Forgent Power Solutions Inc.

09/15/2026 | Press release | Distributed by Public on 09/15/2026 04:44

Annual Report for Fiscal Year Ending June 30, 2026 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the section of this Annual Report on Form 10-K ("Annual Report") captioned "Business" and our consolidated/combined financial statements and related notes to those statements included elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions about our business and operations. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this Annual Report captioned "Special Note Regarding Forward-Looking Statements" and "Risk Factors." Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
This MD&A generally discusses the factors affecting our consolidated results of operations for the fiscal years ended June 30, 2026 and 2025, financial condition at June 30, 2026 and 2025 and, when appropriate, factors that may affect our future financial performance, as well as year-to-year comparisons between fiscal 2026 and fiscal 2025. Discussions of fiscal 2024 items and comparisons are omitted from this Annual Report and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Registration Statement on Form S-1 (File No. 333-294578), filed on February 6, 2026.
This MD&A contains the presentation of non-GAAP measures, including Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS, because they provide the Company and readers of this Annual Report with additional insight into our operational performance relative to earlier periods and relative to our competitors. We do not intend for these non-GAAP measures to be substitutes for any GAAP financial information. Readers of this Annual Report should use Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS only in conjunction with Net Income, the most comparable GAAP financial measure. Reconciliations to the most comparable GAAP measure, are provided in "-Non-GAAP Financial Measures."
Overview
We are a leading designer and manufacturer of electrical distribution equipment used in data centers, the power grid, and energy-intensive industrial facilities. Demand for our products is growing rapidly as (i) companies accelerate investment in data centers to meet the computational requirements for cloud computing and artificial intelligence ("AI"), (ii) independent power producers build new generation capacity to satisfy rising electricity demand, (iii) utilities upgrade and expand transmission & distribution ("T&D") infrastructure to address rapid load growth and (iv) manufacturers reshore their factories to secure their supply chains and mitigate the impact of tariffs. From the end of fiscal 2025 to the end of fiscal 2026, our revenues grew 89% to $1.4 billion and, as of June 30, 2026 we had $3.0 billion of backlog representing an increase of 256% compared to the same date in the prior year.
Electrical distribution equipment is essential for delivering electricity safely and efficiently from power plants to homes, businesses and industrial facilities and between equipment and devices within buildings. Every power plant, utility grid, data center, manufacturing facility and commercial building requires electrical distribution equipment to operate. Because distributing electricity safely and within the parameters required for the application where it is used is fundamental, purchases of electrical distribution equipment for new facilities or to replace equipment that is at the end of its useful life are rarely, if ever, optional. Additionally, because electrical distribution equipment has a high consequence of failure, including lost revenue, equipment damage and even serious injury or death, we believe customers prioritize reliability and safety over price when they select which products to purchase.
Major product categories of electrical distribution equipment that we manufacture and sell include automatic transfer switches ("ATS"), dry type transformers, electrical houses ("eHouse"), generator connection cabinets, liquid filled transformers, panelboards, power distribution units ("PDU"), power skids, remote power panels ("RPP"), switchboards, switchgear and tap boxes.
We sell Custom Products, Powertrain Solutions, and Standard Products. Our Custom Products are designed for a specific project or application, involve significant consultation between our in-house engineering team and the customer and are typically produced in small quantities. Our Powertrain Solutions are combinations of Custom Products that are integrated together, skidded together, or designed to work together as a system. Our Standard Products leverage common designs that are suitable for basic applications and are typically manufactured in large quantities. We also provide on-site commissioning and maintenance services for our products.
We specialize in manufacturing Custom Products and Powertrain Solutions that are "engineered-to-order" for technically demanding applications, including data center power distribution, utility substations and energy-intensive manufacturing. Demand for customized electrical distribution equipment is increasing as data centers, independent power producers, utilities and other customers seek to address varying power quality and availability, stringent uptime requirements, challenging form factors and environments, demanding thermal management requirements, integration with other equipment and systems, evolving regulatory requirements and safety considerations and rising construction costs and labor scarcity.
Our customers include technology, power, utility and industrial companies who purchase from us directly; intermediaries such as original equipment manufacturers ("OEMs") and integrators who incorporate our products into systems that they sell; contractors that build data centers, power plants and T&D infrastructure; and electrical products distributors.
We are a U.S. company. Our principal manufacturing campuses are located in Minnesota, Texas, Maryland, California, and Mexico.
