LSI Industries Q3’22 Fiscal Analysis: Net Income Up 146%, Beats Expectations

U.S. based LSI Industries released Q3 FY2022 results at the end of last week with a strong performance year-to-date and year-over-year(YoY), and beating market expectations.  Year-over-year, net sales for the quarter were up 53%, net income up 146% and EBITDA up 92%. Keep in mind that these Q3 results include the organic contributions of the acquired JSI Store Fixtures last FY, which were not part of the prior year’s Q3 results.  LSI’s total net sales were $110M in Q3 FY22, and EBITDA for this quarter was $8.5M USD versus $4.4M USD in Q3 FY21.

LSI Industries breaks their business into two segments – Lighting and Display Solutions.  The company has been able to leverage their commercial lighting and graphics business to create deeper customer relationships in the convenience store (c-store) and fueling vertical.  The commercial lighting business had typically been the larger part of the business (65 to 70% of revenue), but now, in 2022, the two segments are roughly the same size.  One year ago, in May of 2021, LSI completed the acquisition of JSI Store Fixtures for $90M USD, and changed the name of their non-lighting segment from Graphics to Display Solutions. JSI Store Fixtures reported calendar 2020 revenue of $70M USD.  JSI was already deeply established in the supermarket vertical, supplying supermarkets and c-stores with branded display solutions – riding a wave of growth in demand for fresh foods and “grab-and-go” meals.

It appears the strategy of going deeper into verticals with national accounts for both lighting and display solutions is driving strong results for LSI.

LSI Q3 2022 Revenue Results by business segment

Lighting: sales up +25% YoY at $57.1M USD

Display Solutions: sales up +100% YoY at $53M USD (note prior year Q3 did not include JSI)

President and CEO James Clark, who took over the leadership of LSI three years ago, noted that in 2020 a goal for LSI was established to achieve $500M in sales and double-digit EBITDA in fiscal year 2025. Q3 FY2022’s total revenue of $110M USD marked the third consecutive quarter above $100M.  CEO Clark noted that, for the first time, LSI’s c-store/refueling vertical was overtaken by the grocery/pharmacy vertical as LSI’s single largest vertical market.  He attributed the successful strategy behind the growth to “the combination of outdoor and indoor lighting, aisle marker signage, department graphics, along with refrigerated and non-refrigerated displays.”

CEO Clark discussed concerns sometimes raised about life cycle and competitive threats like EV and alternative fuel cars and trucks to LSI’s second largest market, the c-store/refueling space:  “I do not see this market or this customer base slowing down anytime soon…they have gone through many changes over the years from fuel and repair services, to fuel and convenience stores today…I fully expect they will continue to adapt and serve many customers for decades into the future, including offering EV charging and other fuel options side-by-side with their current offerings.”

LSI funded its acquisition of JSI in 2020 with its existing cash and availability under its $100M credit facility, bringing its outstanding debt to 2.6x(ratio of debt outstanding to annual EBITDA), with a note in the press release at the time indicating their intent to reduce that 2.6x debt ratio during the first 24 months post-close.   That 24-month target ends this month, and last week’s Q3 2022 earnings release shows the debt ratio remaining stubbornly at 2.6x.  Supply chain issues have caused LSI to increase inventory investments, a strategy that they maintain has ensured LSI’s ability to provide uninterrupted product availability and take some market share.  Questions on LSI’s leverage from analysts in the Q3 earnings webcast were addressed by CEO James Clark.  CEO Clark indicated he considered LSI’s current debt level to be within the appropriate range based on company size, and that he and the management team “are not hesitant to use debt for the right opportunities”.

On the same day as the Q3 FY2022 earnings release, LSI separately announced authorization from its Board of Directors for a new share repurchase program up to $15M USD.  The Q3 FY2022 presentation was self-congratulatory in noting its “Exceptional Management Team Experienced in Change Management and Execution” next to a bullet point on “GROW Through Acquisition”.

Looking ahead to the final quarter of FY2022 and beyond, CEO Clark responded to an analyst’s question on gross margins increasing QoQ in Q3:  “one of the things that we’ve decided to do over a year ago was really be that dependable supplier.  Our onshoring here in the U.S., our decision back pre-COVID 2018 to kind of move a bunch of our material onshore, back on shore in the North American continent has really paid off. And we continue to think we’ll get a lot of momentum from that.  But we’re always fighting the same challenge as everybody…it’s labor, it’s transportation and it’s pockets in the supply chain that can be disrupted easily.”

Guidance for the final quarter of LSI’s FY2022 is for strong sequential growth, with Q4 typically being a strong quarter for the company. CEO Clark offered that they are looking to Q1 of next year (FY2023) to also be relatively strong, noting that seasonality will still have an impact for LSI’s Q2 and Q3 as their strongest market is outdoor.

Go Deeper

LSI Industries Q3 FY2022 Results Conference Call Presentation: https://s24.q4cdn.com/769247122/files/doc_financials/2022/q3/Exhibit-99.3-LYTS-F3Q22-Conference-Call-Deck.pdf

LSI Industries Q3 FY2022 Results: https://investors.lsicorp.com/news/news-details/2022/LSI-Industries-Reports-Fiscal-Third-Quarter-2022-Results/default.aspx

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