# LSI Industries Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [LSI Industries Inc](/companies/lyts.md) (CIK 763532)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:05 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030386
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/763532/000143774923030386/lyts20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/763532/000143774923030386/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $86.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $36.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $25.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $11.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $566.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $8.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 29,955,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | $10.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $1.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-07-01 to 2023-09-30 | $1.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-09-30 | $3.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $154.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $301.8m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $78.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $25.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $3.6m | us-gaap:LongTermDebtCurrent |

## Management's discussion and analysis

As filed, 20,130 characters.

### Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “focus,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2023, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Our condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

### Summary of Consolidated Results

*(In thousands)*

| Net Sales by Business Segment | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| Lighting Segment | $67,641 | $67,533 |
| Display Solutions Segment | 55,800 | 59,536 |
|  | $123,441 | $127,069 |

*(In thousands)*

| Operating Income (Loss) by Business Segment | Three Months Ended September 30 2022 | 2022 |
| --- | ---: | ---: |
| Lighting Segment | $8,753 | $9,158 |
| Display Solutions Segment | 7,219 | 6,496 |
| Corporate and Eliminations | (4,944) | (5,633) |
|  | $11,028 | $10,021 |

Net sales of $123.4 million for the three months ended September 30, 2023, decreased $3.6 million or 3% as compared to net sales of $127.1 million for the three months ended September 30, 2022. Lighting Segment net sales of $67.6 million held steady compared to strong prior year quarter net sales of $67.5 million. Net sales in the Display Solutions Segment of $55.8 million declined 6% compared to the same quarter last year sales of $59.5 million. Sales growth was realized in the Refueling/C-Store vertical and in the QSR vertical with Digital Signage applications. Sales growth in these two verticals was offset by a modest decline in the Grocery vertical. The decline in sales is attributed to the disruption caused by the pending merger of the nation’s two largest grocery chains.

Operating income of $11.0 million for the three months ended September 30, 2023, represents a $1.0 million or 10% increase from operating income of $10.0 million in the three months ended September 30, 2022. Adjusted operating income, a Non-GAAP measure, was $12.7 million in the three months ended September 30, 2023, compared to $10.9 million in the three months ended September 30, 2022. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The increase in operating income on a 3% decrease in net sales was the result of a higher-value sales mix, continued price disciplines, and effective cost management,

### Non-GAAP Financial Measures

We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income, and earnings per share, which exclude the impact of long-term performance based compensation expense, severance and restructuring costs, and consulting expense related to commercial growth initiatives, are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow, and Net Debt to Adjusted EBITDA. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. 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 operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA.

*(In thousands, except per share data)*

| Reconciliation of net income to adjusted net income | Three Months Ended September 30 2023 |  | Diluted EPS | 2022 |  | Diluted EPS |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net Income as reported** | **$8,028** |  | **$0.27** | **$6,262** |  | **$0.22** |
| Long-Term Performance Based Compensation | 974 | (1) | 0.03 | 420 | (4) | 0.01 |
| Consulting expense: Commercial Growth Initiatives | 13 | (2) | - | 226 | (5) | 0.01 |
| Severance costs and Restructruing costs | 256 | (3) | 0.01 | 9 | (6) | - |
| Tax rate difference between reported and adjusted net income | (531) |  | (0.02) | 160 |  | 0.01 |
| **Net Income adjusted** | **$8,740** |  | **$0.29** | **$7,077** |  | **$0.25** |

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):

(6) $3

*(In thousands)*

| Reconciliation of operating income to adjusted operating income: | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| **Operating Income as reported** | **$11,028** | **$10,021** |
| Long-Term Performance Based Compensation | 1,325 | 551 |
| Consulting expense: Commercial Growth Initiatives | 19 | 303 |
| Severance costs and Restructruing costs | 353 | 12 |
| **Adjusted Operating Income** | **$12,725** | **$10,887** |

*(In thousands)*

| Reconciliation of Net Income to Adjusted EBITDA | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| **Net Income - Reported** | **$8,028** | **$6,262** |
| Income Tax | 2,338 | 2,758 |
| Interest Expense, Net | 566 | 788 |
| Other Expense | 96 | 213 |
| **Operating Income as reported** | **$11,028** | **$10,021** |
| Depreciation and Amortization | 2,371 | 2,421 |
| **EBITDA** | **$13,399** | **$12,442** |
| Long-Term Performance Based Compensation | 1,325 | 551 |
| Consulting expense: Commercial Growth Initiatives | 19 | 303 |
| Severance costs and Restructruing costs | 353 | 12 |
| **Adjusted EBITDA** | **$15,096** | **$13,308** |

