Forgent Power Solutions, Inc. Class A

Greetings and welcome to the Fortune Power Solutions, Inc. Q4 2026 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad, and we ask you to please ask one question then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero on your telephone keypad. It's now my pleasure to turn the call over to Kate Africk, Head of Investor Relations. Kate, please go ahead.

Thank you, operator. And thank you, everyone, for joining us today for 410 Power Solutions' fiscal fourth quarter and full year 2026 earnings call. With me today are Gary Niederpruem, our Chief Executive Officer, and Ryan Fiedler, our Chief Financial Officer. On this call, management will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of various factors, including those discussed in today's earnings release and during this conference call and in our latest filings with the Security and Exchange Commission, each of which can be found on our websites. Today's presentation also includes references to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted earnings per share. You should refer to the information contained in the company's earnings relief and presentation for definitional information and reconciliation 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. As is our practice, I'll begin with our fourth quarter financial highlights and a business update. Then, since this is our year-end call, I'll spend a few minutes reviewing our full year results against the commitments and priorities we outlined during our IPO process earlier this year. After that, I'll turn it over to Ryan to walk through our fourth quarter and full year financial results in more detail. Then I'll conclude with a discussion of our strategic priorities for the coming year and provide our fiscal 27 guidance. Turning to slide five, we closed fiscal 2026 with the strongest quarter in 4GEN's history, delivering record quarterly revenues, adjusted EBITDA, and adjusted net income. Fourth quarter revenues increased 94% to a record $462 million. Adjusted EBITDA increased 163% to a record $113 million, and adjusted EBITDA margin expanded 200 basis points sequentially to 24.4%. Importantly, Q4 represented the second consecutive quarter of significant margin expansion, which aligns with the expectations we set throughout the year. Adjusted net income increased 275% to $77 million. For the full year, revenues increased 89% to $1.42 billion, adjusted EBITDA increased 91% to $323 million, and adjusted net income increased 136% to $208 million. These results reflect the strength of our value proposition and our team's unwavering commitment to delivering for our customers and our shareholders. Taking a company public, expanding manufacturing capacity five-fold, and doubling revenue all in the same year while continuing to meet our customer commitments is an extraordinary achievement. I'm incredibly proud of and grateful to our employees for their exceptional skill and dedication. Thank you, Forge and family. Turning to slide six, I'll frame our business update for the quarter around seven takeaways. First, we continue to see strong demand for our products and solutions, and we are managing that demand effectively. That is reflected in our performance relative to guidance, with each of our KPIs all exceeding the high end of our guidance, guidance that, as a reminder, we raised in just May. Second, our commercial strategy continues to drive growth well above the market, a clear indication that we are gaining share, and our rate of growth is still increasing despite our significantly larger scale. To put that in perspective, fourth quarter revenue growth exceeded our full year growth rate by approximately 500 basis points. We also booked more than $1.5 billion of orders in the quarter alone. That's more than our total revenue for all of fiscal 26. Third, we are delivering on the margin expansion we committed to. Adjusted EBITDA margin increased 200 basis points sequentially for the second consecutive quarter, primarily due to operating leverage as volumes grew. Fourth, our scale is beginning to drive significant cash generation, resulting in our operating cash flow increasingly approximately two and a half times in fiscal 26 versus fiscal 25. Fifth, demand for modular solutions is growing rapidly. Customers increasingly want to shift work from the field to the factory in order to reduce reliance on field labor and accelerate speed to power. This trend benefits Forgent in two important ways. It expands our addressable wallet by allowing us to capture value that historically would have been performed by contractors on site, and it plays directly to our strengths as one of the few companies with the capability to deliver these types of integrated solutions at scale. Our momentum in this area is evident in our fourth quarter powertrain solutions booking and in our backlog, which is now approximately 40% powertrain solutions. Sixth, we already have sufficient demand visibility to justify adding manufacturing capacity beyond the expansion we recently completed. We plan to make an incremental investment at our Tijuana campus to increase powertrain solutions capacity and we are again accelerating hiring in the first quarter to prepare for a significant production ramp in the quarters ahead. Finally, the quality and depth of our demand visibility are the strongest in our company's history. At this point last year, we entered fiscal 2026 with $850 million of backlog. Today, our backlog stands at $3 billion, more than three and a half times higher placing us in a fundamentally stronger position as we enter fiscal 27 and providing substantially greater confidence in our outlook for the year ahead. Moving to slide seven, let me put some numbers around the demand environment. Fourth quarter bookings reached $1.5 billion, a new company record increasing 375% year over year and 73% sequentially. Order strength was broad-based across all three of our end markets, led by data centers, and extended across both custom products and powertrain solutions. Year-over-year bookings growth was higher in