Forgent Power Solutions (FPS) Q4 2026 earnings review
Record bookings and facility expansion answer the capacity ceiling concern
Forgent beat its revenue guide by 12.1%, growing 94.3% to $461.7 million, and generated $74 million in operating cash flow. The demand indicators outpaced the revenue: the company booked $1.5 billion in orders for a 3.3x book-to-bill ratio, pushing backlog to an all-time high of $3.0 billion.
⚖️ Verdict: 🟢🟢 Very Bullish
The case is better — a very bullish verdict — because the demand acceleration completely overran the standing capacity concern, and the company is deploying a new $35 million expansion in Tijuana to catch it. Selling, general and administrative expenses dropped by 11.0 points of revenue, proving the operating leverage model works at scale.
What the print did not settle is whether the margin expansion is taking a pause: the FY27 outlook implies a 24.0% Adjusted EBITDA margin, exactly where Q4 landed, as management cited heavy first-quarter investments. The next quarter's operating margin gives the reading on how deep that investment dip goes.
🐂 Bull Case
Order Velocity Overtakes the Capacity Ceiling
Prior quarters raised the question of whether Forgent was approaching a capacity ceiling that would cap its growth. The $1.5 billion in Q4 bookings — a 3.3x book-to-bill ratio — proves demand is accelerating far past current limits, and customers are extending lead times to secure delivery rather than looking elsewhere.
The company answered the physical limit by announcing a $35 million Powertrain expansion in Tijuana, adding $800 million in future revenue capacity. This flips the ceiling concern into a multi-year visibility advantage that de-risks the FY27 outlook.
The SG&A Leverage Arrives
Gross margin improved by 2.6 points, but the real profitability driver was operating leverage. Selling, general and administrative costs dropped 11.0 points as a percentage of revenue year-over-year, falling to 13.6% from 24.6%.
The top line simply outran the fixed cost additions exactly as modeled, turning 94% revenue growth into a 163% increase in Adjusted EBITDA.
Powertrain Mix Drives Total Spend
Powertrain Solutions grew 259% for the fiscal year, accounting for nearly a third of Q4 revenue. The strategic shift toward selling integrated modular systems rather than individual components is working, increasing total wallet share and prompting the dedicated factory expansion in Mexico.
Free Cash Flow Inflection Confirmed
The working capital burden of hyperscaling previously consumed cash, but Q4 turned the corner. Operating cash flow reached $74 million, easily funding the $31 million in capital expenditures for a positive $43 million in free cash flow. With the primary 2025-2026 expansion largely complete, management projects operating cash flow to continue growing in FY27, easing the cash-burn concern.
🐻 Bear Case
The Margin Steps Back in the Guide
Forgent's core story is that phenomenal top-line growth drives operating leverage, dropping directly to the bottom line. Q4 delivered on that, expanding Adjusted EBITDA margin to 24.4%. However, the FY27 guide sets the midpoint exactly at 24.0%.
For a business modeling 76% revenue growth, a flat margin guide cuts against the thesis that the leverage scales cleanly. Management attributes this to heavy first-quarter investments in personnel and facilities to support the ramp. The number to watch is Q1's actual margin: if it dips and rebounds quickly, the model is intact; if it stays suppressed, the cost of scaling is permanently higher.
Standing risks the print did not read on
Two standing concerns received no direct reading in this release; each has a disclosure that would move it.
- Tariff and inflation protection: management previously noted contracts included protection clauses, but the realized impact on Q4 margins was not separated.
- Working capital intensity: inventory doubled year-over-year to $250 million. The next cash flow statement will show whether that ratio stabilizes.
👓 Other Themes
Data Center and Grid Demand Remain Uncapped
Management described electrical distribution equipment momentum as robust, pointing to unconstrained end-market budgets across artificial intelligence buildouts and grid modernization. The 3.3x book-to-bill ratio confirms the macro demand environment remains a strong tailwind that is immune, so far, to broader economic hesitation.
💲 Other KPIs
Inventory grew 112% year-over-year, tracking slightly ahead of the 94% revenue growth. The buildup supports the massive backlog and longer lead times.
Increased by $81 million year-over-year, turning solidly positive. The improvement validates the inflection point reached in Q3, outrunning working capital requirements.
🔮 Guidance
Initiates FY27 view at 76.0% year-over-year growth at the midpoint, representing an absolute step-up of over $1 billion from FY26 delivery.
Initiates FY27 view at 85.8% year-over-year growth at the midpoint. This implies an Adjusted EBITDA margin of 24.0% (derived), slightly below the 24.4% delivered in Q4.
Initiates FY27 view, reflecting a 95% year-over-year growth rate at the midpoint.
❓ Key Questions
Margin Profile of Tijuana Expansion
What is the exact margin profile of the new Tijuana Powertrain capacity compared to the legacy plants once it reaches target production rates?
Exit Rate Margin Target
With Q1 margins expected to take a hit from facility and personnel investments, what is the target Adjusted EBITDA margin exiting Q4 of FY27?
Backlog Delivery Schedule
How much of the $3.0 billion backlog is scheduled to ship beyond fiscal 2027?