Initial Public Offering and Reorganization Transactions
On February 6, 2026, the Company closed an initial public offering ("IPO") (including exercise in full of the underwriters' overallotment option) of 19,074,391 shares of Class A common stock sold by the Company and 45,325,609 shares of Class A common stock sold by Forgent Parent I LP and Forgent Parent IV LP (collectively, the "Selling Stockholders"), in each case, at an IPO price of $27.00 per share.
The Company received $491.8 million in proceeds from the IPO, net of underwriting discounts and commissions, which was used to indirectly purchase 19,074,391 common units ("Opco LLC Interests") of Forgent Power Solutions LLC ("Opco"), and Opco utilized the net proceeds it received from the sale of Opco LLC Interests to the Company to redeem Opco LLC Interests from the Existing Opco LLC Owners. The Company did not retain any of the proceeds from the sale of Class A common stock by the Selling Stockholders. Immediately prior to the IPO and following the IPO, Forgent Intermediate LLC was and is a wholly owned subsidiary of the Company and is the managing member and owns all of the limited liability company units of Forgent Intermediate II LLC. In turn, Forgent Intermediate II LLC is the managing member of Opco. Forgent Intermediate LLC and Forgent Intermediate II LLC collectively own a majority of the Opco LLC Interests, and the remaining Opco LLC Interests are owned by the Existing Opco LLC Owners.
In connection with the IPO, the Company and Opco completed a series of reorganization transactions, including the following:
•the limited liability company agreement of Opco was amended and restated to, among other things, (i) provide for a new single class of capital ownership interests of Opco LLC Interests in Opco, (ii) exchange all of the then existing membership interests of the holders of Opco capital ownership interests for Opco LLC Interests and (iii) appoint Forgent Intermediate II LLC, a wholly-owned, indirect subsidiary of the Company, as the sole managing member of Opco;
•the Company's certificate of incorporation was amended and restated to, among other things, (i) provide for Class A common stock with voting and economic rights, (ii) provide for Class B common stock with voting rights but no economic rights, and (iii) issue 90,167,635 shares of Class B common stock to the Existing Opco LLC Owners on a one-to-one basis with the number of Opco LLC Interests they owned prior to the IPO;
•Forgent Parent I LP contributed 100% of the equity interests of Forgent Intermediate LLC to the Company in exchange for 210,055,933 shares of Class A common stock of the Company, and Forgent Intermediate LLC merged with and into Forgent Intermediate Merger Sub LLC, with Forgent Intermediate Merger Sub LLC surviving and renamed Forgent Intermediate LLC; and
•the acquisition by Forgent Intermediate LLC, by merger, of Opco LLC Interests held by Forgent Blocker I LLC and Forgent Blocker II LLC, for which the Company issued 4,205,321 shares of Class A common stock to Forgent Parent IV LP as consideration.
Follow-On Offerings
On March 30, 2026, the Company completed a follow-on offering consisting of 10,783,205 shares of Class A common stock offered by the Company and 23,716,795 shares of Class A common stock offered by the Selling Stockholders, at a public offering price of $29.50 per share. On June 1, 2026, the Company completed a second follow-on offering consisting of 15,852,319 shares of Class A common stock offered by the Company and 32,769,681 shares of Class A common stock offered by the Selling Stockholders, at a public offering price of $47.00 per share. On July 6, 2026, the Company completed a third follow-on offering consisting of 14,555,925 shares of Class A common stock offered by the Company and 29,094,075 shares of Class A common stock offered by the Selling Stockholders, at a public offering price of $49.00 per share.
The Company received $1.7 billion in proceeds from these follow-on offerings, net of underwriting discounts and commissions, which were used to indirectly purchase 41,191,449 Opco LLC Interests, in the aggregate, and Opco utilized the net proceeds it received from the sale of Opco LLC Interests to the Company to redeem Opco LLC Interests from the Existing Opco LLC Owners. The Company did not retain any of the proceeds from the sale of Class A common stock by the Selling Stockholders related to these follow-on offerings.
Performance Measures
The primary financial metrics we use to evaluate our overall performance and to track the business results from year to year are Revenues, Adjusted EBITDA, and Adjusted Net Income.
In managing our business and assessing financial performance, we supplement the information provided by the consolidated/combined financial statements with other operating metrics. These operating metrics are utilized by our management to evaluate our business, measure our performance, identify trends affecting our business and formulate projections.
