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, 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.

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, 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.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

Sales declined in the third 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 fourth quarter of the year compared with the fourth quarter of 2025, driven by demand in data center-related markets, partially offset by ongoing softness in the oil and gas market.

Previous wording

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.

Current wording

The Company has experienced tariff costs associated with products in its supply chain. During the third quarter of 2026, the Company completed its evaluation of tariff refunds received in connection with the International Emergency Economic Powers Act (“IEEPA”) ruling. Based on that evaluation, the Company issued or expects to issue credit memos to customers for tariff refund amounts determined to be refundable to customers and recognized a reduction of cost of sales for the portion of refunds related to tariff costs that were not passed through to customers. Although the Company has completed its evaluation of the tariff refunds received to date, significant uncertainty remains regarding the scope, rate, duration, and legal authority for future tariffs, the administration’s response to tariff-related court decisions, and the timing, process, and likelihood of recovering any additional tariffs previously paid. Future tariff developments could affect the Company’s cost of sales, gross margin, pricing, customer credits or refund obligations, supply chain strategy, and liquidity. The Company continues to actively monitor the evolving tariff environment and seeks to mitigate associated risks through strategic sourcing, pricing actions, customer communications, and supply chain agility

Previous wording

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 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.

Current wording

Based on the current production schedule and information available as of the date of this Quarterly Report, the Company is raising its outlook and now expects second-half 2026 net sales to exceed second-half 2025 net sales, as larger Power Systems orders move into production and are recognized as revenue. The Company previously expected second-half 2026 net sales to be approximately in line with second-half 2025 net sales. The timing, volume and mix of shipments, including custom product orders, remain subject to customer scheduling, manufacturing throughput, supply chain factors and other variables, including current material availability constraints affecting certain planned fourth quarter deliveries; there can be no assurance that orders will convert to revenue in any particular quarter. Softness in demand within the oil and gas market is expected to continue, offset by higher sales of data center products, which generally carry lower gross margins than oil and gas products. Apart from the expected non-recurrence of the $3.8 million tariff refund described above, the Company expects fourth quarter 2026 gross margin to be modestly lower than in the third quarter, primarily reflecting this less favorable product mix. While the Company expects continued benefits from its operational improvement initiatives, particularly at its Wisconsin operations, continuing ramp-up costs, production volume and year-end adjustments, including those arising from inventory counts, may also adversely affect gross margin. Given ongoing variability in order timing and market conditions, the Company is not providing formal full-year guidance. The Company expects to provide additional perspective on 2027 with its fourth quarter results.

Previous wording

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):

Current wording

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

Previous wording

Net sales decreased $39.4 million, or 21%, during the three months ended June 30, 2026, compared to the three months ended June 30, 2025, as a result of lower sales of $34.6 million, $3.0 million and $1.7 million in the power systems, industrial and transportation end markets, respectively. Net sales decreased $46.2 million, or 14%, during the six months ended June 30, 2026, compared to the six months ended June 30, 2025, as a result oflower sales of $44.8 million and $1.5 million in the power systems end market and transportation end markets, respectively. During both three and six months ended June 30, 2026, sales in the power systems end market declined primarily due to uneven order patterns and shipment timing for data center-related products, together with softness in oil and gas markets. The Company continues to see strong demand for data center power solutions. However, the timing and ultimate volume of revenue recognized from that demand remain subject to customer scheduling, manufacturing throughput, supply chain factors and other variables, and the Company is not predicting any specific level of data center revenue in any future period. Based on the current production schedule, the Company expects second-half 2026 sales to exceed first-half 2026 sales as larger Power Systems orders move into production, although shipment timing and quarterly results may continue to vary.

Current wording

Net sales decreased $1.8 million, or 1%, during the three months ended September 30, 2026, compared to the three months ended September 30, 2025, as a result of lower sales of $6.2 million and $1.1 million in the power systems and transportation end markets, respectively, partially offset by an increase of $5.6 million in the industrial end market. Net sales decreased $48.0 million, or 9%, during the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, as a result oflower sales of $51.0 million and $2.5 million in the power systems end market and transportation end markets, respectively. Sales in the power systems end market declined primarily due to softness in demand within the oil and gas market partially offset by higher sales of data center related products. The Company continues to see strong demand for data center power solutions; however, the timing and ultimate volume of revenue recognized from that demand remain subject to customer scheduling, manufacturing throughput, supply chain factors and other variables, and the Company is not predicting any specific level of data center revenue in any future period.

