POWER SOLUTIONS INTERNATIONAL, INC. (PSIX)

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the three and six months ended June 30, 2026 and 2025, including discussions about management’s expectations for the Company’s business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and are made in light of recent events and trends. These statements should not be construed either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause the Company’s actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” in this Quarterly Report. The following discussion should also be read in conjunction with the Company’s unaudited consolidated financial statements and the related Notes included in this Quarterly Report.

Executive Overview

The Company designs, engineers, manufactures, markets and sells a broad range of advanced, emission-certified engines and power systems that run on a wide variety of clean, alternative fuels, including natural gas, propane, and biofuels, as well as gasoline and diesel options, within the power systems, industrial and transportation end markets with primary manufacturing, assembly, engineering, R&D, sales and distribution facilities located in suburban Chicago, Illinois and Darien and Beloit, Wisconsin. The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, such as the U.S. Environment Protection Agency (“EPA”), the California Air Resource Board (“CARB”) and the People’s Republic of China’s Ministry of Ecology and Environment (“MEE”).

The Company’s products are primarily used by global original equipment manufacturers (“OEM”) and end-user customers across a wide range of applications and equipment that includes standby and prime power generation, demand response, microgrid, combined heat and power, arbor care, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, utility vehicles, light- and medium-duty vocational trucks, school and transit buses, and utility power. The Company manages the business as a single reportable segment.

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Net sales by geographic area and by end market for the three and six months ended June 30, 2026 and 2025 are presented below:

Recent Trends and Business Outlook

Sales declined in the second quarter of 2026, primarily within the power systems end market, reflecting uneven customer ordering patterns and some softness in the oil and gas market. Looking ahead, we expect sales to improve in the second half of the year, driven by demand in data center-related markets, partially offset by ongoing softness in the oil and gas market.

The Company is focused on leading the business through a growth phase with a stronger balance sheet while strategically prioritizing products that demonstrate strong demand and higher gross margins. Consistent with those goals, the Company is actively pursuing several initiatives to enhance and expand manufacturing capacity to meet the increasing demand from data center markets. The Company expects that pivoting the focus to these markets will drive net sales growth and profitability. Through expanded capacity and strategic partnerships, management expects this positive trend to continue.

PSI’s operating results are influenced by macroeconomic and geopolitical conditions, including recent softening in the oil and gas sector. In response, the Company is actively managing capital allocation and operating expenses while adjusting commercial strategies.

In addition to prioritizing gross profit, the Company is committed to efficiently managing expenses, including streamlining operating expenses and prioritizing certain R&D investments in support of long-term growth objectives. The Company is committed to focusing on growth opportunities and investment while also optimizing its cost structure to enhance growth and profitability, ultimately delivering sustained value to our shareholders.

The Company has experienced tariff costs associated with products in its supply chain. The Supreme Court's decision to strike down certain tariffs and the administration's response have created significant uncertainty regarding the scope, rate, duration, and legal authority for future tariffs, as well as the timing, process, and likelihood of recovering tariffs previously paid. We are actively assessing the evolving tariff environment and are committed to proactively mitigating any associated risks through strategic sourcing, pricing actions, and supply chain agility.

The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity.

The Company is party to several legal contingencies. See Note 11. Commitments and Contingencies for further discussion of the Company’s indemnification obligations.

Given ongoing variability in order timing and market conditions, the Company is not providing formal full-year guidance at this time. Based on the current production schedule and information available as of the date of this release, the Company expects second-half 2026 sales to exceed first-half 2026 sales and to be approximately in line with sales in the second half of 2025, as larger Power Systems orders move into production and are recognized as revenue. However, the timing and ultimate volume of

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those shipments remain subject to customer scheduling, manufacturing throughput, supply chain factors and other variables. There can be no assurance that those orders will translate to a uniformly stronger second half. Continued softness in the oil and gas end market is expected to weigh on quarterly revenue trends, and capacity ramp-up activities at the Company’s Wisconsin operations and their related cost effects on gross margin are expected to continue.

Strategic Initiatives/Growth Strategies: The Company has initiated various business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Central to this plan is the Company’s increased emphasis on power systems product offerings through new product development and investments, in addition to leveraging the Company’s relationship with Weichai. With the recent introduction of numerous natural gas and diesel engines, coupled with its existing strong product lineup, the Company believes that it has a solid foundation to achieve long-term growth, particularly within the power systems market.

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Results of Operations

Condensed consolidated results of operations for the three and six months ended June 30, 2026, compared with the three and six months ended June 30, 2025 (UNAUDITED):

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the fiscal years ended December 31, 2025 and 2024, including discussions about management’s expectations for the Company’s business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and these statements should not be construed either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause the Company’s actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. A description of material factors known to the Company that may cause its results to vary, or may cause management to deviate from its current plans and expectations, is set forth under “Risk Factors” in this report. See also “Forward-Looking Statements.” The following discussion should also be read in conjunction with the Company’s consolidated financial statements and the related Notes included in this report.

Executive Overview

The Company designs, engineers, manufactures, markets and sells a broad range of advanced, emission-certified engines and power systems that run on a wide variety of clean, alternative fuels, including natural gas, propane, and biofuels, as well as gasoline and diesel options, within the power systems, industrial and transportation end markets with primary manufacturing, assembly, engineering, R&D, sales and distribution facilities located in suburban Chicago, Illinois and Darien and Beloit, Wisconsin. The Company provides highly engineered, comprehensive solutions designed to meet specific customer application requirements and technical specifications, including those imposed by environmental regulatory bodies, such as the EPA, CARB, MEE, and EU.