Page 21

*(In thousands)*

| Reconciliation of cash flow from operations to free cash flow | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| **Cash Flow from Operations** | **$10,592** | **$10,583** |
| Capital expenditures | (1,393) | (434) |
| **Free Cash Flow** | **$9,199** | **$10,149** |

*(In thousands)*

| Net Debt to Adjusted EBITDA | September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Current portion and long-term debt as reported | **$3,571** | **$3,571** |
| Long-Term Debt | 25,098 | 73,975 |
| Total Debt | 28,669 | 77,546 |
| Less: Cash and cash equivalents | 3,533 | 9,028 |
| **Net Debt** | **$25,136** | **$68,518** |
| **Adjusted EBITDA - Trailing 12 Months** | **$53,408** | **$40,836** |
| **Net Debt to Adjusted EBITDA** | **0.5** | **1.7** |

### Results of Operations

### THREE MONTHS ENDED SEPTEMBER 30, 2023, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2022

*(In thousands)*

| Lighting Segment | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| Net Sales | $67,641 | $67,533 |
| Gross Profit | 23,280 | 22,279 |
| Operating Income | 8,753 | 9,158 |

Lighting Segment net sales of $67.6 million in the three months ended September 30, 2023, held steady compared to strong net sales of $67.5 million in the same period in fiscal 2023. The Company continues to invest in new product initiatives while maintaining strong relationships with agents, distributors, and contractors with the goal to drive sales growth.

Gross profit of $23.3 million in the three months ended September 30, 2023, increased $1.0 million or 5% from the same period of fiscal 2023. Gross profit as a percentage of net sales improved to 34.4% in the three months ended September 30, 2023, from 33.0% in the same period of fiscal 2023. The improvement in gross profit as a percentage of sales was the result of a higher-value sales mix, continued price disciplines, and effective cost management.

Operating expenses of $14.4 million in the three months ended September 30, 2023, increased $1.4 million from the same period of fiscal 2023, driven by higher commission expense along with an increase in investments in commercial growth initiatives.

Lighting Segment operating income of $8.8 million for the three months ended September 30, 2023, decreased $0.4 million from operating income of $9.2 million in the same period of fiscal 2023 primarily driven by an improvement in gross profit as a percentage of sales offset by an increase in operating expenses.

*(In thousands)*

| Display Solutions Segment | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| Net Sales | $55,800 | $59,536 |
| Gross Profit | $13,310 | $12,453 |
| Operating Income | $7,219 | $6,496 |

Display Solutions Segment net sales of $55.8 million in the three months ended September 30, 2023, decreased $3.7 million or 6% from net sales of $59.5 million in the same period in fiscal 2023. The decline in sales was the net result of an increase in sales in Refueling/C-Store vertical as well as sales growth in the QSR vertical with Digital Signage applications offset by a decline in sales in the Grocery vertical. The decline in sales in the Grocery vertical is attributed to the disruption caused by the pending merger of the nation’s two largest grocery chains.

Gross profit of $13.3 million in the three months ended September 30, 2023, increased $0.9 million or 7% from the same period of fiscal 2023. Gross profit as a percentage of net sales in the three months ended September 30, 2023, increased to 23.9% from 20.9% in the same period of fiscal 2023. The improvement in gross profit as a percentage of sales was driven by favorable program pricing and prudent cost management.

Operating expenses of $6.1 million in the three months ended September 30, 2023, increased slightly from $6.0 million in the same period of fiscal 2023, primarily driven by a small increase in staffing costs.

Display Solutions Segment operating income of $7.2 million in the three months ended September 30, 2023, increased $0.7 million or 11% from operating income of $6.5 million in the same period of fiscal 2023. The increase of $0.7 million was driven by the net effect of an improvement of gross profit as a percentage of sales partially offset by a decrease in net sales, along with holding operating expenses steady compared to the same period of fiscal 2023.

*(In thousands)*

| Corporate and Eliminations | Three Months Ended September 30 2023 | 2022 |
| --- | ---: | ---: |
| Gross Profit (Loss) | $(1) | $6 |
| Operating (Loss) | $(4,944) | $(5,633) |

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

Operating expenses of $4.9 million in the three months ended September 30, 2023, decreased $0.7 million or 12% from the same period of fiscal 2023. The decrease was primarily the result of cost containment initiatives across several of the Company’s cost categories.

