Forgent Power Solutions (NYSE:FPS) reported strong fiscal second-quarter 2026 results and said demand is running ahead of management’s expectations, driven by data centers and grid-related spending as well as market share gains. On its first earnings call as a public company, the company also raised visibility into the second half of the year and reiterated that its capacity expansion program is on track, even as accelerated hiring creates near-term margin headwinds.
Quarterly performance and mix
Chief Financial Officer Ryan Fiedler said second-quarter revenue rose 69% year over year to $296 million, an increase of $121 million versus the prior-year period. He emphasized that the growth was entirely organic and reflected both stronger demand for electrical distribution equipment and share gains, supported by capacity investments at campuses in Minnesota, Texas, and Tijuana.
Management also broke out revenue by offering, highlighting strong growth in higher-value categories. Custom products increased 59% to $235 million and accounted for 79% of quarterly revenue. Powertrain solutions—integrated combinations of custom products designed to work as a system—more than tripled to $46 million, representing 16% of revenue. Standard products and services grew 13% and 5%, respectively, and together accounted for about 5% of quarterly revenue. Fiedler noted that services are a small portion of revenue today, but an area the company is investing in for future growth.
Margins impacted by ramp costs, with improvement expected
Fiedler detailed several factors that weighed on margins in the quarter, including approximately $4.2 million of under-absorbed labor, $1.2 million of under-absorbed fixed overhead, and $600,000 of one-time startup costs tied to new campuses. The startup costs were primarily for temporary office and service trailers and rented generators while Texas and Maryland facilities were being completed. Under-absorbed overhead was mainly related to rent for campuses not yet operational, and under-absorbed labor reflected hiring in advance of future production.
Management said it expects sequential margin expansion in the fiscal third and fourth quarters as startup costs roll off and labor and overhead absorption improves with higher volumes and productivity gains. Chief Executive Officer Gary Niederpruem said the company is “hiring and manufacturing faster than planned,” and described the near-term dynamic as a typical ramp effect: labor costs arrive immediately, while training and full productivity take time.
Orders, backlog, and share gains
Niederpruem said orders jumped 268% in the second quarter, with strength described as broad-based but “especially in data center and grid.” The company booked $762 million of orders in the quarter, which management said exceeded total fiscal 2025 revenue. Bookings were up 268% year over year and 66% sequentially, and the company posted a book-to-bill ratio of 2.6.
Backlog stood at $1.5 billion as of December 31, 2025, which management said was double the prior-year level and 45% higher than at the end of September. Given current order activity, the company said it expects backlog could “meaningfully increase again” in the third quarter, though Niederpruem declined to provide a dollar range and said order rates are not expected to match the second quarter.
Management also pointed to indicators it uses to track wallet share. Powertrain solutions were described as the fastest-growing offering, up 230% year over year and rising to 16% of revenue from 8% in the prior-year quarter. Average customer spend increased 99% year over year and 21% sequentially, which the company said signals it is winning a larger share of customer budgets.
Niederpruem highlighted a data center example where an initial request for medium-voltage transformers expanded to include low-voltage scope, an e-house, and integration work, increasing the order size by roughly seven times. He said the deal was closed in 45 days and deliveries are expected to begin over the next few months.
End-market commentary and lead times
On end markets, Niederpruem said AI and cloud buildouts are sustaining high growth in data center electrical infrastructure, with power availability a key constraint pushing spending upstream into substations and utility interconnect equipment. He added that higher power density is increasing equipment content per megawatt and shortening retrofit and replacement cycles.
In grid, management described steady baseline demand tied to modernization and replacement of aging infrastructure, with incremental demand from new generation and interconnection activity, including solar and gas, as well as rising reliability requirements supporting battery energy storage-related demand. In industrial markets, the company cited electrification and reshoring trends, alongside customer adoption of “smarter gear” with monitoring and predictive maintenance capabilities that support higher average selling prices.
Asked about lead times, Niederpruem said there has been “not a whole lot of movement” either in the market or in the company’s own lead times, and that Forgent believes it is delivering inside expected market lead times in “almost every” major product category. He cited the company’s ability to deliver an approximately 180-megawatt e-house project in a five- to six-month lead time as evidence of its advantage.
Capacity expansion, hiring, and outlook
Management said its approximately $205 million capacity expansion program is progressing, with about $132 million spent as of December 31, 2025 and roughly $73 million remaining. Niederpruem said that when fully completed, the expansion supports up to $5 billion in revenue capacity compared to $1 billion of last-twelve-month revenue through December 31. He added that remaining capital spending is expected primarily in the second half of 2026, and that once the program is complete, capital expenditures should step down toward maintenance levels of roughly 1% of revenue.
Manufacturing headcount increased 80% year over year, outpacing the quarter’s revenue growth, as the company staffed ahead of anticipated production needs. In response to questions about labor availability, Niederpruem said the company has had “very good success” recruiting, onboarding, training, and retention, aided by its locations in large metropolitan areas. He also said the current headcount-to-revenue relationship should move toward 1-to-1 and then below 1-to-1 over time as the company leverages indirect labor.
For the second half of fiscal 2026, Fiedler guided to revenue of $695 million to $745 million, adjusted EBITDA of $175 million to $185 million, and adjusted net income of $115 million to $125 million. He said the company expects the vast majority of its current backlog to be delivered over the next 12 months, providing visibility through fiscal year-end and into fiscal 2027. Fiedler also provided quarterly cadence color on profitability, saying that roughly 55% to 60% of second-half adjusted EBITDA is expected to fall in the fourth quarter.
For the full fiscal year 2026, management guided to revenue of $1.275 billion to $1.325 billion, adjusted EBITDA of $300 million to $310 million, and adjusted net income of $190 million to $200 million. In discussing longer-term profitability, management said it still views an EBITDA margin of around 25% or “north of 25%” as a reasonable annual level for fiscal 2027, while emphasizing its near-term focus remains on executing through the remainder of fiscal 2026.
On cash flow, Fiedler said the company expects operating cash flow to be positive in the second half of fiscal 2026, while noting continued investment ahead of the completion of its growth capital program. He added that once the expansion spending is complete, the company expects cash flow to “inflect” and anticipates stronger operating and free cash flow beginning in fiscal 2027.
Management also addressed revenue recognition, noting that a greater portion of revenue may be recognized under percentage-of-completion accounting over time as the company executes more large, complex powertrain solutions projects.
About Forgent Power Solutions (NYSE:FPS)
We are a leading designer and manufacturer of electrical distribution equipment used in data centers, the power grid and energy-intensive industrial facilities. Demand for our products is growing rapidly as (i) companies accelerate investment in data centers to meet the computational requirements for cloud computing and AI, (ii) independent power producers build new generation capacity to satisfy rising electricity demand, (iii) utilities upgrade and expand T&D infrastructure to address rapid load growth and (iv) manufacturers reshore their factories to secure their supply chains and mitigate the impact of tariffs.
