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
first quarter ended September 30, 2023.
FISCAL 2024 FIRST
QUARTER
- Net Income +28% y/y to $8.0 million, or $0.27 per diluted
share
- Adjusted Net Income +23% y/y to $8.7 million or $0.29 per
diluted share
- Net Sales $123.4 million; Lighting sales steady versus prior
year
- EBITDA of $13.4 million; Adjusted EBITDA $15.1 million or 12.2%
of sales
- Free Cash Flow $9.2 million
- Ratio of net debt to TTM Adjusted EBITDA of 0.5x as of
September 30, 2023
LSI delivered significant year-over-year growth in margin
realization, operating income, and profitability in the fiscal
first quarter, driven by disciplined price and cost management, as
well as general stability across the Company’s diverse vertical
markets.
The Company reported fiscal first quarter net income of $8.0
million, or $0.27 per diluted share, on net sales of $123.4
million. Adjusted net income was $8.7 million, or $0.29 per diluted
share, versus $7.1 million or $0.25 per diluted share last year.
Net sales of $123.4 million was 3% below prior year.
LSI reported Adjusted EBITDA of $15.1 million in the fiscal
first quarter, an increase of 13% versus the prior-year period.
Adjusted EBITDA margin rate improved 170 basis points
year-over-year to 12.2% in the fiscal first quarter, driven by a
higher-value sales mix, continued price discipline, and effective
cost management.
The Company generated free cash flow of $9.2 million and $45.4
million, respectively, for the three and twelve months ended
September 30, 2023. The strong cash flow allowed the Company to
continue to reduce net debt. In the quarter net debt decreased to
$25.1 million from $68.5 million last year, resulting in a
reduction in the ratio of net debt to trailing twelve-month
adjusted EBITDA to 0.5x.
The Company declared a regular cash dividend of $0.05 per share
payable on November 21, 2023, to shareholders of record on November
13, 2023.
MANAGEMENT COMMENTARY
“Our Company delivered solid first quarter results, driven by
strong execution across all facets of our business,” stated James
A. Clark, President, and Chief Executive Officer of LSI. “Our
commercial and operational execution continues at a high level,
advancing our position in key vertical markets, while managing the
timing of customer programs and projects,” continued Clark.
“Predicting program and project timing remains a challenge, as
macro and sector-specific factors shift the timing of customer
capital investments. Importantly, we’ve built our business to flex
and adapt to these fluctuations, while ensuring we are well
equipped to support the unique needs of every customer.
“Profitable growth remains a central pillar of our value
creation strategy,” continued Clark. “Over the last several years
we have focused on expanding our position within high-value
verticals where our solutions-based approach has supported margin
expansion and a higher quality of earnings. We continued to make
progress in this regard during the fiscal first quarter, with
adjusted operating margin and adjusted EBITDA margins exceeding 10%
and 12% respectively. The drivers of improvement are broad based,
with multiple factors contributing to building sustainable customer
relationships and durable business processes.
“Over the last year LSI has generated more than $45 million in
free cash flow, including more than $9 million in the fiscal first
quarter. We continue to strengthen our balance sheet in the
reduction of our net leverage from 1.7x to 0.5x in the last twelve
months. We continue to apply a disciplined approach to capital
allocation, one that prioritizes debt reduction and high-return
organic investments, inorganic growth, and a stable return of
capital program.
“Innovation has been an important part of our growth in sales
and profitability the last several years and is a critical part of
our future growth” Clark stated. “At the recent NACS (National
Association of Convenience Stores) trade show, we featured three
innovative products utilizing patented technologies that provide
differentiated solutions for the refueling/c-store and other retail
markets. NACS is one of the nation’s largest trade shows and
presented the opportunity to share our value proposition with both
new and existing customers.
“For example, the ‘Archer’ is a linear perimeter lighting system
that provides an optically managed curtain of light around the
building exterior, maintaining the character of the building at
night. Our canopy lighting fixtures provide an option to utilize
‘Forward Throw’ optics technology to illuminate a secured path from
refueling pumps to the C-store entrance. This combination provides
a lighting solution that provides a safer, more inviting
environment for both customers and employees, deters potential
crime, all driving store sales growth through increased customer
traffic. This is just one example of working collaboratively with
our customers to develop innovative solutions to important problems
and creating recognized value.
“We also highlighted the new mobile refrigeration display case
utilizing the R290 non-toxic refrigerant free of ozone depleting
properties. Expansion of our JSI display case products into the
c-store market is an important part of our organic growth
initiatives.
“Reviewing segment performance, first quarter Lighting Segment
sales were held steady when compared to the strong prior year
quarter, reflecting both increased market penetration, together
with healthy activity levels within our market verticals. Lighting
adjusted gross margin rate improved 140 basis points to 34.4% in
the period, driven by steady volume, favorable pricing/mix, and
cost management. Project quotation levels remain steady entering
the fiscal second quarter, and the pricing environment remains
stable.
