# LSI Industries Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [LSI Industries Inc](/companies/lyts.md) (CIK 763532)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 16:06 ET
- Period: 2024-09-30
- Accession: 0001437749-24-034202
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/763532/000143774924034202/lyts20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/763532/000143774924034202/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $104.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $33.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $24.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $9.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $875.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $6.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 30,530,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-07-01 to 2024-09-30 | $11.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-07-01 to 2024-09-30 | $759.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-07-01 to 2024-09-30 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-09-30 | $7.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $166.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $349.5m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $80.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-09-30 | $44.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $3.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $211.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,523 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, 2024, 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 2024 | 2023 |
| --- | ---: | ---: |
| Lighting Segment | $58,437 | $67,641 |
| Display Solutions Segment | 79,658 | 55,800 |
| Total Net Sales | $138,095 | $123,441 |

*(In thousands)*

| Operating Income (Loss) by Business Segment | Three Months Ended September 30 2024 | 2023 |
| --- | ---: | ---: |
| Lighting Segment | $5,759 | $8,753 |
| Display Solutions Segment | 7,708 | 7,219 |
| Corporate and Eliminations | (4,336) | (4,944) |
| Total Operating Income | $9,131 | $11,028 |

Net sales of $138.1 million for the three months ended September 30, 2024, increased 12% as compared to net sales of $123.4 million for the three months ended September 30, 2023. Lighting segment net sales of $58.4 million decreased 14% compared to prior year quarter net sales of $67.6 million. The decline in Lighting segment sales can be attributed to lower large project activity resulting from the lengthening of the conversion period for these large projects, and overall lower non-residential construction activity. Sales growth in the Refueling and Parking market verticals was offset by declines in Warehouse and other large project applications. Net sales in the Display Solutions segment of $79.7 million increased 43% compared to the same quarter last year sales of $55.8 million. The increase in net sales in the Display Solutions segment is the net result of $26.2 million in sales from the acquisition of EMI partially offset by the delayed timing of orders within the Grocery vertical.

Operating income of $9.1 million for the three months ended September 30, 2024, represents a 17% decrease from operating income of $11.0 million in the three months ended September 30, 2023. Adjusted operating income, a Non-GAAP measure, was $11.9 million in the three months ended September 30, 2024, represents a 14% decline compared to $13.9 million in the three months ended September 30, 2023. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The decrease in operating income is the net result of a decrease in sales in the Lighting segment partially offset by an increase in sales in the Display Solutions segment which yield lower margins as a result of product mix.

### Non-GAAP Financial Measures

This report includes adjustments to GAAP operating income, net income, and earnings per share for the three months ended September 30, 2024, and 2023. Operating income, net income, and earnings per share, which exclude the impact of long-term performance based compensation expense, the amortization expense of acquired intangible assets, commercial growth opportunity expense, acquisition costs, the lease expense on the step-up basis of acquired leases, and restructuring and severance costs, are non-GAAP financial measures. We further note that while the amortization expense of acquired intangible assets is excluded from the non-GAAP financial measures, the revenue of the acquired companies is included in the measures and the acquired assets contribute to the generation of revenue. We believe these non-GAAP measures will provide increased transparency to our core operating performance of the business. Also included in this report are non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Net Debt to 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.

*(In thousands)*

| Reconciliation of operating income to adjusted operating income: | Three Months Ended September 30 2024 | 2023 |
| --- | ---: | ---: |
| **Operating income as reported** | $9,131 | $11,028 |
| Acquisition costs | 48 | - |
| Long-term performance based compensation | 1,184 | 1,325 |
| Amortization expense of acquired intangible assets | 1,408 | 1,190 |
| Lease expense on the step-up basis of acquired leases | 67 | - |
| Restructuring/severance costs | 60 | 353 |
| Consulting expense: commercial growth opportunities | - | 19 |
| **Adjusted operating income** | $11,898 | $13,915 |

Page 23

*(In thousands, except per share data)*

| Reconciliation of net income to adjusted net income | Three Months Ended September 30 2024 |  | Diluted EPS | 2023 |  | Diluted EPS |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net income as reported** | $6,682 |  | $0.22 | $8,028 |  | $0.27 |
| Long-term performance based compensation | 881 | (1) | 0.03 | 974 | (6) | 0.03 |
| Amortization expense of acquired intangible assets | 1,042 | (2) | 0.03 | 870 | (7) | 0.03 |
| Restructuring/severance costs | 45 | (3) | - | 256 | (8) | 0.01 |
| Acquisition costs | 36 | (4) | - | - |  | - |
| Lease expense on the step-up basis of acquired leases | 50 | (5) | - | - |  | - |
| Consulting expense: commercial growth opportunities | - |  | - | 13 | (9) | - |
| Tax rate difference between reported and adjusted net income | (755) |  | (0.02) | (531) |  | (0.02) |
| **Net income adjusted** | $7,981 |  | $0.26 | $9,610 |  | $0.32 |

Effective in the first quarter of fiscal 2025, LSI will include the amortization expense related to acquired intangible assets as an add-back to its non-GAAP reconciliation. Prior quarter non-GAAP reconciliations have been adjusted accordingly.

