Power Solutions International, Inc. (PSIX) Earnings

Management highlights

### Leadership Transition - A planned leadership transition was announced on July 27, 2026: Richard Hu, a 25-year global industrial executive with experience at BorgWarner, will become PSI's new CEO on August 17, 2026. - Ken Lee, current Interim CEO, will remain in the role until Hu's start and will continue to serve as CFO following the transition. ### Financial and Operational Improvements - The quarter delivered meaningful sequential improvements: net sales rose 18.6% from 1Q2026, exceeding prior management expectations that 2Q revenue would be consistent with 1Q levels. - Gross margin improved 420 basis points sequentially to 27.1%, driven by early benefits from operational improvement initiatives at the company's Wisconsin manufacturing facility, partially offset by unfavorable product mix during the quarter. - Strong operating cash flow of $56.6 million allowed PSI to reduce total debt by $38.8 million during the quarter, ending 2Q2026 with $70.1 million in cash and $72.6 million in total debt for a solid, flexible balance sheet. ### Business Updates - Demand for data center power solutions remains very strong, with larger orders moving into production in the second half of 2026. - The 2026 acquisition of MTL Manufacturing expanded PSI's vertical integration by adding in-house manufacturing of key components (fuel tanks, enclosure assemblies) for power generation products, improving supply chain control and production flexibility. - The oil and gas end market continues to experience persistent soft demand, which weighs on overall quarterly revenue performance.

Guidance

- Management is not providing full-year 2026 or 2027 formal guidance at this time due to variability in order timing, shipment scheduling, and market conditions. - Based on current production schedules, management expects 2H2026 sales to exceed 1H2026 sales, and to be approximately in line with 2H2025 sales, as larger data center power systems orders move into production and revenue recognition. - Elevated production costs associated with Wisconsin capacity ramp-up are expected to persist through the second half of 2026. - Longer-term, PSI's target is to sustain a gross margin at or around the 25% level. - Management expects to provide 2027 demand visibility to investors in the fourth quarter of 2026, after additional order book clarity is obtained.

Segment performance

PSI reported total net sales of $152.5 million for the second quarter of 2026, a 21% year-over-year decrease and an 18.6% sequential increase over 1Q2026. The year-over-year decline was driven by lower sales across three core segments: a $34.6 million decrease in Power Systems, a $3.0 million decrease in Industrial, and a $1.7 million decrease in Transportation. Revenue contribution percentages for individual segments were not explicitly provided in the call transcript. Gross profit for the quarter was $41.4 million, with a gross margin of 27.1% (down from 28.2% YoY but up 420 basis points sequentially). Operating income came in at $23.9 million, compared to $32.5 million in 2Q2025. Net income was $16.9 million ($0.73 per diluted share), down from $31.2 million ($2.22 per diluted share) in 2Q2025, with the majority of the YoY decline driven by a one-time $29.2 million non-recurring tax benefit recorded in the prior year period. The recently acquired MTL Manufacturing and Equipment contributed positively to consolidated net income in 2Q2026.

Risks & headwinds

- Conversion of outstanding data center power systems orders to revenue is subject to multiple uncertainties: customer scheduling, long-lead components part availability, supply chain disruptions, and operational bottlenecks, which can lead to uneven quarterly results. - Persistent softness in the oil and gas end market will continue to weigh on quarterly revenue and overall gross margin, as oil and gas products have historically carried higher gross margins than the company's average product mix. - Gross margin trajectory remains dependent on variable factors including product mix, long-lead part availability, and operational efficiency during the Wisconsin capacity ramp-up, with no guarantee of continued sequential improvement. - Macroeconomic, regulatory, and trade risks including U.S. tariffs and trade restrictions can impact costs and operations. - Risks associated with integration of the recent MTL acquisition, potential changes in management or key personnel, and outcomes of pending or threatened litigation are also noted as factors that could impact actual results.

Analyst Q&A

• Q: Q2 results came in well ahead of projections, with gross margin reaching multi-quarter highs even amid continued softness in high-margin oil and gas. What drove the revenue and margin improvements this quarter, and how far along is the Wisconsin ramp-up? /

  A: Most of the sequential sales increase came from higher power systems production and sales out of Wisconsin, where operational improvement initiatives launched over the past several quarters have delivered measurable gains in productivity, efficiency, part availability, and material supply. Higher production volume also improved fixed cost absorption, lifting margins across Wisconsin operations. Softness in oil and gas is expected to continue for the rest of 2026, but the team is working to convert strong data center order demand into higher sales in the second half.

• Q: Investors are asking about competition with Generac in the data center enclosure space, given both PSI and Generac use Weichai engines. What are the key differences in products and positioning, and what does this mean for your roadmap? /

  A: PSI and Generac serve entirely different end customers, so there is limited direct competition between the two firms in this market. The broader industry trend is shifting from diesel generators as pure standby power for data centers to gas generators for primary power, with diesel for backup and batteries for instantaneous response. PSI is focusing its product development on meeting this shifting customer demand, and sees strong ongoing demand for its products for 2026 and 2027.

• Q: Is current Wisconsin capacity sufficient to meet expected demand growth for data center products into 2027, and will additional expansion be needed if demand keeps growing? What is the long-term normalized gross margin target after Wisconsin stabilizes? /

  A: Wisconsin has expanded from ~150,000 square feet to ~800,000 square feet, and current capacity is enough to support all confirmed near-term demand. If demand grows into 2027, PSI can deploy additional capital to expand capacity further as needed. Gross margin will continue to vary quarter-to-quarter based on product mix, pricing, and efficiency, but the long-term corporate target is to sustain a gross margin around the 25% range, consistent with year-to-date 2026 results.

• Q: Can you share any formal guidance for 2027, given progress on gas engines and strong data center demand? Will the oil and gas drag bottom out soon? /

  A: PSI is not providing formal guidance for 2027 at this time, though the sales team is actively securing orders for next year and overall demand for PSI's mission-critical data center power systems remains very strong. Management will share 2027 outlook once more order visibility is obtained, likely in Q4 2026. The oil and gas market is still expected to remain soft through the end of 2026, so continued drag from that segment is baked into current second half expectations.