Forgent (FPS) Q1 2027 Earnings Call Transcript

DATE

Thursday, Nov. 12, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations – Kate Africk
• Chief Executive Officer – Gary Niederpruem
• Chief Financial Officer – Amy Ard

TAKEAWAYS

• Revenue — $479 million, representing 69% year-over-year growth driven by higher throughput and strong execution of the production ramp.
• Adjusted EBITDA — $105 million, a 61% increase year over year reflecting higher gross profit on volume growth.
• Adjusted EPS — $0.24, an 83% increase year over year driven by operating leverage and lower net interest expense.
• Q1 Orders — approximately twice the amount of orders from the first quarter of the prior year, with demand led by the data center and industrial segments.
• Backlog — 100% coverage of the updated fiscal 2027 revenue guidance, with approximately 40% of the total backlog scheduled for delivery beyond the current fiscal year.
• Custom Products Revenue — $354 million, representing 73% year-over-year growth.
• Powertrain Solutions Revenue — $106 million, a 62% increase year over year.
• Services Revenue — $8 million, more than doubling from the prior year’s quarterly result.
• Standard Products Revenue — $11 million, representing 18% growth year over year.
• Cash Flow From Operations — $136 million, an improvement of $130 million year over year due to higher earnings and favorable timing of customer deposits.
• Capital Expenditures — $32 million, focused on planned manufacturing capacity expansion projects.
• Full-Year Revenue Guidance — $2.45 billion to $2.65 billion, representing an increase of $50 million from prior expectations.
• Full-Year Adjusted EBITDA Guidance — $587 million to $637 million, representing 90% growth at the midpoint.
• Full-Year Adjusted EPS Guidance — $1.30 to $1.44, representing 101% growth at the midpoint.
• Q2 Revenue Guidance — $560 million to $590 million, implying approximately 20% sequential growth at the midpoint.
• Q2 Adjusted EBITDA Guidance — $127 million to $137 million, representing an implied margin of approximately 23% and a 260 basis point year-over-year increase.
• Professional Services Savings — $5 million in annualized savings, achieved by internalizing supply chain, project management, and finance roles.
• Working Capital Improvement — $30 million, driven by renegotiated payment terms with vendors representing over 80% of material spend.
• Labor Savings — approximately $5 million in annualized savings, following the replacement of high-cost contract positions with full-time employees.
• Customer Concentration — no single customer accounted for more than 10% of total revenue during the first quarter.
• Neocloud Backlog Exposure — approximately 15%, which includes both direct neocloud customers and the intermediaries that serve them.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Niederpruem stated, “New restrictions on foreign produced grid equipment have caused some developers, particularly in battery storage, to pause projects while they wait for greater clarity,” resulting in moderated grid orders during the first quarter.

SUMMARY

Forgent Power Solutions, Inc. (FPS -9.85%) reported record quarterly revenue of $479 million and raised its full-year 2027 financial outlook following a successful production ramp across new facilities. Management reported that high demand for electrical distribution infrastructure in data center and industrial markets persists despite evolving regulatory and permitting environments. The company indicated it is transitioning from platform establishment to performance optimization, with a focus on capturing operating leverage and improving manufacturing efficiency. Management stated that significant progress has been made in its direct sales strategy with hyperscalers and artificial intelligence labs, which is expected to support further growth in fiscal 2028.

• CEO Niederpruem addressed post-election regulatory concerns, stating, “we do not see regulation changing the underlying demand for data center capacity.”
• The company has initiated direct sales to artificial intelligence labs and hyperscalers, having secured a volume order from one lab and an initial order from a second.
• Management reported that demand for critical electrical equipment materially exceeds industry capacity, providing a buffer against potential project delays.
• The company’s backlog is supported by nonrefundable deposits and consists of firm purchase orders typically issued after permitting and land acquisition are complete.
• Management noted that the initial book and ship capability of $250 million for fiscal 2027 is nearly exhausted based on first-quarter order rates.
• CFO Ard outlined a shift toward operational finance, prioritizing SG&A efficiency and working capital to drive long-term margin expansion beyond fiscal 2027.
• Management noted that customers are pulling forward some project requests, and the company has seen no instances of customers pushing out scheduled deliveries.

INDUSTRY GLOSSARY

• Switchgear: A combination of electrical disconnect switches, fuses, or circuit breakers used to control, protect, and isolate electrical equipment.
• Transformers: Devices that transfer electrical energy between two or more circuits through electromagnetic induction, typically to change voltage levels.
• PDU (Power Distribution Unit): A device fitted with multiple outputs designed to distribute electric power to racks of computers and networking equipment in a data center.
• Hyperscalers: Large-scale cloud service providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud, that require massive data center infrastructure.
• Frontier AI Labs: Research organizations focused on developing advanced, large-scale artificial intelligence models.
• MSA (Master Service Agreement): A contract that outlines the terms of a relationship between two parties, serving as a foundation for future transactions.
• Neoclouds: Specialized cloud computing providers that often focus on specific workloads, such as artificial intelligence or high-performance computing.
• eHouse: A prefabricated walk-in modular enclosure that houses electrical equipment such as switchgear and motor control centers.
• ATS (Automatic Transfer Switch): A device that automatically transfers a power supply from its primary source to a backup source when it senses a failure.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Forgent Power Solutions First Quarter 2027 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Kate Africk, Vice President of Investor Relations. Thank you. You may begin.

Kate Africk: Thank you, operator, and thank you, everyone, for joining us today for Forgent Power Solutions Fiscal First Quarter 2027 Earnings Call. With me today are Gary Niederpruem, our Chief Executive Officer; and Amy Ard, 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 in today’s earnings release and during this conference call and in our latest filings with the Securities and Exchange Commission, each of which can be found on our website.

