POWER SOLUTIONS INTERNATIONAL, INC.

Previous wording

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, 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 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.

Current wording

The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the three and nine months ended September 30, 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 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.

Previous wording

Net sales by geographic area and by end market for the three and six months ended June 30, 2025 and 2024 are presented below:

Current wording

Net sales by geographic area and by end market for the three and nine months ended September 30, 2025 and 2024 are presented below:

Previous wording

PSI’s growth in net revenue for the six months 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 Company’s conscious strategic prioritization toward higher growth, higher-margin markets with less emphasis on more mature markets.

Current wording

PSI’s growth in net revenue for the nine months 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 Company’s conscious strategic prioritization toward higher growth, higher-margin markets with less emphasis on more mature markets.

Previous wording

The Company experiences recent tariff costs associated with its supply chain products. We are actively assessing the evolving tariff environment and are committed to proactively mitigate 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 Second Amended Revolving Credit Agreement allows the Company to borrow up to $135.0 million and extends the maturity date to July 30, 2027.

Current wording

The Company experiences recent tariff costs associated with its supply chain products. We are actively assessing the evolving tariff environment and are committed to proactively mitigate 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.

Previous wording

Condensed consolidated results of operations for the three and six months ended June 30, 2025, compared with the three and six months ended June 30, 2024(UNAUDITED):

Current wording

Condensed consolidated results of operations for the three and nine months ended September 30, 2025, compared with the three and nine months ended September 30, 2024(UNAUDITED):

Previous wording

Net sales increased $81.3 million, or 74%, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024, as a result of higher sales of $83.8 million in the power systems end market, partially offset by a decrease of $1.6 million and $0.9 million within the industrial and transportation end markets, respectively. This shift in market mix reflects our deliberate strategic focus on higher-growth sectors such as data centers and oil and gas. In particular, we are prioritizing the rapidly expanding data center sector by enhancing our manufacturing capacity and capabilities to meet evolving customer demand. The decline in industrial sales is largely attributable to softer demand in the material handling market.

Current wording

Net sales increased $78.0 million, or 62%, during the three months ended September 30, 2025, compared to the three months ended September 30, 2024, as a result of higher sales of $85.3 million in the power systems end market, partially offset by a decrease of $4.7 million and $2.6 million within the industrial and transportation end markets, respectively. This shift in market mix reflects our deliberate strategic focus on higher-growth sectors such as data centers and oil and gas. In particular, we are prioritizing the rapidly expanding data center sector by enhancing our manufacturing capacity and capabilities to meet evolving customer demand. The decline in industrial sales is largely attributable to softer demand in the material handling market.

Previous wording

Net sales increased $121.5 million, or 59%, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024, as a result ofhigher sales of $128.6 million in the power systems end market, partially offset by a decrease of $6.9 million and $0.2 million within the industrial and transportation end markets, respectively. This shift in market mix reflects our deliberate strategic focus on higher-growth sectors such as data centers and oil and gas. In particular, we are prioritizing the rapidly expanding data center sector by enhancing our manufacturing capacity and capabilities to meet evolving customer demand. The decline in industrial sales is largely attributable to softer demand in the material handling market.

Current wording

Net sales increased $199.5 million, or 60%, during the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, as a result ofhigher sales of $213.8 million in the power systems end market, partially offset by a decrease of $11.5 million and $2.8 million within the industrial and transportation end markets, respectively. This shift in market mix reflects our deliberate strategic focus on higher-growth sectors such as data centers and oil and gas. In particular, we are prioritizing the rapidly expanding data center sector by enhancing our manufacturing capacity and capabilities to meet evolving customer demand. The decline in industrial sales is largely attributable to softer demand in the material handling market.

Previous wording

Gross profit increased during the three months ended June 30, 2025 by $18.9 million, or 54%, compared to the three months ended June 30, 2024. Gross margin was 28.2% and 31.8% during the three months ended June 30, 2025 and 2024, respectively. The decrease in gross margin is primarily due to strong sales growth in comparatively lower-margin products and temporary inefficiencies related to our accelerated production ramp-up.

Current wording

Gross profit increased during the three months ended September 30, 2025 by $12.3 million, or 34%, compared to the three months ended September 30, 2024. Gross margin was 23.9% and 28.9% during the three months ended September 30, 2025 and 2024, respectively. The decrease in gross margin is primarily due to strong sales growth in comparatively lower-margin products and temporary inefficiencies related to our accelerated production ramp-up.

Previous wording

Gross profit increased during the six months ended June 30, 2025 by $33.4 million, or 55%, compared to the six months ended June 30, 2024. Gross margin was 28.8% and 29.6% during the six months ended June 30, 2025 and 2024, respectively. The decrease in gross margin is primarily due to strong sales growth in comparatively lower-margin products and temporary inefficiencies related to our accelerated production ramp-up.

Current wording

Gross profit increased during the nine months ended September 30, 2025 by $45.7 million, or 47%, compared to the nine months ended September 30, 2024. Gross margin was 26.9% and 29.4% during the nine months ended September 30, 2025 and 2024, respectively. The decrease in gross margin is primarily due to strong sales growth in comparatively lower-margin products and temporary inefficiencies related to our accelerated production ramp-up.

Previous wording

Research and develo pment expenses during the three months ended June 30, 2025 and 2024 were $4.6 million and $5.0 million, respectively.

Current wording

Research and develo pment expenses during the three months ended September 30, 2025 and 2024 were $4.8 million and $4.7 million, respectively.

Previous wording

Research and development expenses during the six months ended June 30, 2025 and 2024 were $8.9 million and $10.2 million, respectively. The decrease of $1.3 million was primarily driven by the timing of R&D program expenditures and the recovery of R&D costs from certain customers.

Current wording

Research and development expenses during the nine months ended September 30, 2025 and 2024 were $13.6 million and $14.8 million, respectively. The decrease of $1.2 million was primarily driven by the timing of R&D program expenditures and the recovery of R&D costs from certain customers.

Previous wording

Selling, general and administrative(“SG&A”)expenses were$16.7 million during the three months ended June 30, 2025 anincrease of $12.2 million, or 269%, compared to the three months ended June 30, 2024. The increase is primarily due to a favorable non-recurring legal reserve reduction in 2024, and higher costs associated with employee incentive programs, increased sales and administrative expenses to support ongoing business growth in 2025.

Current wording

Selling, general and administrative(“SG&A”)expenses were$15.3 million during the three months ended September 30, 2025, anincrease of $4.3 million, or 39%, compared to the three months ended September 30, 2024. The variance reflects higher costs associated with employee incentive programs, expense related to customer relationship improvement efforts, and increased sales and administrative expenses to support ongoing business growth in 2025.

Previous wording

SG&A expenses were $27.8 million during the six months ended June 30, 2025, anincrease of$13.7 million, or 98%, compared to the six months ended June 30, 2024. The increase is primarily due to a favorable non-recurring legal reserve reduction in 2024, and higher costs associated with employee incentive programs, increased sales and administrative expenses to support ongoing business growth in 2025.

Current wording

SG&A expenses were $43.0 million during the nine months ended September 30, 2025, anincrease of$18.0 million, or 72%, compared to the nine months ended September 30, 2024. The increase is primarily due to a favorable non-recurring legal reserve reduction in 2024, higher costs associated with employee incentive programs, expense related to customer relationship improvement efforts, and increased sales and administrative expenses to support ongoing business growth in 2025.

Previous wording

Interest expense was $1.7 million for the three months ended June 30, 2025, as compared to $2.9 million for the three months ended June 30, 2024, largely due to reduced outstanding debt and lower overall effective interest rates. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Current wording

Interest expense was $1.6 million for the three months ended September 30, 2025, as compared to $2.8 million for the three months ended September 30, 2024, largely due to reduced outstanding debt and lower overall effective interest rates. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Previous wording

Interest expense was $3.5 million for the six months ended June 30, 2025, as compared to $6.3 million for the six months ended June 30, 2024, largely due to reduced outstanding debt and lower overall effective interest rates. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Current wording

Interest expense was $5.1 million for the nine months ended September 30, 2025, as compared to $9.1 million for the nine months ended September 30, 2024, largely due to reduced outstanding debt and lower overall effective interest rates. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Previous wording

The Company recorded income tax benefit of $20.1 million for the three months ended June 30, 2025, as compared to income taxexpense of $0.9 million for the same period in 2024. The change was primarily driven by the release of a valuation allowance on deferred tax assets with tax benefit of$29.2 million in the second quarter of 2025. Pretax income was $31.1 million for the three months ended June 30, 2025, compared to $22.4 million for the same period in 2024.

