LSI Industries Inc: Form 10-Q for the period ended Dec 31, 2025

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, 2025, 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)

(In thousands)

Net sales of $147.0 million for the three months ended December 31, 2025, decreased less than 1% as compared to net sales of $147.7 million for the three months ended December 31, 2024. Lighting Segment net sales of $66.7 million increased 15% and Display Solutions Segment net sales of $80.3 million decreased 10% from last year’s second quarter net sales. The 15% second quarter sales growth of Lighting Segment sales follows 18% growth in the first quarter, with several factors contributing to the improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year. Within the Display Solutions segment, we continue to maintain a high level of project execution across large, multi-year customer programs in the refueling/c-store and QSR verticals. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

Net sales of $304.3 million for the six months ended December 31, 2025, increased 6% as compared to net sales of $285.8 million for the six months ended December 31, 2024. Lighting Segment net sales of $135.7 million increased 16% and Display Solutions Segment net sales of $168.5 million decreased less than 1 percent from last year’s net sales As stated in the overview of second quarter sales, the momentum in the Lighting Segment from the first quarter carried over to the second quarter with strong lighting net sales driven by the increased number of large project shipments and by the introduction of several new products and the Company’s ability to convert multiple competitor accounts to LSI. Within the Display Solutions segment we continue to experience a steady demand in the refueling/c-store and grocery markets as customers continue to recognize the value of our broad service capabilities.

Operating income of $8.9 million for the three months ended December 31, 2025, represents a 5% increase in operating income from $8.5 million in the three months ended December 31, 2024. Adjusted operating income, a Non-GAAP measure, was $11.7 million in the three months ended December 31, 2025, compared to $11.7 million in the three months ended December 31, 2024. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. While net sales were relatively flat compared to the same time in the prior year, operating income improved. Margin management remains a priority for us, with a strong focus on project pricing, productivity, and cost discipline.

Operating income of $19.8 million for the six months ended December 31, 2025, represents a 13% increase from operating income of $17.6 million in the six months ended December 31, 2024. Adjusted operating income, a Non-GAAP financial measure, was $25.7 million in the six months ended December 31, 2025, compared to adjusted operating income of $23.6 million in the six months ended December 31, 2024. The increase in net sales coupled with focused margin management contributed to the period over period improvement in operating income. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures.

Non-GAAP Financial Measures

This report includes adjustments to GAAP operating income, net income, and earnings per share for the three months ended December 31, 2025, and 2024. 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, Net Debt to Adjusted EBITDA, and organic sales growth.

(In thousands)

(In thousands, except per share data)

Page 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):

(1) $289

(2) $399

(3) $20

(4) $58

(5) ($28)

(6) $375

(7) $318

(8) $16

(9) $19

(In thousands)

(In thousands, except per share data)

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) $617

(2) $836

(3) ($18)

(4) $113

(5) $37

(6) $692

(7) $684

(8) $15

(9) ($2)

(10) $33

(11) $19

(In thousands)

(In thousands)

(In thousands)

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Results of Operations

THREE MONTHS ENDED DECEMBER 31, 2025, COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2024

(In thousands)

Display Solutions net sales of $80.3 million decreased from same period in fiscal 2024. Within the Display Solutions segment, we continue to maintain a high level of project execution across large, multi-year customer programs in the refueling/c-store and QSR verticals. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

Gross profit of $14.4 million in the three months ended December 31, 2025, decreased from the same period of fiscal 2025 driven by lower sales. Gross profit as a percentage of net sales remained at 18% despite lower sales as we continue to maintain favorable program pricing and prudent cost management.

Operating expenses of $8.3 million in the three months ended December 31, 2025, increased 8% from the same period of fiscal 2025, primarily driven by the acquisition of Canada’s Best Holdings and by continued investment in commercial initiatives to drive growth.

Display Solutions Segment operating income of $6.1 million in the three months ended December 31, 2025, decreased from the same period of fiscal 2025. The decrease in operating income driven by the net effect of a decrease in net sales partially offset by the gross margin impact of product mix and by favorable program pricing and prudent cost management.

