Executive Summary

Q4 2022 delivered revenue of $137.0M, diluted EPS of $0.40, and gross margin of 21.5% (+1,390 bps y/y) as mix/pricing and sharply lower warranty costs drove margin expansion; Adjusted EBITDA was $16.3M and net income was $9.3M .
Sequential momentum continued: revenue rose versus Q3 ($124.9M) and gross margin expanded from 19.3% to 21.5% on improved mix and pricing discipline .
2023 outlook guides sales to increase ~3% y/y, with strength in power systems, industrial flat, and transportation down; PSI also amended and extended its $130M Standard Chartered facility and certain Weichai shareholder loans to support liquidity .
Operating cash flow inflected positive to $8.9M in Q4 (vs. $(22.4)M y/y) on earnings and working capital improvements; year-end debt was ~$211.0M and cash was ~$24.3M .
Wall Street consensus estimates from S&P Global were unavailable for Q4 2022; estimate comparisons are not provided due to data access constraints (SPGI request limit exceeded) [functions.GetEstimates].

What Went Well and What Went Wrong

What Went Well
- Gross margin expanded to 21.5% from 7.6% y/y, driven by higher sales, improved mix/pricing, and lower warranty expense; Q4 warranty costs fell to $1.0M from $8.0M y/y due largely to a transportation contract revision and fewer preexisting warranty adjustments .
- Profitability inflected: operating income was $13.9M (vs. $(5.6)M y/y), Adjusted EBITDA reached $16.3M (vs. $(1.9)M y/y), and OCF was $8.9M (vs. $(22.4)M y/y) on better earnings and working capital .
- Strong end-market demand in industrial (+$19.5M) and power systems (+$10.0M) supported sales growth; management emphasized decisive actions since Q2 to repair margins and improve efficiency (“quick and decisive actions to repair and improve our margins”) .
What Went Wrong
- Transportation end market declined by $19.5M y/y on lower medium-duty truck and school bus sales, reflecting portfolio focus and market dynamics .
- Interest expense rose to $4.3M (vs. $2.1M y/y) on higher average debt and effective interest rates, partially offsetting operating gains .
- Balance sheet remains highly levered (debt ~$211.0M), with reliance on revolver and shareholder loans; macro/supply chain/inflation uncertainty persists into 2023 per management’s cautionary outlook .

Financial Results

Sequential trend (Q2 → Q3 → Q4 2022)

Metric	Q2 2022	Q3 2022	Q4 2022
Revenue ($USD Millions)	$120.5	$124.9	$137.0
Diluted EPS ($)	$0.06	$0.14	$0.40
Gross Margin %	15.2%	19.3%	21.5%
Operating Income ($USD Millions)	$3.24	$7.22	$13.91
Net Income ($USD Millions)	$1.36	$3.19	$9.32
Adjusted EBITDA ($USD Millions)	$5.95	$9.85	$16.25

Year-over-year comparison (Q4 2021 → Q4 2022)

Metric	Q4 2021	Q4 2022
Revenue ($USD Millions)	$127.0	$137.0
Diluted EPS ($)	$(0.33)	$0.40
Gross Margin %	7.6%	21.5%
Warranty Costs ($USD Millions)	$8.0	$1.0

End-market mix – change vs prior year

End Market	Q2 2022 YoY Change ($MM)	Q3 2022 YoY Change ($MM)	Q4 2022 YoY Change ($MM)
Industrial	+$21.5	+$18.8	+$19.5
Power Systems	+$22.3	+$10.9	+$10.0
Transportation	$(34.9)	$(22.5)	$(19.5)

KPIs and balance sheet/lending

KPI	Q2 2022	Q3 2022	Q4 2022
Warranty Costs ($MM)	$2.2	$3.5	$1.0
Cash from Operations ($MM)	$(12.82)	$12.49	$8.86
Total Debt ($MM)	~$211.0	$211.7	$211.0
Cash & Equivalents ($MM)	$3.45	$16.48	$24.30
Interest Expense ($MM)	$2.67	$3.62	$4.30

Non-GAAP adjustments (illustrative)