Current wording

The Company recorded income tax benefit of $0.9 million for the three months ended September 30, 2025, as compared to income taxexpense of $0.3 million for the same period in 2024. The tax benefit in the third quarter of 2025 was primarily driven by the release of$7.0 million valuation allowance on deferred tax assets. The effective tax rate in the third quarter of

Previous wording

The Company recorded income tax benefit of $16.3 million for the six months ended June 30, 2025, as compared to income tax expense of $1.1 million for the same period in 2024. The year to date benefit reflects the valuation allowance release. Excluding the effect of the valuation allowance release, there would be no income tax expense for the six months ended June 30, 2025. Pretax income was $53.9 million for the six months ended June 30, 2025, compared to $29.8 million for the same period in 2024.

Current wording

The Company recorded income tax benefit of $17.2 million for the nine months ended September 30, 2025, as compared to income tax expense of $1.4 million for the same period in 2024. The year-to-date benefit primarily reflects the $36.6 million valuation allowance release. Pretax income was $80.7 million for the nine months ended September 30, 2025, compared to $47.4 million for the same period in 2024.

Previous wording

The following table presents a reconciliation from Net income to Adjusted net income for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table presents a reconciliation from Net income to Adjusted net income for the three and nine months ended September 30, 2025 and 2024:

Previous wording

The following table presents a reconciliation from Net income per share – diluted to Adjusted net income per share – diluted for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table presents a reconciliation from Net income per share – diluted to Adjusted net income per share – diluted for the three and nine months ended September 30, 2025 and 2024:

Previous wording

The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2025 and 2024:

Previous wording

Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the three and six months ended June 30, 2025 and 2024.

Current wording

Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the three and nine months ended September 30, 2025 and 2024.

Previous wording

Amounts include severance expense for the three and six months ended June 30, 2025.

Current wording

Amounts include severance expense for the three and nine months ended September 30, 2025.

Previous wording

Amounts include legal settlements for the three and six months ended June 30, 2025 and 2024.

Current wording

Amounts include legal settlements for the three and nine months ended September 30, 2025 and 2024.

Previous wording

Cash Flows for the Six Months Ended June 30, 2025

Current wording

Cash Flows for the Nine Months Ended September 30, 2025

Previous wording

Net cash provided by operating activities was $25.5 million for the six months ended June 30, 2025, compared to net cash provided by operating activities of $17.2 million for the six months ended June 30, 2024, resulting in an increase of $8.3 million in cash provided by operating activities year-over-year. The increase in cash provided by operating activities primarily resulted from a $5.9 million increase of cash used by working capital accounts and an increase in earnings of $41.6 million. The decrease in cash generated from working capital was primarily related to the purchases of inventory and the timing of collections on accounts receivables, reflecting higher sales volume and operational growth, partially offset by increase in accounts payable and other current liabilities for the six months ended June 30, 2025 compared to June 30, 2024.

Current wording

Net cash provided by operating activities was $28.7 million for the nine months ended September 30, 2025, compared to net cash provided by operating activities of $29.7 million for the nine months ended September 30, 2024, resulting in a decrease of $1.0 million in cash provided by operating activities year-over-year. Thedecrease in cash provided by operating activities primarily resulted from a $31.4 million increase of cash used by working capital accounts and an increase in earnings of $51.9 million. The decrease in cash generated from working capital was primarily related to the purchases of inventory and the timing of collections on accounts receivables, reflecting higher sales volume and operational growth, partially offset by an increase in accounts payable and other current liabilities for the nine months ended September 30, 2025 compared to September 30, 2024.

Previous wording

Net cash used in investing activities was $5.4 million for the six months ended June 30, 2025, compared to cash used in investing activities of $1.5 million for the six months ended June 30, 2024. For the six months ended June 30, 2025 and 2024, cash used in investing activities related to capital expenditures.

