Forgent Power Solutions Inc.

11/12/2026 | Press release | Distributed by Public on 11/12/2026 05:37

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. 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 Quarterly 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 contains the presentation of non-GAAP measures, including Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS, because they provide the Company and readers of this Quarterly 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 Quarterly Report should use Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS only in conjunction with Net Income, the most comparable GAAP financial measure. Reconciliations to the most comparable GAAP measures 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.
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.
Recent Developments
On July 6, 2026, the Company completed a 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.
From this follow-on offering, the Company received $695.4 million in proceeds, net of underwriting discounts and commissions, which was used to indirectly purchase 14,555,925 Opco LLC Interests, 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.
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, Net Income, Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS.
In managing our business and assessing financial performance, we supplement the information provided by the consolidated 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):
Three Months Ended
September 30,
2026 2025
Revenues $ 478,566 $ 283,274
Net Income $ 54,823 $ 15,556
Adjusted EBITDA(1)
$ 104,896 $ 65,100
Adjusted Net Income(1)
$ 72,004 $ 39,318
Diluted EPS $ 0.18 N/A
Adjusted EPS(1)
$ 0.24 N/A
(1)Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS 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 measures.
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 the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2026.
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 revenue 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 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 revenue is 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 tables set forth our consolidated results of operations for the periods presented. This information is derived from our accompanying consolidated financial statements included elsewhere in this Quarterly 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."
Three Months Ended
September 30,
2026 2025 Increase / Decrease % Change
(in thousands, except change data)
Revenues $ 478,566 $ 283,274 $ 195,292 69 %
Cost of Revenues 320,287 185,322 134,965 73 %
Gross Profit 158,279 97,952 60,327 62 %
Operating Expenses
Selling, general and administrative expenses 71,965 53,583 18,382 34 %
Depreciation and amortization 7,132 13,206 (6,074) (46) %
Total Operating Expenses 79,097 66,789 12,308 18 %
Income from Operations 79,182 31,163 48,019 154 %
Other Income (Expense)
Interest expense (9,829) (13,873) 4,044 (29) %
Interest income 954 905 49 5 %
Other income (expense) (148) 295 (443) (150) %
Total Other Expense, net (9,023) (12,673) 3,650 (29) %
Income Before Tax Expense 70,159 18,490 51,669 279 %
Income Tax Expense (15,336) (2,934) (12,402) 423 %
Net Income 54,823 15,556 39,267 252 %
Less: net income attributable to non-controlling interest 6,579 5,543 1,036 19 %
Net Income Attributable to Forgent Power Solutions, Inc. $ 48,244 $ 10,013 $ 38,231 382 %
Comparison of Operations for the Three Months Ended September 30, 2026 and 2025
Revenues
Revenues for the three months ended September 30, 2026 were $478.6 million as compared to $283.3 million for the three months ended September 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 and leveraging additional capacity added at all campuses to meet customer demand.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2026 were $320.3 million as compared to $185.3 million for the three months ended September 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 three months ended September 30, 2026 were $72.0 million as compared to $53.6 million for the three months ended September 30, 2025. The increase in selling, general, and administrative expenses was primarily driven by an increase in payroll expenses of $20.5 million, which included accelerated equity-based compensation related to severance of $8.1 million, partially offset by a decrease in professional services expenses of $6.0 million.
Depreciation
Depreciation for the three months ended September 30, 2026 was $0.8 million as compared to $0.3 million for the three months ended September 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 three months ended September 30, 2026 was $6.3 million as compared to $12.8 million for the three months ended September 30, 2025. The decrease in amortization was driven by intangible assets from certain acquisitions being fully amortized during the prior fiscal year.
Interest Expense
Interest expense for the three months ended September 30, 2026 was $9.8 million as compared to $13.9 million for the three months ended September 30, 2025. The decrease in interest expense was primarily driven by lower interest rates in the current year.
Interest Income
Interest income for the three months ended September 30, 2026 was $1.0 million as compared to $0.9 million for the three months ended September 30, 2025.
Income Tax Expense
Income tax expense was $15.3 million and $2.9 million for the three months ended September 30, 2026 and 2025, respectively. Our effective income tax rate for the three months ended September 30, 2026 and 2025 was 21.9% and 15.9%, respectively. For the three months ended September 30, 2026, our effective income tax rate differed from the federal statutory rate of 21% primarily due to state tax expense, partially offset by our non-controlling interest not being subject to income taxes, and the use of R&D credits.
Net Income
As a result of the factors discussed above, net income for the three months ended September 30, 2026 was $54.8 million compared to $15.6 million for the three months ended September 30, 2025.
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 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, Adjusted Net Income, and Adjusted EPS also do not reflect income tax expense or benefit.
Because of these limitations, Adjusted EBITDA, Adjusted Net Income, and Adjusted 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 EPS on a supplemental basis. You should review the reconciliations of net income (loss) to Adjusted EBITDA, Adjusted Net Income, and Adjusted 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 EPS - We define Adjusted 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 a 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):
Three Months Ended September 30,
2026 2025
Net Income $ 54,823 $ 15,556
Interest expense 9,829 13,873
Interest income (954) (905)
Income tax expense 15,336 2,934
Depreciation expense 5,631 3,106
Amortization of intangibles 6,347 12,778
Equity-based compensation 13,884 560
Sponsor fees and expenses(1)
- 6,600
Public company readiness costs(2)
- 1,402
Earnout expenses(3)
- 5,400
Non-recurring integration and consulting fees(4)
- 3,796
Adjusted EBITDA $ 104,896 $ 65,100
_____________
(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 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):
Three Months Ended September 30,
2026 2025
Net Income Attributable to Forgent Power Solutions, Inc. $ 48,244 $ 10,013
Net income impact from pro forma conversion of Class B common stock to Class A common stock(1)
6,579 5,543
Adjustment to the provision for income tax(2)
(1,336) (522)
Tax effected net income 53,487 15,034
Amortization of intangibles 6,347 12,778
Amortization / write off of discounts and deferred financing costs 714 999
Equity-based compensation 13,884 560
Sponsor fees and expenses(3)
- 6,600
Public company readiness costs(4)
- 1,402
Earnout expenses(5)
- 5,400
Non-recurring integration and consulting fees(6)
- 3,796
Tax impact of adjustments(7)
(2,428) (7,251)
Adjusted Net Income $ 72,004 $ 39,318
______________
(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 Condensed Consolidated 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.
