LSI Industries Reports Fiscal 2024 Second Quarter Results and Declares Quarterly Cash Dividend

Rhea-AI Summary

LSI Industries Inc. reported solid financial results for the fiscal 2024 second quarter, with net sales of $109.0 million, net income of $5.9 million, and adjusted EBITDA of $11.1 million. The company increased market share across high-value vertical markets and reduced its ratio of net debt to trailing twelve-month Adjusted EBITDA to 0.4x from 1.3x. LSI declared a regular cash dividend of $0.05 per share and remains well-positioned to capitalize on an expected acceleration in project activity as market conditions normalize.

Insights

Financial Analyst

The reported net income of LSI Industries Inc. at $5.9 million, with a diluted EPS of $0.20, signals a stable financial position. The increase in gross margin by 240 basis points year-over-year to 29.0% is particularly noteworthy, indicating improved operational efficiency and price discipline. The reduction in the net debt to trailing twelve-month Adjusted EBITDA from 1.3x to 0.4x reflects a strong balance sheet, reducing financial risk and potentially increasing the company's investment appeal. However, investors should monitor the sustainability of these margins in the context of broader economic conditions and industry competition.

Market Research Analyst

LSI's strategic focus on high-value vertical markets and cross-selling initiatives appears to be paying off, with a 10% year-over-year increase in total orders. The company's ability to secure multi-million-dollar annual sales from cross-selling to refueling/c-store chains demonstrates the effectiveness of its Fast Forward growth strategy. However, the impact of the pending merger of two large grocery industry participants on LSI's project demand within the grocery vertical merits attention. The company's proactive steps during this period, such as the relocation to a larger display case manufacturing facility and the launch of environmentally friendly R-290 refrigerated display cases, suggest a forward-thinking approach to potential market disruptions.

Economist

LSI's strong cash generation and efficient capital allocation, as evidenced by the significant free cash flow and reduced leverage, provide the company with flexibility in a volatile economic environment. The strategic investments and returns of capital could stimulate further growth, though it is important to consider the macroeconomic factors, such as interest rates and inflation, that may affect consumer spending in LSI's key verticals. The expected increase in demand for fresh food offerings in convenience stores aligns with broader consumer trends towards healthier lifestyles, which may have a positive impact on LSI's growth trajectory.

CINCINNATI--(BUSINESS WIRE)-- LSI Industries Inc. (Nasdaq: LYTS, “LSI” or the “Company”) a leading U.S. based manufacturer of commercial lighting and display solutions, today reported financial results for the fiscal 2024 second quarter ended December 31, 2023.

FISCAL 2024 SECOND QUARTER

• Net Sales of $109.0 million
• Net Income of $5.9 million, or $0.20 per diluted share
• Adjusted Net Income of $6.4 million, or $0.21 per diluted share
• EBITDA of $10.2 million; Adjusted EBITDA $11.1 million or 10.1%/sales
• Gross Margin rate increased 240 bps y/y
• Free Cash Flow of $7.3 million, or approximately $44 million on a TTM basis
• Ratio of net debt to TTM Adjusted EBITDA of 0.4x
• Total Orders increased 10% y/y with growth in both reporting segments

During the fiscal 2024 second quarter, LSI increased market share across multiple, high-value vertical markets, consistent with the ongoing focus on quality of earnings, while effectively managing a temporary pause in project demand within its grocery vertical related to the pending merger of two large industry participants.

LSI reported net income of $5.9 million, or $0.20 per diluted share, on sales of $109.0 million in the second quarter. Adjusted gross profit margin increased 240 basis points to 29.0% over the prior-year period, driven by a higher-value sales mix, focused price discipline, and strong cost control. The Company reported Adjusted EBITDA of $11.1 million for the quarter, delivering an Adjusted EBITDA margin rate of 10.1%, equal to the prior year quarter.

The Company generated free cash flow of $7.3 million in the second quarter, or nearly $44.0 million on a trailing twelve-month basis. Given continued strength in cash generation, LSI reduced its ratio of net debt to trailing twelve-month Adjusted EBITDA to 0.4x from 1.3x in the prior-year period. At the end of the second quarter, LSI had cash and availability on its credit facility totaling $103 million.

