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PS

POWER SOLUTIONS INTERNATIONAL, INC. (PSIX)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 delivered a clear inflection: revenue rose 8% to $120.5M, GAAP net income was $1.4M ($0.06), and adjusted EPS hit $0.10; gross margin expanded 340 bps to 15.2% as pricing/mix improved despite higher warranty costs .
  • Operating expenses fell 46% YoY (-$12.8M), driven primarily by a sharp reduction in legal indemnification costs; adjusted EBITDA turned positive to $6.0M from a loss in Q2’21 .
  • Mix shift away from transportation (down $34.9M YoY) and toward power systems (+$22.3M) and industrial (+$21.5M) supported profitability; supply chain constraints continued to limit timely order fulfillment .
  • 2022 outlook was reiterated with a stronger profitability target: sales +≥3% vs 2021; gross profit margin improvement raised to ≥600 bps; H2 expected to see higher transportation sales vs H1, increased R&D, and improved operating cash flow .
  • Consensus estimates from S&P Global were unavailable at time of query; therefore, explicit beat/miss vs Street cannot be determined. Values retrieved from S&P Global unavailable; comparisons to estimates not provided.

What Went Well and What Went Wrong

  • What Went Well

    • Gross margin expanded to 15.2% (+340 bps YoY) on pricing and mix, lifting gross profit by 39% to $18.3M despite ongoing supply chain challenges .
    • Opex fell 46% YoY, with SG&A down $11.1M on lower legal indemnification costs; adjusted EBITDA swung to +$6.0M from a -$0.5M loss in Q2’21 .
    • Strength in power systems (standby/demand response/oil & gas customers) and industrial (material handling/forklift) drove end-market gains of $22.3M and $21.5M, respectively .
    • Management tone constructive: “We saw a turnaround… significant improvement in our gross margin and profitability… operating expense decline… which should be behind us” (Interim CEO Dino Xykis) .

  • What Went Wrong

    • Transportation sales fell $34.9M YoY (medium-duty trucks and school buses), reflecting a deliberate strategic pullback to improve long-term profitability .
    • Warranty costs rose to $2.2M vs $0.7M prior year (Q2’21 benefited from a $3.3M adjustment), largely tied to transportation products .
    • Interest expense increased to $2.7M (vs $1.5M) due to higher average debt and rates; total debt rose to ~$211M at quarter-end, cash ~$3M .

Financial Results

MetricQ4 2021Q1 2022Q2 2021Q2 2022
Revenue ($USD Millions)$127.0 $98.9 $111.5 $120.5
Gross Profit ($USD Millions)$9.7 $16.7 $13.2 $18.3
Gross Margin %7.6% 16.9% 11.8% 15.2%
Operating Income ($USD Millions)$(5.6) $0.2 $(14.6) $3.2
GAAP Diluted EPS ($)$(0.33) $(0.11) $(0.68) $0.06
Adjusted Diluted EPS ($)$(0.25) $(0.03) $(0.16) $0.10
EBITDA ($USD Millions, Non-GAAP)$(3.8) $2.0 $(12.8) $5.0
Adjusted EBITDA ($USD Millions, Non-GAAP)$(1.9) $3.7 $(0.5) $6.0

Segment and End-Market Dynamics (YoY change)

End Market Sales Δ YoY ($USD Millions)Q4 2021Q1 2022Q2 2022
Power Systems+$5.8 +$13.1 +$22.3
Industrial+$7.9 +$11.5 +$21.5
Transportation+$8.3 -$25.8 -$34.9

KPIs and Selected Items

KPIQ4 2021Q1 2022Q2 2022
Warranty Costs ($USD Millions)$8.0 vs $1.3 PY $(0.3) benefit vs $6.8 PY $2.2 vs $0.7 PY
SG&A ($USD Millions)$10.0 $11.4 $10.0
R&D ($USD Millions)$4.7 $4.6 $4.6
Total Debt (approx., period-end)$181M (12/31/21) $196M (3/31/22) $211M (6/30/22)
Cash & Cash Equivalents (approx.)$6M (12/31/21) $2M (3/31/22) $3M (6/30/22)

Notes: Non-GAAP metrics are as defined by PSI and reconciled in the press releases .

