Q2 2026 Power Solutions International Inc Earnings Call

August 6, 2026

Operator: Good afternoon, and welcome to Power Solutions International Q2 2026 earnings conference call. Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to hand the conference over to Ken Jenke, VP Corporate Controller, PSI. Sir, please go ahead.

Speaker #1: As a reminder, this conference is being recorded. I would now like to hand the conference over to Kin Jinky, VP Corporate Counselor PSI. Sir, please go ahead.

Speaker #2: Good afternoon, and welcome to POWER SOLUTIONS INTERNATIONAL's Q2 2026 earnings conference call. I'm Ken Jinky, Vice President and Corporate Controller, and joining me today is Ken Lee, our interim Chief Executive Officer and Chief Financial Officer.

Ken Jenke: Good afternoon, and welcome to Power Solutions International's Q2 2026 earnings conference call. I'm Ken Jenke, Vice President and Corporate Controller, and joining me today is Ken Lee, our Interim Chief Executive Officer and Chief Financial Officer. Before we begin, I would like to remind everyone that today's prepared remarks and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions, speak only as of today, and are subject to risks and uncertainties that could cause actual results to differ materially. Important factors include the timing and ultimate conversion of power systems orders into revenue, including data center-related orders. Quarterly variability in product mix and the corresponding effect on gross profit and gross margin. The cost, pace, throughput, and operational outcomes of capacity ramp-up activities at our Wisconsin operations.

Speaker #2: Before we begin, I would like to remind everyone that today's prepared remarks and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker #2: These statements are based on current expectations and assumptions; speak only as of today, and are subject to risks and uncertainties that could cause actual results to differ materially.

Ken Jenke: These statements are based on current expectations and assumptions, speak only as of today, and are subject to risks and uncertainties that could cause actual results to differ materially. Important factors include the timing and ultimate conversion of power systems orders into revenue, including data center-related orders. Quarterly variability in product mix and the corresponding effect on gross profit and gross margin. The cost, pace, throughput, and operational outcomes of capacity ramp-up activities at our Wisconsin operations.

Speaker #2: Important factors include the timing and ultimate conversion of power systems orders into revenue, including data center-related orders. Quarterly variability in product mix and the corresponding effect on gross profit and gross margin.

Speaker #2: The cost, pace, throughput, and operational outcomes of capacity ramp-up, activities at our Wisconsin operations, our ability to execute operational improvement initiatives, the level and persistence of customer demand, including demand conditions in the oil and gas end market, supply chain, and component availability, integration of recent acquisitions, including MTL manufacturing and equipment, macroeconomic regulatory and trade conditions, including US tariffs and trade restrictions.

Ken Jenke: Our ability to execute operational improvement initiatives. The level and persistence of customer demand, including demand conditions in the oil and gas end market, supply chain, and component availability. Integration of recent acquisitions, including MTL Manufacturing and Equipment. Macroeconomic, regulatory, and trade conditions, including US tariffs and trade restrictions. Changes in management or other personnel and the outcome of pending or threatened litigation and other legal or regulatory matters. Additional information concerning factors that could cause actual results to differ materially is contained in the cautionary language in today's earnings release and in the factors and other cautionary disclosures in our most recent Form 10-K, subsequent Form 10-Qs, and other SEC filings. Those disclosures are incorporated by reference for purposes of today's call and are available in the investor relations section of our website and at sec.gov. We undertake no obligation to update any forward-looking statements except as required by law.

Speaker #2: Changes in management or other personnel and the outcome of pending or threatened litigation and other legal or regulatory matters. Additional information concerning factors that could cause actual results to differ materially is contained in the cautionary language in today's earnings release and in the factors and other cautionary disclosures in our most recent form, 10-K.

Ken Jenke: Additional information concerning factors that could cause actual results to differ materially is contained in the cautionary language in today's earnings release and in the factors and other cautionary disclosures in our most recent Form 10-K, subsequent Form 10-Qs, and other SEC filings. Those disclosures are incorporated by reference for purposes of today's call and are available in the investor relations section of our website and at sec.gov. We undertake no obligation to update any forward-looking statements except as required by law.

Speaker #2: Subsequent 10-Qs and other SEC filings. Those disclosures are incorporated by reference for purposes of today's call and are available in the investor relations section of our website and at sec.gov.

Speaker #2: We undertake no obligation to update any forward-looking statements except as required by law. We will also reference certain non-GAAP financial measures today's call. EBITDA margin represents EBITDA as a percentage of net sales; a definition of EBITDA and a reconciliation to net income appear in today's earnings release.

Ken Jenke: We will also reference certain non-GAAP financial measures in today's call. EBITDA margin represents EBITDA as a percentage of net sales. A definition of EBITDA and a reconciliation to net income appear in today's earnings release, which is available in the investor relations section of our website. With that, I will turn the call over to Ken.

Speaker #2: Which is available in the investor relations section of our website. With that, I will turn the call over to Ken.

Speaker #3: Thank you, Ken, and good afternoon, everyone. Thank you for joining us. Before we reveal the Q2 results, I would like to briefly address the leadership transition we announced on July 27.

Xun Li: Thank you, Cam. Good afternoon, everyone. Thank you for joining us. Before we reveal the Q2 results, I would like to briefly address the leadership transition we announced on 27 July. Richard Hu will become PSI's Chief Executive Officer on 17 August. Richard brings more than 25 years of global industrial leadership experience, including 6 years at BorgWarner, most recently as Vice President and General Manager of the Americas region for its Turbo & Thermal Technology business units, where he led a multi-billion dollar operation and a global team of approximately 3,900 employees across the US, Mexico, and Brazil. We look forward to welcome him and working with him as PSI continues to execute its strategy. I will continue to serve as Interim Chief Executive Officer until Richard begins and will continue as Chief Financial Officer following the transition.

Ken Li: Thank you, Cam. Good afternoon, everyone. Thank you for joining us. Before we reveal the Q2 results, I would like to briefly address the leadership transition we announced on 27 July. Richard Hu will become PSI's Chief Executive Officer on 17 August. Richard brings more than 25 years of global industrial leadership experience, including 6 years at BorgWarner, most recently as Vice President and General Manager of the Americas region for its Turbo & Thermal Technology business units, where he led a multi-billion dollar operation and a global team of approximately 3,900 employees across the US, Mexico, and Brazil. We look forward to welcome him and working with him as PSI continues to execute its strategy. I will continue to serve as Interim Chief Executive Officer until Richard begins and will continue as Chief Financial Officer following the transition.

Speaker #3: Richard Hu will become PSI's Chief Executive Officer on August 17. Richard brings more than 25 years of global industrial leadership experience. Including 6 years as FORGEWARNER, most recently as Vice President and General Manager of the Americas region for its turbo and thermal technology business units.

