LSI Industries (NASDAQ: LYTS) released Q3 FY2023 results last week, delivering $117.5M in net sales, or +7% revenue growth over Q3 in the prior year. Profitability continued to improve in the Q3 FY2023 with Adjusted EBITDA up 32% Year-over-Year (YoY) at $11.2M for an EBITDA margin rate of 9.6%. The Lighting Solutions segment carried the Q3 FY2023 sales growth for the overall business, as Lighting grew by +17% with sales reaching $66.7M. While LSI’s lighting revenue mix favors outdoor lighting products, the indoor lighting portfolio sales grew at a faster rate in Q3 FY2023 (+29% YoY) than the outdoor lighting at +18% YoY. LSI’s other business segment, Display Solutions experienced a sales decline in Q3 FY2023 of 4% YoY with sales of $50.8M.
The company made good progress on its profitability with fiscal year-to-date earnings per share (EPS) at $0.70, a +62% improvement over the prior year’s EPS of $0.43. Inventory decreased for a second consecutive quarter, which LSI noted as indicating ongoing improvements in the supply chain.
Another key area of improvement for LSI for Q3 FY2023 was the reduction of their net leverage (the ratio of debt outstanding to annual EBITDA) down to 1.0x. LSI’s net leverage climbed to over 3.0x with the 2020 acquisition of JSI Store Fixtures; now at 1.0x, the company is in good position to act if the right M&A opportunity is present. CEO Jim Clark noted that while “acquisition is going to be a part of our go-forward plan, it actually is a smaller part – organic growth is the bigger side.”
In his comments opening the Q3 FY2023 earnings call, CEO Clark said that LSI’s “vertical market orientation and respect for our customers continues to pay dividends” and that the past weeks had included customer and agent activity in their facility for both business segments, with over 30 of LSI’s top automotive agents in-house that week for training and discussions.
Questioned during the analyst Q&A portion of the earnings call on LSI’s expectation for longer quote-to-order conversion, CEO Clark indicated that delay in permitting is the number one issue on retrofit projects, while new construction is experiencing multiple challenges including permitting delays, labor resource constraints and switchgear shortages.
With one quarter to go, LSI has estimated full year FY2023 revenue to come in at $490M to $500M and annual EBITDA of 9.5% to 10%. For some time now, LSI has been ahead of schedule on its 2019-2025 growth plan that called for the company to reach $500M in annual sales and improved to double digit EBITDA (for some perspective, in 2019 LSI had annual sales of just $300M and EBITDA of around 3%).
A new Five-Year Roadmap to FY2028 was presented in an Investor Presentation in March 2023. It contains LSI’s new “FAST FORWARD” initiative which includes: expansion in Services, Solar, and complementary “bolt-on” horizontal M&A. The new Five-Year financial target shows 60% revenue growth, taking the current business up to $800M by 2028, splitting the roughly $300M in revenue growth evenly between organic and M&A-based growth. The profit target in the new plan is 12.5% (Adjusted EBITDA) by FY2028.
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LSI Industries Q3 FY2023 Results Press Release: http://investors.lsicorp.com/news/news-details/2023/LSI-Industries-Reports-Fiscal-2023-Third-Quarter-Results-and-Declares-Quarterly-Cash-Dividend
LSI Industries Q3 FY2023 Earnings Presentation: https://s24.q4cdn.com/769247122/files/doc_presentations/2023/Apr/27/lyts-f3q23-conference-call-deck-final.pdf
LSI Industries March 2023 Strategic Update: https://s24.q4cdn.com/769247122/files/doc_presentations/2023/Mar/08/lyts-strategic-update-03.08.2023.pdf