Previous wording

Gross profit decreased during the three months ended June 30, 2026 by $12.7 million, or 24%, compared to the three months ended June 30, 2025. Gross margin was 27.1% and 28.2% during the three months ended June 30, 2026 and 2025, respectively. Gross profit decreased during the six months ended June 30, 2026 by $23.6 million, or 25%, compared to the six months ended June 30, 2025. Gross margin was 25.2% and 28.8% during the six months ended June 30, 2026 and 2025. During both the three and six months ended June 30, 2026, gross margin reflected a lower mix of oil and gas products, together with elevated production costs associated with capacity ramp-up activities supporting data center-related applications at the Company’s Wisconsin operations. On a sequential basis, gross margin improved by approximately 420 basis points compared with the first quarter of 2026. The improvement reflected in part the early benefits of the Company’s ongoing operational improvement efforts in Wisconsin and was partially offset by unfavorable product mix in the second quarter. The Company’s capacity ramp-up activities at its Wisconsin operations are continuing, and the Company expects related production costs to persist; the trajectory of any further sequential improvement remains subject to product mix, throughput and other operational factors.

Current wording

Gross profit increased during the three months ended September 30, 2026 by $11.2 million, or 23%, compared to the three months ended September 30, 2025. Gross margin was 29.7% and 23.9% during the three months ended September 30, 2026 and 2025, respectively. Gross profit decreased during the nine months ended September 30, 2026 by $12.4 million, or 9%, compared to the nine months ended September 30, 2025. Gross margin was 27.1% and 26.9% during the nine months ended September 30, 2026 and 2025, respectively. The increase in gross margin compared with the third quarter of 2025 primarily reflected the benefits of the Company’s operational improvement initiatives at its Wisconsin operations, which have reduced the elevated production costs associated with capacity ramp-up activities supporting data center-related applications that affected the prior-year period, as well as a$3.8 million tariff refund recognized in the third quarter of 2026, which contributed approximately 188 basis points to gross margin, partially offset by an unfavorable year-over-year product mix resulting from lower oil and gas sales. These initiatives have focused on enhancing manufacturing efficiency, streamlining production processes, improving labor productivity and strengthening cost controls. On a sequential basis, gross margin improved by approximately 260 basis points compared with the second quarter of 2026, including the benefit of the tariff refund. For the nine months ended September 30, 2026, the decrease in gross profit compared to the prior-year period was primarily driven by lower sales volume, partially offset by improved gross margin resulting from operational improvement initiatives and the reduction of cost of sales recognized in connection with tariff refunds for costs that were not passed through to customers. Capacity ramp-up activities at the Wisconsin operations are continuing, and the Company expects the related production costs to persist. Gross margin in any quarter remains subject to product mix, production volume, throughput and other operational factors, and the Company does not expect the third-quarter gross margin level, which included the tariff refund, to be sustained in the fourth quarter of 2026.

Previous wording

Research and develo pment expenses during the three months ended June 30, 2026 and 2025 were $5.1 million and $4.6 million, respectively. Research and development expenses during the six months ended June 30, 2026 and 2025 were $9.9 million and $8.9 million, respectively. During the three and six months ended June 30, 2026, the increase of $0.4 million and$1.0 million, respectively, 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.

Current wording

Research and develo pment expenses during the three months ended September 30, 2026 and 2025 were $5.1 million and $4.8 million, respectively. Research and devel opment expenses during the nine months ended September 30, 2026 and 2025 were $14.9 million and $13.6 million, respectively. During the three and nine months ended September 30, 2026, the increase of $0.3 million and $1.3 million, respectively, was primarily driven by higher R&D program expenditures to support new programs in 2026.

Previous wording

Selling, general and administrative(“SG&A”)expenses were$12.1 million during the three months ended June 30, 2026, adecrease of $4.6 million, or 27%, compared to the three months ended June 30, 2025. SG&A expenses were $25.1 million during the six months ended June 30, 2026, andecrease of$2.7 million, or 10%, compared to the six months ended June 30, 2025. During both three and six months ended June 30, 2026, the decrease was primarily attributable to lower compensation expense related to the revaluation of previously awarded SARs, lower costs associated with employee incentive programs, partially offset by incremental selling and administrative expenses associated with MTL Manufacturing and Equipment in the first quarter.