### Consolidated Results

The Company reported $0.6 million and $0.8 million of net interest expense in the three months ended September 30, 2023, and September 30, 2022, respectively. The decrease in interest expense in a rising interest rate environment was the result of the Company’s ability to realize a large paydown in debt with the cash generated by operations, partially offset by increased borrowing costs. The Company also recorded other expense of $0.1 million and $0.2 million in the three months ended September 30, 2023, and September 30, 2022, respectively, both of which is related to net foreign exchange currency transaction losses through the Company’s Mexican and Canadian subsidiaries.

The $2.3 million of income tax expense in the three months ended September 30, 2023, represents a consolidated effective tax rate of 22.6%. Impacting the effective tax rate was the favorable tax treatment of the Company’s long-term performance based compensation. The $2.8 million of income tax expense in the three months ended September 30, 2022, represents a consolidated effective tax rate of 30.6%. Impacting the effective tax rate is an increase in a valuation reserve related to the Company’s deferred tax assets and from a higher anticipated annual tax rate.

The Company reported net income of $8.0 million in the three months ended September 30, 2023, compared to net income of $6.3 million in the three months ended September 30, 2022. Non-GAAP adjusted net income was $8.7 million for the three months ended September 30, 2023, compared to adjusted net income of $7.1 million for the three months ended September 30, 2022 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an increase in gross profit as a percentage of sales partially offset by a decrease in sales. Diluted adjusted earnings per share of $0.29 was reported in the three months ended September 30, 2023, as compared to $0.25 diluted adjusted earnings per share in the same period of fiscal 2023. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended September 30, 2023, were 29,955,000 shares compared to 28,664,000 shares in the same period last year.

### Liquidity and Capital Resources

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.

At September 30, 2023, the Company had working capital of $76.2 million compared to $73.3 million at June 30, 2023. The ratio of current assets to current liabilities was 2.0 to 1 for both September 30, 2023, and June 30, 2023. The increase in working capital from June 30, 2023, to September 30, 2023, is primarily driven by a $4.6 million increase in net accounts receivable and a $1.7 million increase in cash offset by a $1.7 million decrease in refundable income taxes and a $1.4 million increase in current liabilities.

Net accounts receivable was $82.3 million and $77.7 million at September 30, 2023, and June 30, 2023, respectively. DSO increased to 60 days at September 30, 2023, from 57 days at June 30, 2023.

Net inventories of $63.1 million at September 30, 2023, decreased $0.6 million from $63.7 million at June 30, 2023. The decrease of $0.6 million is the result of a decrease in gross inventory of $0.9 million and a $0.3 million decrease in obsolescence reserves. Lighting Segment net inventory increased $0.6 million whereas net inventory in the Display Solutions Segment decreased $1.2 million.

Cash generated from operations and borrowing capacity under the Company’s line of credit is its primary source of liquidity. The Company has a $25 million term loan and $75 million remaining in a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. As of September 30, 2023, $64.5 million of the credit line was available. The Company is in compliance with all of its loan covenants. The $100 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the remainder of fiscal 2024.

The Company had a source of $10.6 million of cash from operating activities in the three months ended September 30, 2023, and 2022. The Company continues to effectively manage its working capital while generating increasing cash flow from earnings in both fiscal years, resulting in strong cash flow from operations.

The Company used $1.4 million and $0.4 million of cash related to investing activities in the three months ended September 30, 2023, and September 30, 2022, respectively. The Company has invested in equipment and tooling to support sales growth.

The Company had a use of cash of $7.4 million and $3.6 million related to financing activities in the three months ended September 30, 2023, and September 30, 2022, respectively. The $3.9 million change in cash flow was primarily the result of cash generated from improved earnings and effective working capital management, which was used to pay down the Company’s line of credit in the first quarters of fiscal 2024 and fiscal 2023. The Company also received $0.5 million of cash in fiscal 2024 related to the exercise of stock options with no comparable event in fiscal 2023.

The Company has on its balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.

### Off-Balance Sheet Arrangements

The Company has no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.

### Cash Dividends

In November 2023, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 21, 2023, to shareholders of record as of November 13, 2023. The indicated annual cash dividend rate for fiscal 2024 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

### Critical Accounting Policies and Estimates

A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2023 Annual Report on Form 10-K.

## Market risk

As filed, 295 characters.

There have been no material changes in our exposure to market risk since June 30, 2023. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 16 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

## Controls and procedures

As filed, 2,204 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

### Changes in Internal Control

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030386. Last ingested by Listed: Oct 30, 2026, 16:10 ET. No prices; not investment advice.