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PS

POWER SOLUTIONS INTERNATIONAL, INC. (PSIX)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 2023 delivered solid YoY growth and profitability: Net sales rose 18% to $116.469M, gross margin expanded 330 bps to 20.2%, and diluted EPS improved to $0.16; Adjusted EBITDA more than doubled to $10.057M .
  • Strength skewed to Transportation (+$14.0M YoY) and Power Systems (+$6.4M YoY), partially offset by Industrial (-$2.9M YoY); mix and pricing actions drove margin gains despite higher warranty costs .
  • Management maintained 2023 outlook (~3% sales growth vs 2022; growth in Power Systems, decline in Transportation, Industrial flat), consistent with prior quarter commentary; supply chain and macro uncertainties still flagged .
  • Balance sheet remains leveraged (total debt $210.4M; cash $26.9M), and interest expense rose 91% YoY to $4.665M, which dampens bottom-line leverage; warranty costs were elevated ($5.1M net) largely in Transportation .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion and profitability: Gross profit +40% YoY to $23.469M and gross margin +330 bps to 20.2%, driven by improved mix, pricing, efficiencies, and lower inbound freight .
  • Demand strength in key end markets: Transportation (+$14.0M, medium-duty truck and school bus) and Power Systems (+$6.4M, packaging and oil & gas) supported revenue growth .
  • Management focus on discipline and controls: “We continued to experience improved margins... focus on improved financial results remains... strong cost discipline,” and conclusion of effective disclosure controls and procedures (CEO Dino Xykis) .

What Went Wrong

  • Elevated warranty expense: Net warranty costs were $5.1M (incl. $3.9M preexisting warranty adjustments), reversing favorable prior-year adjustments; majority tied to Transportation .
  • Higher interest burden: Interest expense rose $2.220M YoY to $4.665M on higher average debt and rates, pressuring net income conversion .
  • Industrial softness: Sales in Industrial declined by $2.9M YoY due to arbor care demand weakness, partially offset by higher production volumes .

Financial Results

MetricQ3 2022Q4 2022Q1 2023
Revenue ($USD Millions)$124.900 $137.007 $116.469
Diluted EPS ($)$0.14 $0.40 $0.16
Gross Margin %19.3% 21.5% 20.2%
Operating Income ($USD Millions)$7.222 $13.907 $8.524
Interest Expense ($USD Millions)$3.615 $4.299 $4.665
Net Income ($USD Millions)$3.192 $9.318 $3.724
EBITDA ($USD Millions)$8.887 $15.467 $9.970
Adjusted EBITDA ($USD Millions)$9.854 $16.250 $10.057
Cash from Operations ($USD Millions)$12.486 $8.862 $5.001

Segment/end-market contribution (YoY change, not absolute):

End Market YoY Change ($USD Millions)Q3 2022Q4 2022Q1 2023
Power Systems+$10.9 +$10.0 +$6.4
Transportation-$22.5 -$19.5 +$14.0
Industrial+$18.8 +$19.5 -$2.9

KPIs and balance sheet:

KPIQ3 2022Q4 2022Q1 2023
Warranty Costs ($USD Millions)$3.5 $1.0 $5.1
SG&A ($USD Millions; % of Sales)$11.541; 9.2% $10.019; 7.3% $9.905; 8.5%
R&D ($USD Millions; % of Sales)$4.819; 3.9% $4.966; 3.6% $4.604; 4.0%
Total Debt ($USD Millions)$211.7 $211.0 $210.4
Cash & Equivalents ($USD Millions)$16.477 $24.296 $26.934

Guidance Changes

MetricPeriodPrevious Guidance (as of 3/31/23)Current Guidance (as of 5/11/23)Change
Sales growth vs 2022FY 2023~+3% YoY; Power Systems growth, Transportation decline, Industrial flat ~+3% YoY; Power Systems growth, Transportation decline, Industrial flat Maintained
Macro/supply chain commentaryFY 2023Improvement in supply chain; uncertainties from inflation/commodity volatility/Ukraine war Continued improvement in supply chain; same uncertainties reiterated Maintained

Note: No explicit margin, OpEx, OI&E, or tax rate guidance provided in Q1 2023 materials .