(In thousands)

Lighting Segment net sales of $66.7 million in the three months ended December 31, 2025, increased 15% compared to net sales of $58.2 million in the same period in fiscal 2025. The 15% second quarter sales growth follows 18% growth in the first quarter, with several factors contributing to our improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year.

Gross profit of $23.0 million in the three months ended December 31, 2025, increased 21% from the same period of fiscal 2025. Gross profit as a percentage of sales improved from 32.7% to 34.6%. The increase in net sales coupled with focused margin management contributed to the period over period improvement in gross profit.

Operating expenses of $15.5 million in the three months ended December 31, 2025, increased from the same period of fiscal 2025, driven mostly by higher agent commission expense from higher net sales.

Lighting Segment operating income of $7.5 million for the three months ended December 31, 2025, increased 26% from operating income of $6.0 million in the same period of fiscal 2025 primarily driven by improved sales and focused margin management.

(In thousands)

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

Operating expenses of $4.8 million in the three months ended December 31, 2025, decreased 16% from the same period of fiscal 2025. The decrease in expense is primarily the result of effective cost management of the Company’s corporate operating expenses.

Consolidated Results

The Company reported $0.6 million and $0.7 million of net interest expense in the three months ended December 31, 2025, and December 31, 2024, respectively. The decrease in interest expense is driven by profitability and by sustained working capital management as the Company lowered its outstanding debt. The Company also recorded other income of ($0.1) million compared to other expense of $0.4 in the three months ended December 31, 2025, and December 31, 2024, respectively, of which is related to net foreign exchange currency transaction gains and losses through the Company’s Mexican and Canadian subsidiaries.

The $2.0 million of income tax expense in the three months ended December 31, 2025, represents a consolidated effective tax rate of 24.4%. The $1.7 million of income tax expense in the three months ended December 31, 2024, represents a consolidated effective tax rate of 23.2%. 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 $6.3 million in the three months ended December 31, 2025, compared to net income of $5.6 million in the three months ended December 31, 2024. Non-GAAP adjusted net income was $8.4 million for the three months ended December 31, 2025, compared to adjusted net income of $8.0 million for the three months ended December 31, 2024 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of a strong focus on project pricing, productivity, and cost disciplines, on relatively flat sales. Diluted adjusted earnings per share of $0.20 were reported in the three months ended December 31, 2025, compared to $0.18 diluted adjusted earnings per share in the same period of fiscal 2025. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended December 31, 2025, were 32,004,000 shares compared to 30,876,000 shares in the same period last year.

SIX MONTHS ENDED DECEMBER 31, 2025, COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2024

(In thousands)

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Display Solutions Segment net sales of $168.5 million decreased less than 1 percent from last year’s net sales. We continue to experience a continued steady demand in the refueling/c-store and grocery markets as customers continue to recognize the value of our broad service capabilities. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

Gross profit of $31.5 million in the six months ended December 31, 2025, increased 2% from the same period of fiscal 2025 despite slightly lower sales. Gross profit as a percentage of net sales in the six months ended December 31, 2025, increased slightly to 18.7% from 18.2% in the same period of fiscal 2025 impacted by favorable program pricing and prudent cost management.

Operating expenses of $16.8 million in the six months ended December 31, 2025, increased 12% from the same period of fiscal 2025, primarily driven by the acquisition of Canada’s Best Holdings and by continued investment in commercial initiatives to drive growth.

Operating income of $14.7 million in the six months ended December 31, 2025, decreased from the same period of fiscal 2025. The decrease in operating income was driven by the net effect of an increase in gross offset by an increase in operating expenses.

(In thousands)

Lighting Segment net sales of $135.7 million in the six months ended December 31, 2025, increased 16% compared to net sales of $116.7 million in the same period in fiscal 2025. The 15% second quarter sales growth follows 18% growth in the first quarter, with several factors contributing to our improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year. Also contributing to the period over period growth of sales was the introduction of several new products and the Company’s ability to convert multiple competitor accounts to LSI.

