LSI Industries Inc. Q1’23 Analysis: LSI Continues to Deliver on its High “Say:Do” Ratio

LSI Industries (NASDAQ: LYTS) released Q1 Fiscal 2023 results last week, delivering a sixth consecutive quarter of double-digit sales growth.  Net sales grew 19% over Q1 last fiscal year, coming in at $127M.  LSI showed improved profitability in both gross margin at 27.3% (+430 bps) and adjusted EBITDA at 10.5% (+340 bps) year over year.  The company’s free cash flow increased $18.3M in Q1 FY2023 compared to a negative position in Q1 2022.  Net leverage has now been brought down to 1.7x Adjusted EBITDA.

LSI has two business segments:  Lighting and Display Solutions, with each segment delivering roughly half of the company’s revenue since the acquisition in mid-2021 of JSI Store Fixtures, which significantly grew the Display Solutions segment.  In Q1 2023, the Lighting Segment rode strong demand and higher pricing to $67.5M, a sales increase of 32% over Q1 2022, with improvements in profitability as well.  CEO James Clark noted in the earnings call that the Lighting Segment saw sales growth in Q1 2023 in multiple verticals including Refuelling/C-Stores, Parking, Automotive and Warehousing.  He noted they were making progress in institutional and sports lighting markets as well.  Lighting’s order activity was high in Q1 2023, up 11% over the same Q last year.  LSI’s Display Solutions Segment had sales of $59.5M in Q1 FY2023, up 8% in revenue over the prior year’s Q1.

CEO Clark raved about the company’s experience exhibiting at the recent NACS Las Vegas tradeshow, saying the show was extremely well attended, rebounding from COVID.  He noted the strong demand for a new lighting product LSI launched at NACS: REDiMountTM – a mounting adaptor for refuelling canopies that promises to significantly reduce install time on canopy lights as well as providing a quick service/maintenance and upgrade path in the future.

LSI remains on track to meet, perhaps even early, the targets set  by Clark and team in 2019 to reach $500M in sales and improve to double digit EBITDA in FY2025 (back in 2019, LSI’s sales were around $300M and EBITDA was around 3%).  CEO Clark refers to the importance of having a high “Say:Do” ratio in delivering on the promised results.  With a market capitalization below $300M, LSI Industries is in the Micro-cap space ($50-$300M).  Delivering consistently on growth in revenue and profitability will certainly help build investor confidence.

LSI’s forward guidance heading into Q2 of Fiscal 2023 indicated expected continued growth compared to Q2 of the prior year, with earnings and margin rates also favorable compared to last year.  The company plans to focus on target verticals, managing cost and continuing with their capital allocation priorities (debt reduction and investment in sales growth initiatives). CEO Clark closed the earnings call Q&A, commenting that no slowdown in anticipated as LSI sees ongoing strength in orders, inquiries, quote activity and backlog.  He expressed confidence in the ever-increasing basket of services LSI is delivering to their customers.

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LSI Industries Q1 FY2023 Results Press Release:

LSI Industries Q1 FY2023 Webcast Presentation:

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