 and Q4, with Q4 being sequentially larger

Why it matters

Indicates successful ramp-up of new capacity and labor, improving profitability as growth investments mature.

We expect margins to expand sequentially in Q3 and again in Q4 as start-up costs roll off and labor and overhead absorption improves as our new campuses ramp to planned run rates.

Find out whether FPS delivers this. Inve re-checks your case every morning.

Q&A highlights

Can management provide more color on the expectation for 'meaningful backlog expansion' in Q3, given the strong Q2 orders?

Management expects meaningful backlog expansion in Q3, noting that Q3 order rates are stronger than initially anticipated, though not necessarily matching the record Q2 levels.

“I'm not going to say we're going to 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. So I think that word meaningful backlog expansion is pretty appropriate knowing those data points.”

asked by Nigel Coe · answered by Gary Niederpruem

2 min read 5 chapters

Detailed narrative

Market Dynamics and Growth Drivers

Forgent is experiencing accelerating demand from its core end markets: data centers, grid, and industrial. AI and cloud build-outs are driving sustained high-growth demand for electrical infrastructure in data centers, where power availability is a key bottleneck and higher power density increases equipment content per megawatt. Grid modernization and new generation projects are fueling demand for transformers and switchgear, while electrification and reshoring support industrial demand. These trends create a favorable backdrop with accelerating demand, more content per megawatt, and greater visibility.

Capacity Expansion and Hiring Strategy

The company's $205 million capacity expansion program is on track, with $132 million spent as of December 31, 2025, and the remaining $73 million to be deployed primarily in the second half of fiscal 2026. This expansion is designed to support up to $5 billion in annual revenue capacity. To meet stronger-than-anticipated demand, Forgent accelerated its hiring plan, with manufacturing headcount increasing 80% year-over-year, outpacing the 69% revenue growth. This deliberate staffing ahead of production requirements ensures future capacity.

Margin Impact of Growth Investments

Accelerated hiring and the ramp-up of new campuses led to a combined impact of approximately $6 million on gross profit and adjusted EBITDA in Q2 FY26. This included $4.2 million of underabsorbed labor, $1.2 million of underabsorbed fixed overhead, and $600,000 of one-time start-up costs. Management expects these temporary margin headwinds to continue into Q3 but anticipates sequential margin expansion in Q3 and Q4 as new teams reach full productivity and volumes increase, with Q4 expected to contribute 55-60% of second-half EBITDA.

Share Gains and Pull-Through Strategy

Forgent is actively gaining market share, evidenced by the significant growth of its Powertrain Solutions, which more than tripled year-over-year and now represent 16% of revenues. Average customer spend also increased 99% year-over-year. The company is leveraging its leadership in medium-voltage switchgear and transformers to pull through additional products, including low-voltage scope and integration work, as demonstrated by a data center project where an initial order expanded sevenfold. This strategy aims to capture a larger share of total project scope.

Lead Time Advantage and Product Evolution

The company maintains a significant lead time advantage over competitors, enabling it to deliver complex projects like 180 megawatts of power through e-houses within 5-6 months. This advantage is attributed to early investments in capacity expansion and proactive hiring. In response to evolving technology, particularly in data centers, Forgent is focused on increasing the power density of its low-voltage products, with average PDU/RPP amperage rising from 400-500A to 1000-1200A, and future plans to augment AC-based offerings with DC capabilities.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.