LSI Industries Inc. (NASDAQ:LYTS) Q2 2023 Earnings Name Transcript
LSI Industries Inc. (NASDAQ:LYTS) Q2 2023 Earnings Name Transcript January 26, 2023
Operator: Greetings and welcome to the LSI Industries Fiscal Second Quarter 2023 Outcomes Convention Name. As a reminder, this convention is being recorded. It’s now my pleasure to introduce your host, Jim Galeese, Chief Monetary Officer. Thanks, Jim. You could start.
Jim Galeese: Good morning, everybody and thanks for becoming a member of. We issued a press launch earlier than the market opened this morning, detailing our fiscal second quarter outcomes. At the side of this launch, we additionally posted a convention name presentation within the Investor Relations portion of our company web site at www.lsicorp.com. Data contained on this presentation might be referenced all through at present’s convention name included are sure non-GAAP measures for improved transparency of our working outcomes. A whole reconciliation of second quarter GAAP and non-GAAP outcomes is contained in our press launch and 10-Q. Please observe that administration’s commentary and responses to questions on at present’s convention name could embrace forward-looking statements about our enterprise outlook.
Such statements contain dangers and alternatives and precise outcomes might differ materially. I refer you to our Secure Harbor assertion, which seems on this morning’s press launch in addition to our most up-to-date 10-Ok and 10-Q. As we speak’s name will start with remarks summarizing our fiscal second quarter outcomes. On the conclusion of those ready remarks, we are going to open the road for questions. With that, I’ll flip the decision over to LSI President and Chief Govt Officer, Jim Clark.
Jim Clark: Thanks, Jim and good morning all. Thanks for becoming a member of us on at present’s name. As you may have seemingly seen from our press launch, we had one other sturdy quarter in our Q2 fiscal 23. In actual fact, that is our seventh consecutive quarter of double-digit natural progress. It is fairly an accomplishment given the continued headwinds of the final economic system, ongoing provide chain challenges and disruptions within the development market. My hats off to the whole staff at LSI together with our brokers and companions. Gross sales for the quarter had been up greater than 16% year-over-year, web earnings up over 107%. We had sturdy free money circulation efficiency and I’m joyful to say our web debt sits round $60 million, which is a 1.3x web leverage ratio. We’re in a great spot going into the second half of the yr and Jim Galeese will present a deeper dive of the financials in a couple of minutes.
Our technique round vertical markets continues to pay dividends and is mirrored in our progress. Whereas no market is recession-proof, we do consider {that a} good swath of our numerous vertical markets has offered us with some hedge towards the present headwinds and have confirmed to be recession-resistant, creating progress alternatives that outpaced the efficiency of the final economic system. Our refueling market continues to carry out properly. Though restoration in Mexico continues to lag our expectations, we’ve developed alternatives in different areas which are offsetting our delayed tasks in Mexico. Within the second quarter, we considerably accomplished roughly 200 website re-branding mission in Puerto Rico for a significant oil retailer. This represents our first main mission in Puerto Rico and demonstrates the power of our techniques and processes, which allowed us to considerably full this main mission in a brand new market with no blip.
We are going to proceed to search for these forms of alternatives and broaden accordingly. As a lot of you may have seen, we issued a press launch just a few weeks again concerning a photo voltaic set up we accomplished for an oil retailer in Austin, Texas midyear final yr. Just a few months of the system working and working we had been in a position to present some fascinating numbers with reference to vitality financial savings and the payback interval associated to the preliminary funding. We see the Cover at most petroleum retail areas as an untapped alternative and this mission is an effective instance of how we will flip this unused house into an actual revenue heart for each us and our prospects, not to mention the environmental influence of the clear vitality manufacturing. I wish to warning everybody that that is merely a primary step nevertheless it does go a great distance into underlining the alternatives and prospects of increasing services we will provide in our numerous vertical markets.
Our grocery retailer vertical continues to ship above expectations. On this final quarter, we had been awarded one other main mission by one of many nation’s largest retail grocery retailer chains to supply roughly 1,200 to 1,500 items of refrigerated and non-refrigerated show options, which we are going to considerably full and ship by the tip of this fiscal yr. We proceed to supply numerous print and lighting options to a large group of our grocery prospects and we’re experimenting with another items and providers we will provide to this market. I hope to have some fascinating information to share with you concerning these efforts subsequent quarter. Our automotive market continues to indicate quite a few rising alternatives and engagement of our staff in quite a few new tasks.
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This week, our automotive gross sales staff might be attending the Nationwide Affiliation of Automotive Sellers, NADA Commerce Present and persevering with to advance our place on this market. Regardless of a number of exterior components affecting new and used automobile gross sales, this market continues to indicate good strong exercise. Lastly, our sports activities court docket market has been transferring alongside properly with quite a few bigger wins lately. As we’ve spoken earlier than, our firm does have some seasonality constructed into our regular gross sales cycle. With our deal with outside lighting options, it signifies that part of our gross sales are uncovered to the realities of winter, chilly climate and development actions has slowed throughout winter months. Q2 and Q3 usually signify our slower months. And though I don’t anticipate us to outsmart winter, we’ve been very lucky with a record-setting third quarter final yr in a really strong Q2 this yr.
