LSI Industries (NASDAQ: LYTS) released Q4 and Full-Year Fiscal 2022 results last week, delivering strong results that beat market expectations on both revenue and earnings. Compared to Q4 FY21, Q4 FY22 results were all up: net sales up 31% at $127.5M, net income up 15.5% at $6M, and EBITDA up 56% at $10.6M.
Total annual LSI sales FY22 came in at $455.1M, a Year over Year (YoY) increase of 44% compared to $315.6M in FY21. Not all of the revenue increase over FY21 has been organic; at the end of last fiscal year (June 2021), LSI acquired JSI Store Fixtures, whose annual revenue was $70M at that time. Certainly, LSI has done a great job on the integration of JSI into their overall business and in building out their non-lighting segment (newly named “Display Solutions” instead of “Graphics”). Until FY22, LSI’s Lighting business segment had been dominant, with about 70% of the company’s revenue. Now, the two segments, Lighting and Display Solutions, are closer to a 50/50 split of the overall revenue.
LSI’s Lighting Segment results increased 29% comparing Q4 FY22 to the same Q in FY21, while the full year 2022results were up 24% over the prior full year. The company cited price actions and investments in inventory as supporting the margin expansion and volume growth. The growth of the Lighting Segment was balanced over multiple market verticals, and through both the project and the distributor stock channels. President and CEO Jim Clark noted that their pre-pandemic strategy to move from offshore to onshore has been a big contributor to LSI’s success, indicating that four years ago, LSI was about 80% offshore / 20% onshore, and today they are about 30% offshore / 70% domestic North America (onshore).
In 2019, CEO Clark and his leadership team set a target for LSI to achieve $500M in sales and improve to double-digit EBITDA in FY2025 (when this prediction was made, LSI’s sales were around $300M and EBITDA was around 3%). With the current quarter being the fourth consecutive with sales over $100M, and total FY22 sales finishing at $455M, they are well-positioned to achieve the revenue goal ahead of schedule. On the profitability goal of double-digit EBITDA, there is more work to be done, with Q4 FY22 EBITDA at 8.3% and full year FY22 EBITDA at 7.7%. CEO Clark noted that there is opportunity to further improve profitability based on increasing utilization of LSI operations. He commented that LSI did a lot of restructuring three years ago, selling some properties and consolidating a number of operations. However, when they did those actions, they left capacity in the locations that they maintained, so absorbing some of that capacity in the future will improve efficiency and margins. He also anticipates that, as supply chain and workforce issues improve, inventory reductions and workforce stabilization will improve margin.
At several points during the earnings call, CEO Clark pointed to the success of LSI’s strategy to continue to combine new products with expanded selling efforts, including project management – earning a broader share of the customer’s wallet: “if we’re going to walk in and get the confidence of a customer, we want to solve as many of their problems as we can.”
The company ended Q4 FY22 with net debt down from the prior quarter, finishing at 2.2x net debt/TTM adjusted EBITDA. Leadership anticipates allocation of free cash flow toward further debt reduction. While the leadership has approval for share repurchase up to $15M, CEO Clark noted that as long as the stock price remains elevated, they will continue to look instead at other acquisitions, indicating they have a list of potential targets they are pursuing.
LSI’s forward guidance going into fiscal year 2023 is that the first quarter is starting off “very, very solid.” EVP and CFO Jim Galeese noted that going into fiscal 2023 lighting has “continued momentum with favorable quotation and order activity… and a backlog approximately 30% above prior year.” CEO Clark thanked all the LSI team members (1400 employees now), recognizing the strong team reflected in the strong results.
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LSI Industries Q4 Full Year 2022 Results Press Release: http://investors.lsicorp.com/news/news-details/2022/LSI-Industries-Reports-Fiscal-2022-Fourth-Quarter-and-Full-Year-Results-and-Declares-Quarterly-Cash-Dividend
LSI Industries Q4 Full Year 2022 Conference Call Presentation: https://s24.q4cdn.com/769247122/files/doc_financials/2022/q4/LYTS-F4Q22-Conference-Call-Deck_Final.pdf