Current wording

Net cash used in investing activities was $7.0 million for the nine months ended September 30, 2025, compared to cash used in investing activities of $2.0 million for the nine months ended September 30, 2024. For the nine months ended September 30, 2025 and 2024, cash used in investing activities related to capital expenditures.

Previous wording

The Company used $25.4 million in cash from financing activities forthe six months ended June 30, 2025, compared to $10.2 million cash used by financing activities for the six months ended June 30, 2024. The cash used by financing activities for the six months ended June 30, 2025, was due to the full repayment of the SLA and other existing debt year to date. See additional discussion in Note 6. Debt, included in Part I, Item 1. Financial Statements, which further describe the Company’s debt arrangements.

Current wording

The Company used $27.5 million in cash from financing activities forthe nine months ended September 30, 2025, compared to $10.7 million cash used by financing activities for the nine months ended September 30, 2024. The cash used by financing activities for the nine months ended September 30, 2025 was due to the full repayment of the SLA and other existing debt year to date. See additional discussion in Note 6. Debt, included in Part I, Item 1. Financial Statements, which further describe the Company’s debt arrangements.

Previous wording

The Company’s sources of funds are cash flows from operations, borrowings made pursuant to its credit facilities and shareholder’s loan agreements, and cash and cash equivalents on hand. Uses of funds include payments of principal on our debt facilities and shareholder’s loan agreements, capital expenditures, and working capital needs.

Current wording

The Company’s sources of funds are cash flows from operations, borrowings made pursuant to its credit facilities and cash and cash equivalents on hand. Uses of funds include payments of principal on our debt facilities and shareholder’s loan agreements, capital expenditures, and working capital needs.

Previous wording

The Company has achieved profitability and generated positive cash flows from operating activities in 2025. As June 30, 2025, the Company’s total outstanding debt obligations under the Revolving Credit Agreement and for finance leases and other debt, all of which are short-term requirements, were $96.8 million in the aggregate, and its cash and cash equivalents were $49.5 million. See Item 1. Financial Statements, Note 6. Debt, for additional information. On July 30, 2025, the Company amended its Revolving Credit Agreement with Standard Chartered Bank and three other lenders. The Second Amended Revolving Credit Agreement allows the Company to borrow up to$135.0 million and extends the maturity date to July 30, 2027.

Current wording

The Company has achieved profitability and generated positive cash flows from operating activities in 2025. As of September 30, 2025, the Company’s total outstanding debt obligations under the Revolving Credit Agreement and for finance leases and other debt, were $96.7 million in the aggregate, and its cash and cash equivalents were $49.0 million. See Item 1. Financial Statements, Note 6. Debt, for additional information. On July 30, 2025, the Company amended its Revolving Credit Agreement with Standard Chartered Bank and three other lenders. The second amended Revolving Credit Agreement allows the Company to borrow up to$135.0 million and extends the maturity date to July 30, 2027.

Previous wording

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 previous higher levels because of lower rig counts. The Company experiences recent tariff costs associated with its supply chain products. We are actively assessing the evolving tariff environment and are committed to proactively mitigate 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.

Current wording

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 previous higher levels because of lower rig counts. The Company experiences tariff costs associated with products in its supply chain. We are actively assessing the evolving tariff environment and are committed to proactively mitigate 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.

Previous wording

The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s most critical accounting policies and estimates are those most important to the portrayal of its financial condition and results of operations which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. The Company has identified the following as its most critical accounting policies and judgments. Although management believes that its estimates and assumptions are reasonable, they are based on information available when they are made and, therefore, may differ from estimates made under different assumptions or conditions..

Current wording

The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s most critical accounting policies and estimates are those most important to the portrayal of its financial condition and results of operations which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. The Company has identified the items listed below as its most critical accounting policies and judgments. Although management believes that its estimates and assumptions are reasonable, they are based on information available when they are made and, therefore, may differ from estimates made under different assumptions or conditions.

Previous wording

The Company’s significant accounting policies are consistent with those discussed in Note 1. Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s 2024 Annual Report. During the six months ended June 30, 2025, there were no significant changes in the application of critical accounting policies.

Current wording

The Company’s significant accounting policies are consistent with those discussed in Note 1. Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s 2024 Annual Report. During the nine months ended September 30, 2025, there were no significant changes in the application of critical accounting policies.