Power Solutions International — Third Quarter 2026 Earnings Summary

Financial Performance:

• Net sales for the quarter ended September 30, 2026, were $202.1 million, a 1% decrease from $203.8 million in the same period in 2025, but a 32.5% increase sequentially from the second quarter of 2026.
• Gross profit was $59.9 million, a 23% increase year-over-year from $48.7 million, with gross margin expanding 580 basis points to 29.7% from 23.9% in the prior year period.
• Net income was $29.9 million, an 8% increase from $27.6 million in the third quarter of 2025; diluted earnings per share (EPS) were $1.30 compared to $1.20 in the prior year.
• Operating income reached a record $40.9 million, a 44% increase from $28.4 million in the third quarter of 2025, with operating margin expanding to 20.2% from 13.9%.
• EBITDA was a record $42.7 million, a 44% increase from $29.8 million in the prior year period.
• Net cash provided by operating activities was $40.9 million for the quarter, compared to $3.3 million in the prior year.
• Total debt was reduced by approximately $34.9 million during the quarter, ending with total debt of approximately $37.7 million against cash and cash equivalents of approximately $72.0 million, resulting in a net cash position of approximately $34.3 million.
• Interest expense decreased to $1.0 million from $1.6 million in the prior year period due to lower average debt balances.

Guidance and Future Outlook:

• The Company raised its outlook, now expecting second-half 2026 net sales to exceed second-half 2025 net sales as larger Power Systems orders move into production.
• The Company does not expect the third-quarter gross margin level of 29.7% to be sustained in the fourth quarter of 2026, primarily due to the non-recurrence of the $3.8 million tariff refund and a less favorable product mix.
• Fourth-quarter 2026 gross margin is expected to be modestly lower than the third quarter, reflecting unfavorable product mix from lower oil and gas sales compared to data center products, which generally carry lower gross margins.
• The Company is not providing formal full-year guidance due to ongoing variability in order timing and market conditions.
• The Company expects to provide additional perspective on 2027 with its fourth quarter results.
• Shipment timing and quarterly results remain subject to customer scheduling, manufacturing throughput, supply chain factors, and material availability constraints affecting certain planned fourth-quarter deliveries.

Business Segments and Product Lines:

• Sales in the power systems end market declined $6.2 million year-over-year, primarily due to softness in the oil and gas market, partially offset by higher sales of data center-related products.
• Sales in the transportation end market declined $1.1 million year-over-year.
• Sales in the industrial end market increased $5.6 million year-over-year.
• The Company continues to see strong demand for data center power solutions, though revenue recognition timing and volume remain subject to customer scheduling and supply chain variables.
• Research and development expenses increased to $5.1 million from $4.8 million in the prior year, driven by higher expenditures for new programs.
• Selling, general, and administrative expenses decreased to $13.7 million from $15.3 million in the prior year, primarily due to customer relationship improvement expenses incurred in the prior year, partially offset by growth in the data center business.

Market and Competitive Landscape:

• The Company operates in the power systems, industrial, and transportation end markets, providing emission-certified engines and power systems.
• The Company is expanding its presence in the rapidly growing data center power market as part of its Power Boost 2030 vision.
• Softness in demand within the oil and gas market is expected to continue.
• The Company notes that the timing and ultimate volume of revenue from data center demand are subject to variables including customer scheduling and manufacturing throughput.

Risks and Challenges:

• Gross margin variability is subject to product mix, production volume, throughput, and operational factors, including capacity ramp-up costs at Wisconsin operations.
• The Company faces risks related to material availability constraints, supply chain disruptions, and potential delays in deliveries.
• Future performance is subject to the conversion of Power Systems orders into revenue, particularly for data center-related orders.
• The Company faces risks associated with the concentration of sales among a limited number of customers, including in the data center market.
• Volatility in oil and gas prices and corresponding demand for related products remains a risk factor.
• The Company is subject to risks regarding compliance with financial covenants under its new Credit Facility.
• Pending or future litigation, including a putative federal securities class action, and governmental inquiries pose potential risks.

Management Commentary and Tone:

• CEO Richard Hu stated that results demonstrate operating leverage being built into the business, citing record operating income and gross margin expansion.
• Management highlighted that the $3.8 million tariff refund recognized in the third quarter is not expected to recur.
• CFO Kenneth Li noted that third-quarter operating cash flow enabled significant debt reduction, resulting in a net cash position compared to net debt at the start of the year.
• The Company's priorities under the Power Boost 2030 vision include delivering on customer commitments, expanding in the data center market, and investing in manufacturing capabilities.
• Management expressed confidence in the outlook for the second half of 2026 as larger orders move into production.

Other Key Points:

• The Company closed a new $220.0 million committed revolving credit facility on September 25, 2026, which matures on September 25, 2029, and carries a borrowing spread 80 basis points lower than the prior facility.
• As of the date of the release, the outstanding balance under the new Credit Facility was $15.0 million following $20.0 million in payments made in October 2026.
• The Company acquired MTL Manufacturing and Equipment, with acquisition costs included in the nine-month results.
• The prior-year period included a $7.0 million tax benefit from the release of a valuation allowance on deferred tax assets, which is not expected to recur.
• The Company reported a $3.8 million tariff refund recognized as a reduction in cost of sales, contributing approximately 188 basis points to gross margin in the third quarter.
• Capital expenditures were $2.6 million for the quarter and $5.3 million for the nine months ended September 30, 2026.