Today’s presentation also includes references to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin and adjusted earnings per share. You should refer to the information contained in the company’s earnings release and presentation for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Gary.

Gary Niederpruem: Thank you, Kate, and good morning, everyone. I’ll begin with a summary of our first quarter results and a business update. I’ll then turn the call over to our new Chief Financial Officer, Amy Ard, who will discuss the key initiatives our finance team is focused on, followed by a detailed overview of our results for the quarter and our updated outlook. But first, I want to address what I know is top of mind for many investors, whether the post-election policy environment could slow data center development and in turn, demand for the electrical equipment we provide. As CEO, one of the most important responsibilities I have is to anticipate and plan for a range of market scenarios.

That is something our senior leadership team does continuously. Following the election, we spoke directly with many of our customers, assessed the potential impact of a more restricted, regulatory and permitting environment and stress tested what that could mean for our business. We came away from that work with continued confidence in the outlook for our data center business, and there are 5 reasons for that. First, we do not see regulation changing the underlying demand for data center capacity. What we are hearing from our customers is that new regulation may affect where, when and how data centers get built, but they are not planning to build less capacity.

The underlying need for compute continues to grow, and our customers remain committed to developing the infrastructure required to support it. In fact, in recent weeks, we’ve actually seen a request for a few projects to be pulled in rather than pushed out. So point number one, regulation may change where, when and how capacity gets built, but based on our customer conversation, it has not changed how much capacity they ultimately expect to need. Second, the demand/supply imbalance for electrical equipment provides a significant buffer against potential demand reduction. Demand for medium voltage switchgear, transformers and other critical electrical equipment materially exceeds available industry capacity today.

That means demand does not need to remain at today’s level for our order book to remain full. Now let’s put that into context. Most industry forecasts have called for more than 100 gigawatts of incremental U.S. data center capacity from 2027 through 2031. Let’s stress test that a bit. Let’s just assume 20% of those projects don’t get delayed or relocated, but disappear entirely because of regulatory constraints. That would still leave roughly 80 gigawatts of new capacity over 5 years in the U.S. That is more than 6x the amount of data center capacity expected to be added this year before considering retrofits expansion or replacement demand.

So point number two, even under a scenario with significant demand reduction, we believe there would still be more demand for our products than the industry has the capacity to supply. Third, the commitments already being made upstream give us additional confidence that this capacity ultimately gets built. The products we manufacture are among the later pieces of equipment ordered in the development of a data center. Long lead time equipment further upstream, particularly power generation is committed to much earlier. Turbines, fuel cell and other generation suppliers have multiyear backlogs and in many cases, have already put significant capital behind those orders. That’s an important leading indicator for us.

Unless many developers are prepared to walk away from their commitments and deposits, we believe there is a high probability that generation capacity gets deployed. And when it does, it ultimately needs transformers, switchgear and power distribution equipment to connect that power to the data center itself. So point number three, we can see investment occurring several years upstream of us, and those commitments give us confidence in the downstream demand that should ultimately flow to our products. Fourth, we believe our customers are well equipped to navigate a more complex regulatory environment. These are some of the largest and most sophisticated companies in the world.

They have the financial resources, internal capabilities and experience to work through difficult permitting requirements. And where one jurisdiction becomes more challenging, they have the ability to evaluate alternative locations that can accommodate their requirements. So point number four, more regulation can make development more complicated, but we believe our customers have both the capability and the resources to adapt to it. Fifth and most importantly, for our near-term outlook, we already have substantial visibility through fiscal ’27 and into fiscal ’28. Our backlog extends through that period and a good portion of it is supported by nonrefundable deposits. Just as importantly, our position relatively late in the data center development cycle provides additional protection.

We generally do not receive a purchase order until the permitting process is complete. And in many cases, we do not receive that PO until the project is already under construction. In other words, the projects sitting in our backlog are generally not conceptual projects at the beginning of a development process. They are substantially further along, supported by customer commitments and in many cases, already under construction. So point number five, regardless of what ultimately happens with regulation, the quality, maturity and contractual support behind our existing backlog gives us a high degree of confidence in our outlook through fiscal ’27 and into fiscal ’28. Now let me bring those 5 points together.

We believe our customers continue to expect significant capacity growth. The electrical equipment market remains substantially supply constrained. We can see capital being committed upstream of us years in advance. We believe our customers have the resources to navigate a more challenging regulatory environment and our own backlog gives us substantial visibility. We will obviously continue to monitor the regulatory environment closely, and we recognize that policy could affect the timing and location of individual projects. But based on what we are seeing today, we believe the recent reaction to potential regulatory changes understates both the magnitude of the underlying demand and the degree of supply constraint in the markets we serve.

Now turning to our results for the quarter on Slide 5. We started fiscal ’27 with strong first quarter results. Revenue increased 69% to $479 million, marking the highest quarterly revenue in our company’s history. Adjusted EBITDA increased 61% to $105 million, representing our second highest quarterly adjusted EBITDA, just below the record achieved last quarter. And our adjusted EPS increased 83% to $0.24. Turning to Slide 6. There are 5 key takeaways from the quarter. First, we exceeded the high end of our first quarter guidance, reflecting disciplined execution of our production ramp. Our teams continue to scale production across our new facilities, increasing throughput and utilization while maintaining focus on quality, efficiency and cost control.

