What Forgent Power Solutions (FPS) Said on Its Q1 Earnings Call

Key Points

• Record Q1 results drove higher guidance: Revenue rose 69% year over year to $479 million, and adjusted EPS climbed 83% to $0.24. Forgent raised its fiscal 2027 revenue outlook to $2.45 billion–$2.65 billion, with backlog now covering the increased forecast.
• Data center demand is the main growth engine: First-quarter orders were about twice year-ago levels, and the company says customer schedules remain largely unchanged. Forgent is expanding direct relationships with AI labs and hyperscalers, while most new orders are expected to ship in fiscal 2028.
• Margins and cash generation are key priorities: Forgent expects second-quarter adjusted EBITDA margin of about 23%, up from 21.9% in Q1, and reiterated its target of more than $300 million in free cash flow. Management cited cost savings and working-capital improvements, while noting softer renewable and battery-storage orders.

Forgent Power Solutions NYSE: FPS raised its fiscal 2027 outlook after reporting record quarterly revenue, as stronger production throughput and demand for data center equipment helped the company exceed its first-quarter guidance.

Revenue rose 69% from a year earlier to $479 million, while adjusted earnings per share increased 83% to $0.24. Adjusted EBITDA climbed 61% to $105 million, with a margin of 21.9%.

Chief Executive Officer Gary Niederpruem said first-quarter orders were approximately twice the level of a year earlier, led by data center demand. The company’s backlog now fully covers its increased revenue outlook for the fiscal year, management said.

Higher Outlook and Backlog Coverage

Forgent now expects fiscal 2027 revenue of $2.45 billion to $2.65 billion, an increase of $50 million from its previous guidance. At the midpoint, the range implies 80% growth.

The company raised its adjusted EBITDA forecast by $12 million to a range of $587 million to $637 million and increased its adjusted EPS outlook by $0.04 to $1.30 to $1.44. Chief Financial Officer Amy Ard said Forgent expects revenue and adjusted EBITDA to rise sequentially throughout the year, with margins expanding as production increases.

For the second quarter, Forgent forecast revenue of $560 million to $590 million and adjusted EBITDA of $127 million to $137 million. The latter implies an adjusted EBITDA margin of approximately 23%, compared with 21.9% in the first quarter.

Niederpruem said approximately 40% of the company’s backlog is scheduled beyond fiscal 2027, with most of that in fiscal 2028. The company entered the year with approximately $250 million of capacity to take and fulfill new orders within fiscal 2027, and that capacity is now largely filled, he said. Most new orders are expected to be delivered in fiscal 2028.

Data Center Demand and Policy Concerns

Niederpruem addressed investor concerns that the post-election policy environment could slow data center development. He said customer discussions indicated that regulation could affect where, when and how projects are built, but had not changed customers’ expectations for the amount of capacity they ultimately need.

He also pointed to supply constraints for electrical equipment and said Forgent generally receives purchase orders after permitting is complete and, in many cases, after construction has begun. Backlog orders are firm purchase orders, often supported by deposits and milestone payments, Ard said.

“We haven’t seen anything get pushed out, to my memory, at all,” Niederpruem said when asked about delivery schedules. He added that a few customers had requested earlier deliveries, although schedules were broadly unchanged.

The CEO said approximately 15% of backlog was associated with neocloud customers and intermediaries serving them. No single customer accounted for more than 10% of first-quarter revenue, he said.

Direct Sales and End-Market Trends

Forgent is working to expand direct sales to large cloud providers and artificial intelligence labs, customers it has also served through intermediaries. The company received a volume order from one AI lab following an initial order and secured an initial direct order from a second lab, Niederpruem said.

Two hyperscalers have signed product agreements, typically the final commercial step before an initial order, while a third has entered the qualification process. Forgent expects direct orders from at least one, and potentially another, hyperscaler by the end of fiscal 2027, according to Niederpruem.

Industrial demand also strengthened and broadened beyond large projects to include smaller projects, facility expansions and follow-on investments, management said. In grid markets, utility demand remained steady, but renewable energy and battery-storage orders moderated.

Niederpruem attributed some of the softness to wind and solar developers pulling orders forward ahead of a July safe-harbor deadline, as well as developers pausing projects while seeking clarity on restrictions involving foreign-produced grid equipment. He said the company expects conditions to improve as uncertainty clears, while noting it was too early to assess the effect of domestic-equipment policies.

Cost and Cash Priorities

Ard, Forgent’s new CFO, said the company is focusing on overhead efficiency, working capital, labor productivity, material costs, manufacturing efficiency and logistics. Bringing some functions in-house has produced more than $5 million in annualized savings, while replacing higher-cost contract labor with full-time employees has generated approximately $5 million more, she said.

Renegotiated supplier payment terms have produced more than $30 million in working-capital improvement, Ard said. She added that some gross-margin initiatives could contribute in the second half of fiscal 2027, with more benefits expected beginning in fiscal 2028.

Ard maintained the company’s expectation for more than $300 million in free cash flow and cautioned against extrapolating first-quarter cash generation across the year because of the timing of customer deposits. Niederpruem said capital allocation priorities remained organic growth, followed by inorganic growth and share buybacks.

About Forgent Power Solutions (NYSE:FPS)

Forgent Power Solutions designs and manufactures electrical power distribution equipment for applications that require reliable, continuous power. Its products support the delivery and management of electricity within facilities, including data centers and other commercial and industrial environments. The company focuses on equipment used in critical power systems, where dependable distribution is essential to operations. Forgent serves customers primarily in North America, with products and services supporting facilities in other markets as well.

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