the fourth quarter than the third quarter, despite comping to a much higher prior year result. Our book-to-bill ratio reached a new record of 3.3 times, also on a much larger revenue base. Backlog increased to $3 billion at year-end, an all-time high, up 256% year-over-year and 53% sequentially. The fact that Forgent sent new records for bookings and backlog for seven consecutive quarters underscores the durability of the demand we are seeing, our continued share gains, and the strength of our visibility on future revenue growth. Turning to slide eight. When I joined Forgent in 2025, our data center business was largely focused on selling point products, individual pieces of equipment, and we primarily reached the market through EPCs, engineering firms, and OEMs that acted as intermediaries. Since then, we have made deliberate investments in our sales and engineering capabilities to engage end customers directly and support a broader, more integrated set of solutions across the powertrain. You can see that progression on the slide. We started with EPCs, engineering firms, and OEMs, then expanded into regional colocation providers, national and international colos, and neocloud customers. Each step moved us closer to the end user and increased the portion of customer spend available to us. Our next major step is to enter the frontier AI labs and hyperscalers shown on the right side of this slide. We received our first direct order from a Frontier AI lab in the fourth quarter, and we have also signed an MSA with a hyperscaler. We view these milestones as proof points, and more than that, as the foundation for meaningful direct orders from both of these customer types as fiscal 27 progresses. The key takeaway is that we are still in the early innings of expanding our direct customer base in the data center market. We have already demonstrated the ability to move up market from intermediated point product sales to direct engagement with some of the most technically demanding data center customer types in the world. But we believe the hyperscaler and frontier AI lab opportunity remains largely untapped for Forgent and represents a significant organic growth opportunity for us over the next 24 months. Building on that progression, slide nine gives you a concrete example of what this move up market looks like in practice. This recent win with the Frontier AI Lab demonstrates that Forgent now has a seat at the table with the largest electrical equipment providers in the industry. This customer is pursuing one of the largest AI infrastructure build-outs in the US. These programs are highly technical, qualification standards are rigorous, and proper engagement is paramount. Securing this award reflects the strength of our engineering capabilities The quality of our solutions and our growing credibility with the most demanding data center customers. Importantly, this is only the initial award. The customer's first campus alone is expected to exceed one gigawatt and the broader opportunity for additional orders is measured in multiple gigawatts. So while this win is meaningful on its own, we viewed it as even more important proof point of our ability to penetrate frontier AI customers directly and build a foundation for significantly larger opportunities ahead. Turning to slide 10, let me zoom out to a shift that is reshaping how our customers build, the move towards more modular solutions. As a reminder, a modular solution is a prefabricated factory-built system such as power, cooling or compute modules that can be deployed onsite much faster than traditional field-built infrastructure. It shifts working from the construction site to a controlled manufacturing environment, reducing reliance on field labor, improving quality and scalability, and accelerating speed to power. Our data center customers tell us that the modular construction can compress portions of the build schedule by roughly 30% to 50% versus traditional field-built construction. The chart on the left highlights the shift that has already occurred and what is expected through 2030. In the cloud era, modular and prefabricated construction accounted for only 10% to 20% of data center construction. Today, it is approximately 40%, and third-party research expects it to grow to 60% by the end of the decade. That continued shift is a significant positive for Fortune. It expands our addressable wallet by allowing us to capture value that historically would have been performed by contractors on site, and it plays directly to our strengths as one of a few companies capable of delivering these types of integrated solutions at scale. We are winning in modular solutions for three reasons that are difficult for competitors to replicate. First, we are vertically integrated all the way back to sheet metal fabrication. That gives us a meaningful advantage on cost, lead times, and customization compared with competitors that rely more heavily on third party suppliers. Second, We have deep in-house engineering capabilities which allow us to deliver highly customized solutions tailored to each customer specific requirements. In other words, we can offer the speed and efficiency of a modular factory-built solution without compromising the level of customization our customers need. And third, proximity matters. These are large, complex systems. An e-house can be approximately 60 feet long and weigh as much as 50 tons. So having manufacturing capacity close to key customers can make a significant difference in delivering time, logistics complexity, and shipping costs. With facilities located near every major data center hub in the country, we believe we are uniquely positioned to serve customers quickly, efficiently, and at scale. The strengths of those capabilities aligned with clear market demand is reflected in the powertrain solution results showing in the middle of this page. Power Train Solutions revenue grew 187% year over year and 48% sequentially to $147 million in the fourth quarter. Put simply, we nearly tripled the size of that business in just six months. That growth is well ahead of the