“The first phase of the large EV battery plant project,
referenced in last quarter’s earnings call, is nearing completion,”
continued Clark. “Initial feedback on this multi-million-dollar
lighting project from both the contractor and end-customer is very
positive. Our enhanced customer service for this order included
on-site pre-installation product inspection and technical
assistance throughout the installation process. Last week we
received the order for the second of the two-plant complex. The
second facility is similar in size and lighting specification
requirements. Shipment activity will begin in late fiscal second
quarter and be complete by the end of the fiscal third quarter.
“We continue to invest in both product and non-product
initiatives for the Lighting Segment. A record number of agency,
distributor, and contractor partner personnel visited our lighting
locations for multi-day training on new products and specific
vertical-market applications. In-person training on specific
products/solutions is an integral component of our comprehensive
training and communications platform used to inform and educate
others on our value proposition.
“Fiscal first quarter results for our Display Solutions segment
reflect improved profitability and margin expansion on a modest
sales decline. Favorable program pricing and prudent cost
management were responsible for the 360-basis point adjusted gross
margin rate improvement. Sales growth was realized in the
Refueling/C-Store vertical, as well as QSR with Digital Signage
applications, offsetting a modest decline in Grocery-related
sales.
“We successfully secured several new significant programs during
the first quarter which have been progressing through the
development and approval phase throughout the last twelve months,”
added Clark. “One of the world’s largest oil companies has selected
LSI to lead an image refresh program for seven distinct brands with
a network of over 7,000 domestic locations. Coincidentally, we just
recently completed the final sites for the comprehensive brand
refresh program this Company started with us seven years ago. The
new imaging upgrade will apply LSI’s new ‘Archer’ and ‘Forward
Throw’ technology described above, and the customer is targeting to
complete the refresh in four and a half years, significantly faster
than the previous seven-year program cycle. The lifecycle for image
programs continues to shorten, as our customers recognize the value
of maintaining the quality of their brand. This program engagement,
which will include both Lighting and Display products, is currently
underway with an initial 150 flagship locations.
“Our continued collaboration with several large oil companies,
relationships that were instrumental in our commercial expansion
into Mexico and Puerto Rico in recent years, has led to the next
step in our international expansion,” continued Clark. “We have
been awarded programs establishing our presence into six Central
American countries and Jamaica. The expansion involves rebranding
more than 1,400 sites, with the plan to complete all renovation
work over the next three years. The program scope will range from a
combination of complete turnkey solutions, including site surveys
through installation, to sites where we will supply product only.
The retrofit solution will be specific for each site, with some
sites having both Lighting and Display Solutions, while other sites
will require Display Solutions only.
“While the forward outlook for Display Solutions remains very
positive, the near-term activity will be impacted by program
timing. The more recent timing issues of site permitting and
customer installation scheduling, combined with the growing
industry disruption caused by the pending merger of the nation’s
two largest grocery chains, along with record prior year shipments,
will adversely impact Display sales in the fiscal second quarter
when compared to the prior year. We are working closely with our
customers to ensure we are positioned to service on-going changes
in program order release activity and short-term delivery
requirements. Despite the near-term volatility in activity levels,
the underlying demand outlook for this business remains
strong.”
Clark concluded, “We continue to realize tangible progress on
the initiatives that position our Company for profitable growth and
to achieve our 2028 Fast Forward sales and profitability
objectives. We will maintain our management focus on strong
commercial and operational execution, margin management, and cash
generation, allowing us to successfully manage through any
short-term market disruptions associated with program timing.”
FISCAL 2024 FIRST 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 will be
available through November 16, 2023:
Domestic Replay: 844-512-2921 International
Replay: 412-317-6671 Conference ID: 13741905
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, aim to help businesses stand out in a
competitive market. With a workforce of nearly 1,600 employees and
11 facilities throughout North America, LSI is dedicated to
providing top-quality solutions to its clients. 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 EndedSeptember 30 (Unaudited) (In thousands, except per share
data)
2023
2022
% Change Net sales
$
123,441
$
127,069
-3
%
Operating income as reported
11,028
10,021
10
%
Long-Term Performance Based Compensation
1,325
551
Consulting expense: Commercial Growth Initiatives
19
303
Severance costs and Restructuring costs
353
12
Operating income as adjusted
$
12,725
$
10,887
17
%
Net income as reported
$
8,028
$
6,262
28
%
Net income as adjusted
$
8,740
$
7,077
23
%
Earnings per share (diluted) as reported
$
0.27
$
0.22
23
%
Earnings per share (diluted) as adjusted
$
0.29
$
0.25
16
%
(amounts in thousands) September 30, June 30,
2023
2023
Working capital
$
76,219
$
73,314
Total assets
$
301,768
$
296,150
Long-term debt
$
25,098
$
31,629
Other long-term liabilities
$
12,151
$
10,380
Shareholders' equity
$
186,546
$
177,578
Three Months Ended September 30, 2023,
Results
Net sales for the three months ended September 30, 2023, of
$123.4 million decreased 3% from the three months ended September
30, 2022, net sales of $127.1 million. Lighting Segment net sales
of $67.6 million were flat from prior year while Display Solutions
Segment net sales of $55.8 million decreased 6% from last year’s
first quarter net sales of $59.5 million. Net income for the three
months ended September 30, 2023, was $8.0 million, or $0.27 per
share, compared to $6.3 million or $0.22 per share for the three
months ended September 30, 2022. Earnings per share represents
diluted earnings per share.