Speaker #3: Where he led a multibillion-dollar operation and a global team of approximately 3,900 employees across the United States, Mexico, and Brazil. We look forward to welcoming him and working with him as PSI continues to execute its strategy.

Speaker #3: I will continue to serve as interim Chief Executive Officer until Richard begins and will continue as Chief Financial Officer following the transition. Now, let me turn to our Q2 results.

Xun Li: Now let me turn to our Q2 results. To clear financials, before I walk through the detailed financials, I want to briefly run the quarter. On a sequential basis, Q2 showed a meaningful improvement in several key metrics. Sales of $152.5 million increased 18.6% from Q1, and gross margin improved approximately 420 basis points to 27.1% from 22.9%. The gross margin improvements reflect in part the early benefits of our ongoing operational improvement efforts in Wisconsin and was partially offset by unfavorable product mix. Strong operating cash flow also enabled us to reduce total debt by approximately $30.8 million during the quarter. Compared to Q2 2025, net sales reflects the timing of certain power systems shipments and the softer demand in our oil and gas business.

Ken Li: Now let me turn to our Q2 results. To clear financials, before I walk through the detailed financials, I want to briefly run the quarter. On a sequential basis, Q2 showed a meaningful improvement in several key metrics. Sales of $152.5 million increased 18.6% from Q1, and gross margin improved approximately 420 basis points to 27.1% from 22.9%. The gross margin improvements reflect in part the early benefits of our ongoing operational improvement efforts in Wisconsin and was partially offset by unfavorable product mix. Strong operating cash flow also enabled us to reduce total debt by approximately $30.8 million during the quarter. Compared to Q2 2025, net sales reflects the timing of certain power systems shipments and the softer demand in our oil and gas business.

Speaker #3: FUKU FINANCIALS: Before I walk through the detailed financials, I want to briefly frame the quarter. On a sequential basis, the quarter 2 showed meaningful improvements in several key metrics.

Speaker #3: Sales of 152.5 million dollars increased 18.6% from the first quarter. And gross margin improved approximately 420 basis points to 27.1% from 22.9%. The gross margin improvements reflect impacts the early benefits of ongoing operational improvements efforts in Wisconsin and was partially offset by unfavorable product mix.

Speaker #3: Strong operating cash flow also enabled us to reduce total debt by approximately 30.8 million dollars during the quarter. Compared to the quarter 2 of 2025, net sales reflects the timing of certain power systems shipments and the subsequent demand in our oil and gas business.

Xun Li: Gross margin reflects a low mix of oil and gas products, together with elevated production costs associated with capacity ramp-up activities at our Wisconsin operations. Year-over-year comparisons in net income were also significantly affected by our non-recurring $29.2 million, or $1.27 per diluted share, tax benefits in the prior year period related to the release of our valuation allowance. Demand for our data center power solutions remains strong. Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power systems orders move into production. Although shipment timing and quarterly results may vary, the remainder of our remarks will cover results by end markets, gross margin drivers, operating expense, cash flow and balances, and updates on MTL and our outlook.

Ken Li: Gross margin reflects a low mix of oil and gas products, together with elevated production costs associated with capacity ramp-up activities at our Wisconsin operations. Year-over-year comparisons in net income were also significantly affected by our non-recurring $29.2 million, or $1.27 per diluted share, tax benefits in the prior year period related to the release of our valuation allowance. Demand for our data center power solutions remains strong. Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power systems orders move into production. Although shipment timing and quarterly results may vary, the remainder of our remarks will cover results by end markets, gross margin drivers, operating expense, cash flow and balances, and updates on MTL and our outlook.

Speaker #3: Gross margin reflects a low mix of oil and gas products. Together with elevated production costs associated with capacity ramp-up activities at our Wisconsin operations, year-over-year comparisons in Latin America were also significantly in effect by a non-recurring 29.2 million of a $1.27 per dilute share tax benefits in the prior year period, rate to the release of a valuation allowance.

Speaker #3: Demand for our data center power solutions remains strong. Based on our current production schedule, we expect the second half of 2026 sales to exceed the first half of 2026 sales as larger power systems orders move into production.

Speaker #3: Although shipment timing and quarterly results may vary, the remainder of our remarks will cover results by end-of-market, gross margin drivers, operating expense, cash flow and balance sheet, and updates on MTL and our outlook.

Xun Li: Net sales for Q2 2026 were $152.5 million, a decrease of $39.4 million, or 21%, compared to Q2 2025. Sequentially, sales increased 18.6% from Q1 2026, exceeding our prior expectation that Q2 revenue would be generally consistent with Q1. The year-over-year decrease was primarily driven by lower sales of $34.6 million in the power systems end markets, $3.0 million in the industrial end markets, and $1.7 million in the transportation end markets. Within our power systems end markets, the year-over-year decline primarily reflects the uneven order patterns and the shipment timing for data center-related products, together with continued softness in our oil and gas business. We continue to see strong demand for our data center power solutions.

Ken Li: Net sales for Q2 2026 were $152.5 million, a decrease of $39.4 million, or 21%, compared to Q2 2025. Sequentially, sales increased 18.6% from Q1 2026, exceeding our prior expectation that Q2 revenue would be generally consistent with Q1. The year-over-year decrease was primarily driven by lower sales of $34.6 million in the power systems end markets, $3.0 million in the industrial end markets, and $1.7 million in the transportation end markets. Within our power systems end markets, the year-over-year decline primarily reflects the uneven order patterns and the shipment timing for data center-related products, together with continued softness in our oil and gas business. We continue to see strong demand for our data center power solutions.

Speaker #3: Net sales for the quarter 2 of 2026 were 152.5 million dollars, a decrease of 39.4 million dollars, our 21%, compared to the quarter 2 of 2025.

Speaker #3: Sequentially, sales increased 18.6% from the first quarter of 2026, exceeding our prior expectation that the quarter 2 revenue would be generally consistent with the first quarter.

Speaker #3: The year-over-year decrease was primarily driven by lower sales of 34.6 million dollars in the power systems end-of-market, 3.0 million dollars in the industrial end-of-market, and 1.7 million dollars in the transportation end-of-market.

Speaker #3: Within our power systems end-of-market, the year-over-year decline primarily reflects the uneven order patterns and the shipment timing for data center rates to products, together with continued softness in our oil and gas business.

Speaker #3: We continue to see strong demand for our data center power solutions. And based on our current production schedule, we expect the second half of 2026 sales to exceed the first half of 2026 sales as larger power systems orders move into production, and I recognize as revenue.

Xun Li: Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power systems orders move into production and are recognized as revenue. At the same time, the timing and ultimate volume of revenue recognized from that demand remains subject to customer scheduling, manufacturing flow paths, supply chain factors, and other variables. We are not predicting any specific level of data center revenue in any future period. Gross profits for Q2 2026 was $41.4 million compared to $34.1 million in Q2 2025. Gross margin was 27.1% in the quarter, compared to 28.2% in the prior year period. On a sequential basis, gross margin improved approximately 420 basis points from 22.9% in Q1 to 27.1% in Q2.

