Power Solutions (PSIX) Q2 Sales Jump 74%

Key Points

• Non-GAAP earnings per share of $2.24 and GAAP revenue of $191.9 million, both far exceeding analyst expectations, with non-GAAP EPS of $2.24 versus the analyst estimate of $0.87.

• GAAP sales rose 74%, driven by exceptional demand in power systems, with particularly high data center market contributions.

• GAAP gross margin fell to 28.2%, and inventory grew sharply, highlighting key risks related to product mix, scaling, and cost structure.

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Power Solutions International (NASDAQ:PSIX), a manufacturer specializing in engines and power systems for commercial and industrial applications, released its results for Q2 2025 on August 7, 2025. The company reported record performance, with non-GAAP diluted earnings per share of $2.24 and GAAP revenue of $191.9 million for Q2 2025, both well above analyst forecasts of $0.87 (non-GAAP EPS) and $136.5 million (GAAP revenue), respectively. These results highlight how soaring demand in the power systems segment, especially from data center projects, fueled outstanding results. Despite the rapid rise in revenue and profits, the company’s GAAP gross margin declined and operating expenses rose. Overall, this quarter’s results mark a step-change in scale and a resolution to prior financial uncertainties, but they also bring attention to the challenges presented by rapid growth and concentration in a single end market.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Overview and Recent Focus

Power Solutions International builds and markets power systems and engines designed for commercial, industrial, and transportation use. Its product range includes traditional engines, clean fuel power solutions, and battery systems used in a variety of applications. The company serves end markets like data centers, distributed power, material handling, and specialized transportation.

In recent years, the company has concentrated on five priorities: meeting strict emission standards, pursuing product innovation especially in alternative fuels, driving operational efficiency, deepening ties with strategic investors like Weichai, and closely tracking market trends such as demand for data center and backup power. Regulating compliance, improving cost management, and evolving its technology for new use cases have been central to its strategy.

Quarter Highlights: Financial and Operational Performance

The quarter featured substantial revenue growth exclusively in the power systems segment, which added $83.8 million over the prior-year period. This was linked to the company’s strategic focus on data centers, as it prioritized expanding capacity to meet evolving customer demand. Both the Industrial and transportation segments saw revenue drop by $1.6 million and $0.9 million, respectively, due to slower demand for material handling equipment. The sharp concentration in one growth engine highlights the company’s current opportunity and its risk profile if conditions shift in data centers or backup power markets.

Profitability saw several notable swings. GAAP net income more than doubled year over year, and adjusted net income followed a similar trajectory. However, GAAP gross margin fell from 31.8% in Q2 2024 to 28.2%, a decline of 3.6 percentage points. The company attributed this margin drop to two main factors: a larger share of sales coming from lower-margin products, and temporary inefficiencies caused by rapidly scaling up production to meet new demand, but did not commit to a timeline for improvement.

Operating expenses saw significant increases, particularly in selling, general and administrative costs, which rose by 269% compared to the same period a year ago (GAAP). Some of this is a one-time effect—in Q2 2024, expenses were reduced by a $5.0 million legal reserve release that did not recur. The rest of the cost growth came from incentive compensation and new spending to support additional business volume. Research and development expenses declined to 2.4% of sales, reflecting ongoing support for new product engineering.

A material one-time item was a $29.2 million GAAP benefit from releasing a deferred tax asset valuation allowance, substantially increasing net income and stockholders’ equity. While this improved headline results, it is a one-off development and not part of the recurring business. The company also reduced its total debt from $120.2 million at December 31, 2024, to $96.8 million at June 30, 2025, showing progress in deleveraging. Inventory rose sharply to $149.0 million as of June 30, 2025, suggesting either a deliberate build for expected demand or the need for close monitoring if anticipated sales do not materialize.

Financial Outlook and What to Watch

The company’s management expects full-year 2025 sales to outpace 2024, led by continued expansion in power systems and especially data center applications. It does not expect industrial and transportation sales to improve. Management did not provide explicit sales, profit, or margin forecasts for upcoming quarters.

Looking ahead, key areas to watch will be the evolution of the gross margin, cost controls in operational areas, and how inventory trends as the market for data center power solutions evolves. Sales concentration in the power systems segment is likely to remain significant, so any changes in data center demand could have a large effect. Investors may also focus on the sustainability of new cost levels and recurring profitability, exclusive of the recent one-time tax benefit. PSIX does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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