You will be assured we might be searching for each alternative to maintain that momentum going. Subsequent week, we might be internet hosting our Annual Nationwide Gross sales Assembly in Cincinnati. For these conferences, we carry all our gross sales, advertising, product growth and engineering assets collectively for a really full agenda. As we’ve accomplished prior to now, we could have a mixture of workshops, gross sales coaching, product coaching for our gross sales and advertising people. It is a huge funding that has traditionally paid huge dividends and we’re excited to make this funding and transfer ahead with this assembly. Instantly following our nationwide gross sales assembly, we might be internet hosting our third annual companion and agent digital gross sales and tech assembly. Sharing classes realized from our nationwide gross sales assembly, together with new product introductions and greatest practices realized over the past yr.
Going into Q3, our quota exercise throughout all sectors stays sturdy. We’re nonetheless dealing with some vital headwinds, however we consider many extra alternatives forward of us and we’re working to enhance each our prime line and our backside line. With that, I’ll flip the decision over to Jim Galeese for a deeper have a look at our financials.
Jim Galeese: Thanks, Jim. Constructive momentum in our enterprise continued all through Q2, producing double-digit gross sales progress, growth in our gross and working margins, considerably improved earnings and earnings per share and robust money circulation. The interval noticed continued wholesome demand ranges throughout each reportable segments and operational execution continued at a excessive stage. Gross sales elevated 16% year-over-year for the quarter, with each reportable segments attaining double-digit progress, Lighting rising 17% and Show Options 15%. We proceed to leverage our place in market verticals the place we’ve a powerful place and advance our place in verticals recognized with worthwhile progress potential. Reported working and web earnings had been double the prior yr quarter with reported diluted earnings per share of $0.22 and adjusted earnings per share of $0.26.
This compares to $0.11 and $0.15 respectively final yr. Adjusted EBITDA elevated to $13 million, 54% above prior yr and our adjusted EBITDA margin charge was 10.1%, our second consecutive quarter of margin exceeding 10%. The enterprise continued to generate strong free money circulation. Second quarter money circulation of roughly $9 million elevated money circulation for the primary half of the fiscal yr to $19 million. Our sturdy money technology diminished web debt, $17 million within the first half of the fiscal yr and over $25 million from the prior yr interval. This served to cut back the ratio of web debt to trailing 12-month adjusted EBITDA to 1.3x. Debt discount stays a capital allocation precedence and offers flexibility to pursue investments in each natural and inorganic progress initiatives.
Now, just a few feedback on section efficiency. Momentum continued within the Lighting section as gross sales elevated 17% and adjusted working earnings improved 45%. Demand stays broad-based. Our impartial gross sales community offered vital year-over-year progress and our direct nationwide account gross sales continued to broaden, with orders obtained from a number of new prospects within the quarter. We famous within the press launch the substantial progress in gross sales for indoor software, reflecting the progress in offering a selected full resolution set for key vertical markets, serving to extend our common order measurement. Promoting costs remained secure within the quarter and commodity prices continued to reasonable. This, mixed with quantity progress, was liable for the improved earnings and margin growth for the quarter.
We diminished lighting stock 7% sequentially within the second quarter, reflecting ongoing provide chain stabilization. Lighting DIO stays considerably above historic ranges and alternatives have been recognized to additional cut back stock transferring ahead whereas making certain product availability to fulfill projected buyer demand. Mission citation ranges in Q2 remained regular at a excessive stage and we exit the quarter with backlog mid single-digits above final yr. Transferring to Show Options, gross sales elevated 15% and adjusted working earnings roughly doubled to $8 million. The gross margin charge elevated 620 foundation factors pushed by quantity leverage, improved program pricing and favorable program combine. Jim talked about the Puerto Rico branding program for a big oil firm.
I wish to level out our excessive stage of achievement and repair efficiency on this and different giant, extremely personalized show tasks throughout the refueling C-store, QSR and grocery verticals as allowing points and buyer set up schedule modifications proceed. Our groups pivot shortly collaborating with the client to efficiently meet the requested modifications. This functionality continues to be a differentiator for LSI out there. Idea design and pilot work for potential new applications stays very energetic within the Show section with over 20 proposals for brand new and present prospects in progress. To summarize, it was a strong quarter for the enterprise, highlighted by sturdy monetary and operational efficiency. We proceed to successfully handle bills whereas investing in applications to determine and help each quick and long-term worthwhile gross sales progress.
Trying ahead, quote order exercise is anticipated to stay wholesome in Q3 with gross sales reflecting regular seasonality. I’ll now return the decision again to the moderator for the question-and-answer session.
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