Ken Li: Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power systems orders move into production and are recognized as revenue. At the same time, the timing and ultimate volume of revenue recognized from that demand remains subject to customer scheduling, manufacturing flow paths, supply chain factors, and other variables. We are not predicting any specific level of data center revenue in any future period. Gross profits for Q2 2026 was $41.4 million compared to $34.1 million in Q2 2025. Gross margin was 27.1% in the quarter, compared to 28.2% in the prior year period. On a sequential basis, gross margin improved approximately 420 basis points from 22.9% in Q1 to 27.1% in Q2.

Speaker #3: At the same time, the timing and ultimate volume of revenue recognized from that demand remain subject to customer scheduling, manufacturing slow paths, supply chain factors, and other variables.

Speaker #3: And we are not predicting any specific level of data center revenue in any future period. Gross profits for the quarter 2 of 2026 was 41.4 million dollars, compared to 54.1 million dollars in the quarter 2 of 2025.

Speaker #3: Gross margin was 27.1% in the quarter. Compared to 28.2% in the prior year period. On a sequential basis, gross margin improved approximately 420 basis points from 22.9% in the first quarter to 27.1% in the second quarter.

Xun Li: The improvements reflect, in part, the early benefits of our ongoing operational improvement efforts in Wisconsin, and was partially offset by unfavorable product mix in the quarter. We are encouraged by that progress. For H1 2026, gross margin was 25.2%. I want to be clear about the outlook on gross margin. Our capacity ramp-up activities in Wisconsin are continuing, and we expect rates related to production costs to persist. The trajectory of any future sequential improvements will depend on product mix, flow paths, and other operational factors. We are not providing a specific gross margin outlook for 2026 at this time. Over the longer term, our goal is to focus on business opportunities that can support gross margin at or around the 25% level. Research and development expense were $5.1 million in Q2, compared to $4.6 million in the prior year period.

Ken Li: The improvements reflect, in part, the early benefits of our ongoing operational improvement efforts in Wisconsin, and was partially offset by unfavorable product mix in the quarter. We are encouraged by that progress. For H1 2026, gross margin was 25.2%. I want to be clear about the outlook on gross margin. Our capacity ramp-up activities in Wisconsin are continuing, and we expect rates related to production costs to persist. The trajectory of any future sequential improvements will depend on product mix, flow paths, and other operational factors. We are not providing a specific gross margin outlook for 2026 at this time. Over the longer term, our goal is to focus on business opportunities that can support gross margin at or around the 25% level. Research and development expense were $5.1 million in Q2, compared to $4.6 million in the prior year period.

Speaker #3: The improvements reflect impacts the early benefits of ongoing operational improvements efforts in Wisconsin. And was partially offset by unfavorable product mix in the quarter.

Speaker #3: Where encouraged by that progress, for the first half of 2026, gross margin was 25.2%. I want to be direct about the outlook on gross margin.

Speaker #3: Our capacity ramp-up activities in Wisconsin are continuing, and we expect rates to elevate the production costs to persist. The trajectory of any future sequential improvements will depend on product mix, slow paths, and other operational factors.

Speaker #3: We are not providing a specific gross margin outlook for 2026 at this time. Over the longer term, our goal is to focus on business opportunities that can support gross margin at or around the 25% level.

Speaker #3: Research and development expense were 5.1 million dollars in the second quarter. Compared to 4.6 million dollars in the prior year period. The increase was primarily driven by higher I&D program expenditures to support new programs in 2026, and the recovery of I&D costs from certain customers in 2025.

Xun Li: The increase was primarily driven by higher R&D program expenditures to support new programs in 2026 and the recovery of R&D costs from certain customers in 2025. Selling, general, and admin expense were $12.1 million in Q2, a decrease of $4.6 million or 27% compared to Q2 2025. The decrease was primarily attributable to lower compensation expense related to the revaluation of previously awarded stock appreciation rights, as well as lower costs associated with employee incentive programs, partially offset by incremental selling and administrative expense associated with MTL Manufacturing and Equipment. Total operating expense was $17.4 million in the quarter. Operating income was $23.9 million compared to $32.5 million in Q2 2025. Interest expense was $1.6 million in Q2 compared to $1.7 million in the prior year period, reflecting lower overall effective interest rates.

Ken Li: The increase was primarily driven by higher R&D program expenditures to support new programs in 2026 and the recovery of R&D costs from certain customers in 2025. Selling, general, and admin expense were $12.1 million in Q2, a decrease of $4.6 million or 27% compared to Q2 2025. The decrease was primarily attributable to lower compensation expense related to the revaluation of previously awarded stock appreciation rights, as well as lower costs associated with employee incentive programs, partially offset by incremental selling and administrative expense associated with MTL Manufacturing and Equipment. Total operating expense was $17.4 million in the quarter. Operating income was $23.9 million compared to $32.5 million in Q2 2025. Interest expense was $1.6 million in Q2 compared to $1.7 million in the prior year period, reflecting lower overall effective interest rates.

Speaker #3: Selling general and admin expense were 2.1 million dollars in the second quarter. A decrease of 4.6 million dollars, our 27%, compared to the quarter 2 of 2025.

Speaker #3: The decrease was primarily attributable to lower composition expense rate to the revaluation of previously awarded stock appreciation rights as well as lower costs associated with employee incentive programs.

Speaker #3: Partially offset by incremental selling and administrative expense associated with MTL, manufacturing, and equipment. Total operating expense was 17.4 million dollars in the quarter. Operating income was 23.9 million dollars.

Speaker #3: Compared to 32.5 million dollars in the quarter 2 of 2025. Interest expense was 1.6 million dollars in the quarter 2. Compared to 1.7 million dollars in the prior year period.

Speaker #3: Reflecting lower overall effective interest rates. Income tax expense was $5.6 million in the second quarter of 2026, compared to income tax benefits of $20.1 million in the prior year period.

Xun Li: Income tax expense was $5.6 million in Q2 2026 compared to an income tax benefit of $20.1 million in the prior year period. As I noted at the outset, the prior year Q2 included a $29.2 million or $1.27 per diluted share non-recurring tax benefit related to the release of a valuation allowance on deferred tax assets. That one-time benefit is the primary driver of the significant year-over-year difference in net income, and investors should keep that context in mind when reading the year-over-year comparison. Net income was $16.9 million or $0.73 per diluted share in Q2 2026 compared to net income of $51.2 million or $2.22 per diluted share in Q2 2025. On a sequential basis, net income increased $9.6 million and diluted earnings per share more than doubled from Q1.