This progress directly supported revenue and earnings above our guidance ranges and demonstrates the organization’s ability to execute. Second, orders grew substantially year-over-year. Data center was strongest, followed by industrial and other, partially offset by moderation in grid, which underscores the value of maintaining diversified exposure across 3 end markets. Third, our direct sales strategy with hyperscalers and AI labs is beginning to deliver tangible results. As we discussed last quarter, we already have exposure to these customers through intermediaries, but our goal is to deepen those relationships and capture a greater share of their demand by working directly with them as well.

In fiscal ’27 to date, we secured a volume order from one AI lab and an initial order from a second. We also believe we are on track to receive direct orders from at least one and potentially another hyperscaler by the end of this fiscal year, providing another meaningful avenue for growth. Fourth, our plan to expand adjusted EBITDA margin sequentially through fiscal ’27 is progressing as expected. We execute against the plan, we continue to identify opportunities to drive long-term margin expansion. We are laying the foundation now to capture those benefits in the coming years. Finally, we are raising our fiscal ’27 guidance.

This increase reflects the successful execution of our production ramp in the first quarter, which we expect to continue supporting performance in subsequent quarters as well as the strength of our backlog, which now fully covers our updated outlook. Turning to Slide 7. I want to spend a few minutes on what we’re seeing across our 3 primary end markets: data center, industrial and grid. Starting with data center, demand remains very strong. Data center was the largest contributor to our year-over-year order growth in the first quarter and the signals we are seeing from customers remain positive.

As I discussed earlier, policy may affect where and how certain data centers get built, but we don’t believe it changes the underlying demand for capacity. And importantly, our backlog is well protected because customers generally don’t place orders with us until critical milestones such as financing, tenants, power and permitting are already in place. Turning to industrial. We’re seeing demand both accelerate and broaden. Over the last 2 years, growth was heavily influenced by large mega projects. Those projects remain an important driver, but we are increasingly seeing demand from smaller projects, facility expansions and follow-on investments across many verticals.

We saw that broadening in our own results this quarter with strong industrial orders and a meaningful increase in the number of customers placing orders with us. Finally, in grid, underlying utility demand remains steady, while renewables and battery storage have seen some near-term softness, primarily driven by policy and project timing. There are 2 factors at work here. First, some wind and solar developers pulled orders forward to safe harbor projects ahead of the July deadline, creating a tougher comparison this quarter. Second, new restrictions on foreign produced grid equipment have caused some developers, particularly in battery storage, to pause projects while they wait for greater clarity.

That moderated our grid orders in the first quarter, but we view it primarily as a timing issue rather than a demand issue. As that uncertainty clears, we expect activity to improve. And longer term, policies designed to strengthen domestic grid security and encouraging U.S. manufacturing should be supportive for a domestic manufacturer like Forgent. So stepping back, we feel very good about the health of our end markets. Data center remains very strong. Industrial is accelerating and becoming more diversified. And in grid, we see upside as near-term policy uncertainty clears. Turning to Slide 8.

Last quarter, I talked about how Forgent is moving upmarket in data centers from primarily selling point products through intermediaries to engineering direct solutions for some of the most technically demanding customers in the market, including hyperscalers and Frontier AI labs. At that time, we had received our first direct order from a Frontier AI lab and had signed our first master service agreement with a hyperscaler. Since then, we have continued to make meaningful progress across both customer groups, and this slide lays out where those relationships stand today. The important point is that direct selling into these customers is not transactional.

It requires a rigorous qualification process that can include technical engagement, competitive bidding, factory audits, master service agreements and specific product agreements, and that’s even before an initial purchase order is issued. We think about that progression in 3 stages: crawl, walk, run. Crawl is the initial order, typically smaller in size, but strategically important because it validates the customers’ confidence in our engineering, quality and execution. Walk is when strong performance on those initial orders leads to larger volume opportunities. Run is when those relationships evolve into a program level orders or longer-term supply agreements. We are now seeing that progression taking shape. Our first Frontier AI lab customer is a great example.

We executed well on the initial order, and that has already led to a volume order. A second AI lab has now placed its first direct order with Forgent, expanding our direct engagement within that customer category. On the hyperscaler side, 2 customers have moved beyond the MSA stage and signed specific product agreements, which is typically the final commercial step before an initial order. A third hyperscaler has also entered the qualification process, which further expands the pipeline of potential direct end-user relationships. These are customers that purchase electrical infrastructure at very large scale.

Our initial orders are only the starting point, but they are important because they establish Forgent as a qualified direct supplier and create the opportunity to expand over time as we execute. Looking ahead, we expect orders from AI labs on a direct basis in the first half of fiscal ’27 and from hyperscalers on a direct basis in the second half. Over time, as these relationships progress from crawl to walk, to run, we believe they can become a meaningful driver of growth in fiscal ’28 and beyond. Moving to Slide 9. Over roughly the last 30 months, we have built the platform Forgent needs to compete and win at scale.

That includes a broader product portfolio, a differentiated offer built around customization at scale and short lead times, vertically integrated manufacturing capacity, deep engineering capabilities and experienced commercial leadership. Just as important, we have built customer credibility through consistent execution and proven delivery. That last point is critical. The capabilities we have built matter because we have been able to execute against them. By delivering for customers, we have earned trust and that trust is what’s opening the door to larger, more strategic opportunities with some of the most sophisticated buyers in the market.

As a result, we are now a full year ahead of our IPO plan on revenue, but we also recognize that there is still significant value to unlock. The next phase for Forgent is about shifting from platform creation to performance optimization. In practical terms, that means improving execution consistency, standardizing processes, sourcing smarter, optimizing capacity across our manufacturing footprint and reducing cycle times while continuing to improve quality and delivery. It also means taking what is working in one part of the business and replicating those best practices across our sites and functions. The goal is straightforward: convert the scale we have built into greater operating leverage.