We present non-GAAP performance measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with GAAP.
These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe investors benefit from having access to the same financial measures that management uses in evaluating our operations. For more information about the non-GAAP measures that we use, reasons for doing so, definitions for our non-GAAP financial measures, and required reconciliations, see "-Non-GAAP Financial Measures" below.
The following table sets forth a summary of our financial highlights for the periods indicated (in thousands):
Year Ended June 30,
2026 2025 Increase % Change
Revenues $ 1,420,059 $ 753,188 $ 666,871 89 %
Net Income $ 106,035 $ 17,446 $ 88,589 508 %
Adjusted EBITDA(1)
$ 322,904 $ 169,173 $ 153,731 91 %
Adjusted Net Income(1)
$ 207,576 $ 88,124 $ 119,452 136 %
(1)Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures. See "-Non-GAAP Financial Measures" below for additional information about Adjusted EBITDA and Adjusted Net Income and for reconciliations of such measures to net income, the most directly comparable GAAP financial measure.
Key Factors Affecting Our Performance
We believe our financial performance, results of operations and future success depend on a number of factors that present significant opportunities for us, but also pose risks and challenges, including those described below and in "Risk Factors."
Data Center Construction Activity
We derive a significant portion of our revenues from products used in data centers, and demand for our products depends, in part, on continued investment in digital infrastructure generally and data centers specifically. Investment in data centers is subject to a number of factors, including the frequency and nature of innovations, whether or not developing or implementing those innovations requires new physical infrastructure and the availability of capital to fund investments in that infrastructure.
Infrastructure Investment
Demand for our products depends in part on the level of investment in new data centers, manufacturing facilities, power plants and T&D infrastructure, which is subject to business and economic cycles. We typically see greater demand for our products when the economy is growing, interest rates are stable or falling and government policy stimulates domestic investment because these conditions encourage businesses to invest in their facilities. We typically see less demand for our products when the economy is contracting and interest rates are rising.
Offering Mix
The profit margins we earn can vary significantly based on the type of product we sell, the level of customization, the size of the order and other factors. We typically earn higher profit margins on engineered to order Custom Products and Powertrain Solutions than on Standard Products. Our overall profit margins can vary between quarters based on offering mix in the period. Our profit margins can also vary based on the amount of revenues from services that we generate as a percentage of our total revenues in the period.
Capacity Utilization
Our industry is currently capacity constrained in many product categories. Higher capacity utilization gives us and our competitors greater pricing power as well as additional leverage on our fixed costs. We believe we are more vertically integrated than many of our competitors so we typically benefit when products or components that we make in-house, but that many of our competitors must purchase, such as medium voltage switchgear and transformers, are in short supply. Changes in the level of capacity utilization in our factories and across our industry can influence the pricing of our products and increase or decrease our profit margins in the period.
Cost of Raw Material and Labor Inputs
Our largest expenses for purchases of key raw materials are electrical steel, carbon steel, copper, aluminum and other key raw materials used to manufacture our products. Steel and copper are subject to significant price volatility. The cost of raw materials that we purchase, as well as the cost of components that we manufacture in Mexico and ship to the United States, can also be impacted directly or indirectly by the imposition of tariffs on foreign imports to the United States or geopolitical events that disrupt our supply chain. Our profit margins are impacted by, among other things, our ability to pass increases in the cost of our raw materials on to our customers, including any tariffs, and to manage the level of raw material inventory that we hold. In addition, the cost of hourly labor to produce our products, the rate that we add new employees, and our total number of employees has impacted, and may in the future impact, our profit margins. The cost of labor is influenced by the availability of labor, prevailing wages in the areas where our plants are located and other factors. While we have not experienced any significant adverse impact on our business from raw material price volatility, tariffs, supply chain disruptions or labor shortages, any of these factors could have a significant adverse impact on our business in the future. In addition, we may need to hire more personnel than we currently anticipate to support our operations and growth initiatives, and any resulting increases in labor costs could adversely affect our margins and operating results.
Key Components of Our Results of Operations
The following discussion describes certain line items in our consolidated/combined statements of operations.
Revenues
We generate revenues primarily from the sale of electrical distribution equipment. Major categories of electrical distribution equipment that we sell include ATSs, dry type transformers, eHouses, generator connection cabinets, liquid filled transformers, panelboards, PDUs, power skids, RPPs, switchboards, switchgear and tap boxes. We typically sell our products pursuant to purchase orders or sales contracts that specify price, design specifications, delivery dates and warranty for the products being purchased, among other things. Purchase orders and sales contracts can range in value from several thousand to millions of dollars.