Ken Li: Income tax expense was $5.6 million in Q2 2026 compared to an income tax benefit of $20.1 million in the prior year period. As I noted at the outset, the prior year Q2 included a $29.2 million or $1.27 per diluted share non-recurring tax benefit related to the release of a valuation allowance on deferred tax assets. That one-time benefit is the primary driver of the significant year-over-year difference in net income, and investors should keep that context in mind when reading the year-over-year comparison. Net income was $16.9 million or $0.73 per diluted share in Q2 2026 compared to net income of $51.2 million or $2.22 per diluted share in Q2 2025. On a sequential basis, net income increased $9.6 million and diluted earnings per share more than doubled from Q1.

Speaker #3: As I noted at the offset, the prior year cuts included a 29.2 million dollars, our $1.27 per diluted share, non-recurring, tax benefits, rates to the release of a variation allowance on deferred tax assets.

Speaker #3: That one-time benefit is the primary driver of the significant year-over-year difference in net income. And investors should keep that context in mind when reading the year-over-year comparison.

Speaker #3: Net income was 16.9 million dollars, our 73 cents, per diluted share, in the quarter 2 of 2026. Compared to net income of 51.2 million dollars, our $2.22 per diluted share, in the quarter 2 of 2025, on a sequential basis, net income increased 9.6 million dollars and diluted earnings per share more than doubled from the first quarter.

Xun Li: EBITDA for Q2 was $25.7 million compared to $34.1 million in the prior year period. EBITDA margin was 16.9% compared to 17.8% in the prior year period. On a sequential basis, EBITDA nearly doubled from $13.2 million in Q1, while EBITDA margin improved 670 basis points from 10.2% to 16.9%. The sequential increase reflects the higher sales and gross profits in Q2, together with lower operating expense. Turning to cash flow, we generated $56.6 million of operating cash flow in Q2 compared to $20.2 million in the prior year period. For H1 2026, operating cash flow was $75.7 million compared to $25.5 million in H1 2025, with favorable working capital movements and operational improvements contributing to the year-over-year increase.

Ken Li: EBITDA for Q2 was $25.7 million compared to $34.1 million in the prior year period. EBITDA margin was 16.9% compared to 17.8% in the prior year period. On a sequential basis, EBITDA nearly doubled from $13.2 million in Q1, while EBITDA margin improved 670 basis points from 10.2% to 16.9%. The sequential increase reflects the higher sales and gross profits in Q2, together with lower operating expense. Turning to cash flow, we generated $56.6 million of operating cash flow in Q2 compared to $20.2 million in the prior year period. For H1 2026, operating cash flow was $75.7 million compared to $25.5 million in H1 2025, with favorable working capital movements and operational improvements contributing to the year-over-year increase.

Speaker #3: EBITDA for the quarter 2 was 25.7 million dollars, compared to 34.1 million dollars in the prior year period. EBITDA margin was 16.9%, compared to 17.8% in the prior year period.

Speaker #3: On a sequential basis, EBITDA nearly doubled from 13.2 million dollars in the first quarter. While EBITDA margin improved 670 basis points from 10.2% to 16.9%.

Speaker #3: The sequential increase reflects the higher sales and gross profits in the quarter 2, together with lower operating expense. Turning to cash flow, we generated 56.6 million dollars of operating cash flow in the quarter 2.

Speaker #3: Compared to 20.2 million dollars in the prior year period. For the first half of 2026, operating cash flow was 75.7 million dollars, compared to 25.5 million dollars in the first half of 2025.

Speaker #3: With favorable working capital movements and operational improvements, contributing to the year-over-year increase. Capital expenditures were 0.8 million dollars in the quarter 2, and 2.7 million dollars for the first half of the year.

Xun Li: Capital expenditures were $0.8 million in Q2 and $2.7 million for H1 of the year. Strong cash flow enabled us to reduce total debt by approximately $30.8 million during the quarter. We ended Q2 with $70.1 million in cash and cash equivalents and a total debt of approximately $72.6 million, including $65 million drawn under our revolving credit facility. Total debt was approximately $103.4 million as of 31 March 2026. As of 31 December 2025, cash and cash equivalents were $41.3 million, and total debt was approximately $96.6 million. Our balance sheet is solid, and we believe our current liquidity position is sufficient to meet our anticipated cash needs. MTL updates. On 9 January 2026, we acquired MTL Manufacturing & Equipment Inc. MTL's operations contributed positively to our consolidated net income in Q2.

Ken Li: Capital expenditures were $0.8 million in Q2 and $2.7 million for H1 of the year. Strong cash flow enabled us to reduce total debt by approximately $30.8 million during the quarter. We ended Q2 with $70.1 million in cash and cash equivalents and a total debt of approximately $72.6 million, including $65 million drawn under our revolving credit facility. Total debt was approximately $103.4 million as of 31 March 2026. As of 31 December 2025, cash and cash equivalents were $41.3 million, and total debt was approximately $96.6 million. Our balance sheet is solid, and we believe our current liquidity position is sufficient to meet our anticipated cash needs. MTL updates. On 9 January 2026, we acquired MTL Manufacturing & Equipment Inc. MTL's operations contributed positively to our consolidated net income in Q2.

Speaker #3: Strong cash flow enabled us to reduce total debts by approximately 30.8 million dollars during the quarter. We ended the quarter 2 with 70.1 million dollars in cash and cash equivalents, and the total debts of approximately 72.6 million dollars.

Speaker #3: Including the $65 million draw on our revolving credit facility, total debt was approximately $103.4 million as of March 31, 2026. As of December 31, 2025, cash and cash equivalents were $41.3 million, and total debt was approximately $96.6 million.

Speaker #3: Our balance sheet is solid, and we believe our current liquid position is sufficient to meet our anticipated cash needs. MTL updates. On January 9, 2026, we acquired MTL manufacturing and equipment, Inc. MTL's operations contribute positively to our consolidated net income in the quarter 2.

Xun Li: The acquisition expanded PSI's vertical integration by adding in-house manufacturing capabilities for components used in power generation products, including fuel tanks and enclosure assemblies. We believe these capabilities will enhance supply chain control and manufacturing flexibility and support future growth. 2026 outlook. Given ongoing variability in order timing and market conditions, we are not providing formal full-year guidance at this time. Based on our current production schedule and information available as of today, we expect H2 2026 sales to exceed H1 2026 sales and to be approximately in line with sales in H2 2025 as larger power systems orders move into production and are recognized as revenue. The timing and ultimate volume of these shipments remains subject to customer scheduling, manufacturing throughput, supply chain factors, and other variables, and there can be no assurance that those orders will translate to a uniformly strong H2.

Ken Li: The acquisition expanded PSI's vertical integration by adding in-house manufacturing capabilities for components used in power generation products, including fuel tanks and enclosure assemblies. We believe these capabilities will enhance supply chain control and manufacturing flexibility and support future growth.

