LSI Reports 3Q 2021 Results

CINCINNATI — LSI Industries Inc. (“LSI” or the “Company”) announced results for the third quarter fiscal 2021.

Third Quarter 2021 Summary

• Net Sales of $72.2 million, growth of 2% versus prior year
• Net Income of $1.5 million; EPS of $0.05 per diluted share
• Adjusted Net Income of $1.8 million, or $0.07 per diluted share
• Adjusted EBITDA of $4.4 million, compared to $1.6 million in prior year period
• Free cash flow of $10.6 million versus $3.5 million prior year

For the three months ended March 31, 2021, LSI reported year-over-year growth in net sales, adjusted net income, adjusted EBITDA and cash flow. LSI reported GAAP net income of $1.5 million, or $0.05 per diluted share in the fiscal third quarter, versus $1.9 million, or $0.07 per diluted share in the prior period. The Company’s prior year fiscal third quarter results included a non-recurring, pre-tax gain of $3.7 million, or $0.12 per diluted share, resulting from the sale of the North Canton, Ohio facility. Fiscal third quarter adjusted EBITDA was $4.4 million, an increase of $2.8 million when compared to the prior year period.

LSI generated free cash flow of $10.6 million for the quarter, increasing its total cash and equivalents to $23.5 million as of March 31, 2021. On March 30, 2021, LSI extended the maturity of its revolving credit facility from March 2022 to March 2026 and increased total availability by $25 million to $100 million. As of March 31, 2021, LSI had cash and total availability on its credit facility of $23.5 million and $100 million, respectively. The Company had no long-term debt at the end of the quarter.

The Company declared a regular cash dividend of $0.05 per share payable May 11, 2021 to shareholders of record on May 3, 2021.

Management Commentary

James A. Clark, President and Chief Executive Officer commented, “We reported positive year-over-year growth in net sales during the third quarter despite the lingering effects of the pandemic and weather-related disruptions that occurred in the period. Our team has continued to respond to changing market conditions, as the first two months of the quarter were sluggish but followed by a stair-step increase in market activity for March, allowing us to enter the fiscal fourth quarter with increased momentum. These efforts are reflected in our strong third quarter results, as gross margin, adjusted net income, operating cash flow and adjusted EBITDA all improved when compared to the prior year.

Our Graphics segment sales increased by 20% versus the prior year quarter, with positive activity across multiple market verticals. Our $100 million digital program with a major QSR customer is progressing as forecasted and is anticipated to operate at current levels for the next twelve months. We have over 4,000 site installations remaining on this program, with the outdoor program scheduled through June 2022. The $25 million indoor phase of the program is expected to begin in fiscal 2022. Separately, we continue to evaluate potential applications for our digital technology solutions, including discussions with a national pharmacy retailer on an innovative “secure kiosk” pilot program which utilizes concepts from solutions we have deployed with our QSR customers.

Sales in the petroleum/c-store vertical were adversely impacted by six days of lost production during February, as inclement weather in Texas resulted in regional utility outages impacting our Houston manufacturing facility. Program backlog within the vertical remains strong, as are design requests for potential new programs. We continue to see increasing renovation opportunities in the grocery vertical, with customers focusing on higher-end features and finishes throughout the store interior, including architectural and dimensional signage, lighting and décor elements.

Our increased focus on providing comprehensive program management solutions to our customers continues to generate growth. The Program Management team manages complex, multi-site construction, engineering and branding projects that must be aligned with our clients’ corporate identity standards, providing an in-depth, custom, turn-key solution. This team is engaged with our large QSR program and is working with the nation’s largest petroleum/c-store chain on project activity across the country. Program Management fiscal year-to-date sales have increased over 50%, while project commitments continue to increase.

The Lighting segment continues to recover, with sales down 7% when compared to prior year. The sales gap versus prior year continues to narrow, having improved each quarter of the current fiscal year. Sales in the third quarter, which is historically the slowest quarter of the year, increased sequentially from Q2. We have experienced a sizeable uptick in project quote activity in the Northeast and Northwest regions of the country as businesses reopen and construction activity resumes. Distributors who reduced inventory levels significantly during the peak of the pandemic are also beginning to restock inventory in anticipation of improving market demand.

In collaboration with our independent sales agency partners, LSI is the exclusive lighting provider to a large regional petroleum/c-store chain whose differentiated concept is generating rapid growth of new sites. We provide the complete indoor and outdoor lighting solution for these large sites, including area lighting, canopy lighting, wall packs, poles and controls as required. Our customers value LSI’s turnkey solution, one that fully integrates product procurement, customer service and technical support capabilities under one umbrella.

The Lighting adjusted gross margin rate was 31% for the quarter, or 530 bps above prior year. This improvement reflects our continued focus on the entire lighting model, including higher value applications, price management, new and cost reduced products and supply chain and operations productivity. Adjusted operating income for the Lighting segment was more than triple prior year levels in the third quarter.

In March, we amended and extended our bank financing agreement, providing us with increased balance sheet optionality to more actively pursue organic and inorganic growth opportunities.

To date, we have been successful in aligning our cost structure to demand levels, navigating various global supply chain challenges while continuing to make critical investments. I am confident the business is positioned to capitalize on improving market conditions as we transition into the fourth quarter and fiscal 2022.”