Our revenues are affected by changes in the volume and price of products purchased by our customers. Volume is driven by the demand for our products while price is determined by product type, design specifications, lead-time, the level of customization, end market, availability of supply and strength of competitors' product offerings.
Our revenue growth is dependent on: continued growth in the end markets we serve, including the Data Center, Grid, and Industrial markets; our ability to expand our manufacturing capacity to meet demand; and our ability to develop and introduce new and innovative products that address the changing technology and performance requirements of our customers.
Cost of Revenues and Gross Profit
Cost of revenues consists primarily of product costs and fixed overhead. Product costs include purchased materials and labor as well as costs related to shipping, tariffs, customer support and product warranty. Fixed overhead includes facilities cost and depreciation of testing and manufacturing equipment which are not directly affected by sales volume. Labor costs in our cost of revenues include both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or components into finished goods and the transportation of finished goods to the customer. Our product costs are affected by: our sales volume; the cost of raw materials, including electrical steel, carbon steel, copper, aluminum, and other key raw materials; the cost of components, including circuit breakers, accessories and gauges; technological innovation; economies of scale; and improvements in production processes and automation. We do not currently hedge against changes in the price of raw materials.
Gross profit may vary from quarter to quarter and is primarily affected by our sales volume, product costs, product mix, customer mix, end market mix, and seasonality. We have increased and expect to continue to increase our manufacturing headcount in connection with the expansion of our business. The rate at which we add new manufacturing employees and the period of time it takes to train them and for them to reach full productivity has and can in the future impact our gross profit.
Operating Expenses
Operating expenses consist of selling, general and administrative expenses, transaction costs and depreciation and amortization. We expect to continue to invest substantial resources to support our growth and anticipate our operating expenses will increase in absolute dollar amounts for the foreseeable future.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, share-based compensation, employee benefits and payroll taxes related to our executives, sales, finance and accounting, human resources, IT, engineering and legal organizations, travel expenses, facilities costs, marketing expenses, bad debt expense and fees for professional services. Professional services consist of audit, legal, tax, insurance, IT and other costs. We have increased and expect to continue to increase our sales and marketing personnel in connection with the expansion of our business. We also expect to incur additional expenses related to becoming publicly traded, including additional directors' and officers' liability insurance, director fees, additional expenses associated with complying with the reporting requirements of the SEC, transfer agent fees, costs relating to additional accounting, legal and administrative personnel, increased auditing, tax and legal fees, stock exchange listing fees and other public company expenses.
Depreciation
Depreciation in our operating expenses consists of costs associated with property and equipment not used in the manufacturing of our products. We expect that as we continue to grow both our revenues and our general and administrative personnel, we will require additional property and equipment to support this growth resulting in additional depreciation expenses.
Amortization
Amortization of intangibles consists of customer relationships, trade names, backlog, and non-compete agreements over their expected period of use.
Non-Operating Expenses
Interest Expense
Interest expense consists of interest and other charges paid in connection with our long-term debt.
Interest Income
Interest income consists of income received on our cash and cash equivalents invested in money market accounts or similar short-term investments.
Income Taxes
We are subject to federal, state, and local income taxes in the United States and foreign taxes.
Results of Operations
The following table sets forth our consolidated results of operations for the periods presented. This information is derived from our accompanying consolidated/combined financial statements included elsewhere in this Annual Report and prepared in accordance with GAAP. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future, including for the reasons described above under "-Key Factors Affecting Our Performance."
