What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-02 compared with 2025-03-24 · 64 added, 74 removed, 215 unchanged (39% of the section changed)

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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 and the CARB.

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.

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Total $ 722,405 100 % $ 475,967 100 %

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.

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.

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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.

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.

PSI is party to the SLA with Weichai.

Debt , included in Item 8.

Financial Statements and Supplementary Data , for additional information.

Legal Settlement Expenses

Legal settlements included in the 2024 operating results, were a benefit of $4.7 million (see Note 11.

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.

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Recent Trends and Business Outlook

PSI’s growth in net revenue in 2024 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 transportation.

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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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, which has contributed to differing levels of recovery in the global economy.

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 rising crude oil prices and lower rig counts.

PSI’s business is impacted by the current macroeconomic and geopolitical environment.

The Company has been actively navigating these challenges by balancing its investments, expenses, pricing and sales efforts in this market as well as others.

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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 continues to experience inflationary cost pressures for certain raw materials and other goods, which the Company continues to try to mitigate through price increases and other cost reduction measures.

Additionally, the Company continues to experience ongoing tariff costs for its supply chain products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where available.

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.

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Commitments and Contingencies for further discussion of the Company’s indemnification obligations.

The Company anticipates an increase in sales for 2025 compared to 2024, driven by expected growth in the power systems end market including products supporting data centers , while sales in the industrial and transportation end markets are projected to remain about flat.

N otwithstanding this outlook, which is being driven in part by expectations for stable supply chain dynamics and a continuation of favorable economic conditions within the United States and across the Company’s various markets, the Company cautions that significant uncertainty remains as a result of supply chain challenges, inflationary costs, commodity volatility, ongoing geopolitical and macroeconomic uncertainties, especially with the latest tariff announcements and the possible impact on trade between the USA and the rest of the world, among other factors.

Hyster-Yale Supply Arrangemen t :

In 2023 , Hyster-Yale began using alternative suppliers for several high-volume engines that the Company provides, including the 2.0L and 2.4L engines, due in part to supply chain issues related to UFLPA enforcement.

As a result, the Company experienced a decline in sales volumes to Hyster-Yale in 2024.

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 :

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2025 2024 Change % Change

(from related parties $1,766 and $2,449 for the year ended December 31, 2024 and 2023, respectively)

(to related parties $1,266 and $1,766 for the year ended December 31, 2025 and 2024, respectively)

$ 722,405 $ 475,967 $ 246,438 52 %

Cost of sales

(from related parties $1,304 and $1,790 for the year ended December 31, 2024 and 2023, respectively)

(derived from related party net sales $863 and $1,304 for the year ended December 31, 2025 and 2024, respectively)

537,506 335,430 202,076 60 %

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Operating income 109,714 81,644 28,070 34 %

Other expense (income), net

Interest expense (from related parties $634 and $6,998 for the year ended December 31, 2025 and 2024, respectively)

6,702 11,443 (4,741) (41) %

Other expense (income) (352) — (352) NM

Income before income taxes 103,364 70,201 33,163 47 %

Income tax expense 922 900 22 NM

Income tax (benefit) expense (10,623) 922 (11,545) NM

Net income $ 113,987 $ 69,279 $ 44,708 65 %

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NM Not meaningful

* See reconciliation of non-GAAP financial measures to GAAP results below

* Non-GAAP measurement, see reconciliation below

Net sales increased $246.4 million, or 52%, compared to 2024, as a result of sales increases of $260.6 million in the power systems end market, partly offset by decreases of $8.5 million and $5.7 million within the industrial and transportation end markets, respectively.

Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing data center market, and oil and gas products.

The Company is strategically prioritizing the rapidly expanding data center sector, improving and increasing our manufacturing capacity and capabilities to meet our customers’ evolving demands for our products.

Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials.

The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market from ceasing sales of emission-certified engines into this market, and new compliance and regulatory requirements that changed engine product offerings in this market.

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.

Gross profit increased by $44.4 million, or 32%, to $184.9 million in 2025, compared to $140.5 million in 2024.

Gross margin was 25.6% and 29.5% in 2025 and 2024, respe ctively.

The increase in gross margin is primarily due to improved sales mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.