Speaker #3: The acquisition expanded PSI's vertical integration by adding in-house manufacturing capabilities for components used in power generation products, including fuel tanks and encoder assemblies. We believe these capabilities will enhance supply chain control and manufacturing flexibility and support future goals.

Ken Li: 2026 outlook. Given ongoing variability in order timing and market conditions, we are not providing formal full-year guidance at this time. Based on our current production schedule and information available as of today, we expect H2 2026 sales to exceed H1 2026 sales and to be approximately in line with sales in H2 2025 as larger power systems orders move into production and are recognized as revenue. The timing and ultimate volume of these shipments remains subject to customer scheduling, manufacturing throughput, supply chain factors, and other variables, and there can be no assurance that those orders will translate to a uniformly strong H2.

Speaker #3: 2026 outlook. Given ongoing variability in order timing and market conditions, we are not providing formal four-year guidance at this time. Based on our current production schedule and information available as of today, we expect the second half of 2026 sales to exceed the first half of 2026 sales and to be approximately in line with sales in the second half of 2025.

Speaker #3: As larger power systems orders move into production, and are recognized as revenue, the timing and ultimate volume of these shipments remain subject to customer scheduling manufacturing slow pause, supply chain factors, and other variables.

Speaker #3: And there can be no assurance that those orders will translate to a uniformly strong second half. Continued softness in oil and gas and markets is expected to weigh on quarterly revenue trends.

Xun Li: Continued softness in oil and gas end markets is expected to weigh on quarterly revenue trends. Capacity ramp-up activities at our Wisconsin operations and their related cost effects on gross margin are expected to continue. Key takeaways. Let me close our prepared remarks with three key takeaways from Q2. First, we delivered meaningful sequential improvements in revenue and gross margin, with sales up 18.6% from Q1 and gross margin improved approximately 420 basis points. The gross margin improvements reflect, in part, the early benefits of ongoing operational improvement efforts in Wisconsin. Although capacity ramp-up activities and related costs continue. Second, our financial position is stronger. Operating cash flow of $56.6 million in the quarter enabled us to reduce total debt by approximately $30.8 million. We ended the quarter with roughly balanced cash and debt and increased financial flexibility to support our growth.

Ken Li: Continued softness in oil and gas end markets is expected to weigh on quarterly revenue trends. Capacity ramp-up activities at our Wisconsin operations and their related cost effects on gross margin are expected to continue. Key takeaways. Let me close our prepared remarks with three key takeaways from Q2. First, we delivered meaningful sequential improvements in revenue and gross margin, with sales up 18.6% from Q1 and gross margin improved approximately 420 basis points.

Speaker #3: Capacity ramp-up activities at our Wisconsin operations and their rate-to-cost effects on gross margin are expected to continue. Key takeaways. Let me close our prepared remarks with three key takeaways from the quarter 2.

Speaker #3: First, we delivered a meaningful sequential improvement in revenue and gross margin, with sales up 18.6% from the first quarter, and gross margin improved approximately 420 basis points.

Speaker #3: The gross margin improvements reflect in part the early benefits of ongoing operational improvements efforts in Wisconsin, although capacity ramp-up activities and rate-to-cost continue. Second, our financial position is stronger, operating cash flow of 56.6 million dollars in the quarter enabled us to reduce total debts by approximately 30.8 million dollars.

Ken Li: The gross margin improvements reflect, in part, the early benefits of ongoing operational improvement efforts in Wisconsin. Although capacity ramp-up activities and related costs continue. Second, our financial position is stronger. Operating cash flow of $56.6 million in the quarter enabled us to reduce total debt by approximately $30.8 million. We ended the quarter with roughly balanced cash and debt and increased financial flexibility to support our growth.

Speaker #3: We ended the quarter with roughly balanced cash and debts and increased financial flexibility to support our goals. Third, demand for our data center power solutions remains strong.

Xun Li: Third, demand for our data center power solutions remains strong. Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power system orders move into production. Although shipment timing and quarter results may vary, we remain focused on operational execution and converting that demand into revenue. With that, operator, we are ready to open the line for questions.

Ken Li: Third, demand for our data center power solutions remains strong. Based on our current production schedule, we expect H2 2026 sales to exceed H1 2026 sales as larger power system orders move into production. Although shipment timing and quarter results may vary, we remain focused on operational execution and converting that demand into revenue. With that, operator, we are ready to open the line for questions.

Speaker #3: Based on our current production schedule, we expect the second half of 2026 sales to exceed the first half of 2026 sales as larger power system orders move into production.

Speaker #3: Although shipment timing and quarter results may vary, we remain focused on operational execution and converting that demand into revenue. With that operator, we are ready to open the line for questions.

Speaker #1: Thank you. As a reminder to ask a question if you please press star announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up.

Operator: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. We ask that you please limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. Our first question comes from the line of Eric Stine with Craig-Hallum Capital Group. Your line is open. Please go ahead.

Speaker #1: One moment while we compile our Q&A roster. Our first question comes from the line of Derek Stein with Craig Hallam Capital Group. Your line is open.

Speaker #1: Please go ahead.

Speaker #2: Okay.

[Analyst] (Craig-Hallum Capital Group): Alex.

Eric Stine: Alex.

Speaker #3: Hi, Alex. How are you?

Xun Li: Hi, Alex. How are you?

Ken Li: Hi, Alex. How are you?

Speaker #2: Hey, doing well. Thanks. So maybe we could just talk a little bit more in depth about Q2. I mean, clearly it came in ahead of your internal projections so maybe some clarity because you still got softness in oil and gas.

[Analyst] (Craig-Hallum Capital Group): Hey, doing well, thanks. Maybe we could just talk a little bit more in depth about Q2. Clearly it came in ahead of your internal projections. Maybe some clarity, because you still got softness in oil and gas, how far you are through the ramp in the enclosure business. And I would guess that goes hand in hand with the gross margin improvement, which this is a level that we haven't seen in several quarters and is a level that you achieved back when oil and gas was strong, and it's your highest margin business. I'm just trying to get my arms around how that improvement came about in Q2, both revenues and margins.

Eric Stine: Hey, doing well, thanks. Maybe we could just talk a little bit more in depth about Q2. Clearly it came in ahead of your internal projections. Maybe some clarity, because you still got softness in oil and gas, how far you are through the ramp in the enclosure business. And I would guess that goes hand in hand with the gross margin improvement, which this is a level that we haven't seen in several quarters and is a level that you achieved back when oil and gas was strong, and it's your highest margin business. I'm just trying to get my arms around how that improvement came about in Q2, both revenues and margins.

Speaker #2: How far you are through the ramp in the enclosure business. And I would guess that goes hand in hand with the gross margin improvement, which this is a level that we haven't seen in several quarters and is a level that you achieved back when oil and gas was strong and it's your highest margin business.