Balance Sheet
The balance sheet at September 30, 2023, included current assets
of $154.2 million, current liabilities of $78.0 million and working
capital of $76.2 million, which includes cash of $3.5 million. The
current ratio was 2.0 to 1. The balance sheet included
shareholders’ equity of $186.5 million and long-term debt of $25.1
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 first quarter of
fiscal 2024, payable November 21, 2023, to shareholders of record
as of the close of business on November 13, 2023. 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 months
ended September 30, 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 September 30 (In thousands,
except per share data)
2023
2022
Diluted EPS Diluted EPS Reconciliation of net
income to adjusted net income Net income as reported
$
8,028
$
0.27
$
6,262
$
0.22
Long-Term Performance Based Compensation
974
0.03
420
0.01
Consulting expense: Commercial Growth Initiatives
13
-
226
0.01
Severance costs and Restructuring costs
256
0.01
9
-
Tax rate difference between reported and adjustednet
income
(531
)
(0.02
)
160
0.01
Net income adjusted
$
8,740
$
0.29
$
7,077
$
0.25
(Unaudited; In thousands) Three Months EndedSeptember
30 Net Income to Adjusted EBITDA
2023
2022
% Change Net Income as reported
$
8,028
$
6,262
Income Tax
2,338
2,758
Interest Expense, net
566
788
Other expense (income)
96
213
Operating Income as reported
$
11,028
$
10,021
10
%
Depreciation and amortization
2,371
2,421
EBITDA
$
13,399
$
12,442
8
%
Long-Term Performance Based Compensation
1,325
551
Consulting expense: Commercial Growth Initiatives
19
303
Severance costs and Restructuring costs
353
12
Adjusted EBITDA
$
15,096
$
13,308
13
%
Adjusted EBITDA as a percentage of Sales
12.2
%
10.5
%
(Unaudited; In thousands) Three Months
EndedSeptember 30 Free Cash Flow
2023
2022
% Change Cash flow from operations
$
10,592
$
10,583
NM
Capital expenditures
(1,393
)
(434
)
Free cash flow
$
9,199
$
10,149
NM
Net Debt to Adjusted EBITDA Ratio September 30,
(amounts in thousands)
2023
2022
Current Maturity of Debt
$
3,571
$
3,571
Long-Term Debt
25,098
73,975
Total Debt
$
28,669
$
77,546
Less: Cash
(3,533
)
(9,028
)
Net Debt
$
25,136
$
68,518
Adjusted EBITDA - Trailing Twelve Months
$
53,408
$
40,836
Net Debt to Adjusted EBITDA Ratio
0.5
1.7
Three Months EndedSeptember 30 (Unaudited) (In thousands, except per share
data)
2023
2022
Net sales
$
123,441
$
127,069
Cost of products sold
86,505
92,319
Severance costs and Restructuring costs
347
12
Gross profit
36,589
34,738
Severance costs and Restructuring costs
6
-
Consulting expense: Commercial Growth Initiatives
19
303
Selling and administrative costs
25,536
24,414
Operating Income
11,028
10,021
Other (income) expense
96
213
Interest expense, net
566
788
Income before taxes
10,366
9,020
Income tax
2,338
2,758
Net income
$
8,028
$
6,262
Weighted
Average Common Shares Outstanding
Basic
28,757
27,641
Diluted
29,955
28,664
Earnings Per Share
Basic
$
0.28
$
0.23
Diluted
$
0.27
$
0.22
(amounts in thousands) September 30, June 30,
2023
2023
Current assets
$
154,192
$
149,876
Property, plant and equipment, net
25,532
25,431
Other assets
122,044
120,842
Total assets
$
301,768
$
296,149
Current maturities of long-term debt
$
3,571
$
3,571
Other current liabilities
74,402
72,991
Long-term debt
25,098
31,629
Other long-term liabilities
12,151
10,380
Shareholders' equity
186,546
177,578
$
301,768
$
296,149
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231101960394/en/
INVESTOR & MEDIA CONTACT Noel Ryan, IRC 720.778.2415
LYTS@vallumadvisors.com
LSI Industries (NASDAQ:LYTS)
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