The Company declared a regular cash dividend of $0.05 per share payable on February 13, 2024, to shareholders of record on February 5, 2024.

MANAGEMENT COMMENTARY

James A. Clark, President and Chief Executive Officer commented, “LSI delivered solid second quarter results, a performance that reflects the durability of our vertical market strategy, together with a proven ability to drive sustained margin expansion and profitability through the cycle. We continued to execute at a high-level while effectively navigating the transitory disruption in grocery market project activity, due to the pending merger of two large industry participants. LSI remains well-positioned to capitalize on an expected acceleration in project activity as market conditions normalize.

“During the last twelve months, we’ve generated nearly $44 million in free cash flow, including more than $7 million in the second quarter, positioning us to support further reduction in net debt, strategic investments in organic growth, and a robust return of capital program,“ continued Clark. “Since acquiring JSI in calendar year 2021, we’ve reduced our net leverage ratio from 3.2x to 0.4x, consistent with a focus on capital discipline and balance sheet flexibility.

“As outlined within our Fast Forward growth strategy, our teams remain highly focused on increasing the volume of LSI content and related solutions per customer through targeted cross-selling initiatives. In the second quarter, our cross-selling initiative positioned LSI to secure refrigerated display case project wins with two national refueling/c-store chains that currently use our lighting solutions. Each program represents multi-million-dollar sales on an annual basis. In both the QSR and Grocery verticals we have secured customer projects to provide indoor and outdoor lighting, in addition to existing display case and print graphics activity. Moving forward, we have a significant volume of additional cross-selling proposals currently under review, as customers continue to recognize the value of our comprehensive offering of products and services.

“We remain highly encouraged by the strong multi-year demand outlook within our key verticals, particularly the c-store and grocery verticals. Recently, the nation’s largest c-store chain committed to growing its sale of fresh food and proprietary beverages from 24% of its revenue to more than 34% of revenue over the next three years, while the second largest c-store chain has announced plans to increase fresh food revenue by a compounded annual growth rate of 10% over the next five years. In recent years, LSI has developed industry-leading products and solutions specifically designed to address the unique lighting, graphics and refrigeration solutions required for a larger, more upscale c-store environment, positioning us to successfully capitalize on upcoming customer investments in their premium, hot and cold fresh food offerings.

“While the pending FTC approval of the proposed merger of the second and third-largest grocery chains in the United States has led to a temporary slowing of project activity within our grocery vertical, we’ve used this time to position our business to support an expected return to normal demand levels, the majority of which we expect will occur regardless of the FTC ruling. For example, we recently completed the relocation to our new, larger display case manufacturing facility, which provides the additional production capacity to support an expected ongoing increase in demand levels. In addition, we received final regulatory approval on our new refrigerated display case line which utilizes the environmentally friendly R-290 technology. We shipped our first unit last week, and several customers have indicated their intent to fully convert to the R-290 range of products beginning this calendar year. We expect overall grocery demand to begin increasing in the fiscal third quarter and accelerate throughout the fiscal fourth quarter and into fiscal 2025.

“Within our Lighting segment, orders for the quarter were 10% above prior year, and quotation volumes in key verticals remain healthy. On a consolidated basis, second quarter sales were $45.7 million or 3% below strong prior year levels, while operating income increased 28% in the period. Segment adjusted gross margin rate improved 440 basis points to 35.0%, our highest rate in over a decade. The improved gross margin rate was driven by multiple factors, including stable pricing, higher-value sales mix, and ongoing cost and operational improvements.

“In the quarter, LSI was selected as the lighting supplier to a high-end luxury automotive brand. Our team worked closely with the automotive customer on developing proprietary lighting specifications to support the customer experience requirements of their dealership environments. This win is an example of our focus on higher-value vertical market applications where our products and solutions represent an essential part of our customers value proposition to their customers.

“Within our Display Solutions segment, second quarter performance was unfavorably impacted by the previously mentioned delay in grocery vertical spending. Other vertical markets continue to be active. For example, within our refueling vertical, LSI was recently awarded a large renovation program by a national oil company that includes 1325 sites across the United States. LSI will be the “turnkey provider” for this program, managing site planning, product fulfillment, and installation. This win follows the other major programs awarded in the first quarter, including the 7,500 site, 3.5-year program for another large global oil company, as well as international expansion programs in five Central American countries. In addition, QSR delivered a strong quarter, as sales increased significantly compared to the prior year, and pilot activity with several chains continues.

Clark concluded, “Our solid second quarter performance demonstrates the benefits of building strong market positions in multiple, high-value vertical markets, further strengthening relationships with customers and partners, combined with a disciplined approach to capital allocation. Given the positive underlying growth trends for our key verticals, together with our focus on strategic execution as outlined within our Fast Forward plan, our team is well-positioned to drive long-term value for our shareholders.”

FISCAL 2024 SECOND QUARTER CONFERENCE CALL

A conference call will be held today at 11:00 A.M. ET to review the Company’s financial results and conduct a question-and-answer session.

A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of LSI Industries’ website at www.lsicorp.com. Individuals can also participate by teleconference dial-in. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time to register, download and install any necessary audio software.

Details of the conference call are as follows:

Domestic Live: 877-407-4018
International Live: 201-689-8471

To listen to a replay of the teleconference, which subsequently will be available through February 8, 2024:

Domestic Replay: 844-512-2921
International Replay: 412-317-6671
Conference ID: 13743769

ABOUT LSI INDUSTRIES

Headquartered in Cincinnati, LSI Industries (Nasdaq: LYTS) specializes in the creation of advanced lighting, graphics, and display solutions. The company's American-made products, which include lighting, print graphics, digital graphics, refrigerated, and custom displays, are engineered to elevate brands in competitive markets. With a workforce of nearly 1,600 employees and 11 facilities throughout North America, LSI is dedicated to providing top-quality solutions to its customers. Additional information about LSI is available at www.lsicorp.com.

FORWARD-LOOKING STATEMENTS

For details on the uncertainties that may cause our actual results to be materially different than those expressed in our forward-looking statements, visit https://investors.lsicorp.com as well as our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q which contain risk factors.

Three Months Ended December 31											Six Months Ended December 31
									(Unaudited)
2023			2022			% Change			(In thousands, except per share data)		2023			2022			% Change
$	109,005		$	128,804		-15	%		Net sales		$	232,446		$	255,873		-9	%
	7,819			9,038		-13	%		Operating income as reported			18,847			19,059		-1	%
	849			1,002					Long-Term Performance Based Compensation			2,174			1,553
	-			486					Consulting expense: Commercial Growth Initiatives			19			789
	35			33					Severance costs and Restructuring costs			388			46
$	8,703		$	10,559		-18	%		Operating income as adjusted		$	21,428		$	21,447		0	%
$	5,906		$	6,417		-8	%		Net income as reported		$	13,934		$	12,678		10	%
$	6,364		$	7,627		-17	%		Net income as adjusted		$	15,104		$	14,704		3	%
$	0.20		$	0.22		-11	%		Earnings per share (diluted) as reported		$	0.47		$	0.44		6	%
$	0.21		$	0.26		-19	%		Earnings per share (diluted) as adjusted		$	0.50		$	0.51		-1	%

	(amounts in thousands)
	December 31		June 30,
	2023		2023
Working capital	$	75,839	$	73,314
Total assets	$	287,548	$	296,150
Long-term debt	$	17,950	$	31,629
Other long-term liabilities	$	11,110	$	10,380
Shareholders' equity	$	192,934	$	177,578

Three Months Ended December 31, 2023, Results

Net sales for the three months ended December 31, 2023, were $109.0 million, down 15% from the three months ended December 31, 2022, net sales of $128.8 million. Lighting Segment net sales of $64.8 million decreased 3% and Display Solutions Segment net sales of $44.2 million decreased 29% from last year’s second quarter net sales. Net income for the three months ended December 31, 2023, was $5.9 million, or $0.20 per share, compared to $6.4 million or $0.22 per share for the three months ended December 31, 2022. Earnings per share represents diluted earnings per share.