This work is being driven by an increasingly experienced operational and finance leadership team. Juan Macias joined us in August as President of Solutions & Service, bringing more than 30 years of leadership experience at Schneider Electric, GE and other industrial businesses. Jamie Brown joined us in September as President of Transformers with 25 years of manufacturing and operations leadership at Legrand and CommScope. Together, they bring deep experience scaling industrial operations, improving execution and institutionalizing the operating discipline required to drive margin expansion. This is also a natural point to turn the call over to Amy Ard, our new Chief Financial Officer.

Amy has been instrumental in building the financial infrastructure to support the platform we have created and she is now helping leverage that infrastructure to optimize performance as we scale. She and her team are playing an important role in improving visibility, strengthening cost discipline and converting our growth into greater operating leverage. With that, I’m pleased to turn the call over to Amy. Amy?

Amy Ard: Thank you, Gary, and good morning, everyone. As I get to know many of you in the months ahead, you’ll find my approach is straightforward: run the business with discipline, communicate with clarity and build credibility through execution. I’ll briefly cover my background and priorities as CFO. I’ve spent more than 25 years in finance and accounting leadership, primarily in manufacturing and industrial businesses. I’ve served as CFO of several growth companies and have helped scale organizations through periods of rapid expansion. Across those experiences, one lesson has been consistent, financial discipline and operational execution must be tightly connected. That is the operating mindset I bring to Forgent. I also know this business well.

I joined as CFO of PwrQ, one of the companies that became part of Forgent and then served as Executive Vice President of Finance for the combined company. In that role, my focus was building the finance platform required to support a larger, faster-growing public company. That work included strengthening our reporting, controls and governance, establishing the foundation for forecasting and investor communications, scaling our systems and building plant level margin analytics across the business. Those analytics are now an important part of how we manage pricing, sourcing, labor and operational performance. As CFO, my priorities are clear: first, ensure a seamless transition and continue building trust with the market through consistent execution and clear communication.

Second, help lead the shift from platform creation to performance optimization. For finance, that means applying the infrastructure that we have built to improve decision-making, drive margin expansion and strengthen working capital and cash conversion. Turning to Slide 12. Every leader has an area where they feel most at home. For me, it’s operational finance and driving continuous improvement, and that’s what this slide is about. Over the past several months, I’ve worked with our operations team to develop a detailed set of priorities across the 6 areas you see on the left side of the slide. overhead and SG&A, working capital, labor productivity, material costs, manufacturing efficiency and logistics.

For each area, we’ve identified specific actions to improve financial performance. That means putting the right people in place, improving processes and systems, establishing clear accountability and then measuring the results. That’s the operating discipline we’re building across Forgent. The priorities toward the top of the slide are generally the ones we can address more quickly, while the opportunities further down require more time and operational work across our manufacturing footprint. Our first near-term priority is SG&A efficiency. The objective is straightforward: scale engineering, sales and our corporate functions more slowly than revenue. That operating leverage is an important driver of the year-over-year adjusted EBITDA margin expansion embedded in our fiscal 2027 guidance.

And you can see an early example on the right. We’ve identified functions in supply chain, project management and finance where it made more sense to build the capability internally. By bringing those roles in-house, we’ve reduced our reliance on outside professional services and generated more than $5 million of annualized savings while building an organization that can scale more effectively. Our second near-term priority is working capital efficiency. We took a systematic look across our supplier base and renegotiated payment terms with vendors representing more than 80% of our material spend. That has already generated more than $30 million of working capital improvement.

Then as you move further down the slide, you get into some of the larger operational opportunities, labor productivity, material costs, manufacturing efficiency and logistics. These take longer because the improvements have to be embedded into how we operate across multiple facilities. But the opportunity is significant, and we’re already making progress. Labor is a good example. We’ve identified areas where we were relying on higher cost contract labor and replaced those positions with full-time employees. That has generated approximately $5 million of additional annualized savings while giving us a more consistent workforce to support the business as we grow. So when I look at this slide, the important takeaway is that we’re still early.

We already have tangible results across all 3 of the early wins highlighted here, more than $5 million from professional services, more than $30 million of working capital improvement from supplier terms and approximately $5 million from reducing contract labor. The initiatives towards the top of the slide are contributing to the margin improvement we expect in fiscal ’27. But some of the bigger opportunities in labor productivity, materials, manufacturing and logistics are still ahead of us. And we believe those opportunities provide runway for margin and cash flow improvement beyond fiscal 2027.

This is the kind of work I know well, and it’s work I really enjoy, building the right organization, putting better processes and systems in place, establishing accountability and then translating those changes into measurable improvements in margins and cash flow. With that, let me walk through our first quarter results, starting on Slide 14. First quarter revenues were $479 million, an increase of 69% year-over-year and all organic. Revenues exceeded the high end of our guidance range and were approximately $24 million above the midpoint. The upside was driven by higher throughput and strong execution on our production ramp. Growth continued to reflect robust demand and our scaling capacity. Revenues increased across each of our offerings.

Custom products grew 73% to $354 million. Powertrain Solutions grew 62% to $106 million. Standard products grew 18% to $11 million and Services more than doubled to $8 million. The mix of revenue by offering in the quarter was as expected, reflecting delivery dates requested by our customers. Looking ahead, we expect growth to accelerate in the second quarter, particularly in Powertrain Solutions. Moving to adjusted EBITDA and adjusted EPS on Slide 15. Adjusted EBITDA was $105 million, up 61% year-over-year. Gross profit increased 62% on volume growth. SG&A increased in absolute dollars, reflecting continued investment across sales, operations and engineering to support our growth.