For the year ended December 31, 2024, warranty costs were $6.5 million, a decrease of $6.5 million compared to warranty costs of $13.0 million in the same period last year, mainly attributable to changes in estimates for preexisting warranties.

A majority of the warranty activity is attributable to products sold within the transportation end market in prior years.

The decrease in gross margin is primarily due to inefficiencies related to our accelerated production ramp-up for data center product lines.

Research and Development Expenses

R&D expenses in 2025 and 2024 were $18.2 million and $20.1 million, respectively.

The increase of $0.6 million, or 3%, was primarily related to the testing of new products.

The decrease of $1.9 million, or 9%, was primarily driven by the timing of R&D program expenditures and the recovery of R&D costs from certain customers.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) decreased in 2024 by $3.0 million , or 7%, compared to 2023.

The decrease is primarily due to a decrease in accrued legal settlements of $4.7 million, lower professional fees and the decrease in selling expenses associated with decreased sales in the transportation market.

Selling, general and administrative (“SG&A”) increased in 2025 by $18.4 million , or 49%, compared to 2024.

The increase is primarily due to a $4.3 million favorable non-recurring legal reserve reduction in 2024, $4.4 million higher costs associated with employee incentive programs, $3.9 million expense related to customer relationship improvement efforts, and $5.8 million mainly from increased sales and administrative expenses to support ongoing business growth in 2025.

Interest Expense

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Financial Statements and Supplementary Data for additional information.

Income Tax Expense

The Company recorded income tax expense of $0.9 million in both 2024 and 2023.

Income Tax (Benefit) Expense

The Company recorded income tax benefit of $10.6 million in 2025 and income tax expense of $0.9 million in 2024.

The Company’s pretax income was $103.4 million in 2025, compared to pretax income of $70.2 million in 2024.

The Company continues to utilize NOLs along with other tax credits to lower its effective tax rate.

The Company continues to record a full valuation allowance against deferred tax assets.

The 2025 tax benefit primarily reflects the $38.3 million valuation allowance, which resulted in a one-time increase of approximately $1.66 to earnings per share.

Income Taxes , included in Item 8.

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Adjusted net income, Adjusted net income per share – diluted, EBITDA, and Adjusted EBITDA are used by management for various purposes, including as a measure of performance of the Company’s operations and as a basis for strategic planning and forecasting.

Adjusted net income, Adjusted net income per share – diluted, and Adjusted EBITDA may be useful to an investor because these measures are widely used to evaluate companies’ operating performance without regard to items excluded from the calculation of such measures, which can vary substantially from company to company depending on the accounting methods, the book value of assets, the capital structure and the method by which the assets were acquired, among other factors.

the calculation of such measures, which can vary substantially from company to company depending on the accounting methods, the book value of assets, the capital structure and the method by which the assets were acquired, among other factors.

They are not, however, intended as alternative measures of operating results or cash flow from operations as determined in accordance with U.S.

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Stock-based compensation 1

Legal Settlements 2

Insurance proceeds 3

Other legal matters 3

Adjusted net income $ 114,849 $ 64,675

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Stock-based compensation 1

Legal Settlements 2

Other legal matters 3

Adjusted net income per share – diluted $ 4.98 $ 2.81

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Interest expense 6,702 11,443

Income tax expense 922 900

Income tax (benefit) expense (10,623) 922

Depreciation 4,170 3,740

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Stock-based compensation 1

Legal Settlements 2

Insurance proceeds 3

Other legal matters 3

Adjusted EBITDA $ 116,316 $ 82,239

Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the year ended December 31, 2024 and 2023 .

Amounts reflect non-cash stock-based compensation expense for the year ended December 31, 2025 and 2024 .

Amounts include severance expense for the year ended December 31, 2025 and 2024 .

Amounts include legal settlements f or the year ended December 31, 2025 and 2024 .

Amounts include insurance recoveries related to a prior year incident and have no material impact on the Adjusted net income per share – diluted f or the year ended December 31, 2024 and 2023 .

