Power Solutions International, Inc. Q1 FY2026 earnings call

• Corporate Milestones & Positioning • Uplisted to the NASDAQ stock exchange in December 2024, added to the Russell 3000, Russell 2000, Russell Micro Cap, and MSCI USA Small Cap Indices in 2025 • Maintains a strong balance sheet: ended Q1 2026 with $45.1 million in cash and cash equivalents, ~$103.4 million in total debt, and access to a $135 million revolving credit facility • Generated $18.7 million in operating cash flow in Q1 2026, more than doubling the prior year period driven by favorable working capital dynamics

  • Operational Updates • Completed the acquisition of MTL, a long-time PSI supplier, on January 9, 2026. MTL specializes in metal component fabrication, welding, painting, and assembly for data center parts, and the acquisition supports vertical integration of PSI's supply chain, reduces lead times, and grants access to MTL's industry certifications • Early operational progress from capacity ramp-up and process improvements at the Wisconsin manufacturing facility: gross margin improved 100 basis points sequentially from Q4 2025 to Q1 2026, driven by reduced structural labor and manufacturing overhead inefficiencies • Solid ongoing demand for power systems focused on data center and distributed power infrastructure applications • Continued investments in research and development (R&D spend was $4.8 million in Q1 2026) to support new product development, emission certification, and customer-specific applications, including larger engines for data center use

  • 2026 Core Priorities • Focus on operational execution, ongoing margin recovery, reliable delivery against customer commitments, and consistent investor communication

1. Power Systems: Q1 2026 net sales were $96 million, down from $107 million in Q1 2025. This segment accounted for approximately 74.7% of total Q1 2026 net sales. The year-over-year decline was driven by continued softness in oil and gas demand and uneven customer ordering patterns for data center-related products. 2. Industrial & Transportation: This segment recorded year-over-year sales growth, which partially offset the Power Systems decline, though no specific absolute sales value was provided. Overall company Q1 2026 net sales were $128.6 million, a 5% year-over-year decrease. Gross profit was $29.4 million (22.9% gross margin) versus $40.3 million (29.7% gross margin) in the prior year, with margin declines concentrated in the Power Systems segment due to unfavorable product mix and Wisconsin capacity ramp-up costs.

• PSI is not providing full-year 2026 formal guidance at this time due to ongoing variability in order timing and market conditions
• Q2 2026 revenue is expected to be generally consistent (flat sequentially) with Q1 2026 revenue
• Management anticipates H2 2026 sales will be approximately in line with H2 2025 sales levels, as larger received power system orders move into production and revenue recognition, though shipment timing and ultimate volume are not guaranteed
• Oil and gas market softness is expected to persist for the full year 2026, and will continue to weigh on quarterly revenue trends
• Elevated production costs related to the Wisconsin capacity ramp-up are expected to continue impacting gross margin through 2026; management expects gross margin to be flat to slightly better than Q1 2026's 22.9% level, subject to product mix and cost structure improvement progress
• MTL is expected to contribute a modest amount of revenue to PSI's 2026 full year results

• Actual results may differ materially from forward-looking expectations due to a range of factors, including: the timing and ultimate conversion of received power system orders (especially data center-related orders)
• Quarterly variability in product mix, which directly impacts gross margin
• Uncertainty around the cost, pace, and final outcome of capacity ramp-up activities at the Wisconsin manufacturing facility
• Continued softness in oil and gas end market demand
• Supply chain disruptions and component availability issues
• Broader macroeconomic, regulatory, and trade conditions
• Pending litigation and regulatory inquiries
• Dependence on customer scheduling for order fulfillment, which can impact H2 2026 revenue realization

Q: What was oil and gas's contribution to Q1 Power Systems results, when will the Wisconsin enclosure business ramp, and is further oil and gas weakening expected in Q2? / A: Q1 2026 Power Systems sales were $96 million, down from $107 million in Q1 2025, with nearly all the decline driven by ongoing soft oil and gas demand and uneven data center order patterns. Management expects oil and gas demand will stay soft all year despite high crude prices, and forecasts Q2 revenue to stay flat sequentially from Q1. Notable manufacturing cost improvements in Wisconsin drove 100 basis points of sequential gross margin gains, with enclosure-related demand ramping to drive strong H2 2026 activity. / Q: What is the gross margin outlook for 2026 after the Q1 sequential improvement? / A: Q1 2026 gross margin was 22.9%, up 100 basis points from Q4 2025's 21.9%, driven by Wisconsin operational improvements. Management expects full-year gross margin will be flat to slightly better than Q1 levels, though outcomes depend on product mix and further cost improvements. Q1 margin was negatively impacted by the high-margin oil and gas segment's softness, which dragged overall results down. / Q: What early benefits has PSI seen from the January 2026 MTL acquisition? / A: MTL, a long-time PSI supplier that makes metal components including data center parts, enables vertical integration of PSI's supply chain, reduces lead times, and grants access to valuable industry certifications. Integration is ongoing, and PSI is exploring opportunities to leverage MTL's assets for additional data center component fabrication. MTL's 2026 revenue contribution is expected to be modest, with near-term focus on operational alignment and production consistency. / Q: What is the enclosure business capacity, do you have orders from major hyperscaler clients, and can you share gas engine development updates? / A: Enclosure business results are reported within the broader Power Systems segment, so separate capacity figures are not provided. PSI confirms it holds solid orders that support expectations of H2 2026 sales matching 2025 H2 levels, but does not name individual customers. R&D work continues on a broad portfolio of gas engines and larger diesel engines (including 88L models over 3 megawatts) for the data center market, with ongoing work on emission compliance and customer-specific customization.