demand assumptions that supported our original capacity expansion plans. In response to that momentum, Today we announced an incremental investment to build a dedicated 385,000 square foot powertrain solutions facility in our Tijuana, Mexico campus. To put that size in perspective, it will be roughly 80% the size of our largest plant today. So it's a very meaningful expansion. Once complete, the new facility will increase our powertrain solutions manufacturing capacity by more than 50%, bringing it to over 1 million square feet. It will also increase our total revenue capacity to approximately $5.8 billion, an increase of about $800 million. We expect the new facility to come online in the fourth quarter of fiscal 27. Moving to slide 12. As I mentioned at the outset of the call, I want to spend a few minutes reflecting on where we were when we began our journey as a public company, where we stand today, a little over seven months later, and what that progress means for our shareholders going forward. This page really highlights how far the company has come in just one year. Forgent is a bigger, broader and better positioned company today across nearly every dimension than it was in fiscal 25. We ended fiscal 26 with approximately $3 billion of backlog, more than three and a half times the $850 million we had at the end of fiscal 25. Just as importantly, Our backlog now represents more than two times our fiscal 26 revenue compared with roughly one times revenue at the end of fiscal 25. That gives us a fundamentally stronger starting point and significantly greater visibility as we enter the new fiscal year. We also nearly doubled the size of the company in 12 months with revenue increasing 89% to $1.4 billion and adjusted EBITDA increasing 91% to $323 million. Importantly, we delivered that growth while also expanding margins, demonstrating the operating leverage in our model as we scale, even while absorbing the additional costs that naturally come with rapid growth. Our fastest growth came in data centers, where demand remains exceptionally strong, but we also continued to deliver growth across each of our end markets, data center, grid, and industrial. This is an important point because it reinforces one of the key messages from our IPO, Forgent has multiple ways to win. We are not dependent on a single end market customer or growth factor. Finally, we meaningfully expanded the breadth of our offering. Powertrain Solutions increased from 13% of revenue in fiscal 25 to 25% in fiscal 26, reflecting strong customer demand for more integrated modular solutions. We also continue to expand our service businesses by attaching startup and commissioning work to a meaningful portion of the equipment orders in our backlog. At year end, our service backlog was approximately three times our FY26 service revenue, underscoring the significant growth opportunity ahead for this business. Together, these shifts expand our addressable market, deepen our customer relationship, and position Forgent to capture more value across the lifecycle of the infrastructure we provide. So the takeaway from this slide is pretty straightforward. Compared with where we stood a year ago, Forgent is bigger, more profitable, more visible, and better positioned for sustained growth. Turning to slide 13. Internally, we place a lot of emphasis on doing what we say we're going to do. We hold ourselves accountable to the commitments we make to one another, and we believe shareholders should hold us to the same standards on the commitments we make externally. Over the next four slides, We will walk through the commitments we made during the IPO process and what we have delivered since then, financially, commercially, operationally, and with our people. Starting with financial performance. As is customary, we shared a fiscal 26 forecast with research analysts in conjunction with our IPO process in December 25. Those forecast figures are shown in the gray area on this slide, and our actual results are shown in blue. We meaningfully exceeded that forecast on both revenue and adjusted EBITDA, and we did so while scaling the business at an unprecedented pace, expanding our manufacturing footprint, adding headcount, and building the SG&A infrastructure required to operate as a public company. For fiscal 26, revenue was $150 million, or 12% above that forecast. Adjusted EBITDA was $18 million, or 6% above that forecast. And excluding startup costs and the underabsorbed labor and overhead associated with bringing new capacity online, adjusted EBITDA was $34 million, or 11% above that forecast. These results also exceeded the high end of the guidance we initiated in March and raised in May. So from a financial standpoint, the scorecard is clear. We exceeded our commitments. Turning to slide 14. During the IPO process, we outlined a very deliberate commercial strategy designed to deliver growth in excess of our underlying markets. The strategy was straightforward. Focus on attractive end markets supported by long-term megatrends, expand the customer wallet available to us, win a larger share of that wallet, and take share from competitors by delivering shorter lead times and greater engineering value. In fiscal 26, we executed that strategy exceptionally well. The chart on the right breaks down our growth by end market, showing the contribution from both customer count and average revenue per customer, and then compares our revenue growth to the estimated growth rate of the underlying market. Starting with data centers, revenue grew 161% year over year. That growth was driven by an increase of 18% in customer count and 121% increase in average revenue per customer. Said differently, We added customers, but more importantly, we significantly expanded the scope of what we are delivering to those customers. That resulted in growth that was roughly four times the market, which we estimate grew approximately 37%. In grid, revenue grew 69%, driven by a 7% increase in the customer count and a 58% increase in average revenue per customer. That represents approximately seven times the market growth