Year Ended June 30,
2026 2025 Increase / Decrease % Change
(in thousands, except change data)
Revenues $ 1,420,059 $ 753,188 $ 666,871 89 %
Cost of Revenues 922,459 475,122 447,337 94 %
Gross Profit 497,600 278,066 219,534 79 %
Operating Expenses
Selling, general and administrative expenses 262,886 146,270 116,616 80 %
Depreciation and amortization 52,225 59,559 (7,334) (12) %
Total Operating Expenses 315,111 205,829 109,282 53 %
Income from Operations 182,489 72,237 110,252 153 %
Other Income (Expense)
Interest expense (57,127) (54,778) (2,349) 4 %
Interest income 2,787 5,558 (2,771) (50) %
Other expense (749) (231) (518) 224 %
Total Other Expense, net (55,089) (49,451) (5,638) 11 %
Income Before Tax Expense 127,400 22,786 104,614 459 %
Income Tax Expense (21,365) (5,340) (16,025) 300 %
Net Income 106,035 17,446 88,589 508 %
Less: net income attributable to non-controlling interest 24,190 2,250 21,940 975 %
Net Income Attributable to Forgent Power Solutions, Inc. $ 81,845 $ 15,196 $ 66,649 439 %
Comparison of Operations for the Years Ended June 30, 2026 and 2025
Revenues
Revenues for the year ended June 30, 2026 were $1,420.1 million as compared to $753.2 million for the year ended June 30, 2025. The increase in revenues was driven by increases in sales of Custom Products and Powertrain Solutions, attributable to growing demand for our products across our end markets, particularly with our data center and grid customers, and new campuses commencing production in the current year to meet customer demand.
Cost of Revenues
Cost of revenues for the year ended June 30, 2026 were $922.5 million as compared to $475.1 million for the year ended June 30, 2025. The increase in cost of revenues was primarily driven by an increase in material and labor costs related to higher sales volumes and an increase in fixed overhead costs, including depreciation expense related to the expansion of our manufacturing campuses. Cost of revenues as a percentage of revenues increased primarily as a result of under-absorbed labor costs related to accelerated headcount growth, under-absorbed fixed overhead relating to new campuses ramping toward their target production rates, and one-time startup costs at new campuses.
Operating Expenses:
Selling, General and Administrative
Selling, general and administrative expenses for the year ended June 30, 2026 were $262.9 million as compared to $146.3 million for the year ended June 30, 2025. The increase in selling, general, and administrative expenses was driven by increases in payroll expenses of $58.6 million, professional services of $20.2 million, sales and marketing costs of $6.8 million, and IT costs of $3.6 million to support our growth, as well as IPO-related bonuses of $12.9 million.
Depreciation
Depreciation for the year ended June 30, 2026 was $4.3 million as compared to $0.9 million for the year ended June 30, 2025. The increase in depreciation was primarily driven by an increase in property and equipment in the current fiscal year.
Amortization
Amortization of intangibles for the year ended June 30, 2026 was $47.9 million as compared to $58.7 million for the year ended June 30, 2025. The decrease in amortization was driven by backlog from certain acquisitions being fully amortized in the current fiscal year.
Interest Expense
Interest expense for the year ended June 30, 2026 was $57.1 million as compared to $54.8 million for the year ended June 30, 2025. The increase in interest expense was driven by the write-off of approximately $10.0 million of deferred financing costs related to refinancing our 2023 Credit Agreement, partially offset by lower interest rates in the current year as compared to the prior year.
Interest Income
Interest income for the year ended June 30, 2026 was $2.8 million as compared to $5.6 million for the year ended June 30, 2025. The decrease in interest income resulted from (i) lower average cash and cash equivalents balances and (ii) lower interest rates in the current year as compared to the prior year.
Income Tax Expense
Income tax expense was $21.4 million and $5.3 million for the years ended June 30, 2026 and 2025, respectively. Our effective income tax rate for the years ended June 30, 2026 and 2025 was 16.8% and 23.4%, respectively. For the year ended June 30, 2026, our effective income tax rate differed from the federal statutory rate of 21% primarily due to our non-controlling interest not being subject to income taxes, favorable discrete adjustments related to the filing of our 2024 federal return, and the use of R&D credits.
Net Income
As a result of the factors discussed above, net income was $106.0 million and $17.4 million for the years ended June 30, 2026 and 2025, respectively.
Non-GAAP Financial Measures
We present non-GAAP performance measures as we believe it is appropriate for investors to consider adjusted financial measures in addition to results in accordance with GAAP.
These non-GAAP financial measures provide supplemental information and should not be considered replacements for results in accordance with GAAP. Management uses non-GAAP financial measures internally for planning and forecasting purposes and in its decision-making processes related to the operations of our Company. We believe these measures provide meaningful information to us and investors because they enhance the understanding of our operating performance, ability to generate cash, and the trends of our business. Additionally, we believe investors benefit from having access to the same financial measures that management uses in evaluating our operations.