Current wording

Selling, general and administrative(“SG&A”)expenses were$13.7 million during the three months ended September 30, 2026, adecrease of $1.6 million, or 10%, compared to the three months ended September 30, 2025. SG&A expenses were $38.8 million during the nine months ended September 30, 2026, a decrease of $4.3 million, or 10%, compared to the nine months ended September 30, 2025. During both three and nine months ended September 30, 2026, the decrease was primarily attributable to certain expenses incurred in the prior-year period related to customer relationship improvement initiatives, partially offset by higher selling and administrative expenses associated with the growth of the Company’s data center business.

Previous wording

Interest expense was $1.6 million for the three months ended June 30, 2026, as compared to $1.7 million for the three months ended June 30, 2025. Interest expense was $3.3 million for the six months ended June 30, 2026, as compared to $3.5 million for the six months ended June 30, 2025. During both three and six months ended June 30, 2026, interest expense decreased largely due to overall lower effective interest rates. See Note 7. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Current wording

Interest expense was $1.0 million for the three months ended September 30, 2026, as compared to $1.6 million for the three months ended September 30, 2025. Interest expense was $4.3 million for the nine months ended September 30, 2026, as compared to $5.1 million for the nine months ended September 30, 2025. During both three and nine months ended September 30, 2026, interest expense decreased largely due to lower average debt balances. See Note 7. Debt, included in Part 1, Item 1. Financial Statements, for additional information.

Previous wording

The Company recorded income tax expense of $5.6 million for the three months ended June 30, 2026, as compared to income taxbenefit of $20.1 million for the same period in 2025. Pretax income was $22.5 million for the three months ended June 30, 2026, compared to $31.1 million for the same period in 2025. The Company recorded income tax expense of $8.0 million for the six months ended June 30, 2026, as compared to income taxbenefit of $16.3 million for the same period in 2025. Pretax income was $32.2 million for the six months ended June 30, 2026, compared to $53.9 million for the same period in 2025. During both the three and six months ended June 30, 2026, the change from an income tax benefit in 2025 to an income tax expense in 2026 was primarily attributable to the release of the majority of the Company's valuation allowance during the second quarter of 2025, which did not recur in 2026.

Current wording

September 30, 2026, compared to $26.7 million for the same period in 2025. The Company recorded income tax expense of $18.2 million for the nine months ended September 30, 2026, as compared to income tax benefit of $17.2 million for the same period in 2025. Pretax income was $72.3 million for the nine months ended September 30, 2026, compared to $80.7 million for the same period in 2025. During both the three and nine months ended September 30, 2026, the change from an income tax benefit in 2025 to an income tax expense in 2026 was primarily attributable to the release of the majority of the Company's valuation allowance during the second quarter of 2025, which did not recur in 2026.

Previous wording

The following table presents a reconciliation from Net income to Adjusted net income for the three and six months ended June 30, 2026 and 2025:

Current wording

The following table presents a reconciliation from Net income to Adjusted net income for the three and nine months ended September 30, 2026 and 2025:

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, 2026 and 2025:

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, 2026 and 2025:

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, 2026 and 2025:

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, 2026 and 2025:

Previous wording

Amounts reflect non-cash stock-based compensation expense for the three and six months ended June 30, 2026 and 2025.

Current wording

Amounts reflect non-cash stock-based compensation expense for the three and nine months ended September 30, 2026 and 2025.

Previous wording

Amounts include severance expense of less than $0.1 million and $0.1 millionfor the three and six months ended June 30, 2026 and 2025, respectively, as well as executive recruiting expense of$0.4 million for each period presented.

Current wording

Amounts include severance expense of less than $0.1 million for the three months ended September 30, 2026 and 2025, and of approximately $0.1 million and $0.4 million for the nine months ended September 30, 2026 and 2025, respectively, as well as executive recruiting expense of less than $0.1 million and $0.4 million for the three and nine months ended September 30, 2026, respectively.

Previous wording

Amounts include legal settlements for the three and six months ended June 30, 2026.

Current wording

Amounts include legal settlements for the three and nine months ended September 30, 2026.