Earnings Call Themes & Trends

(Transcript not available; themes derived from management press releases)

TopicPrevious Mentions (Q3 2022 and Q4 2022)Current Period (Q1 2023)Trend
Margin actions (mix/pricing/efficiency)Significant margin recovery; gross margin 19.3% (Q3), 21.5% (Q4); drivers: mix, pricing, lower warranty Continued margin improvement; gross margin 20.2%; drivers: mix, pricing, efficiencies, lower inbound freight Improving/maintained
Transportation end marketStrategic reduction in 2022; lower volumes and contract revisions impacted warranties Transportation up YoY (+$14.0M); majority of warranty activity tied to Transportation Mixed (volume up, warranty risk persists)
Power Systems demandGrowth across standby/demand response/oil & gas in Q3/Q4 Growth continues (+$6.4M), notable in packaging and oil & gas Improving
Industrial end marketStrength in material handling/forklift in Q3/Q4 Softness (-$2.9M) on arbor care demand weakness Worsening
Supply chain dynamicsExpected improvement and timelier parts; uncertainties cautioned Continued improvement expected; uncertainties reiterated Improving but cautious
Interest expense/financingInterest expense increased with higher debt/rates Interest expense +91% YoY to $4.665M; debt ~$210.4M Worsening (rate-driven)
Controls/complianceOngoing remediation and legal matters Conclusion of effective disclosure controls and procedures (CEO comment) Improving

Management Commentary

  • “During the first quarter, we continued to experience improved margins and extended our profitability trends, notwithstanding headwinds from our preexisting warranties and the increasing interest rates. As we continue into 2023, the focus on improved financial results remains as the Company will maintain strong cost discipline.” — Dino Xykis, CEO & CTO .
  • “We were also very pleased to have achieved the conclusion of effective disclosure controls and procedures as it reiterates our continued commitment and emphasis on compliance and reliable reporting to our shareholders.” — Dino Xykis .
  • Prior quarter context: “Starting in the second quarter of 2022 we took quick and decisive actions to repair and improve our margins… We have been pleased with the results of these initiatives...” — Dino Xykis, Interim CEO (Q4 2022) .

Q&A Highlights

  • Q1 2023 earnings call transcript was not available in our document repository or via targeted search; therefore no Q&A items can be cited for this quarter [functions.SearchDocuments output] .

Estimates Context

  • Wall Street consensus via S&P Global for Q1 2023 was unavailable at time of retrieval (request error/limit); as a result, comparisons vs estimates cannot be provided for EPS/Revenue/EBITDA in Q1 2023 [functions.GetEstimates error].
  • Implication: With no consensus available, we anchor analysis on YoY and sequential performance and management guidance .

Key Takeaways for Investors

  • Revenue grew 18% YoY to $116.469M, driven by Transportation and Power Systems; Industrial softness was a headwind .
  • Gross margin expansion to 20.2% reflects mix/pricing/efficiency gains and lower inbound freight; sustainability of margin gains remains a key watchpoint .
  • Elevated warranty costs ($5.1M net) concentrated in Transportation can inject earnings volatility; monitoring remediation and product quality initiatives is critical .
  • Interest expense pressure (up 91% YoY to $4.665M) alongside a leveraged balance sheet (debt ~$210.4M) is a drag on equity value accrual; debt management strategy is a key thesis variable .
  • 2023 outlook maintained (~3% sales growth vs 2022; Power Systems up, Transportation down, Industrial flat) with ongoing supply chain improvements but macro uncertainties (inflation, commodity volatility, Ukraine) .
  • Cash generation moderated sequentially (CFO $5.0M in Q1 vs $8.9M in Q4 and $12.5M in Q3), reflecting working capital dynamics; inventory and receivables movements bear watching .
  • Near-term trading narrative centers on margin execution vs warranty/interest headwinds; medium-term thesis hinges on Power Systems growth, Transportation portfolio profitability, and progress on legal/controls improvements .