The Company’s products are primarily used by global OEM and end-user customers across a wide range of applications and equipment that includes standby and prime power generation, demand response, microgrid, combined heat and power, arbor care, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, utility vehicles, light- and medium-duty vocational trucks, school and transit buses, and utility power. The Company manages the business as a single reporting segment.

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Net sales by geographic area and by end market for 2025 and 2024 are presented below:

During 2025, the Company sold approximately 19,800 engines of which 74% utilized propane or natural gas as their fuel source and 18% utilized gasoline. The remaining 8% of engines were dual fuel gasoline/propane, diesel and service engines. During 2024, the Company sold over 22,200 engines of which approximately 76% utilized propane or natural gas as their fuel source and 13% utilized gasoline. The remaining 11% of engines were dual fuel gasoline/propane, diesel and service/base engines.

Weichai Transactions

The Company sought to expand its range of products and its presence in the Pacific Rim through the Weichai Transactions (see Note 3. Weichai Transactions, included in Item 8. Financial Statements and Supplementary Data, for additional information).

The Company and Weichai executed the Collaboration Agreement in order to achieve their respective objectives, enhance the cooperation alliance and share experiences, expertise and resources. Among other things, the Collaboration Arrangement established a joint steering committee, permitted Weichai to employ a limited number of technical, marketing, sales, procurement and finance personnel to work at the Company and established several collaborations related to stationary natural-gas applications and Weichai diesel engines. The Collaboration Agreement also provides for the steering committee to create various subcommittees with operating roles and otherwise governs the treatment of intellectual property of the parties prior to the collaboration and the intellectual property developed during the collaboration. On March 22, 2023, the Collaboration Agreement was extended for an additional term of three years, expiring in March 2026. The Company received a renewal notice from Weichai and is in the process of negotiating the renewal of the Collaboration Agreement; however, no formal extension has been executed as of the date of this filing. The Company’s sales to Weichai were $1.3 million and $1.8 million during 2025 and 2024, respectively. The Company purchased $39.8 million and $21.5 million of inventory from Weichai during 2025 and 2024, respectively.

Legal Settlement Expenses

Legal settlement expenses were immaterial for the year ended December 31, 2025. The Company recognized a benefit of $4.7 million in the 2024 operating results (see Note 11. Commitments and Contingencies, included in Part II. Item 8. Financial Statements and Supplementary Data, for additional information).

Recent Trends and Business Outlook

PSI’s growth in net revenue in 2025 was driven by power systems markets, including data center and oil and gas products, partially offset by lower sales from more mature, lower-margin markets such as industrial. This shift in markets reflects the

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Company’s conscious strategic prioritization toward higher growth, higher-margin markets with less emphasis on more mature markets.

The Company is focused on leading the business through a growth phase with a stronger balance sheet while strategically prioritizing products that demonstrate strong demand and higher gross margins. Consistent with those goals, the Company is actively pursuing several initiatives to enhance and expand manufacturing capacity to meet the increasing demand from data center markets. Pivoting the focus to these markets is driving current net sales growth and profitability. Through expanded capacity and strategic partnerships, management expects this positive trend to continue.

PSI’s business is impacted by the current macroeconomic and geopolitical environment. For example, although the oil and gas market, in which the Company has historically operated, has experienced year over year growth from its historic lows, sales levels may not reach their previous higher levels because of lower rig counts. The Company has been actively navigating these challenges by balancing its investments, expenses, pricing and sales efforts in this market as well as others.

In addition to prioritizing gross profit, the Company is committed to efficiently managing expenses, including streamlining operating expenses and prioritizing certain R&D investments in support of long-term growth objectives. The Company is committed to focusing on growth opportunities and investment while also optimizing its cost structure to enhance growth and profitability, ultimately delivering sustained value to our shareholders.

The Company has experienced tariff costs associated with its supply chain products. The Supreme Court's decision to strike down tariffs and the administration's response have created significant uncertainty regarding the scope, rate, duration, and legal authority for future tariffs. We are actively assessing the evolving tariff environment and are committed to proactively mitigating any associated risks through strategic sourcing, pricing actions, and supply chain agility.

The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity. On July 30, 2025, the Company amended its Revolving Credit Agreement with Standard Chartered Bank and three other lenders. The amended Revolving Credit Agreement allows the Company to borrow up to $135.0 million and extends the maturity date to July 30, 2027.

The Company is party to several legal contingencies. See Note 11. Commitments and Contingencies for further discussion of the Company’s indemnification obligations.

The company remains confident in the Company’s long-term strategy and market positioning. Given broader market conditions, ongoing operational initiatives, and variability in customer order timing, the Company has determined it is appropriate to take a disciplined approach and not provide business outlook for 2026 at this time. Management will continue to evaluate its ability to provide outlook as execution progresses and visibility improves.

Strategic Initiatives/Growth Strategies: The Company has initiated various business objectives aimed at improving profitability, streamlining processes, strengthening the business and focusing on achieving growth in higher-return product lines. Central to this plan is the Company’s increased emphasis on power systems product offerings through new product development and investments, in addition to leveraging the Company’s relationship with Weichai. With the recent introduction of numerous natural gas and diesel engines, coupled with its existing strong product lineup, the Company believes that it has a solid foundation to achieve long-term growth, particularly within the power systems market.

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Results of Operations

Results of operations for the year ended December 31, 2025 compared with the year ended December 31, 2024:

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