The primary limitation of these measures is they exclude the financial impact of items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using these non-GAAP financial measures in combination with the most directly comparable GAAP financial measures in order to better understand the amounts, character, and impact of any increase or decrease in reported amounts. These non-GAAP financial measures may not be comparable to similarly-titled measures reported by other companies, which limits their usefulness as a comparative measure.
Among other limitations, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments and do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations. Adjusted EBITDA also does not reflect income tax expense or benefit.
Because of these limitations, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS on a supplemental basis. You should review the reconciliations of net income (loss) to Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS respectively below and not rely on any single financial measure to evaluate our business.
Our non-GAAP financial measures include:
•Adjusted EBITDA - We define Adjusted EBITDA as net income (loss) plus or minus (i) interest expense, (ii) interest income, (iii) income tax benefit (expense), (iv) depreciation expense, (v) amortization of intangibles, (vi) equity-based compensation, (vii) sponsor fees and expenses, (viii) public company readiness costs, (ix) earnout expenses, (x) non-recurring integration and consulting fees, and (xi) investment banking fees and expenses.
•Adjusted Net Income - We define Adjusted Net Income as net income (loss) attributable to Forgent Power Solutions, Inc. plus or minus (i) net income impact from assumed exchange of Class B common stock to Class A common stock as of the beginning of the earliest period presented, (ii) amortization of intangibles, (iii) amortization of deferred financing costs, (iv) equity-based compensation, (v) sponsor fees and expenses, (vi) public company readiness costs, (vii) earnout expenses, (viii) non-recurring integration and consulting fees, (ix) investment banking fees and expenses, and (x) tax impact of adjustments.
•Adjusted Diluted EPS - We define Adjusted Diluted EPS as Adjusted Net Income divided by the diluted weighted average shares of Class A common shares outstanding for the applicable period, which assumes the exchange of all outstanding Class B common shares for Class A common shares as of the beginning of the earliest period presented.
Adjusted EBITDA
Adjusted EBITDA is intended as supplemental measure of performance that is neither required by, nor presented in accordance with, GAAP. We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.
In addition, we use Adjusted EBITDA (i) in evaluating management's performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our debt agreements use a similar metric to measure our compliance with certain covenants.
The table below reconciles Net Income (the most directly comparable GAAP measure) to Adjusted EBITDA (a non-GAAP measure) for the periods presented (in thousands):
Year Ended June 30,
2026 2025
Net Income $ 106,035 $ 17,446
Interest expense 57,127 54,778
Interest income (2,787) (5,558)
Income tax expense 21,365 5,340
Depreciation expense 19,023 6,188
Amortization of intangibles 47,876 58,676
Equity-based compensation 10,036 1,784
Sponsor fees and expenses(1)
18,818 15,171
Public company readiness costs(2)
21,215 6,086
Earnout expenses(3)
5,400 5,000
Non-recurring integration and consulting fees(4)
18,796 4,262
Adjusted EBITDA $ 322,904 $ 169,173
______________
(1)Represents fees and expense reimbursements paid to our Sponsor.
(2)Represents non-recurring professional services fees we incurred in connection with readying the Company for our initial public offering and statutory SEC reporting, as well as IPO-related bonuses and certain non-recurring recruiting costs.
(3)Represents non-recurring earnout amounts accrued to certain sellers in connection with business acquisitions.
(4)Represents non-recurring professional services fees we incurred in connection with certain post-acquisition activities, including valuation, technical accounting and integration consulting services.
Adjusted Net Income
Adjusted Net Income is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, GAAP. We present Adjusted Net Income because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted Net Income to evaluate the effectiveness of our business strategies.
The table below reconciles Net Income Attributable to Forgent Power Solutions, Inc. (the most directly comparable GAAP measure) to Adjusted Net Income (a non-GAAP measure) for the periods presented (in thousands):
Year Ended June 30,
2026 2025
Net Income Attributable to Forgent Power Solutions, Inc. $ 81,845 $ 15,196
Net income impact from pro forma conversion of Class B common stock to Class A common stock(1)
24,190 2,250
Adjustment to the provision for income tax(2)
(3,533) (546)
Tax effected net income 102,502 16,900
Amortization of intangibles 47,876 58,676
Amortization / write off of discounts and deferred financing costs 12,987 2,511
Equity-based compensation 10,036 1,784
Sponsor fees and expenses(3)
18,818 15,171
Public company readiness costs(4)
21,215 6,086
Earnout expenses(5)
5,400 5,000
Non-recurring integration and consulting fees(6)
18,796 4,262
Tax impact of adjustments(7)
(30,054) (22,266)
Adjusted Net Income $ 207,576 $ 88,124
______________
(1)Reflects net income to Class A common shares from pro forma exchange of corresponding shares of our Class B common shares held by the Existing Opco LLC Owners (as defined in Note 1, "Organization and Nature of Business" of the Notes to the Consolidated/Combined Financial Statements).