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):

(1) $303

(2) $366

(3) $15

(4) $12

(5) $17

(6) $351

(7) $320

(8) $97

(9) $6

*(In thousands)*

| Reconciliation of net income to EBITDA and adjusted EBITDA | Three Months Ended September 30 2024 | 2023 |
| --- | ---: | ---: |
| **Net income - reported** | $6,682 | $8,028 |
| Income tax | 1,635 | 2,338 |
| Interest expense, net | 875 | 566 |
| Other expense (income) | (61) | 96 |
| **Operating income as reported** | $9,131 | $11,028 |
| Depreciation and amortization | 2,940 | 2,371 |
| **EBITDA** | $12,071 | $13,399 |
| Acquisition costs | 48 | - |
| Long-term performance based compensation | 1,184 | 1,325 |
| Restructuring/severance costs | 60 | 353 |
| Lease expense on the step-up basis of acquired leases | 67 | - |
| Consulting expense: commercial growth opportunities | - | 19 |
| **Adjusted EBITDA** | $13,430 | $15,096 |

Page 24

*(In thousands)*

| Reconciliation of cash flow from operations to free cash flow | Three Months Ended September 30 2024 | 2023 |
| --- | ---: | ---: |
| **Cash flow from operations** | $11,846 | $10,592 |
| Capital expenditures | (759) | (1,393) |
| **Free cash flow** | $11,087 | $9,199 |

*(In thousands)*

| Net debt to adjusted EBITDA | September 30 2024 | 2023 |
| --- | ---: | ---: |
| Current portion and long-term debt as reported | $3,571 | $3,571 |
| Long-Term Debt | 44,118 | 25,098 |
| Debt as reported | $47,689 | $28,669 |
| Less: |  |  |
| Cash and cash equivalents as reported | 6,969 | 3,533 |
| **Net debt** | $40,720 | $25,136 |
| **Adjusted EBITDA - Trailing 12 Months** | $49,770 | $53,408 |
| **Net debt to adjusted EBITDA** | 0.8 | 0.5 |

### Results of Operations

### THREE MONTHS ENDED SEPTEMBER 30, 2024, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2023

*(In thousands)*

| Display Solutions Segment | 2024 | 2023 |
| --- | ---: | ---: |
| Net Sales | $79,658 | $55,800 |
| Gross Profit | $15,030 | $13,310 |
| Operating Income | $7,708 | $7,219 |

Display Solutions Segment net sales of $79.7 million in the three months ended September 30, 2024 increased 43% from net sales of $55.8 million in the same period in fiscal 2024. The increase in net sales in the Display Solutions segment is the net result of $26.2 million in sales from the acquisition of EMI partially offset by the timing of orders within the Grocery vertical.

Gross profit of $15.0 million in the three months ended September 30, 2024 increased 13% from the same period of fiscal 2024. Gross profit as a percentage of net sales in the three months ended September 30, 2024 decreased to 19% from 24% in the same period of fiscal 2024 impacted by product and vertical market mix. The Company continues to maintain favorable program pricing and prudent cost management.

Operating expenses of $7.3 million in the three months ended September 30, 2024 increased 20% from the same period of fiscal 2024, primarily driven by the acquisition of EMI and by an investment in commercial initiatives to drive growth.

Display Solutions Segment operating income of $7.7 million in the three months ended September 30, 2024 increased 7% from the same period of fiscal 2024. The increase of $0.5 million was driven by the net effect of an increase in net sales partially offset by the gross margin impact of product mix.

*(In thousands)*

| Lighting Segment | 2024 | 2023 |
| --- | ---: | ---: |
| Net Sales | $58,437 | $67,641 |
| Gross Profit | $18,626 | $23,280 |
| Operating Income | $5,759 | $8,753 |

Lighting Segment net sales of $58.4 million in the three months ended September 30, 2024, decreased 14% compared to net sales of $67.6 million in the same period in fiscal 2024. The decline in Lighting segment sales can be attributed to lower large project activity resulting from the lengthening of the conversion period for these large projects, and overall lower non-residential construction activity. Sales growth in the Refueling and Parking market verticals was offset by declines in Warehouse and other large project applications.