Cash was impacted as follows:

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Net cash used in financing activities (27,694) (25,934) (1,760) 7 %

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 31,897 $ (1,306) $ 33,203 NM

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (13,543) $ 31,897 $ (45,440) (142) %

Capital expenditures $ (9,973) $ (4,559) $ (5,414) 119 %

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The decrease in cash provided by operating activities primarily resulted from a $69.6 million decrease of cash provided by working capital accounts, partially offset by an increase in earnings of $44.7 million.

The decrease in cash generated from working capital was primarily related to, purchases of inventory and lower collections on accounts receivable for the year ended December 31, 2024 compared to December 31, 2023 .

The decrease in cash generated from working capital was primarily related to the purchases of inventory, decrease in accounts payables, and the timing of collections on accounts receivables, reflecting higher sales volume and operational growth during the year ended December 31, 2025 compared to December 31, 2024 .

Cash Flow from Investing Activities

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The Company used $27.7 million in cash from financing activities during the year ended December 31, 2025 compared to $25.9 million in cash used by financing activities during the year ended December 31, 2024.

The cash used by financing activities for the year ended December 31, 2024 was due to proceeds from the new Revolving Credit Agreement and payments made on the SLA and other debt.

Cash used in 2023 was primarily attributable to repayment of existing debt during the year.

The cash used by financing activities for the year ended December 31, 2025 was due to the full repayment of the SLA and other existing debt year to date.

Se e additional discussion below and in Note 6.

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Liquidity and Capital Resources

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.

While the Company has achieved profitability and generated positive cash flows from operating activities in 2024, uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness.

As of December 31, 2024 , the Company’s total outstanding debt obligations under the Revolving Credit Agreement , the SLA, finance leases and other debt, all of which are short-term requirements, were $120.2 million in the aggregate, and its cash and cash equivalents were $55.3 million.

Financial Statements and Supplementary Data , Note 6.

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.

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 2025.

As of December 31, 2025 , the Company’s total outstanding debt obligations under the Revolving Credit Agreement and for finance leases and other debt, were $96.6 million in the aggregate, and its cash and cash equivalents were $41.3 million.

Financial Statements , Note 6.

Debt , for additional information.

The Company’s ability to continue as a going concern is dependent on extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements.

Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay amounts owed under its existing debt arrangements as they become due, which raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.

In order to provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2025.

There can be no assurance that the Company’s management will be able to successfully complete an extension and amendment of its existing debt agreements or obtain new financing on acceptable terms, when required or if at all.

PSI’s business is impacted by the current macroeconomic and geopolitical environment, which has contributed to differing levels of recovery in the global economy.

because of rising crude oil prices and lower rig counts.

The Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures.

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 .

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 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.

At December 31, 2025, the Company had four outstanding letters of credit totaling $1.8 million.

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We have not made any changes in 2025 to our reporting unit or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets.

In 2024, management performed an assessment of the impairment of

goodwill for our reporting unit and indefinite-lived intangible assets using a quantitative approach, which indicated that the fair values the reporting unit and indefinite-lived intangible assets were substantially in excess of their carrying values.

Therefore, no indications of impairment were identified.

The Company performs its annual impairment test using the discounted cash flow method which involves the Company’s management making estimates with respect to a variety of factors that will significantly impact the future performance of the business, including the following:

• future volume projections;

• estimated margins on sales;

• estimated growth rate for SG&A costs;

• future effective tax rate;

• weighted-average cost of capital (“WACC”) used to discount future performance of the Company.

In 2025, management performed an assessment of the impairment of goodwill for our reporting unit and indefinite-lived intangible assets using a qualitative approach.

Based on the totality of information considered, and after weighing both positive and negative qualitative factors, management concluded that it was not more likely than not that the fair value of any reporting unit was below its carrying amount.

As a result, the Company determined that a quantitative goodwill impairment test was not required, and no impairment charge was recognized for the period ended December 31, 2025.

Because these estimates form a basis for the determination of whether the impairment charge should be recorded, these estimates are considered to be critical accounting estimates.

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Warranty costs and recoveries are included in Cost of sales in the Consolidated Statements of Income.

Summary of Significant Accounting Policies and Other Information , included in Item 8.

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Quantitative and Qualitative Disclosures about Market Risk.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

The Company is eligible to comply with the disclosure requirements applicable to smaller reporting companies as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis