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    PSIX
    Earnings call· Jun 2026(Q2 FY26)

    POWER SOLUTIONS INTERNATIONAL Q2 FY26 earnings call PSIX

    Aug 6, 2026 Source

    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

    4
    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

    4
    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
    		————

    Operational metrics

    12
    Net sales
    $152.5Mdown 21% YoY, up 18.6% QoQ
    Q2 FY26

    Exceeded prior expectation that Q2 revenue would be generally consistent with Q1. Year-over-year decrease primarily driven by lower sales in power systems, industrial, and transportation end markets.

    Gross margin
    27.1%down from 28.2% YoY, up 420 bps QoQ
    Q2 FY26

    Improvements reflect early benefits of ongoing operational improvement efforts in Wisconsin, partially offset by unfavorable product mix. YoY decline due to lower mix of oil and gas products and elevated production costs associated with capacity ramp-up activities.

    Research and development expenses
    $5.1Mup from $4.6M YoY
    Q2 FY26

    Primarily driven by higher R&D program expenditures to support new programs in 2026 and the recovery of R&D costs from certain customers in 2025.

    Selling, general and administrative expenses
    $12.1Mdown 27% YoY
    Q2 FY26

    Primarily attributable to lower compensation expense related to the revaluation of previously awarded stock appreciation rights, as well as lower costs associated with employee incentive programs, partially offset by incremental selling and administrative expenses associated with MTL Manufacturing and Equipment.

    Income tax expense (YoY comparison context)
    $5.6Mvs $20.1M benefit in Q2 FY25
    Q2 FY26

    The prior year included a $29.2 million, or $1.27 per diluted share, non-recurring tax benefit related to the release of a valuation allowance on deferred tax assets, which is the primary driver of the significant year-over-year difference in net income.

    Net income (sequential comparison context)
    $16.9Mup $9.6M QoQ
    Q2 FY26

    Diluted earnings per share more than doubled from the first quarter.

    EBITDA
    $25.7Mdown from $34.1M YoY, nearly doubled QoQ
    Q2 FY26

    Sequential increase reflects higher sales and gross profit in the second quarter, together with lower operating expenses.

    EBITDA margin
    16.9%down from 17.8% YoY, up 670 bps QoQ
    Q2 FY26

    Sequential increase reflects higher sales and gross profit in the second quarter, together with lower operating expenses.

    Total debt reduction
    $38.8M
    Q2 FY26

    Enabled by strong cash flow during the quarter.

    Cash and cash equivalents balance
    $70.1M
    end Q2 FY26

    Balance at the end of the second quarter.

    Total debt balance
    $72.6M
    end Q2 FY26

    Balance at the end of the second quarter, including a $65 million draw on the revolving credit facility. Reflects significant debt reduction during the quarter.

    Wisconsin manufacturing facility size
    800,000up from 150,000 square feet previously
    current

    Added capacity to support current demand. Management stated they can spend capital to increase capacity further for next year as needed.

    Industry KPIs

    4
    MetricValueDetails
    Orders bookings growthStrong demand
    M a acquisition contributionPositive contribution
    Backlog by segment end marketLarger power systems orders
    Data center exposure pipelineStrong demand

    Deals & partnerships

    1
    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

    6
    Timing and ultimate conversion of power systems orders into revenueOngoing

    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 mixQ2 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 operationsOngoing 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 marketAt 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 availabilityOngoing

    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

    5

    Wisconsin operational improvements and gross margin trajectory

    Next quarter
    CurrentGross margin improved 420 bps QoQ to 27.1%; elevated production costs persist.
    TargetContinued 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.

    Q&A highlights

    6

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.