Non-GAAP Item	Q2 2022 ($)	Q3 2022 ($)	Q4 2022 ($)
Gov’t investigations & legal matters	$0.02 EPS; $467k adj	$0.04 EPS; $956k adj	$0.03 EPS; $694k adj
Internal control remediation	$0.00 EPS; $26k adj	$0.01 EPS; $268k adj	$0.00 EPS; $19k adj
Severance	$0.02 EPS; $452k adj	$0 EPS; $(2k) adj	$0 EPS; $0 adj
Stock-based compensation	$0.00 EPS; $50k adj	$0 EPS; $62k adj	$0.01 EPS; $70k adj

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Sales Growth	FY 2023	n/a	~+3% vs FY 2022; power systems up, industrial flat, transportation down	New
End-market Mix	FY 2023	n/a	Power systems growth; industrial flat; transportation down	New
Gross Margin %	FY 2023	n/a	Not provided for FY 2023	n/a
Sales Growth	FY 2022	At least +3% y/y (Q2)	Maintained at least +3% y/y (Q3)	Maintained
Gross Margin % improvement	FY 2022	≥+6 pp (Q2)	≥+7 pp (Q3)	Raised
Operating Cash Flow	2H 2022	Expected to improve vs 1H (Q2)	Achieved: Q3 $12.5M; Q4 $8.9M	Achieved

Earnings Call Themes & Trends

Note: No Q4 2022 earnings call transcript was found; themes below draw from management commentary across Q2–Q4 press materials.

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4 2022)	Trend
Supply chain dynamics	Ongoing constraints; expected improvement 2H 2022 (Q2, Q3)	Outlook assumes continued improvement and timelier parts availability in 2023	Improving but uncertain
Warranty costs	Elevated in prior periods; benefited from contract revisions and adjustments (Q2/Q3)	Q4 warranty costs fell to $1.0M (vs $8.0M y/y)	Improving
End-market mix	Strategy to de-emphasize lower-margin transportation; strong power systems/industrial growth (Q2/Q3)	Transportation down; industrial and power systems up	Continued portfolio shift
Legal/indemnification costs	Major SG&A reduction on lower indemnification spend (Q2)	SG&A broadly stable; incentive comp up; legal costs down across the year	Normalizing lower legal spend
Financing/liquidity	Covenants met; exploring near/long-term solutions (Q3)	Amended/extended $130M revolver; extended certain shareholder loans	Improved maturity profile
R&D execution	Plan to expand heavy-duty engine platform with higher 2H spend (Q2)	R&D steady; continued portfolio evaluation and aftermarket growth focus	Ongoing investment focus

Management Commentary

“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 as well as the overall results of the year.” — Dino Xykis, Interim CEO .
“We continue to evaluate our portfolio of products to ensure we focus our efforts and resources on improving profitability while developing new products based on market demand and trends… focusing on the continued growth of our aftermarket business.” — Dino Xykis .
“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.” — Q3 management comment .
“We saw a turnaround in our results during the second quarter… operating expense decline of 46 percent… largely by a reduction in legal indemnification costs.” — Q2 management comment .

Q&A Highlights

No Q4 2022 earnings call transcript was available; no Q&A themes to report [functions.SearchDocuments].

Estimates Context

S&P Global consensus estimates (EPS, revenue, EBITDA) for PSIX Q4 2022 were unavailable due to access limits; therefore, comparisons to Wall Street consensus cannot be provided at this time [functions.GetEstimates].

Key Takeaways for Investors

Margin repair is real: gross margin expanded to 21.5% in Q4 on mix/pricing and dramatically lower warranty costs; this underpins the earnings inflection .
Portfolio shift continues: transportation is intentionally lower while industrial and power systems are growing; this should support structurally higher margins if sustained .
Liquidity risk mitigated near term: PSI amended/extended the $130M Standard Chartered revolver and extended certain shareholder loans, smoothing the maturity profile into 2024 .
Leverage still high: ~$211.0M total debt at year-end requires continued operating cash generation (Q4 OCF $8.9M) and disciplined capital allocation .
2023 setup: ~3% sales growth guidance with power systems strength but transportation decline; macro and supply chain uncertainties remain per management’s caution .
Cost normalization: legal/indemnification and remediation expenses fell materially versus 2021, aiding SG&A and Adjusted results; ongoing monitoring is prudent .
Trading lens: catalysts include sustained margin expansion, mix improvement, and financing maturity extensions; watch warranty trajectory and transportation exposure as swing factors .

POWER SOLUTIONS INTERNATIONAL, INC. (PSIX)·Q4 2022 Earnings Summary