Speaker #2: So I'm just trying to get my arms around how that improvement came about in Q2, both revenues and margins.

Speaker #3: Yeah. Alex, thanks for the question. So if you compare the Q2 sales by 152 million versus Q1, 128 million, the total increase about 24 million.

Xun Li: Alex, thanks for the question. If you compare the Q2 sales, right, $152 million versus Q1, $128 million, the total increase about $24 million. I would say most of the increase is from the power systems. Definitely the Wisconsin operation increased the production and the sales. If you look back at the past performance, we start to have some challenge ahead on Wisconsin operation H2 last year. Our gross margin, Q3 last year was like 23.9%, Q4 last year 21.9%, and Q1 we made a see improvement 22.9%. Since then, we implement various operation improvement initiatives in Wisconsin, and we see improvements in productivity, efficiency, flow paths, and also material availability, which enable us to increase the production and also sales for enclosure. Also, when we produce more, it has positive impacts on the fixed cost absorption.

Ken Li: Alex, thanks for the question. If you compare the Q2 sales, right, $152 million versus Q1, $128 million, the total increase about $24 million. I would say most of the increase is from the power systems. Definitely the Wisconsin operation increased the production and the sales. If you look back at the past performance, we start to have some challenge ahead on Wisconsin operation H2 last year. Our gross margin, Q3 last year was like 23.9%, Q4 last year 21.9%, and Q1 we made a see improvement 22.9%. Since then, we implement various operation improvement initiatives in Wisconsin, and we see improvements in productivity, efficiency, flow paths, and also material availability, which enable us to increase the production and also sales for enclosure. Also, when we produce more, it has positive impacts on the fixed cost absorption.

Speaker #3: And I would say most of the increase is from the power systems. And definitely the Wisconsin operation increased the production and the sales. And if you look back the past performance, we start to have some challenge ahead of us on Wisconsin operation second half last year.

Speaker #3: And our gross margin, 3Q last year, was like 23.9%. Then 4Q last year, 21.9%. And the 1Q, we made the same improvements, 22.9%. So since then, we implement various operation improvements initiatives in Wisconsin.

Speaker #3: And we see improvements in productivity, efficiency, slow pause, and also material availability. Which enables us to increase the production and also sales for enclosure.

Speaker #3: And also when we produce more, it has positive impacts on the fixed cost absorption. So definitely Wisconsin gross margin also improving. So all of these together help us to deliver a quite improvements in the second quarter.

[Analyst] (Craig-Hallum Capital Group): Yeah

Eric Stine: Yeah

[Analyst] (Craig-Hallum Capital Group): Wisconsin gross margin also improving. All of these together help us to deliver quite improvements in the Q2. Going forward, we continue to see, I would say, softness in the oil and gas. We're not seeing any sign for a significant improvement. We do have some larger custom orders for the AI data center products. The team is working on transforming the order into production and sales. We expect the H2 sales will exceed the H1. Our internal expectation is the H2 will be inconsistent with the H2 last year. Our sales team is working closely with our customer to generate more sales initiative. The operation team is working with supply chain to make sure on-time delivery and the material availability. We are doing our best to increase or improve sales in the H2.

Ken Li: Wisconsin gross margin also improving. All of these together help us to deliver quite improvements in the Q2. Going forward, we continue to see, I would say, softness in the oil and gas. We're not seeing any sign for a significant improvement. We do have some larger custom orders for the AI data center products. The team is working on transforming the order into production and sales. We expect the H2 sales will exceed the H1. Our internal expectation is the H2 will be inconsistent with the H2 last year. Our sales team is working closely with our customer to generate more sales initiative. The operation team is working with supply chain to make sure on-time delivery and the material availability. We are doing our best to increase or improve sales in the H2.

Speaker #3: But going forward, we continue to see I would say softness in the oil and gas. We're not seeing any sun for a significant improvement.

Speaker #3: But we do have some larger customer orders for the AI data center products. And the team is working on transforming the order into production and sales.

Speaker #3: So we expect the second half sales will exceed the first half and our internal expectation is the second half will be in consistent with the second half last year.

Speaker #3: But our sales team is working closely with our customers to generate more sales initiative. And operation team is working with supply chain to make sure on-time delivery and the material availability.

Speaker #3: So we are doing our best to increase or improve sales in the second half. And we try to exceed our expectation.

Xun Li: We try to exceed our expectation.

Ken Li: We try to exceed our expectation.

Speaker #2: Okay. And then maybe I guess for my follow-up, just more on the competitive front in that data center enclosure business. And frankly, this is a question that I've been getting increasingly from investors, shareholders, and not.

[Analyst] (Craig-Hallum Capital Group): Okay.

Eric Stine: Okay.

Xun Li: Yeah.

Ken Li: Yeah.

[Analyst] (Craig-Hallum Capital Group): Maybe, I guess for my follow-up, just more on the competitive front in that data center enclosure business, and frankly, this is a question that I've been getting increasingly from investors, shareholders, and not, and that is, I know that you got Generac, and they're using the Moteurs Baudouin engine, and clearly that's a Weichai engine, but you got TSI also uses a Weichai engine. I'm just curious if you can speak to the differences between what is being used by you and your competitors in terms of size, price, and performance. I am also curious what that means for your future product roadmap.

Eric Stine: Maybe, I guess for my follow-up, just more on the competitive front in that data center enclosure business, and frankly, this is a question that I've been getting increasingly from investors, shareholders, and not, and that is, I know that you got Generac, and they're using the Moteurs Baudouin engine, and clearly that's a Weichai engine, but you got TSI also uses a Weichai engine. I'm just curious if you can speak to the differences between what is being used by you and your competitors in terms of size, price, and performance. I am also curious what that means for your future product roadmap.

Speaker #2: And that is, so I know that you got Generac and they're using the Boudwin engine and clearly that's a way shy engine. But you got PSI also uses a way shy engine.

Speaker #2: So I'm just kind of curious if you can speak to the differences between what is being used by you and your competitors in terms of size, price, and performance, and I am also curious what that means for your future product roadmap.

Xun Li: Yeah. We sell different customer, right? The Weichai engine, the Baudouin, they sell the engine gensets to Generac, and we sell to a different customer. Frankly, I am not so clear which type of engine gensets they sell to Generac, but I think there is some difference. We deal with different customer. We work with our customer very closely. As you might know, there is some trend change on the AI data center power system. Historically, the data center use the utility grid, then place the diesel genset as standby. Right now the trend is more towards using gas gensets for prime, then use the diesel for standby and battery for instantaneous response. We focus on our products development and to sell our customer need.

Speaker #3: Yeah. We saw different customers, right? We try engine, the Boudwin, they sell the engine, GenSat to Generac. And we sell to a different customer.