(2)The Company is subject to U.S. Federal income taxes, in addition to state and local taxes with respect to its allocable share of any net taxable income of Opco. The adjustment to the provision for income tax reflects the effective tax rates below, assuming the Company owns 100% of the Opco LLC Interests units.
Year Ended June 30,
2026 2025
Statutory U.S. Federal income tax rate 21.00% 21.00%
State and local taxes (net of federal benefit) 2.64% 2.20%
Permanent items (0.23)% 1.08%
Effective income tax rate for Adjusted Net Income 23.41% 24.28%
(3)Represents fees and expense reimbursements paid to our Sponsor.
(4)Represents non-recurring professional services fees we incurred in connection with readying the Company for our initial public offering and statutory SEC reporting, as well as IPO-related bonuses and certain non-recurring recruiting costs.
(5)Represents non-recurring earnout amounts accrued to certain sellers in connection with business acquisitions.
(6)Represents non-recurring professional services fees we incurred in connection with certain post-acquisition activities, including valuation, technical accounting and integration consulting services.
(7)Represents the estimated tax impact of all Adjusted Net Income add-backs, excluding those which represent permanent differences between book versus tax.
Adjusted Diluted EPS
Adjusted Diluted EPS is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, GAAP. We present Adjusted Diluted EPS because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.
In addition, we use Adjusted Diluted EPS (i) in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.
The table below reconciles Weighted Average Shares Outstanding (the most directly comparable GAAP measure) to Adjusted Diluted Weighted Average Shares Outstanding for the periods presented (in thousands, except per share amounts):
Year Ended June 30,
2026 2025
Weighted average shares of Class A common stock outstanding - basic 243,532
N/A (b)
Assumed exchange of Class B common stock to Class A common stock 60,897
N/A (b)
Dilutive effect of restricted stock units 270
N/A (b)
Adjusted diluted weighted average shares outstanding 304,699
N/A (b)
Adjusted Net Income (a)
$ 207,576
N/A (b)
Adjusted Diluted EPS $ 0.68
N/A (b)
(a) Represents Adjusted Net Income for the full period presented.
(b) This Non-GAAP measure is not applicable for this period, as the Reorganization Transactions had not yet occurred.
Liquidity and Capital Resources
The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods (in thousands):
Year Ended June 30,
2026 2025
Net cash provided by operating activities $ 109,081 $ 45,022
Net cash used in investing activities (115,905) (84,115)
Net cash provided by (used in) financing activities 17,215 (35,981)
Increase (decrease) in cash, cash equivalents, and restricted cash $ 10,391 $ (75,074)
We finance our operations primarily with operating cash flows and short and long-term borrowings. Our ability to generate positive cash flow from operations is dependent upon the amount of income from operations that we generate before amortization expense and other non-cash items. Based on our past performance and current expectations, we believe operating cash flows will be sufficient to meet our future cash needs for the next twelve months. Our revolving credit facility provides an additional source of liquidity to fund operations.
In the ordinary course of business, we enter into purchase orders from a variety of suppliers, primarily for raw materials, in order to manage our various operating needs. The orders are expected to be purchased throughout fiscal 2027. We or the vendor can generally terminate the purchase orders at any time. These purchase orders generally do not contain any termination payments or other penalties if cancelled.
As of June 30, 2026, our cash and cash equivalents were $97.5 million. Net working capital as of June 30, 2026 was $286.8 million.
As of June 30, 2026, we had outstanding borrowings, net of discount and deferred financing fees of $582.2 million, $6.0 million of which was due to be paid in the next 12 months, and $246.4 million available for additional borrowings under our line of credit.
The Company's credit facilities require the Company to comply with specified financial and non-financial covenants including limitations related to incurring liens, secured debt, and certain other financing arrangements. The Company was in compliance with these covenants as of June 30, 2026.