Previous wording

Cash Flows for the Six Months Ended June 30, 2026

Current wording

Cash Flows for the Nine Months Ended September 30, 2026

Previous wording

Net cash provided by operating activities was $75.7 million for the six months ended June 30, 2026, compared to $25.5 million for the six months ended June 30, 2025, representing an increase of $50.3 million in cash provided by operating activities year-over-year. The increase occurred despite a decrease in net income of $46.1 million, driven primarily by favorable changes in working capital. These changes included a significant source of cash from accounts receivable, reflecting improved collections in the current period, as well as a lower use of cash for inventory purchases compared to the prior‑year period. These favorable impacts were partially offset by increased uses of cash related to accrued expenses and accounts payable during the six months ended June 30, 2026 compared to June 30, 2025.

Current wording

Net cash provided by operating activities was $116.6 million for the nine months ended September 30, 2026, compared to $28.7 million for the nine months ended September 30, 2025, representing an increase of $87.9 million in cash provided by operating activities year-over-year. The increase occurred despite a decrease in net income of $43.8 million, driven primarily by favorable changes in working capital. These changes included a significant source of cash from accounts receivable, reflecting improved collections in the current period, as well as a lower use of cash for inventory purchases, payments of accounts payable and accrued expenses compared to the prior‑year period.

Previous wording

Net cash used in investing activities was $14.6 million for the six months ended June 30, 2026, compared to cash used in investing activities of $5.4 million for the six months ended June 30, 2025. For the six months ended June 30, 2026 and 2025, cash used in investing activities related to capital expenditures and the acquisition of MTL.

Current wording

Net cash used in investing activities was $17.2 million for the nine months ended September 30, 2026, compared to cash used in investing activities of $7.0 million for the nine months ended September 30, 2025. For the nine months ended September 30, 2026 and 2025, cash used in investing activities related to capital expenditures and the acquisition of MTL.

Previous wording

The Company used $31.5 million in cash from financing activities forthe six months ended June 30, 2026, compared to $25.4 million cash used by financing activities for the six months ended June 30, 2025. The cash used by financing activities for the six months ended June 30, 2026 was primarily due to paydown of $30.0 million on the Revolving Credit Agreement, payoff of the SBA loan, and repayments of lease liabilities and share repurchases to settle tax withholding obligations for stock-based compensation awards. See additional discussion in Note 7. Debt, included in Part I, Item 1. Financial Statements, which further describe the Company’s debt arrangements.

Current wording

The Company used $67.8 million in cash from financing activities forthe nine months ended September 30, 2026, compared to $27.5 million cash used by financing activities for the nine months ended September 30, 2025. The cash used by financing activities for the nine months ended September 30, 2026 was primarily due to paydowns of $30.0 million during the second quarter and $65.0 million during the third quarter on the Revolving Credit Agreements, payoff of the SBA loan, and repayments of lease liabilities, including $15.0 million pay-off of the Standard Chartered Credit Agreement in September 2026, and share repurchases to settle tax withholding obligations for stock-based compensation awards. These cash outflows were partially offset by$35.0 million of borrowings under the Revolving Credit Agreements. See additional discussion in Note 7. 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 cash and cash equivalents on hand. Uses of funds include payments of principal on our debt facilities, capital expenditures, and working capital needs. We currently anticipate that cash flows from operations, available funds and access to financing sources, including under our Revolving Credit Agreement, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.

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, capital expenditures, and working capital needs. We currently anticipate that cash flows from operations, available funds and access to financing sources, including under our Revolving Credit Agreements, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.

Previous wording

Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations. The Company has achieved profitability and generated positive cash flows from operating activities in 2026. As of June 30, 2026, the Company’s total outstanding debt obligations under the Revolving Credit Agreement, finance leases and other debt, were $72.6 million in the aggregate, and its cash and cash equivalents were $70.1 million. See Item 1. Financial Statements, Note 7. 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

Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations. The Company has achieved profitability and generated positive cash flows from operating activities in 2026. As of September 30, 2026, the Company’s total outstanding debt obligations under the Revolving Credit Agreement, finance leases and other debt, were $37.7 million in the aggregate, and its cash and cash equivalents were $72.0 million. See Item 1. Financial Statements, Note 7. Debt, for additional information. On September 25, 2026, the Company paid-off and terminated its Standard Chartered Credit Agreement with Standard Chartered Bank and other lenders and executed the new HSBC Credit Agreement with HSBC Bank and other lenders. The HSBC Revolving Credit Agreement allows the Company to borrow up to $220.0 million with a maturity date of September 25, 2029.

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 2025 Annual Report. During the six months ended June 30, 2026, 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 2025 Annual Report. During the nine months ended September 30, 2026, there were no significant changes in the application of critical accounting policies.