Six Months Ended December 31, 2023, Results

Net sales for the six months ended December 31, 2023, were $232.4 million, down 9% from the six months ended December 31, 2022, net sales of $255.9 million. Lighting Segment net sales of $132.4 million decreased 1% and Display Solutions Segment net sales of $100.0 million decreased 18% from last year’s net sales. Net income for the six months ended December 31, 2023, was $13.9 million, or $0.47 per share, compared to $12.7 million or $0.44 per share for the six months ended December 31, 2022. Earnings per share represents diluted earnings per share.

Balance Sheet

The balance sheet at December 31, 2023, included current assets of $141.4 million, current liabilities of $65.6 million and working capital of $75.8 million, which includes cash of $2.7 million. The current ratio was 2.2 to 1. The balance sheet also included shareholders’ equity of $192.9 million and long-term debt of $18.0 million. It is the Company’s priority to continuously generate sufficient cash flow, coupled with an approved credit facility, to adequately fund operations.

Cash Dividend Actions

The Board of Directors declared a regular quarterly cash dividend of $0.05 per share in connection with the second quarter of fiscal 2024, payable February 13, 2024, to shareholders of record as of the close of business on February 5, 2024. The indicated annual cash dividend rate is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which provides that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings both on a GAAP and non-GAAP basis, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant by the Board.

Non-GAAP Financial Measures

This press release includes adjustments to GAAP operating income, net income, and earnings per share for the three and six months ended December 31, 2023, and 2022. Operating income, net income, and earnings per share, which exclude the impact of long-term performance based compensation expense, commercial growth initiative expense, and severance and restructuring costs, are non-GAAP financial measures. We exclude these items because we believe they are not representative of the ongoing results of operations of the business. Also included in this press release are non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and before long-term performance based compensation expense, commercial growth initiative expense, and severance and restructuring expense (Adjusted EBITDA), and Free Cash Flow. We believe that these are useful as supplemental measures in assessing the operating performance of our business. These measures are used by our management, including our chief operating decision maker, to evaluate business results, and are frequently referenced by those who follow the Company. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, the non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our results in conjunction with corresponding GAAP measures. Below is a reconciliation of these non-GAAP measures to net income and earnings per share reported for the periods indicated along with the calculation of EBITDA, Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA

Three Months Ended											Six Months Ended
December 31											December 31
2023						2022				(In thousands, except per share data)	2023						2022
			Diluted EPS					Diluted EPS						Diluted EPS					Diluted EPS
										Reconciliation of net income to adjusted net income
$	5,906		$	0.20		$	6,417	$	0.22	Net income as reported	$	13,934		$	0.47		$	12,678	$	0.44
	625			0.02			785		0.03	Long-Term Performance Based Compensation		1,599		$	0.05			1,341		0.05
	-			-			399		0.01	Consulting expense: Commercial Growth Initiatives		13		$	-			647		0.02
	34			-			26		-	Severance costs and Restructuring costs		290		$	0.01			38		-
	(201	)		(0.01	)		-		-	Tax rate difference between reported and adjusted net income		(732	)	$	(0.03	)		-		-
$	6,364		$	0.21		$	7,627	$	0.26	Net income adjusted	$	15,104		$	0.50		$	14,704	$	0.51

Three Months Ended December 31											(Unaudited; In thousands)		Six Months Ended December 31
											Net Income to Adjusted EBITDA
2023				2022				% Change					2023				2022				% Change
$	5,906			$	6,417						Net Income as reported		$	13,934			$	12,678
	1,489				1,418						Income Tax			3,827				4,177
	453				1,258						Interest Expense, net			1,019				2,046
	(29	)			(55	)					Other expense (income)			67				158
$	7,819			$	9,038			-13	%		Operating Income as reported		$	18,847			$	19,059			-1	%
	2,357				2,419						Depreciation and amortization			4,728				4,840
$	10,176			$	11,457			-11	%		EBITDA		$	23,575			$	23,899			-1	%
	849				1,002						Long-Term Performance Based Compensation			2,174				1,553
	-				486						Consulting expense: Commercial Growth Initiatives			19				789
	35				33						Severance costs and Restructuring costs			388				46
$	11,060			$	12,978			-15	%		Adjusted EBITDA		$	26,156			$	26,287			0	%
	10.1	%			10.1	%					Adjusted EBITDA as a percentage of Sales			11.3	%			10.3	%
Three Months Ended December 31											(Unaudited; In thousands)		Six Months Ended December 31
											Free Cash Flow
2023				2022				% Change					2023				2022				% Change
$	9,276			$	9,481			NM			Cash flow from operations		$	19,868			$	20,064			NM
	(1,956	)			(561	)					Capital expenditures			(3,349	)			(994	)
$	7,320			$	8,920			NM			Free cash flow		$	16,519			$	19,070			NM

