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PS

POWER SOLUTIONS INTERNATIONAL, INC. (PSIX)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 delivered clear inflection: net sales rose 6% to $124.9M, gross margin expanded to 19.3% (+970 bps YoY), and diluted EPS improved to $0.14 from $(0.31) on stronger mix/pricing and materially lower warranty expense .
  • Adjusted profitability accelerated: Adjusted EPS was $0.18 (vs $(0.21) YoY) and Adjusted EBITDA reached $9.9M (vs $(1.5)M YoY), reflecting operational improvements and lower legal/indemnification burden .
  • 2022 outlook tightened favorably: sales growth maintained at “at least 3%” vs 2021, while targeted gross profit margin improvement was raised to “at least 7 percentage points” (from 6 pp in Q2 and 5 pp in Q1), supported by improving mix and pricing actions; management remains cautious on supply chain/inflation .
  • Key near-term catalyst: continued margin expansion and adjusted EBITDA momentum, plus operating cash flow inflection in Q3 ($12.5M vs $(24.9)M prior year), though higher interest expense and transportation end-market reductions temper the narrative .

What Went Well and What Went Wrong

  • What Went Well
    • Significant margin recovery: gross margin reached 19.3% (+970 bps YoY), driven by mix/pricing and lower warranty expenses; gross profit more than doubled (+113% YoY) .
    • Adjusted profitability: Adjusted EPS $0.18 and Adjusted EBITDA $9.9M (vs losses YoY) underscore operational progress and lower non-recurring legal costs .
    • Management tone constructive: “continued momentum” and optimism to “close out the last quarter of 2022” and into 2023 signal confidence in trajectory .
  • What Went Wrong
    • Transportation end market down sharply (−$22.5M YoY) as PSI de-emphasizes lower-profit segments; medium-duty truck and school bus volumes were weaker .
    • Interest expense more than doubled to $3.6M (vs $1.6M YoY) on higher average debt and rates, pressuring net income leverage .
    • Ongoing macro/supply chain risks: management flags uncertainty from supply chain challenges, inflation, commodity volatility, and COVID-19, constraining visibility .

Financial Results

YoY comparison (Q3 2021 → Q3 2022)

MetricQ3 2021Q3 2022
Net Sales ($USD Millions)$117.6 $124.9
Gross Profit ($USD Millions)$11.3 $24.1
Gross Margin %9.6% 19.3%
Operating Income (Loss) ($USD Millions)$(5.7) $7.2
Net Income (Loss) ($USD Millions)$(7.2) $3.2
Diluted EPS ($)$(0.31) $0.14
Adjusted Net Income (Loss) ($USD Millions)$(4.8) $4.2
Adjusted EPS ($)$(0.21) $0.18
EBITDA ($USD Millions)$(3.9) $8.9
Adjusted EBITDA ($USD Millions)$(1.5) $9.9
Interest Expense ($USD Millions)$1.6 $3.6
Cash from Operations ($USD Millions)$(24.862) $12.486

Sequential comparison (Q1 2022 → Q2 2022 → Q3 2022)

MetricQ1 2022Q2 2022Q3 2022
Net Sales ($USD Millions)$98.9 $120.5 $124.9
Gross Profit ($USD Millions)$16.7 $18.3 $24.1
Gross Margin %16.9% 15.2% 19.3%
Operating Income ($USD Millions)$0.2 $3.2 $7.2
Net Income ($USD Millions)$(2.6) $1.4 $3.2
Diluted EPS ($)$(0.11) $0.06 $0.14
Adjusted Net Income ($USD Millions)$(0.9) $2.4 $4.2
Adjusted EPS ($)$(0.03) $0.10 $0.18
EBITDA ($USD Millions)$2.0 $5.0 $8.9
Adjusted EBITDA ($USD Millions)$3.7 $6.0 $9.9
Interest Expense ($USD Millions)$2.4 $2.7 $3.6
Cash from Operations ($USD Millions)$(17.377) $(12.816) $12.486

Segment/end-market contribution (YoY change)

End Market YoY Change ($USD Millions)Q1 2022Q2 2022Q3 2022
Power Systems+$13.1 +$22.3 +$10.9
Industrial+$11.5 +$21.5 +$18.8
Transportation−$25.8 −$34.9 −$22.5

KPIs and balance sheet

KPIQ1 2021Q2 2021Q3 2021Q1 2022Q2 2022Q3 2022
Warranty Costs ($USD Millions)$6.8 $0.7 $7.3 $(0.3) $2.2 $3.5
Balance Sheet Metric ($USD Millions)Q1 2022Q2 2022Q3 2022
Total Debt (approximate)~$196 ~$211 ~$211.7
Cash and Cash Equivalents (approximate)~$2 ~$3 ~$16.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales growth vs 2021FY 2022“Increase by at least 3%” (Q2 press release) “Increase by at least 3%” (Q3 press release) Maintained
Gross profit margin improvement vs 2021FY 2022“At least +6 percentage points” (Q2) “At least +7 percentage points” (Q3) Raised
Transportation end market2H 2022 vs 1H 2022“2H transportation sales to exceed 1H” (Q2) “Q4 reduction in transportation; continued YoY growth in industrial/power” (Q3) Toned down near-term transportation outlook
Operating cash flow2H 2022 vs 1H 2022“Operating cash flow expected to improve” (Q2) Q3 operating cash flow +$12.5M vs negative prior year (tracking improvement) Achieved/in-progress

Earnings Call Themes & Trends

Note: No Q3 2022 earnings call transcript was found in the document catalog; themes below reference press releases for Q1–Q3 2022.

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2022)Trend
Supply chain dynamicsOngoing constraints impacting timely fulfillment (Q1, Q2) Supply chain challenges persisted; outlook assumes improvement but remains uncertain Improving but still challenged
End-market mix shiftStrong growth in power systems and industrial; transportation down (Q1, Q2) Same pattern: power systems/industrial up; transportation down as strategy to improve profitability Structural shift toward higher-margin mix
Warranty costsLarge YoY benefit in Q1; normalizes in Q2 (higher vs prior due to 2021 adjustment) Warranty fell to $3.5M from $7.3M YoY; margin tailwind Improving YoY
Legal/indemnification costsMaterially lower in Q2 after USAO trial conclusion; SG&A down SG&A up modestly on incentives/legal reserve, but indemnification-related legal costs declined Structural reduction vs 2021
R&D executionExpect greater R&D spend in 2H to expand heavy-duty engine platform (Q2) R&D expenses down YoY by ~$0.6M in Q3; investing based on market trends/demands Mixed: investment continues but spending cadence evolving
Financing/liquidityTotal debt ~$211M at Q2; covenants compliance Total debt ~$211.7M; exploring near- and long-term financing; Third Shareholder Loan expires Nov 30, 2022; covenants compliance Liquidity improved with higher cash; financing events pending

Management Commentary

  • “We are pleased to have continued the momentum from the second quarter as we saw continued sales growth and significant improvement in our gross margin and profitability.” — Dino Xykis, interim CEO .
  • “As we look to close out the last quarter of 2022, we are optimistic that these recent trends will continue for 2022 and into the following year.” — Dino Xykis .
  • Strategic emphasis: prioritizing higher-margin power systems and industrial end markets and de-emphasizing transportation to drive long-term profitability; pricing actions and improved mix underpin margin recovery .

Q&A Highlights

  • No public Q3 2022 earnings call transcript was identified in the document catalog; Q&A highlights are unavailable based on accessible primary sources [List: earnings-call-transcript returned 0 documents].

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q1–Q3 2022 EPS and revenue was unavailable due to data access limits; therefore, comparisons to estimates are not provided. If needed, we can refresh and include consensus comparisons once S&P Global access is restored.

Key Takeaways for Investors

  • Margin and earnings inflection: gross margin expanded to 19.3% and diluted EPS to $0.14 alongside Adjusted EPS $0.18; Adjusted EBITDA reached $9.9M, indicating improved unit economics and lower non-recurring costs .
  • Operating cash flow turn: Q3 operating cash flow was +$12.5M vs $(24.9)M prior year, signaling healthier working capital and earnings conversion; watch sustainability into Q4 amid supply chain/inflation risks .
  • Mix shift is deliberate: strong power systems/industrial growth offset transportation declines; the strategy supports margin gains and should continue to reduce warranty exposure concentrated in transportation .
  • Guidance more constructive on margins: FY22 gross profit margin improvement target raised to “at least +7 pp”; sales growth maintained at “at least 3%” — a supportive backdrop for near-term estimate revisions once consensus is available .
  • Interest expense headwind: interest expense increased to $3.6M in Q3 (vs $1.6M YoY) on higher debt and rates; this may cap net income leverage despite operational gains .
  • Liquidity watch: cash improved to ~$16.5M; total debt ~$211.7M; management is exploring financing solutions and a loan extension with Weichai (Third Shareholder’s Loan expires Nov 30, 2022) — a near-term event to monitor .
  • Near-term trading implications: focus on margin trajectory and operating cash flow momentum against any Q4 transportation softness; catalysts include continued mix/pricing benefits and clarity on financing arrangements .