Three Months Ended September 30,
2026 2025
Statutory U.S. Federal income tax rate 21.00 % 21.00 %
State and local taxes (net of federal benefit) 2.88 % 2.64 %
Permanent items, including valuation adjustment (0.28) % (0.23) %
Effective income tax rate for Adjusted Net Income 23.60 % 23.41 %
(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 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 EPS
Adjusted EPS is intended as a supplemental measure of performance that is neither required by, nor presented in accordance with, GAAP. We present Adjusted 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 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):
Three Months Ended September 30,
2026 2025
Weighted average shares of Class A common stock outstanding - basic 273,736
N/A (a)
Assumed exchange of Class B common stock to Class A common stock 30,693
N/A (a)
Dilutive effect of restricted stock units 334
N/A (a)
Dilutive effect of stock options -
N/A (a)
Adjusted diluted weighted average shares outstanding 304,763
N/A (a)
Adjusted Net Income $ 72,004
N/A (a)
Adjusted EPS $ 0.24
N/A (a)
(a) This Non-GAAP measure is not applicable for this period, as the Company's initial public offering 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):
Three Months Ended
September 30,
2026 2025
Net cash provided by operating activities $ 136,115 $ 5,935
Net cash used in investing activities (31,706) (29,889)
Net cash used in financing activities (3,343) (5,997)
Increase (decrease) in cash, cash equivalents, and restricted cash $ 101,066 $ (29,951)
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.
As of September 30, 2026, our cash and cash equivalents were $199.9 million. Net working capital as of September 30, 2026 was $338.2 million.
As of September 30, 2026, we had outstanding borrowings, net of discount and deferred financing fees of $581.3 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 September 30, 2026.
Operating Activities
For the three months ended September 30, 2026, cash provided by operating activities was $136.1 million. Cash provided by operating activities was primarily driven by net income of $54.8 million. Cash provided by operating activities was favorably impacted by $36.0 million of net non-cash items, including $12.0 million of depreciation and amortization and $0.7 million of amortization / write-off of discounts and deferred financing costs. Cash flow from operations for the three months ended September 30, 2026 was increased by $45.3 million for working capital items, including sources of cash from accounts payable of $35.7 million primarily related to inventory purchases, $4.3 million in accrued expenses, and $159.4 million in deferred revenue related to favorable timing of customer deposits and milestone payments, partially offset by uses of cash of $51.2 million for accounts receivable resulting from increased revenues and $98.8 million for inventory to support orders in backlog.
For the three months ended September 30, 2025, cash provided by operating activities was $5.9 million. Cash provided by operating activities was primarily driven by net income of $15.6 million. Cash provided by operating activities was favorably impacted by $21.5 million of net non-cash items, including $15.9 million of depreciation and amortization. Cash flow from operations for the three months ended September 30, 2025 was decreased by $31.1 million for working capital items, including uses of cash of $29.0 million for accounts receivable resulting from increased revenues, $27.5 million for inventory to support orders in backlog, and a reduction in deferred revenue of $5.9 million, partially offset by sources of cash from accounts payable of $17.8 million primarily related to inventory purchases and accrued expenses of $19.6 million primarily related to compensation and sponsor fees.
Investing Activities
For the three months ended September 30, 2026 and 2025, cash used in investing activities of $31.7 million and $29.9 million, respectively, was primarily related to purchases of property and equipment for our capacity expansion.
Financing Activities
For the three months ended September 30, 2026, cash used in financing activities was $3.3 million, of which $1.5 million related to payments on the Term Loan Facility.
For the three months ended September 30, 2025, cash used in financing activities was $6.0 million, of which $1.3 million related to payments on the 2023 Debt Facilities, $3.1 million related to deferred offering costs, and $0.2 million related to deferred financing costs.
Debt Obligations
For a discussion of our debt obligations, see Note 9, "Long-Term Debt" in our condensed consolidated financial statements included elsewhere in this Quarterly Report.
Surety Bonds
For a discussion of our surety bond obligations see Note 20, "Commitments and Contingencies" in our condensed consolidated financial statements included elsewhere in this Quarterly Report.
Product Warranties
For a discussion of our product warranties, see Note 2, "Summary of Significant Accounting Policies-Warranty Liability" within our Annual Report on Form 10-K dated for the fiscal year ended June 30, 2026.
Recent Accounting Pronouncements
For a discussion of our recent accounting pronouncements, see Note 3, "Recently Issued Accounting Pronouncements Not Yet Adopted" in our condensed consolidated financial statements included elsewhere in this Quarterly Report.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Critical Accounting Estimates" within our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. There have been no material changes to these estimates during the period.
FORGENT POWER SOLUTIONS, INC.
PART I - FINANCIAL INFORMATION
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