FPS

• Overall Financial Performance

  • Delivered record Q3 2026 results: revenue up 103% YoY, adjusted EBITDA up 96% YoY to $85 million, adjusted net income up 132% YoY to $55 million
  • Adjusted EBITDA margin expanded 200 basis points sequentially to 22.4%, driven by SG&A operating leverage, improved labor and overhead absorption
  • Record Q3 bookings of $867 million, up 308% YoY and 14% sequentially, with a 2.3x book-to-bill ratio. Ending backlog reached a record $2 billion, up 157% YoY and 33% sequentially
  • Operating cash flow improved $37 million YoY to positive $29 million, with the company transitioning from cash consumption to cash generation
  • Growth is led by the core data center and grid end markets, which both more than doubled revenue YoY, and the company is growing 3-5x faster than the aggregate 20% annual market growth for its three core end markets, gaining market share

• Product and Customer Strategy

  • Powertrain solutions (integrated custom system offerings) is the fastest-growing segment, with average customer spend up 109% YoY and 20% sequentially, reflecting expanded wallet share as the company engages customers early in design and leverages core product strength to drive pull-through demand
  • Secured two strategic large orders in Q3: a >$100 million integrated powertrain solution order for a new NeoCloud multi-gigawatt data center campus, and a >$100 million low voltage equipment order from a repeat customer across multiple U.S. data center campuses, demonstrating successful strategy execution for both new and existing customers

• Margin Expansion Outlook

  • Gross margin increased 30 basis points sequentially in Q3, despite growth-related costs (underabsorbed fixed costs, startup costs at new facilities, accelerated hiring costs) that would have added an additional 180 basis points of gross margin if absent. As new capacity ramps to full utilization, gross margins are expected to improve further
  • SG&A as a percentage of sales declined 230 basis points sequentially, as revenue growth outpaced operating cost growth, delivering full operating leverage benefits in Q3
  • The company expects continued sequential adjusted EBITDA margin expansion in Q4 2026, with long-term meaningful margin expansion opportunity as the business scales

• Cash Flow and Capital Strategy

  • Operating cash flow is improving as capacity expansion nears completion. Free cash flow is expected to inflect positive after current capacity expansion is completed by the end of fiscal 2026, when capital intensity will step down
  • Higher free cash flow will provide greater flexibility for strategic M&A to expand the product portfolio and support future growth

• Full Fiscal 2026 Guidance (Upward Revision):

  • Revenue guidance is raised to $1.35 billion to $1.39 billion, $70 million higher than prior guidance, with the low end of the new range above the high end of the previous guidance range. This represents 82% YoY growth at the midpoint.
  • Adjusted EBITDA guidance is raised to $310 million to $320 million, $10 million higher than prior guidance, representing 86% YoY growth at the midpoint, with a full-year adjusted EBITDA margin of approximately 23%.
  • Adjusted net income guidance is raised to $197 million to $207 million, $7 million higher than prior guidance, representing 128% YoY growth at the midpoint.

• Fourth Quarter Fiscal 2026 Guidance:

  • Revenue is expected to be $392 million to $432 million, representing 73% YoY growth at the midpoint and continued sequential growth.
  • Adjusted EBITDA is expected to be $100 million to $110 million, representing 145% YoY growth at the midpoint, with adjusted EBITDA margins expanding to ~25%.
  • Adjusted net income is expected to be $67 million to $77 million, more than tripling YoY.

For Q3 2026, total company revenue was $379 million, an increase of 103% year-over-year. Breakdown by product segment: 1) Custom products: Revenue increased 82% year-over-year to $259 million, accounting for 68% of total Q3 revenue. 2) Powertrain solutions: Revenue grew 248% year-over-year to $99 million, representing 26% of total Q3 revenue, up from 16% sequentially. 3) Standard products: Revenue increased 53% year-over-year, accounting for 3% of total Q3 revenue. 4) Services: Revenue grew 4% year-over-year, representing 2% of total Q3 revenue.

• Forward-looking statements are based on current assumptions, and actual results could differ materially due to unforeseen changes in key assumptions, market conditions, or other factors
• Ongoing rapid growth requires continued investment in sales, engineering, operations, and new facility capacity, leading to near-term growth-related costs that pressure near-term gross margins
• Inflation and changes to tariff regimes could impact input costs, though the company has mitigated this risk through supply chain security and contract protection clauses
• The extended backlog timeline depends on customer project scheduling, which could create variability in revenue recognition timing

Q: What is the ceiling for revenue growth matching the current strong order trend, what share of the current $2 billion backlog will ship in the next 12 months?

A: Management noted the 2:1 order-to-revenue ratio is extremely strong and broad-based. Average lead times have increased to 12-15 months mostly because customers are locking in capacity earlier, aligned with their own longer project timelines, not because of Forgent's production constraints. 55-60% of the current backlog is scheduled to ship in fiscal 2027, with the remaining split between fiscal Q4 2026 and 2028.

Q: Why do you expect Q3 margin headwinds to dissipate in Q4, and what is your 2027 margin outlook?

A: Management confirmed Q3 delivered 200 basis points of sequential margin expansion that exceeded expectations, driven by strong top-line growth and operating leverage. Q4 is expected to deliver another few hundred basis points of margin expansion, supported by continued top-line growth and favorable mix dynamics that will push Q4 margins slightly above the long-term normalized run rate. Full 2027 guidance and margin details will be provided on the next earnings call.

Q: What are the order trends for grid equipment, and have generation resource shifts impacted your business?

A: Management stated Forgent is largely agnostic to generation type, but alternative energy generation is a net tailwind because it requires more voltage step changes that increase demand for the company's equipment. Overall grid sector revenue, backlog, and order rates are all growing, with grid reinvestment and renewable supply chain growth driving strong tailwinds that Forgent is capturing.

Q: What is the impact of recent inflation and tariff changes, and how is backlog protected?

A: Recent tariff changes had a neutral net impact on Forgent, as some product costs increased while others decreased. Price-cost dynamics are broadly neutral to slightly positive for the company, supported by vertical integration that provides clear supply chain visibility and reduces latent cost impacts. Most contracts signed in the last 9-12 months include tariff and inflation protection clauses, and the company quickly secures supply when orders are booked to lock in costs.