Net Debt to Adjusted EBITDA Ratio		December 31
(amounts in thousands)		2023				2022
Current Maturity of Debt		$	3,571			$	3,571
Long-Term Debt			17,950				59,250
Total Debt		$	21,521			$	62,821
Less: Cash			(2,660	)			(2,765	)
Net Debt		$	18,861			$	60,056
Adjusted EBITDA - Trailing Twelve Months		$	51,489			$	45,387
Net Debt to Adjusted EBITDA Ratio			0.4				1.3

	Three Months Ended December 31										Six Months Ended December 31
									(Unaudited)
	2023				2022				(In thousands, except per share data)		2023			2022
	$	109,005			$	128,804			Net sales		$	232,446		$	255,873
		77,438				94,646			Cost of products sold			163,943			186,964
		31				18			Severance costs and Restructuring costs			378			31
		31,536				34,140			Gross profit			68,125			68,878
		4				15			Severance costs and Restructuring costs			10			15
		-				486			Consulting expense: Commercial Growth Initiatives			19			789
		23,713				24,601			Selling and administrative costs			49,249			49,015
		7,819				9,038			Operating Income			18,847			19,059
		(29	)			(55	)		Other (income) expense			67			158
		453				1,258			Interest expense, net			1,019			2,046
		7,395				7,835			Income before taxes			17,761			16,855
		1,489				1,418			Income tax			3,827			4,177
	$	5,906			$	6,417			Net income		$	13,934		$	12,678
									Weighted Average Common Shares Outstanding
		29,024				28,078			Basic			28,890			27,874
		30,043				29,204			Diluted			29,949			28,766
									Earnings Per Share
	$	0.20			$	0.23			Basic		$	0.48		$	0.45
	$	0.20			$	0.22			Diluted		$	0.47		$	0.44

		(amounts in thousands)
		Decmber 31			June 30,
		2023			2023
Current assets		$	141,393		$	149,876
Property, plant and equipment, net			26,232			25,431
Other assets			119,923			120,842
Total assets		$	287,548		$	296,149
Current maturities of long-term debt		$	3,571		$	3,571
Other current liabilities			61,983			72,991
Long-term debt			17,950			31,629
Other long-term liabilities			11,110			10,380
Shareholders' equity			192,934			177,578
		$	287,548		$	296,149

 

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INVESTOR & MEDIA CONTACT

Noel Ryan, IRC

720.778.2415

LYTS@vallumadvisors.com

Source: LSI Industries Inc.

FAQ

What were LSI Industries Inc.'s net sales for the fiscal 2024 second quarter?

The net sales for the fiscal 2024 second quarter were $109.0 million.

What was LSI Industries Inc.'s net income for the fiscal 2024 second quarter?

LSI Industries Inc.'s net income for the fiscal 2024 second quarter was $5.9 million.

What was the adjusted EBITDA for LSI Industries Inc. in the fiscal 2024 second quarter?

LSI Industries Inc.'s adjusted EBITDA for the fiscal 2024 second quarter was $11.1 million.

What was the ratio of net debt to trailing twelve-month Adjusted EBITDA for LSI Industries Inc.?

LSI Industries Inc. reduced its ratio of net debt to trailing twelve-month Adjusted EBITDA to 0.4x from 1.3x.

What was the regular cash dividend declared by LSI Industries Inc.?

LSI Industries Inc. declared a regular cash dividend of $0.05 per share.