Ken Li: Yeah. We sell different customer, right? The Weichai engine, the Baudouin, they sell the engine gensets to Generac, and we sell to a different customer. Frankly, I am not so clear which type of engine gensets they sell to Generac, but I think there is some difference. We deal with different customer. We work with our customer very closely. As you might know, there is some trend change on the AI data center power system. Historically, the data center use the utility grid, then place the diesel genset as standby. Right now the trend is more towards using gas gensets for prime, then use the diesel for standby and battery for instantaneous response. We focus on our products development and to sell our customer need.

Speaker #3: And I frankly, I'm not so clear which type of engine, GenSat, they sell to Generac. But I think that's a difference. And we deal with different customers.

Speaker #3: We work with our customer very closely. As you might know, there's some trend change on the AI data center power system. Historically, the data center used the utility grid.

Speaker #3: Then press the diesel GenSat at standby. And right now the trend is more towards using gas GenSat for plan. Then use the diesel for standby and the battery for instantaneous response.

Speaker #3: So we focus on our product development and the server customer need.

Speaker #2: Okay. So I mean, so these are different engines or different sizes or I mean, just maybe if there's a way to just kind of get my arms around that a little bit, but.

[Analyst] (Craig-Hallum Capital Group): Okay. These are different engines or different sizes or, just maybe if there is a way to just get my arms-

Eric Stine: Okay. These are different engines or different sizes or, just maybe if there is a way to just get my arms-

Xun Li: I think-

Ken Li: I think-

[Analyst] (Craig-Hallum Capital Group): around that a little bit, but.

Eric Stine: around that a little bit, but.

Xun Li: Yeah. I think with the diesel gensets, maybe it is similar. We are also working on potentially gas gensets, and we have different customers. They sell to Generac, we sell to a different customer. I don't think we are in the direct competition. Based on our meeting with our customer, we see a strong demand for our products, for this year and also for next year.

Ken Li: Yeah. I think with the diesel gensets, maybe it is similar. We are also working on potentially gas gensets, and we have different customers. They sell to Generac, we sell to a different customer. I don't think we are in the direct competition. Based on our meeting with our customer, we see a strong demand for our products, for this year and also for next year.

Speaker #3: Yeah. I think if it's a diesel GenSat, maybe it's similar. And but we are also working on potentially gas GenSat. And we have different customs.

Speaker #3: They sell to Generac. We sell to a different customer. So I don't think we're in that competition. And based on what meeting with our customer, we see a strong demand for our products.

Speaker #3: For this year and also for next year.

Speaker #2: Okay. I guess I'll just take the rest of the soft line. Thank you.

[Analyst] (Craig-Hallum Capital Group): Okay. I guess I will just take the rest of this offline. Thank you.

Eric Stine: Okay. I guess I will just take the rest of this offline. Thank you.

Speaker #3: Thank you, Alex.

Xun Li: Thank you, Eric.

Ken Li: Thank you, Eric.

Speaker #1: Thank you. One moment for our next question. Our next question comes from the line of Alan Lau with Jefferies. Your line is open. Please go ahead.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Alan Lau with Jefferies. Your line is open. Please go ahead.

Alan Lau: Thanks, operator. Thanks for taking my question, and congratulations of the great result in the Q2. Would like to follow up on the previous question. Wonder if there's any guidance into 2027, especially given that we are in the H2 of 2026, and there seems to be progress in gas engine as well. Wonder if there's any color into 2027. Thank you.

Speaker #4: And thanks for providing that. Thanks for taking my question. And congratulations of the great results in second quarter. Would like to follow up on the previous question.

Speaker #4: Wonder if there's any guidance into 2027, especially given that we are in the second half of 2026 and there seems to be progress in gas engine as well.

Speaker #4: So wonder if there's any color into 2027. Yeah. Thank you.

Speaker #3: Thank you, Alan, for the question. So, Alan, we are not providing a formal guidance for the sales outlook for '26 or '27. But as you know, our part is serving the mission-critical AI data center.

Xun Li: Thank you, Alan, for the question. Alan, we are not providing a formal guidance for the sales outlook for 2026 or 2027. As you know, our part is serving the mission-critical AI data center, and the capacity for the power system for the data center is constrained. There's a high demand for the power system, which is reliable, emission-certified, and also scalable power system. What I can say is, we have high demand our products for 2026, and our sales team is working closely with our customer to secure more orders for 2027. The demand for our products, remember, is strong. After we gain more visibility for the 2027 sales information, we will share with our investors, maybe in Q4.

Ken Li: Thank you, Alan, for the question. Alan, we are not providing a formal guidance for the sales outlook for 2026 or 2027. As you know, our part is serving the mission-critical AI data center, and the capacity for the power system for the data center is constrained. There's a high demand for the power system, which is reliable, emission-certified, and also scalable power system. What I can say is, we have high demand our products for 2026, and our sales team is working closely with our customer to secure more orders for 2027. The demand for our products, remember, is strong. After we gain more visibility for the 2027 sales information, we will share with our investors, maybe in Q4.

Speaker #3: And the capacity for the power system for the data center is constrained. So there's a high demand for the system power system, which is reliable, emission, certified, and also scalable power system.

Speaker #3: So what I can see is we have high demand. Our products for 2026. And our sales team is working with closely with our customer to secure more orders for 2027.

Speaker #3: And the demand for our products remain very strong. And after we get more visibility, for the 2027 sales information and we will share with our investors.

Speaker #3: Maybe in 4Q.

Alan Lau: Thank you. My follow-up question would be, the margins of the Q2 has significantly improved. Would like to know, how would you comment on the drag from oil and gas? In your previous remarks, it seems that the growth in data center-related products are partially offset by oil and gas. Wonder if you would call this bottoming or how would you describe the trends in oil and gas segment? Thank you.

Speaker #4: Thank you. So, my follow-up question would be: the margins for the second quarter have significantly improved. I would like to know, how would you comment on the drag from oil and gas?

Speaker #4: Because in your previous remarks, it seems that the growth in data center-related products was partially offset by oil and gas. I wonder if you would call this bottoming, or how would you describe the trends in the oil and gas segment?

Speaker #4: Thank you.

Speaker #3: Yeah, so the oil and gas market still remains soft. In our current forecast, we assume that the softness will continue, at least for this year, right?

Xun Li: The oil and gas market still remains soft. In our current forecast, we assume the softness will continue at least for this year, right? The oil and gas products usually carry a relatively high gross margin for our products. Definitely we grow our sales for the data center business and offset the sales drop from oil and gas. For this quarter, we still see quarter-by-quarter sales growth. I will say we are not providing a very detailed quantitative outlook, but we still think the H2 sales definitely will exceed the H1 sales. Our internal expectation is the H2 will be consistent with the H2 we had last year.

Ken Li: The oil and gas market still remains soft. In our current forecast, we assume the softness will continue at least for this year, right? The oil and gas products usually carry a relatively high gross margin for our products. Definitely we grow our sales for the data center business and offset the sales drop from oil and gas. For this quarter, we still see quarter-by-quarter sales growth. I will say we are not providing a very detailed quantitative outlook, but we still think the H2 sales definitely will exceed the H1 sales. Our internal expectation is the H2 will be consistent with the H2 we had last year.

Speaker #3: And the oil and gas products usually carry a relatively high gross margin for our products. And definitely we grow our sales. For the data center business and the offsets, the sales job from oil and gas.

Speaker #3: So for this quarter, we still see quarter by quarter sales growth. And I will say we still we are not providing a very detailed quantitative outlook.

Speaker #3: But we still think the second half sales definitely will exceed the first half sales. And our internal expectation is the second half will be consistent with the second half we had last year.

Speaker #4: Thank you. We'll take this offline. Thank you.

Alan Lau: Thank you. We'll take this offline. Thank you.

Speaker #3: Thank you.

Xun Li: Thank you.

Ken Li: Thank you.

Speaker #1: Thank you. And one moment for our next question. Our next question will come from the line of Dilyara Celebeva with Freedom Finance Global. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Dilyara Suleymanova with Freedom Finance Global. Your line is open. Please go ahead.

Speaker #1: Please go ahead.

Dilyara Suleymanova: Yeah. Hello, everyone. I just would like to know some updates on Wisconsin. Do you currently have enough capacity in Wisconsin to support the expected data center ramp, or would additional capacity expansion be needed if demand continues to grow into 2027?

Speaker #5: Yeah. Hello everyone. So I just would like to know some updates on Wisconsin. Do you currently have enough capacity in Wisconsin to support the expected data center ramp, or would additional capacity expansion be needed if demand continues to grow into 2027?

Speaker #3: Okay. Thank you. So for Wisconsin, definitely I see we're making measurable improvements, right? So that's the reason we see the sales goals and also gross margin improvements.

Xun Li: Okay. Thank you. For Wisconsin, definitely I say we're making measurable improvements, right? That's the reason we see the sales growth and also gross margin improvements. The team put lots of resource, adding people, and also implement some process improvement initiatives. We add capacity. In Wisconsin previously, we have about 150,000 square feet, right? Now it's about 800,000 square feet. What I can see now is, at the current capacity, we can support the current demand. For next year, as needed, definitely, we can spend the capital to increase more capacity to serve our customer. What I see is, over the past several months, the team did a great job, improved lots of different areas, the labor efficiency, the cost structure, and also the material availability. Going forward, I will continue to expect the team deliver more process improvements in Wisconsin, right?

Ken Li: Okay. Thank you. For Wisconsin, definitely I say we're making measurable improvements, right? That's the reason we see the sales growth and also gross margin improvements. The team put lots of resource, adding people, and also implement some process improvement initiatives. We add capacity. In Wisconsin previously, we have about 150,000 square feet, right? Now it's about 800,000 square feet. What I can see now is, at the current capacity, we can support the current demand. For next year, as needed, definitely, we can spend the capital to increase more capacity to serve our customer. What I see is, over the past several months, the team did a great job, improved lots of different areas, the labor efficiency, the cost structure, and also the material availability. Going forward, I will continue to expect the team deliver more process improvements in Wisconsin, right?

Speaker #3: And the team put up lots of resources, adding people and also implementing some process improvement initiatives. And we added capacity. In Wisconsin, previously, we had about 150,000 square feet, right?

Speaker #3: Now it's about 800,000 square feet. And what I can see now is at the current capacity, we can support the current demand. And for next year, as needed, definitely we can spend the capital to increase more capacity to serve our customer.

Speaker #3: And what I see is, over the past several months, the team did a great job improving a lot of different areas—the labor efficiency, the cost structure, and also the material availability.

Speaker #3: And going forward, I will continue to expect the team to deliver more process improvements in Wisconsin.

Dilyara Suleymanova: Okay, thanks. Just to follow up on that. Given the sequential improvement in gross margins, how should investors think about the normalized gross margin potential of the business once your Wisconsin operations stabilize?

Speaker #5: Okay. Thanks. So just to follow up on that, so given the sequential improvement in gross margins, how should investors think about the normalized gross margin potential of the business once your Wisconsin operation stabilize?

Xun Li: Yeah, we saw pretty significant gross margin improvements in Q2. As you know, there are many things could impact the quarterly gross margin. It could be impacted by mix, pricing, and variable efficiency, fixed cost absorption, all these kind of thing. If you see our year-to-date, the gross margin is 25.2%. We will continue to make process improvements in Wisconsin. Also hopefully, we can have favorable mix for the remainder of the year. I will not give you a specific number for the outlook, but I will say, in the longer term, our business goal is to have a gross margin at 25% range.

Speaker #3: Yeah. We saw a pretty significant gross margin improvements in 2Q. And as you know, there are many things could impact the quarterly gross margin.

Ken Li: Yeah, we saw pretty significant gross margin improvements in Q2. As you know, there are many things could impact the quarterly gross margin. It could be impacted by mix, pricing, and variable efficiency, fixed cost absorption, all these kind of thing. If you see our year-to-date, the gross margin is 25.2%. We will continue to make process improvements in Wisconsin. Also hopefully, we can have favorable mix for the remainder of the year. I will not give you a specific number for the outlook, but I will say, in the longer term, our business goal is to have a gross margin at 25% range.

Speaker #3: It could be impacted by mix, pricing, available efficiency, fixed cost absorption— all these kinds of things. And if you see our year-to-date, the gross margin is 25.2%.

Speaker #3: And we will continue to make a process improvements in Wisconsin. And also hopefully we can have favorable mix. For the remainder of the year, I will not give you a specific number for the outlook.

Speaker #3: But I will say in the longer term, our business goal is to have a gross margin at 25% range.

Speaker #5: Okay. Great. Thanks. I'll turn it back.

Dilyara Suleymanova: Okay, great. Thanks. I'll turn it back.

Speaker #1: Thank you. And I would now like to hand the conference back over to Kenneth Lee for closing remarks.

Operator: Thank you. I would now like to hand the conference back over to Kenneth Lee for closing remarks.

Speaker #3: Okay. I just want to thank everyone who joined the call today. I appreciate your continued interest in PSI, and we look forward to giving you another update at the next quarter's meeting.

Xun Li: Okay. I just want to thank for everyone who joined the call today. I appreciate your continued interest in PSI. We look forward to giving you another update for the next quarter's meeting. Thank you.

Ken Li: Okay. I just want to thank for everyone who joined the call today. I appreciate your continued interest in PSI. We look forward to giving you another update for the next quarter's meeting. Thank you.

Speaker #3: Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Q2 2026 Power Solutions International Inc Earnings Call

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