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2022)Current Guidance (Q2 2022)Change
Net SalesFY 2022Increase ≥3% vs 2021 Increase ≥3% vs 2021 Maintained
Gross Profit MarginFY 2022Improve ≥500 bps vs 2021 Improve ≥600 bps vs 2021 Raised
End-Market MixH2 2022Not specifiedIndustrial & power systems growth; transportation down YoY but H2 transportation sales > H1 New detail
R&D SpendH2 2022Not specifiedGreater R&D in H2 vs H1 (heavy-duty engine platform investment) New detail
Operating Cash FlowH2 2022Not specifiedH2 operating cash flow expected to improve vs H1 New detail

Earnings Call Themes & Trends

Source note: A Q2 2022 earnings call transcript was not located; themes below derive from company press releases and 8-Ks .

TopicPrevious Mentions (Q4 2021, Q1 2022)Current Period (Q2 2022)Trend
Supply chain constraintsImpacted timely order fulfillment; higher freight/material/tariff costs pressured margins Constraints persisted but margin improved via pricing/mix Improving profitability despite constraints
Warranty costsElevated in Q4’21; significant prior-year charges Q1’22 had a benefit; Q2’22 higher vs PY (lack of prior-year adjustment) Normalizing lower than 2021 1H overall
Transportation strategyRightsizing and mix changes; headcount reductions, footprint review Deliberate sales reduction in transportation to improve long-term profitability Strategic pullback continues
Legal/indemnification expensesHigh in 2020/2021, expected to decline post-USAO trial SG&A down materially as legal indemnification costs receded Material decline
Pricing/cost recovery actionsTargeted to improve 2022 margin Evident in Q2 margin uplift Positive impact
R&D executionLower spend and headcount in Q1’22 Higher R&D expected in H2 to expand heavy-duty platform Re-accelerating in H2

Management Commentary

  • “We saw a turnaround in our results during the second quarter as we generated sales growth and a significant improvement in our gross margin and profitability despite ongoing supply chain challenges… operating expense decline of 46 percent… which should be behind us as we move forward.” — Interim CEO Dino Xykis .
  • “As we move into the second half of 2022, we’ll continue to focus on driving improved year-over-year results, while at the same time investing in the expansion of our engine products.” — Interim CEO Dino Xykis .
  • “Significantly lower warranty expense led to much improved gross margin versus the prior year. We are optimistic for continued growth in the power systems and industrial end markets during the year…” — CEO Lance Arnett (Q1 2022) .
  • “We’re not pleased with our financial results and we continue to take action to drive improvements… implement improved supply chain and operations planning… rightsizing initiatives…” — CEO Lance Arnett (Q4 2021) .

Q&A Highlights

  • No public earnings call transcript or Q&A was identified for Q2 2022; analysis relies on 8-K and press release disclosures .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable at the time of query due to access limitations; therefore, a precise beat/miss vs Street cannot be provided. Values retrieved from S&P Global unavailable; comparisons to estimates not provided.
  • Operationally, results exceeded internal trajectory from Q1 to Q2 (revenue up $21.6M QoQ, adjusted EPS improved from $(0.03) to $0.10), with margin expansion and lower opex suggesting upside vs internal expectations .

Key Takeaways for Investors

  • The quarter marks a credible operational pivot: gross margin expanded and adjusted EBITDA turned positive, underpinned by pricing/mix and sharply lower legal costs .
  • Strategic end-market mix shift (transportation down; power systems/industrial up) is driving better profitability quality and should persist near term .
  • Elevated interest burden and high leverage remain watch items; debt rose to ~$211M and interest expense increased meaningfully; covenant compliance was maintained in Q2 .
  • 2022 margin target was raised (≥600 bps improvement), and H2 is guided to show better transportation sales, higher R&D to support heavy-duty engines, and improved operating cash flow — a potential catalyst if execution holds .
  • Warranty dynamics are normalizing vs 2021’s extraordinary charges, but quarter-to-quarter variability remains; transportation products are the locus of risk .
  • Supply chain constraints and inflation/tariffs are still headwinds; ongoing pricing/cost recovery actions and end-market strength (standby/demand response/oil & gas) are offsets .
  • With Street estimates unavailable here, focus near term on sequential profitability momentum, margin trajectory vs raised FY target, and evidence of H2 cash flow improvement as stock reaction drivers .