• Net Sales: Above $147 million for the quarter.
• Adjusted EBITDA: Above $13 million.
• Free Cash Flow: Almost $9 million.
• Net Debt Ratio: 0.6 times leverage.
• Year-over-Year Sales Growth: 36% increase, with 14% organic growth.
• Adjusted Earnings Per Share (EPS): $0.26, up from $0.24 last year.
• Free Cash Flow for First Half: $20 million, 21% above the first half of last year.
• Net Debt: Reduced to $33 million.
• Display Solutions Sales Growth: Sales doubled with 50% organic growth.
• Grocery Vertical Sales Increase: Over 60% increase.
• Display Solutions Operating Income: Doubled compared to the previous year.
• Lighting Segment Sales: Below prior year, with fluctuations in demand.

• Warning! GuruFocus has detected 7 Warning Sign with LYTS.

Release Date: January 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• LSI Industries Inc (NASDAQ:LYTS) reported strong growth in the Display Solutions segment, with total sales doubling and organic growth of 50%.
• The company achieved a 36% increase in net sales year-over-year, with 14% of that growth being organic.
• Adjusted EBITDA for the quarter was $13.3 million, a 20% increase from the previous year.
• The acquisition of EMI has been successful, contributing positively to the company's performance and offering cross-selling opportunities.
• LSI Industries Inc (NASDAQ:LYTS) has reduced its net debt significantly, lowering its leverage ratio from 1.3 times to 0.6 times since acquiring EMI.

Negative Points

• The Lighting segment experienced a decline in sales compared to the previous year, with fluctuations in demand across verticals and project sizes.
• Order timing and mix remain choppy, affecting the company's ability to predict long-term volume increases.
• The company faced inefficiencies due to a rapid ramp-up in response to a surge in orders, impacting margins.
• There are ongoing challenges in the large project activity within the Lighting segment, particularly in indoor applications.
• Potential impacts from proposed tariffs and supply chain issues could pose risks, although the company has contingency plans in place.

Q & A Highlights

Q: Can you discuss the expected strength in the second half of the year and any potential seasonality in the third quarter? A: James Clark, CEO, explained that the company anticipates continued elevated activity levels, particularly in the Display Solutions segment, driven by the Grocery and Refueling verticals. While the surge in Q2 may not be fully sustained, they expect robust activity through Q3 and Q4.

Q: How do you see the trajectory of gross and EBITDA margins moving forward? A: James Clark, CEO, noted that while Q2 margins were impacted by inefficiencies due to a rapid ramp-up in production, they expect margins to stabilize and improve as efficiencies are regained. The integration of EMI, which currently has lower margins, is also expected to improve over the next 12 to 18 months.

Q: What impact might proposed tariffs have on your business and competitive position? A: James Clark, CEO, stated that due to LSI's focus on domestic manufacturing, the impact of tariffs should be minimal. The company has shifted from 80% foreign-sourced to 70% domestic-sourced since 2019, reducing exposure to potential tariff impacts.

Q: Can you provide a refresher on your new product launch strategy? A: James Clark, CEO, explained that LSI launches over 30 new products annually, categorized into refreshed existing products, category expansions, and entirely new products. The launch process involves internal education, external marketing, and technical preparation to ensure successful market entry.

Q: Are there any significant acquisitions on the horizon? A: James Clark, CEO, indicated that LSI is actively pursuing M&A opportunities, with a strong pipeline of potential deals. The company is disciplined in its approach, focusing on strategic fit and cultural alignment, and expects to make acquisitions within the calendar year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.