Gross profit of $18.6 million in the three months ended September 30, 2024 decreased 20% from the same period of fiscal 2023. The decline in gross profit is attributed to the decline in sales. While overall demand levels were lower in the fiscal first quarter, selling prices and material input costs remain stable.

Operating expenses of $12.9 million in the three months ended September 30, 2024 decreased 11% from the same period of fiscal 2024, driven mostly by lower commission expense from lower sales, and effective cost management.

Lighting Segment operating income of $5.8 million for the three months ended September 30, 2024 decreased 34% from operating income of $8.8 million in the same period of fiscal 2024 primarily driven by decreased net sales.

*(In thousands)*

| Corporate and Eliminations | 2024 | 2023 |
| --- | ---: | ---: |
| Gross (Loss) | $(9) | $(1) |
| Operating (Loss) | $(4,336) | $(4,944) |

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

Operating expenses of $4.3 million in the three months ended September 30, 2024, decreased 12% from the same period of fiscal 2024. The decrease was primarily the result of cost containment initiatives across several of the Company’s cost categories.

### Consolidated Results

The Company reported $0.9 million and $0.6 million of net interest expense in the three months ended September 30, 2024, and September 30, 2023, respectively. The increase in interest expense is the result of the funds borrowed to acquire EMI Industries, LLC in the fourth quarter of fiscal 2024 partially offset by decreased borrowing costs. The Company also recorded other income of ($0.1) million and $0.1 million of other expense in the three months ended September 30, 2024, and September 30, 2023, respectively, both of which is related to net foreign exchange currency transaction gains and losses through the Company’s Mexican and Canadian subsidiaries.

The $1.6 million of income tax expense in the three months ended September 30, 2024 represents a consolidated effective tax rate of 19.6%. 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 of both reported periods was the favorable tax treatment of the Company’s long-term performance based compensation.

The Company reported net income of $6.7 million in the three months ended September 30, 2024 compared to net income of $8.0 million in the three months ended September 30, 2023. Non-GAAP adjusted net income was $8.0 million for the three months ended September 30, 2024, compared to adjusted net income of $9.6 million for the three months ended September 30, 2023 (Refer to the Non-GAAP tables above). The decrease in Non-GAAP adjusted net income is primarily the net result of an increase in net sales offset by the profit margin impact of product mix. Diluted adjusted earnings per share of $0.22 was reported in the three months ended September 30, 2024 compared to $0.27 diluted adjusted earnings per share in the same period of fiscal 2024. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended September 30, 2024 were 30,530,000 shares compared to 29,955,000 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, 2024, the Company had working capital of $86.8 million compared to $83.3 million at June 30, 2024. The ratio of current assets to current liabilities was 2.1 to 1 for both September 30, 2024, and June 30, 2024. The increase in working capital from June 30, 2024, to September 30, 2024, is primarily driven by a $2.1 million increase in net accounts receivable and a $2.9 million increase in cash partially offset by a $0.7 million decrease in refundable income taxes and a $0.9 million increase in current liabilities.

Net accounts receivable was $80.7 million and $78.6 million at September 30, 2024, and June 30, 2024, respectively. DSO decreased to 54 days at September 30, 2024, from 58 days at June 30, 2024.

Net inventories of $71.3 million at September 30, 2024, increased $0.4 million from $70.9 million at June 30, 2024. Lighting Segment net inventory decreased $1.1 million whereas net inventory in the Display Solutions Segment increased $1.5 million to support the growth in backlog resulting from an increase program activity.

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, 2024, $41.6 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 2025.

The Company generated $11.8 million of cash from operating activities in the three months ended September 30, 2024, compared to $10.6 million of cash generated from operating activities in the same period in fiscal 2024. 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 $0.8 million and $1.4 million of cash related to investing activities in the three months ended September 30, 2024, and September 30, 2023, respectively. The Company continues to invest in equipment and tooling to support sales growth.

The Company had a net use of cash of $8.1 million and $7.4 million related to financing activities in the three months ended September 30, 2024, and September 30, 2023, respectively. The Company continues to generate positive cash flow from its operations in order to pay down its debt and fund its dividend payments to shareholders.

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 2024, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 26, 2024, to shareholders of record as of November 18, 2024. The indicated annual cash dividend rate for fiscal 2025 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 2024 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, 2024. 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, 2024.

## 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, 2024, 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, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-034202. Last ingested by Listed: Oct 30, 2026, 16:10 ET. No prices; not investment advice.