Adjusted EBITDA also exceeded the high end of our guidance, driven by higher throughput and better cost absorption. Adjusted EBITDA margin of 21.9% was ahead of our expectations. As we indicated in September, we expect the first quarter to be our lowest margin quarter of the year. It reflects onetime costs to support our second quarter production ramp, primarily under absorbed labor, which we did not add back. Adjusted EPS was $0.24, an increase of 83% year-over-year, outpacing adjusted EBITDA growth on operating leverage and lower net interest expense. With that context on the first quarter, let’s turn to our outlook. Our guidance philosophy remains unchanged.

I’ve been part of shaping it since before our IPO, and you can expect the same approach going forward. On Slide 17, I’ll start with our full year fiscal 2027 guidance, which we are raising. We now expect revenues of $2.45 billion to $2.65 billion, $50 million higher than our prior guidance and representing 80% growth at the midpoint. We expect adjusted EBITDA of $587 million to $637 million, $12 million higher than our prior guidance, representing 90% growth and implying an adjusted EBITDA margin of 24%. And we expect adjusted EPS of $1.30 to $1.44, $0.04 higher than our prior guidance and representing 101% growth at the midpoint. A few points on how to think about our updated guidance.

First, the increase is driven by our strong production ramp execution to date, which gives us incremental confidence in the year ahead. Second, as production continues to ramp, we are unlocking additional book and ship capacity, which allows us to take more orders for delivery in the current fiscal year. Third, with the incremental orders we’ve received, our backlog now fully covers our updated guidance. Given that, I want to offer a few reminders about the quality of our backlog. It consists of firm purchase orders often secured with deposits and milestone payments that help protect against cancellations. Because of those provisions and other contractual protections, we have historically experienced minimal cancellations.

Finally, we continue to expect revenue and adjusted EBITDA to increase sequentially throughout the year with margins expanding as production ramps. Turning to Slide 18 and our outlook for the second quarter. The production ramp is gaining momentum, supported by the investments we made in the first quarter. For the second quarter of fiscal 2027, we expect revenues of $560 million to $590 million, representing 94% growth year-over-year and approximately 20% growth versus the first quarter at the midpoint. We expect adjusted EBITDA of $127 million to $137 million, representing 119% growth year-over-year and approximately 26% growth versus the first quarter at the midpoint.

That implies an adjusted EBITDA margin of approximately 23%, up roughly 260 basis points year-over-year and roughly 110 basis points sequentially as operating leverage builds with higher volumes. With that, I’ll turn it back to Gary for closing remarks.

Gary Niederpruem: Thanks, Amy. Turning to Slide 19. Before we open the call for questions, I want to leave you with our key takeaways for the quarter. First, we delivered. We exceeded the high end of our first quarter guidance, executed well against our production ramp and are raising our fiscal ’27 outlook. We now expect revenue growth of 80% and adjusted EBITDA growth of 90% for the year. Second, order momentum remains strong. Demand was led by data center and industrial, and our customer base continues to diversify. Our strategy of serving 3 distinct end markets is providing multiple avenues for growth. Third, we are gaining traction with some of the most demanding customers in the market.

The initial orders we’re receiving from Frontier AI Labs and hyperscalers are important milestones, but they represent only the beginning of what we believe the relationships can become. Fourth, our fiscal ’27 adjusted EBITDA margin plan remains on track with stronger operating discipline, better financial infrastructure and seasoned leaders in place, we see runway for further margin expansion in the years ahead. And fifth, our outlook is well supported. Our backlog fully covers our updated guidance. And as our production continues to progress, we are also creating additional book and ship capacity. Overall, this was a very strong start to the year commercially, operationally and financially.

I want to thank Team Forgent for their continued execution and focus as it is truly this team working every day to make Forgent better for our customers, better for our coworkers and better for our investors. With that, we’re happy to take your questions. Operator?

Operator: [Operator Instructions] Your first question comes from Julian Mitchell with JPMorgan.

Julian Mitchell: Welcome, Amy, to the role, and thanks, Gary, for the thorough up top slides. But I think on Slide 8, there’s a lot of people in the industry who are probably feeling in that crawl mode at the moment, but we’ll see when we come out of that. If we think about, I suppose, the composition of the revenue and backlog mix, I think one of the reasons for the share price volatility is the perception that the company is extremely geared to sort of newer types of customers, neoclouds and so forth. So maybe help us understand how we think about that backlog sort of breakdown by customer type? How is that evolving?

What’s your line of sight into the sort of makeup of the end customers who are receiving your equipment?

Gary Niederpruem: Yes. Julian, Gary here. Yes, I think there’s a couple of things to note. Over the course of the last 18 months, we’ve been working really hard to diversify the customer base, diversify end markets, diversify product lines. And I think we’ve done a really pretty good job of that. So we continue to add breadth and depth to that customer base. I think the best evidence of that is in Q1, no one customer made up more than 10% of our revenue. Now that may ebb and flow as the quarters go on. But as of Q1, there was not one customer that made up more than 10% of our revenue.

And then to your second question there, the best heuristic probably to give you on that one. I won’t go into every customer segment. But in general, the best data point I can give you, I think, to that question is right around 15% of our backlog is with the neoclouds and any intermediary serving that. And I think that’s probably a number that’s much less than people would generally think it’s going to be. So right around 15% is neoclouds. The rest of the 85% is everything from colocations to EPCs, to grid folks to other OEMs, to intermediaries to some of the emerging hyperscaler and OpenAI.

So we feel really good about the diversification and the breadth and depth of the customer base that we are penetrating today.

Operator: Your next question comes from Nigel Coe with Wolfe Research.

