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Power Solutions International (PSIX) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

Executive summary

Power Solutions International Q2 FY26 — Strong Sequential Improvement and Data Center Demand

Power Solutions International delivered strong sequential improvements in Q2 FY26, driven by increased production and operational efficiencies in Wisconsin, particularly for data center power solutions. While year-over-year comparisons were affected by prior-year tax benefits and continued softness in oil and gas, the company expects second-half sales to exceed the first half, supported by robust data center demand and a solid balance sheet.

Highlights

4

  • Net sales increased 18.6% sequentially to $152.5 million, exceeding prior expectations.

  • Gross margin improved approximately 420 basis points sequentially to 27.1%, reflecting operational improvements.

  • Operating cash flow of $56.6 million enabled a $38.8 million reduction in total debt during the quarter.

  • EBITDA nearly doubled sequentially to $25.7 million, with EBITDA margin improving 670 basis points to 16.9%.

Concerns

4

  • Net sales decreased 21% year-over-year to $152.5 million, primarily due to lower power systems sales ($34.6 million) and continued softness in oil and gas.

  • Gross margin decreased to 27.1% from 28.2% year-over-year, impacted by a lower mix of oil and gas products and elevated production costs in Wisconsin.

  • Net income was significantly affected by a non-recurring $29.2 million tax benefit in the prior year period.

  • Continued softness in oil and gas end markets is expected to weigh on quarterly revenue trends through FY26.

Guidance & targets

CategoryTargetConfidence
Second Half 2026 Sales
Exceed first half 2026 sales
high materiality
High
Second Half 2026 Sales
Approximately in line with sales in the second half of 2025
high materiality
Medium
Gross Margin
At or around the 25% level
medium materiality
Medium
Oil and Gas Market Softness
Continue at least for this year
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Power Systems
Year-over-year decline primarily reflects the uneven order patterns and the shipment timing for data center-related products, together with continued softness in our oil and gas business.
YoY sales decrease: $34.6M
————
Industrial
Sales decreased $3.0 million year-over-year.
YoY sales decrease: $3.0M
————
Transportation
Sales decreased $1.7 million year-over-year.
YoY sales decrease: $1.7M
————
Oil and Gas
Continued softness in oil and gas end markets is expected to weigh on quarterly revenue trends. The oil and gas market still remains soft, and this softness is assumed to continue at least for this year.
Softness continuesProducts carry relatively high gross margin
————

Deals & partnerships

MTL Manufacturing and Equipment Inc. Acquisition of manufacturing capabilities for components used in power generation products, including fuel tanks and enclosure assemblies.

The acquisition, closed on January 9, 2026, expanded PSI's vertical integration, enhancing supply chain control and manufacturing flexibility to support future growth.

Risks & headwinds

Timing and ultimate conversion of power systems orders into revenue Ongoing

Not quantified

Mitigation:Focused on operational execution and converting demand into revenue; current production schedule expects 2H FY26 sales to exceed 1H FY26.

Quarterly variability in product mix Q2 FY26 and ongoing

Unfavorable product mix partially offset gross margin improvements in Q2 FY26

Mitigation:Focus on business opportunities that can support gross margin at or around the 25% level over the longer term.

Cost, pace, throughput, and operational outcomes of capacity ramp-up activities at Wisconsin operations Ongoing through FY26

Elevated production costs expected to persist

Mitigation:Ongoing operational improvement efforts in Wisconsin, including improvements in productivity, efficiency, flow paths, and material availability.

Softened demand in oil and gas end market At least for FY26

Decreased $34.6 million in power systems sales YoY; expected to weigh on quarterly revenue trends

Mitigation:Growth in data center business offsetting sales drop; focusing on larger custom orders for AI data center products.

Supply chain and component availability Ongoing

Not quantified

Mitigation:MTL acquisition enhanced vertical integration and supply chain control; team working closely with supply chain to ensure on-time delivery and material availability.

Macroeconomic, regulatory, and trade conditions (including U.S. tariffs) Ongoing

Not quantified

Mitigation:Not explicitly stated, but generally managed through operational flexibility and strategic planning.

What to watch in Q3 FY26

Wisconsin operational improvements and gross margin trajectory

Next quarter
Current Gross margin improved 420 bps QoQ to 27.1%; elevated production costs persist.
Target Continued sequential improvements in gross margin and stabilized production costs.

Why it matters

Sustained operational efficiency in Wisconsin is key to profitability and meeting data center demand.

The trajectory of any future sequential improvements will depend on product mix, flow paths, and other operational factors. We are not providing a specific gross margin outlook for 2026 at this time.

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Q&A highlights

Seeking clarity on the drivers behind the better-than-expected Q2 revenue and significant gross margin improvement, especially given continued oil and gas softness and Wisconsin ramp-up.

Management attributed the Q2 sales increase, primarily from power systems, to measurable improvements in Wisconsin operations, including productivity, efficiency, flow paths, and material availability, which also positively impacted fixed cost absorption. They noted oil and gas softness continues but larger custom AI data center orders are being transformed into sales.

“So since then we implemented various operation improvements initiatives in Wisconsin and we see improvements in productivity, efficiency, flow paths, and also material availability, which enables us to increase the production and also sales for enclosures.”

asked by Eric Stine · answered by Kenneth Lee

2 min read 5 chapters

Detailed narrative

Leadership Transition

Richard Hu will assume the role of Chief Executive Officer on August 17, bringing over 25 years of global industrial leadership experience, including a recent tenure as VP and GM of the Americas region for BorgWarner's Turbo and Thermal Technologies business units. Kenneth Lee will continue as Interim CEO until then and remain as CFO, ensuring a smooth transition.

Wisconsin Operations and Gross Margin Improvement

The company has made measurable improvements in its Wisconsin operations, leading to increased production and sales, particularly for enclosures. Initiatives focused on productivity, efficiency, flow paths, and material availability have positively impacted fixed cost absorption and gross margin. The facility has expanded from 150,000 to 800,000 square feet, supporting current demand with potential for further expansion.

Data Center Demand and Product Strategy

Demand for PSI's data center power solutions remains strong, with larger orders expected to drive second-half sales. The company is actively developing products to meet evolving market trends, including a shift towards gas gensets for prime power in data centers, complemented by diesel for standby and batteries for instantaneous response. PSI serves different customers than competitors using similar engine types, mitigating direct competition.

MTL Manufacturing and Equipment Acquisition

The acquisition of MTL Manufacturing and Equipment Inc. on January 9, 2026, contributed positively to consolidated net income in Q2. This strategic move enhanced PSI's vertical integration by adding in-house manufacturing capabilities for components like fuel tanks and enclosure assemblies, improving supply chain control, manufacturing flexibility, and supporting future growth.

Oil and Gas Market Headwinds

The oil and gas market continues to experience softness, which is expected to persist through the remainder of 2026. This softness has weighed on sales and impacted gross margin, as oil and gas products typically carry a higher gross margin. While data center growth is offsetting some of this decline, the company does not foresee significant improvement in the oil and gas sector this year.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.