Gross profit of $46.2 million in the three months ended December 31, 2025, increased 23% from the same period of fiscal 2025. Gross profit as a percentage of sales improved from 32.3% to 34.1%. The increase in net sales coupled with focused margin management contributed to the period over period improvement in gross profit.

Operating expenses of $30.1 million in the six months ended December 31, 2025, increased 16% from the same period of fiscal 2025, driven mostly by higher agent commission expense.

Lighting Segment operating income of $16.1 million for the six months ended December 31, 2025, increased 37% from operating income of $11.7 million in the same period of fiscal 2025. primarily driven by improved sales and focused margin management.

(In thousands)

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

Operating expenses of $10.9 million in the six months ended December 31, 2025, increased 10% from the same period of fiscal 2025. The increase in expense is the result of an increase in investment in commercial initiatives to support the growth of the Company.

Consolidated Results

The Company reported $1.3 million and $1.6 million of net interest expense in the six months ended December 31, 2025, and December 31, 2024, respectively. The decrease in interest expense is driven by profitability and by sustained working capital management as the Company lowered its outstanding debt. The Company also recorded other expense of $0.4 million and $0.3 million in the six months ended December 31, 2025, and December 31, 2024, respectively, both of which is related to net foreign exchange currency transaction gains and losses through the Company’s Mexican and Canadian subsidiaries.

The $4.5 million of income tax expense in the six months ended December 31, 2025, represents a consolidated effective tax rate of 24.8%. The $3.3 million of income tax expense in the six months ended December 31, 2024, represents a consolidated effective tax rate of 21.3%. 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 $13.6 million in the six months ended December 31, 2025, compared to net income of $12.3 million in the six months ended December 31, 2024. Non-GAAP adjusted net income was $18.2 million for the six months ended December 31, 2025, compared to adjusted net income of $16.0 million for the six months ended December 31, 2024 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of improved sales and a strong focus on project pricing, productivity, and cost disciplines. Diluted adjusted earnings per share of $0.57 was reported in the six months ended December 31, 2025, compared to $0.52 diluted adjusted earnings per share in the same period of fiscal 2025. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the six months ended December 31, 2025, were 31,685,000 shares compared to 30,709,000 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 December 31, 2025, the Company had working capital of $100.1 million compared to $96.8 million at June 30, 2025. The ratio of current assets to current liabilities was 2.2 to 1 for December 31, 2025, and 2.0 for June 30, 2025. The increase in working capital from June 30, 2025, to December 31, 2025, was primarily driven a decrease in accounts payable and accrued expenses and an increase in net inventory, partially offset by a $13.7 million decrease in net accounts receivable.

Net accounts receivable was $90.6 million and $104.3 million at December 31, 2025, and June 30, 2025, respectively. DSO decreased to 59 days at December 31, 2025, from 66 days at June 30, 2025.

Net inventories of $82.0 million at December 31, 2025, increased $2.2 million from $79.8 million at June 30, 2025. Lighting Segment net inventory increased $3.6 million to support the growth in Lighting Segment sales whereas net inventory in the Display Solutions Segment decreased $1.4 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 $125 million a secured revolving line of credit. The revolving line of credit expires in the first quarter of fiscal 2031. As of December 31, 2025, $104.6 million of the credit line was available. The Company is in compliance with all of its loan covenants. The $125 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the remainder of fiscal 2026.

The Company generated $25.7 million of cash from operating activities in the six months ended December 31, 2025, compared to $21.7 million of cash generated from operating activities in the same period in fiscal 2025. 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 invested $2.6 million and $1.8 million of cash related to investing activities in the six months ended December 31, 2025, and December 31, 2024, respectively. The Company continues to invest in equipment and tooling to support sales growth.

The Company had a net use of cash of $20.4 million and $19.1 million related to financing activities in the six months ended December 31, 2025, and December 31, 2024, 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 January 2026, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 10, 2026, to shareholders of record as of February 2, 2026. The indicated annual cash dividend rate for fiscal 2026 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 2025 Annual Report on Form 10-K.

There have been no material changes in our exposure to market risk since June 30, 2025. 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, 2025.

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 December 31, 2025, 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 December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.