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 EndedDecember 31 Six Months EndedDecember
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
DilutedEPS 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 adjustednet 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 EndedDecember 31 (Unaudited; In
thousands) Six Months EndedDecember 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 EndedDecember 31 (Unaudited; In
thousands) Six Months EndedDecember 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 EndedDecember 31 Six Months EndedDecember
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240125404259/en/
INVESTOR & MEDIA CONTACT Noel Ryan, IRC 720.778.2415
LYTS@vallumadvisors.com
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