Nigel Coe: And again, I appreciate all the detail here, Gary. So just on the kind of — you made it very clear that there’s been absolutely no change in sort of what you’re seeing or customer conversations since the election. Just remind us, Gary, when does Forgent typically engage in the project? I mean, obviously, beyond the construction phase, I assume. But just remind us in terms of where you engage? And are you aware of any kind of projects in the funnel that are maybe just getting put on pause because of kind of uncertainties around the go-forward regulatory environment and where data center capacity needs to be constructed going forward given the changes with the election?

Gary Niederpruem: Yes, for sure. Nigel, a couple of different dimensions to that one here. So you’re right. Just like we talked about in our prepared remarks, we’ve canvassed almost all of our large customers over the last 4 or 5 days and the definitive answer comes back and continues to say no change. And so I think that’s consistent with what other people are talking about, and we went right to the ground with good old-fashioned voice of the customer, and that’s what came back. That’s number one.

Number two, I think it is also important to remind everybody that the fundamentals of the market is the demand side of this, and there is clearly no abating on the demand side of it. That’s number two. Number three, in terms of our engagement, 2-part answer here. So we’ll get engaged early in the process. So when people are thinking about building a data center in a certain location, we’ll get engaged with design engineering upfront and early — very early in that process. But that’s when it sort of sits in our pipeline. And those things always ebb and flow will move around. So that’s very natural.

That isn’t any different today than it would have been a year ago. But I think more importantly is when we get that purchase order then. So just as a reminder, in our backlog, those are firm purchase orders. There’s no LOIs or MOUs or handshake deals. Those are firm purchase orders that’s in our backlog. And those purchase orders typically come to us after the permitting process is done, certainly after land is acquired. And most of the time, construction has already even started.

So not to say that stranger things can’t happen, but that’s where we sit in that ecosystem, we feel really good about the backlog because when that purchase order comes in, land has been bought, permitting has been done and construction for the most part has already been started. So those are the 3 or 4 dimensions to that answer, Nigel.

Operator: Your next question comes from Chad Dillard with Bernstein Alliance.

Charles Albert Dillard: So a question for you on some of your recent hyperscaler and AI Lab awards. So what are you winning on? Is it on discrete components? Is it on some of your modular Powertrain Solutions. And I’m just curious, I mean, how long between like each of the critical milestones as you think about the sales cycle? And if I can sneak one more in on the order book. Just can you give a breakdown on how much is co-locators?

Gary Niederpruem: Yes, Chad, a couple of different dimensions there, too. So yes, I think it is maybe an overused, but very critically important, here in that slide that we developed with the hyperscalers and AI labs, not every one of those is created equally, and they all have their own nuances. So some of them moved fairly quickly for the first few stages and then it sort of hits a little bit of a rut with just internal inertia on their side where it takes a while to get through the last few stages. Other customers are the opposite of that. So everyone is created a little bit differently.

We wanted to put this chart together to show at least on an illustrative basis. It’s not like you can just walk into one of these folks and purchase order falls in your lap tomorrow. There’s a lot of ground work that has to be laid technically, operationally, procurement-wise, legally. So this is — it is a journey that you go on with every one of these. In terms of how long it takes to get from crawl to walk to run, again, it is going to vary. It probably is measured certainly in quarters, not in months. And in some cases, you get there quickly, in some cases, you might not get there at all with some of them.

But that’s why we believe in continuing to build out this portfolio of customers, not only with these folks, but with the colocations, the developers, the EPCs, the grid folks, the IPPs, utilities. I mean all of them is what we want in our basket of customers. So we’re looking at this as much more of an evolving how do we shape the portfolio than anything. This is an important segment, but it’s clearly not the only segment and feel very good about the work here as well as about the penetration we’ve seen in those other segments.

Operator: Your next question comes from Jeff Hammond with KeyBanc Capital Markets.

Jeffrey Hammond: Maybe a little higher level. Maybe, Gary, just a quick comment on why you think the CFO change needed to happen now? And then just Amy a lot of really good color on what you’re going to be focused on in the initiatives. Maybe towards the longer-term initiatives, where might you think there’s some constructive dissatisfaction and you want to maybe lean in or sharpen the focus.

Gary Niederpruem: Yes. Jeff, look, I think the single biggest thing that comes through right away with Amy is the operational finance chops that she brings. We all get — she and I had a conversation other day, where do you derive your energy from in business. And we all derived it from different locations. Amy’s energy and passion comes from dissecting the P&L, walking the manufacturing floor, challenging our folks on why they’re doing this, why they’re not doing that.

So as we evolve and mature as a company, we’re going to continue growing at outsized rates, but we also have to be mindful that we need to be able to pivot this thing at the same time to making sure that, that growth reads through all the way down to the P&L. So I think that’s the part that Amy will provide us for sure. And I’ll throw the second part of your question over to her.

Amy Ard: Jeff, nice to chat with you. I’d say I have 3 things I think about when I think about my priorities as we move forward. First, the first thing I always talk about is eye on the enterprise. We have a lot to deliver this year as a company. So it is about execution and delivering our commitments. And that means factory wise, like operationally wise, we’re building new facilities, but internally, we’re building new processes, new systems to meet our commitments to continue to drive improvement. So first and foremost, it’s like keeping the eye on the prize. We’ve a lot to deliver and we have to do that. Second, it’s EBITDA margin expansion.

And we talked about near-term and longer-term priorities. Certainly, there’s a lot of gross margin initiatives that we’re thinking about. Some of those you’ll start to see in the second half of this year. but far more of them, you’ll start to see as we get into the longer term starting in fiscal ’28 is when you’ll start to see some of those things come through. But there’s a lot of what I’ll call low-hanging fruit, and then there’s some fruit that we’ve got — look, we’ve got to get through our expansion before we can start picking.

