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    FPS
    Earnings call· Dec 2025(Q2 FY26)

    Forgent Power Solutions Q2 FY26 earnings call FPS

    Mar 16, 2026 Source

    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

    11
    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

    4
    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%——

    Operational metrics

    17
    Adjusted EBITDA
    $212M
    LTM

    Generated over the last 12 months.

    Adjusted EBITDA margin
    21%
    LTM

    Generated over the last 12 months.

    Adjusted EBITDA
    $60Mup 51% YoY
    Q2 FY26

    Significant increase driven by 60% increase in gross profit, partially offset by increased SG&A.

    Adjusted EBITDA margin
    20.4%
    Q2 FY26

    Includes impact of underabsorbed labor, fixed overhead, and one-time start-up costs.

    Underabsorbed labor impact
    $4.2M
    Q2 FY26

    Impacted adjusted EBITDA margins.

    Underabsorbed fixed overhead impact
    $1.2M
    Q2 FY26

    Impacted adjusted EBITDA margins, primarily related to rent for campuses not yet operational.

    One-time start-up costs impact
    $600K
    Q2 FY26

    Impacted adjusted EBITDA margins, primarily related to office/service trailers and generators for new campuses.

    Orders booked
    $762Mup 268% YoY, 66% QoQ
    Q2 FY26

    More than total revenues for all of fiscal 2025. Led by data centers and grid.

    Manufacturing headcount growth
    80%YoY
    Q2 FY26

    Faster than 69% revenue growth, reflecting deliberate staffing ahead of higher production requirements.

    Average customer spend growth
    99%YoY
    Q2 FY26

    Another clear indicator of winning a larger share of wallet.

    Revenue capacity
    $5B
    annual

    The capacity expansion program, once fully completed, supports up to $5 billion of revenues versus $1 billion LTM revenues through Dec 31, 2025.

    Low-voltage equipment content ratio
    $6 to $7
    per $1 of medium voltage

    For every $1 of medium voltage equipment, a data center project typically buys $6 to $7 of low-voltage equipment.

    Data center business revenue potential
    2.5x larger
    FY25

    If similar pull-through (like the 7x order expansion) had been achieved across all data center customers in FY25, the data center business would have been roughly 2.5x larger.

    Order expansion for data center project
    7x
    Q2 FY26

    An example of pull-through strategy, where an order for medium voltage transformers expanded to include low-voltage scope and integration work, increasing the size of the order by about 7x.

    Delivery timeline for large project
    5-6 months
    Q2 FY26

    Ability to deliver 180 megawatts of power through e-houses with complex specs in 5-6 months, demonstrating lead time advantage.

    PDU/RPP average amperage (current)
    1,000 to 1,200up from 400-500A
    today

    Reflects increasing power density in low-voltage products like Power Distribution Units (PDUs) or Remote Power Panels (RPPs).

    PDU/RPP amperage (designing)
    1,500 to 1,600
    future

    The company is designing units with even higher amperage to meet future power density demands.

    Industry KPIs

    5
    MetricValueDetails
    Book to bill ratio2.6xratio
    Orders bookings growth268%%
    Backlog by segment end market$1.5BUSD
    Data center exposure pipelineStrong demanddirectional
    Incremental flow through marginsequential margin expansiondirectional

    Orderbook & backlog

    1
    Total backlog$1.5BDec 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

    1
    Capacity expansion programunderway$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

    2
    Underabsorbed labor, fixed overhead, and one-time start-up costsQ2 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 lagQ2 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

    4

    Sequential margin expansion

    Q3 FY26, Q4 FY26
    CurrentQ2 FY26 Adjusted EBITDA margin 20.4%, impacted by $6M in underabsorption/start-up costs
    TargetSequential 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.

    Q&A highlights

    8

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.