rate. Based on our estimate, that the grid market grew about 10%. And in industrial and other, revenue grew 11%, approximately 300 basis points faster than the market growth rate. Our customer count declined as we hydrated our mix of customers, but average revenue per customer increased 28%, demonstrating our ability to deepen relationships with our largest industrial customers. The pattern across all three end markets is consistent. We are not simply benefiting from market growth. We are adding customers, expanding our share of wallet with existing customers, and increasingly selling more complex, higher valued solutions. That includes more prefabricated and integrated offerings and engineering offerings across the full powertrain rather than delivering individual point products. This is exactly what we said we would do. We positioned Forgent in markets with powerful secular tailwinds and then we executed commercially to grow well in excess of those markets. So from a commercial standpoint, the scorecard is very clear. We delivered on the strategy we laid out to investors and we are meaningfully outperforming the market. Next, on the slide 15, let's turn to operations and assess what we delivered against the commitments we made during the IPO process. We said we would invest in capacity to capture demand, offer some of the shortest lead times in the industry, and deliver customization at scale through vertically integrated flexible manufacturing. And that is exactly what we did. Across fiscal 25 and 26, we invested approximately $190 million to bring more than 1.8 million square feet of new manufacturing capacity online across multiple campuses. In total, we expanded our footprint from roughly 480,000 square feet to 2.3 million square feet roughly equating to a five-fold increase in manufacturing capacity. Just as importantly, this was not capacity added in just one location or for just one product line. We expanded in each of our five campuses, giving us a broader, more flexible, and more geographically advantaged manufacturing network. That matters because proximity to customers, particularly in large-scale modular solutions, can have a meaningful impact on lead times, logistics costs, and execution certainty. The execution required to do this was significant. We were building facilities, hiring and training employees, ramping production, and adding new operational infrastructure all while delivering for our customers in a period of exceptional demand growth. And we did all that while limiting the impact on margins as we scaled. Today, construction is complete or nearing completion across the major expansions and projects, and we are progressing toward our target production rates at each campus. As those facilities continue to ramp, they provide the capacity, flexibility, and speed we need to support the demand we are seeing, as well as give us opportunities to increase our margins through economies of scale. So from an operational standpoint, the scorecard is also clear. We delivered on what we said we would do. We added the capacity, we scaled the organization, we protected customers' executions, and materially strengthened the manufacturing platform that will support Ford's next phase of growth. Slide 16 covers our people, and in many ways, this may be the most important page in the deck. Scaling a business at this pace requires more than physical manufacturing capacity. It requires the ability to recruit, train, develop, and retain the talent needed to execute. During the IPO process, we committed to recruiting and retaining the direct labor required to match our expanded manufacturing capacity, growing the engineering resources needed to deliver customization at scale, maintaining a flat, accountable organization built for speed and operating leverage, and attracting A-plus leadership talent to help take Forgent through its next phase of growth. In fiscal 26, we delivered against each one of those commitments. We nearly doubled our manufacturing headcount, We made significant investments in engineering talent. Application engineering headcount grew 54% and process field and design engineering headcount increased 78%. Those hires really matter because our ability to deliver custom engineered integrated solutions at scale is one of the core differentiators of our business. We also strengthen our leadership team with exceptional industry talent. We recently welcome Juan Macias as President of Solutions and Services, Dan Esslinger as Executive Vice President of Engineering, and Joe Reale as Senior Vice President of Technical Business Development. Each brings decades of relevant experience and a strong track record from leading companies in our industry. Their expertise will help us continue executing at a high level for customers as we look to double our business again. Talent is a known constraint across our industry, particularly in manufacturing and engineering. Our focus on making Forgent an employer of choice has allowed us to scale rapidly without workforce constraints limiting our growth. That is a real competitive advantage, and it reflects the strength of our culture, the opportunity we offer people, and the commitment of our teams across the company. So from a people perspective, the scorecard is clear. We invested ahead of the opportunity, expanded the talent base required to support our growth, added critical leadership capabilities, and strengthened the organization for the next stage of Forgent's evolution. This is our scorecard for fiscal 26, commitments made and commitments met or exceeded. That matters to us, and we know it matters to our shareholders. It also raises the bar. The year ahead is more ambitious than the one we just completed, and we are starting from a base that is nearly twice as large. But we enter fiscal 27 better positioned, better resourced, and more confident in our ability to execute than at any point in our history. With that, I'll turn it over to Ryan to walk through our fourth quarter and full year financials in more detail. Then I'll come back and cover our priorities and outlook for fiscal 27.