Operating Activities
For the year ended June 30, 2026, cash provided by operating activities was $109.1 million. Cash provided by operating activities was primarily driven by net income of $106.0 million. Cash provided by operating activities was favorably impacted by $127.6 million of net non-cash items, including $66.9 million of depreciation and amortization and $13.0 million of amortization / write-off of discounts and deferred financing costs. Cash flow from operations for the year ended June 30, 2026 was reduced by $124.5 million for working capital items, including uses of cash of $172.7 million for accounts receivable resulting from increased revenues and $142.9 million for inventory to support orders in backlog, partially offset by sources of cash from accounts payable of $68.5 million mainly related to inventory purchases, $42.8 million in accrued expenses, and $153.0 million in deferred revenue related to our increased backlog.
For the year ended June 30, 2025, cash provided by operating activities was $45.0 million. Cash provided by operating activities was primarily driven by net income of $17.4 million. Cash provided by operating activities was favorably impacted by $61.6 million of net non-cash items, including $64.9 million of depreciation and amortization. Cash flow from operations for the year ended June 30, 2025 was reduced by $34.0 million for working capital items including uses of cash of $78.5 million for accounts receivable resulting from increased revenues, $34.5 million for inventory to support orders in backlog, and $18.5 million for prepaid and other assets, partially offset by sources of cash from reductions in accrued expenses of $44.5 million primarily related to compensation and sponsor fees, accounts payable of $35.2 million, and deferred revenue of $20.7 million.
Investing Activities
For the years ended June 30, 2026 and 2025, cash used by investing activities of $115.9 million and $84.1 million, respectively, was primarily related to purchases of property and equipment for our capacity expansion, which we substantially completed in fiscal year 2026.
Financing Activities
For the year ended June 30, 2026, cash used in financing activities was $17.2 million. Cash provided by financing activities was driven by refinancing our 2023 Credit Agreement during the current period. The Company received $594.0 million, net of discount in proceeds in connection with the refinancing and used those funds to repay $512.6 million for the prior outstanding facilities, along with a $17.2 million payment related to the payable pursuant to the acquisitions, $13.5 million in debt financing costs, and $23.5 million in deferred offering costs in connection with the IPO and subsequent follow-on offerings.
For the year ended June 30, 2025, cash used in financing activities was $36.0 million, of which $13.3 million related to tax distributions to members, $13.1 million related to the payable pursuant to the acquisitions, $5.2 million related to payments on the 2023 Credit Agreement, and $4.5 million related to deferred offering costs.
Debt Obligations
For a discussion of our debt obligations see Note 10, "Long-Term Debt" in our consolidated/combined financial statements included elsewhere in this report.
Surety Bonds
For a discussion of our surety bond obligations see Note 23, "Commitments and Contingencies" in our consolidated/combined financial statements included elsewhere in this report.
Product Warranty
For a discussion of our product warranties see Note 2, "Summary of Significant Accounting Policies-Warranty Liability" in our consolidated/combined financial statements included elsewhere in this report.
Recent Accounting Pronouncements
For a discussion of our recent accounting pronouncements see Note 4, "Recent Accounting Pronouncements" in our consolidated/combined financial statements included elsewhere in this report.
Critical Accounting Estimates
Our consolidated/combined financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated/combined financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated/combined financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated/combined financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We consider an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated/combined financial statements.
Payable Pursuant to the Tax Receivable Agreement
We are a party to the Tax Receivable Agreement ("TRA") under which we are contractually committed to pay the Continuing Equity Owners 85% of the amount of the benefits, if any, that we are deemed to realize, as a result of certain transactions. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we generally would not be required to make the related TRA payments. Therefore, we will only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including revenue growth, and operating margins, among others. As of June 30, 2026, we recognized $338.9 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits. There were no transactions subject to the TRA for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in connection with the IPO and follow-on offerings. If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would de-recognize the portion of the liability related to the benefits not expected to be utilized.
Product Warranty
We offer an assurance type warranty for our products against manufacturer defects that does not contain a service element. For these assurance type warranties, a provision for estimated future costs related to warranty expense is recorded when they are probable and reasonably estimable. This provision is based on historical information on the nature, frequency and average cost of claims for each offering. When little or no experience exists for an immature offering, the estimate is based on comparable offerings. Specific reserves are established once an issue is identified with the amounts for such reserves based on the estimated cost of correction. These estimates are reevaluated on an ongoing basis using the best-available information and revisions to estimates are made as necessary.
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