And then third, I’d say, cash flow conversion, certainly, as you’re growing, you’re focused on driving the expansion, ensuring you have enough inventory to build to the ramp. But as we continue to mature, we’ll focus on how quickly we convert — can convert all of that into cash.

Operator: Your next question comes from Steve Tusa with Wells Fargo.

Charles Stephen Tusa: Welcome, congrats, Amy. On one of those initiatives, the supplier renegotiations, can you just talk about the — maybe the flavor of what’s going on there? It’s — obviously, we’re in an inflationary environment and renegotiating with suppliers or customers is not particularly easy these days. So maybe just like why were you in this position to be able to do that? And what are like — what’s the nature of those conversations? And what type of products are we talking about here?

Amy Ard: Yes. So I’ll start, Steve. We started with MSAs with our basic supply base, right? So really, that’s just focusing on stability of our current suppliers, developing consistent terms with those suppliers, driving consistent payment terms, which is how we received $30 million of working capital improvement. So I’d say, first and foremost, it was just stabilizing our supply base. We’ve got 3 — we put them in 3 buckets of suppliers, right? We’ve got commodities and raw materials, breakers and then other, including electrical components. So if you think about those, you have different leverage with different types of suppliers.

So Phase 2 of I’d say, supplier negotiations is strengthening our current relationships, so deepening the relationships that we have, finding new sources to drive cost improvements that we can or just driving cost avoidance if we can with volume agreements. So that’s what I would call Stage 2 from a supplier negotiation perspective, and that’s where we currently are in our development stage. All of that is to drive lower cost. Cost isn’t all necessarily going to be on the material side. We’ll certainly see volume-based improvements as we get into longer term. But the cost improvements we’re going to see, as I mentioned in my comment to Jeff was we’re going to see some short-term low-hanging fruit priorities.

We’ve got to expand these factories. It’s very hard to turn a knob while you’re actually building and ramping 50% H2 over H1, right? So some of these are lower-hanging fruit that we’re going to get on the gross margin side, but you’ll start to see some of the other fruit that we can pick as we get into fiscal ’28.

Operator: Your next question comes from Julien Dumoulin-Smith with Jefferies.

Julien Dumoulin-Smith: Very much appreciated, nicely done. Look, maybe just to follow up a little bit on the commentary from the prepared remarks here just about the grid side of the business. Can you comment a little bit more about that softness and the timing here you alluded to on the grid side, specifically, again, is that midterm? Or what’s going on in the macro environment there as it pertains to that side? And specifically, how do you think about the recovery trajectory in renewables and storage?

And then also just on the midterm piece, can you talk a little bit more about the domestic piece and the December EO here and just what else we could see come out of that in terms of potential tailwinds for domestic players, if you will?

Gary Niederpruem: Yes, yes, for sure. Julien, I’d say, yes, we — if you look at FY ’26, we had a really banner year from an order standpoint in that grid, utility, renewable IPP space in general. And in the prepared remarks, obviously, we said that we saw a little bit of softening in that arena. Most of that was coming from the renewable piece because of the pull forward of the safe harbor that occurred. So I think as we look forward, there’s 2 pieces where we are very, very — feel very, very good that there’s going to be some tailwinds coming back into those market segments.

Number one is there probably is going to be a little bit more alternative energy over a period of time — over a period of time, not in terms of weeks or months, but quarters, that should be a nice tailwind for us. And then that domestic buy U.S. types of companies, particularly when it comes into switchgear and transformers is the EO that we referred to. So we’ll see how that pans out. Too early to say, but we feel pretty good that, that could very well be a second tailwind for us.

So while things moderated a little bit here in the first quarter and first half, we do feel very positive about the second half of ’27 and going into ’28, what that could mean from a demand environment, specifically for alternative energy as well as buy domestic manufacturing with that.

Operator: And your next question comes from Andrew Obin with Bank of America.

Andrew Obin: Maybe a question, deferred revenue on the balance sheet, it’s up 60% quarter-over-quarter. One would guess it’s a strong indication of orders. But just want to understand, have there been any significant changes to your policies around down payments or if there was timing, mix sort of benefits in the quarter, just want to make sure that we’re not going to see a weaker deferred revenue balance next quarter. Just want to understand what’s happening there.

Amy Ard: Andrew, I’ll take that one. I’d say, first and foremost, no, we haven’t had any significant changes in our policies around down payments. So there’s no difference that you’re seeing from a contractual perspective. It is a timing-related change in the deferred revenue balance. And so the way to think about it, our accounting policies have us recording deferred revenue when cash comes in the door. So we had a very strong Q4 in terms of orders. We told you it was $1.5 billion of orders in Q4. The way it works is we book an order, then we invoice the deposit and then the cash comes in, and that timing is not the same week, right?

So there’s some delay between when the invoice gets issued and then when we get payment from that. So some of what you’re seeing in the Q1 deferred revenue balance is cash receipts from some of the order book that happened in Q4. So I’d say it’s not a perfect — it’s not perfectly ratable, I would call it. The other thing to take into account is there’s also milestone payments. So depending on the receipt of cash from our invoices and the milestone payments that we are billing out as well, it’s not going to be a perfectly like 1:1 ratio to when the orders come in the door.

Operator: Your next question comes from Noah Kaye with Oppenheimer.

Noah Kaye: Amy, good to hear you on the call. I wonder if you could first touch on updated cash flow expectations in the guide. I think the deck doesn’t mention an update versus the prior guide, which I believe was $300 million plus operating cash flow. You got almost half of that this quarter alone. And the second is really to understand the capital allocation thoughts here. You focused mostly on operational finance priorities in your prepared remarks. But would love to know how you and the company are thinking about capital allocation here for that free cash flow generation. Arguably, there’s been much more derating in this relative to a lot of peers.

And so buybacks would seem very attractive at this point.

Amy Ard: Thanks, Noah. I’ll start, and Gary may chip in at the end. So I’d say we’re not changing our free cash flow expectations. Our free cash flow expectations were greater than $300 million. We still expect to generate cash flow greater than $300 million. As I just mentioned when I answered Andrew’s question, some of this is timing related. So it’s a little bit of when do the deposits come in the door. And so I don’t think we want to just use the Q1 number to say like, oh, it must be Q1 times 4 or something like that. So we’re not changing our expectations right now.

We still think we’ll be greater than $300 million, and we’ll refine that as the year goes on. Gary, if you want to talk about capital allocation?

Gary Niederpruem: Yes, sure. Thanks, Amy. No, I think capital allocation priorities stay pretty much unchanged to what we’ve talked about in the past. So organic growth, inorganic growth, followed by share buybacks are probably still the priorities today, just like they were before. I understand exactly your sentiment on what you said. But for right now, organic growth, inorganic growth, share buybacks in that priority. The good news is we have optionality now because of the cash generation that Amy talked about because of what we produced here in Q1, we feel good about the options we have. But I think in terms of prioritization, where we sit today, those priorities are pretty much unchanged.

Operator: Your question next comes from Joe Ritchie with Goldman Sachs.

Joseph Ritchie: Welcome, Amy. So I guess, look, you guys have stopped giving us quarterly orders. I fully understand you’re not going to quantify. But I was wondering if you could give us maybe some qualitative color on how you felt about order trends this quarter. And then as it relates to 2028, I understand that the backlog is fully covering 2027 at this point, but how are you feeling about the — what you’re building for 2028 as well?

Gary Niederpruem: Joe, here’s what I’d say about Q1. The demand environment that we saw in ’26 continued into Q1 of ’27 without a doubt. The best heuristic I can give you for that one is Q1 orders in ’27 were just about 2x what they were in Q1 of ’26. So that 100-ish percent order growth year-over-year, I think, is the best demonstration of that. And so that part, we feel good about. And clearly, with that type of momentum, we think that will set us up well, not only for ’27, which is fully booked, but also will set us up well for ’28.

Operator: Your next question comes from Christine Yao with Morgan Stanley.

Tingbing Yao: I want to ask about backlog coverage beyond fiscal 2027. I know you’re no longer disclosing backlog quarterly, but it would be great to get some color on how much of the current backlog is scheduled for fiscal ’28? And has that share increased as customers order further out?

Gary Niederpruem: Yes, for sure. Christine, I think you and Joe timed that well as those questions are very symbiotic here. So capping off what we just answered in that last question. Look, backlog obviously continues to grow. There’s no doubt about it. ’27 is fully booked. At this point in time, if you took a look at our backlog, there’s probably somewhere around 40% of that, that sits outside of ’27, the majority of that being obviously therefore in ’28.

So between where we sit for ’27, now we’ve got about 40% of the backlog today that is beyond ’27 then, plus with the new order book that we’re going to get in Q2 and Q3, we think that portends very well as we look into ’28.

Operator: And your next question comes from Justin Clare with ROTH Capital Partners.

Justin Clare: Maybe just following up on the last question here. So you have backlog covering 100% of the fiscal ’27 revenue guide. And so just wondering, are the new orders that you’re booking now primarily scheduled for delivery in fiscal ’28? Or do you still have some meaningful opportunities to book and ship in 2027? And then I just guess just curious, are you seeing more customers requesting accelerated deliveries? Or are you also seeing some instances of customers potentially pushing out scheduled deliveries?

Gary Niederpruem: Yes. Absolutely, Justin. So a couple of different pieces to your questions there. So we came into the year — into ’27 with about a $250 million book and ship capability. And based on what we saw in the order rates in Q1, that $250 million is pretty much exhausted at this point. So it just so happens not only because of that, but also just based on the way customers are requesting the product, most of what we are seeing now is for ’28.

That doesn’t mean that there’s nothing more in book and ship in ’27, but the odds are you have to have the right setup where the customer needs it, the supply chain for us to set up. We can ramp the factories even hotter than we are today, that the project timing needs it. So there’s a number of factors that have to come into play. So you never would say never. But what we came into the year of $250 million is now pretty much full. That does mean that most of what we booked from this point forward will go into ’28.

And then your last part, I would say it’s — if anything, we are seeing a few customers that have requested some products to be pulled in. We haven’t seen anything get pushed out to my memory at all, but we’ve seen more — a few requests or things to get pulled in. But on average, on par, it’s — they know when they’re going to get it. We’ve already agreed on that, and we’re sticking to that. So maybe a little few more pull-ins than anything, but on par is about a wash.

Operator: And we have reached the end of the Q&A session. I will now turn the call over to Gary Niederpruem for closing remarks.

Gary Niederpruem: Okay. Thank you, operator. Thank you, everybody, for joining us today. I think we did it in an efficient 57 minutes. So I, first and foremost, want to thank again the Forgent team. I’d always be remiss if I didn’t thank them for all of the hard work putting us in the position to be able to deliver results like this for you and for our customers. And then I want to thank all the analysts that ask questions and the investors that are listening today. We truly value and don’t take your trust in us lightly whatsoever. So thank you, guys, and we’re going to get back to work here, and have a good rest of the day.

Thank you.

Operator: This concludes today’s conference. All parties may disconnect.