Q1 2022 LSI Industries Inc Earnings Call
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Greetings and welcome to LSI Industries industries fiscal first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to kind of comfortable with your host today, Jim <unk> CFO. Please proceed.
Good morning, everyone and thank you for joining.
We issued a press release before the market opened this morning detailing our fiscal first quarter results and.
In conjunction with this release, we also posted a conference call presentation in the Investor Relations portion of our corporate website at Www Dot LSI Corp Dot com.
Information contained in this presentation will be referenced throughout today's conference call include our certain non-GAAP measures for improved transparency of our operating results a.
A complete reconciliation of first quarter GAAP and non-GAAP results is contained in our press release and 10-Q.
Please note that managements commentary and responses to questions on today's conference call May include forward looking statements about our business outlook.
Such statements involve risks and opportunities and actual results could differ materially.
I refer you to our Safe Harbor statement, which appears in this morning's press release as well as our most recent 10-K and 10-Q.
Today's call will begin with remarks summarizing our fiscal first quarter results that's.
At the conclusion of these prepared remarks, we will open the line for questions.
With that I'll turn the call over to <unk>, President and Chief Executive Officer, Jim Clark.
Thanks, Jim Good morning, all and thank you for joining us on today's call.
I'm happy to say LSI continues to make great progress on our strategic plan and vertical market focus as we move through the first part of our new fiscal year.
In the first quarter of 2022.
It was exceeded $106 million representing year over year sales growth of 52% versus prior year.
Sales, excluding contributions by J S Si increased almost 20%.
This is the first time in the company's history that we've exceeded $100 million in sales in a single quarter and you can be assured we'd be looking to make this a regular event.
Quote activity and orders remained strong across all segments driven by continuing execution of our plan to focus on vertical markets, where we can differentiate ourselves add value to our customers and agents capture a greater share of wallet in each opportunity.
Adjusted EBITDA increased nearly 60% versus the first quarter last year, while adjusted EBITDAR margins improved bolt on a sequential basis.
And a year over year basis.
<unk> gross margins finished above 30%, improving 100 basis sequentially from our fourth quarter.
I'll, let science continued to lead the market with high availability of products and our decision and investments a few years back to diversify our supply chain.
Been a tremendous benefit throughout the pandemic.
In addition to our supply chain diversity and sourcing efforts we used to.
<unk> been building inventory of key components to further minimize potential supply chain disruption.
Now this is not to say that we've not had any supply chain challenges.
But simply to underline that we are continuing to find ways to work within the dynamic nature of the current environment and our company and our customers are benefiting from our great customer service and product availability.
All of these improvements have been driven by our employees.
The team is maintain competitive pricing discipline from sourcing operations and through sales and we've worked quickly to adjust prices that reflect increasing material and transportation costs.
Although no customers happy to hear about a price increase we've been pleasantly surprised by the understanding acceptance and collaborative nature of many of our customers.
As I mentioned earlier quote and order activity remained strong through the first quarter and all our indications are that it will remain strong into the second quarter, but.
But we're not taking any of this for granted.
Two years ago, we initiated a commercial plan to expand and strengthen our collaboration and relationships with our end use customers.
This effort is making a difference contributing to sales increases across multiple sales channels in the fourth first quarter, including significant increase international account and other end user accounts.
In the first quarter of 2022, our entire executive management team spread out across the country and visited multiple customer sites looking for ways in which we can continue to improve our value to our customers.
We have also had a market increase in customer visits to our factory in Blue Ash. In addition to increased training classes and agent visits.
Our work around new product introductions over the last few years, great customer service and high product availability for consistently underlying in the meetings, we've had as a true differentiator for LSI.
Just last month, a large oil retailers that have been working with us on graphics and imaging projects awarded L. S. I, a $3 $2 million lighting order.
This customer had been using a competitor's product for some time.
But our high quality product.
Our persistence and our availability ultimately ended up winning out.
We believe that in the latter half of this calendar year and into next year that opportunities will be driven as much by availability and reliability as a supplier and partner as they will be by price.
And I've talked a lot about the supply chain, but I also wanted to mention our people.
Labor, particularly manufacturing labor has been a challenge over the last year.
<unk> worked throughout the year to keep our employees well informed and protected.
We provided bonuses to our workforce and have worked hard to align benefits with workers needs.
Even in the height of the pandemic, we did not lay off a single worker in the company.
This year during our health care open enrollment period in November I'm proud to say our employees was euro dollar increase in their health care coverage costs, while maintaining the same benefits as they previously had.
In addition, beginning in January we will implement an employee stock purchase program to further align the efforts of our employees with the performance of our company.
I cannot say enough about our people our team and their desire to win and I wanted to take a minute just to say thank you to the entire team.
Now I focus much of this call and the benefits of our actions to the company our customers and our financial performance during our first quarter.
The underlying that these actions are all in alignment with LSI as long term efforts around sustainability and our ESG initiatives.
As you May know all of many of our products at LSI designs and manufacturers have a direct impact on energy usage and the environment.
We work hard to assure that our products performed at a higher standards and we constantly push ourselves to improve even further.
While we often talk about the diversification of our supply chain in terms of availability. It's also allowed us to ship parts of our material sourcing to regions and companies that Resect respect sustainability environmental efforts and working ways to promote the long term health of our planet.
<unk> commitment to our employees is always front and center to our actions also.
<unk> are a living wage in a work environment that safe inclusive exception promotes diversity is important and it's one that we're committed to.
If you have not had an opportunity to look at all the size commitments to these principles I'd encourage you to visit our website and view our ESG statement and the work we're doing within the company.
In closing I'd like to mention that J S. Ais performance is above our expectations and we're excited by the opportunities that lie ahead with them.
Throughout the first quarter, we've made many improvements across the entire company.
We have the talent and resources to build upon the operating strength, we've developed over the last few years.
And we're strategically positioned to win as a company.
As we look forward, we know that we have opportunities in front of us and we've demonstrated the ability to both built and acquired business.
We expect to continue to build upon our momentum and we feel great about our future.
With that said I'll turn the call back over to Jim beliefs, CRO look at our financial performance.
Thank you Jim Hi.
Highlighting key financial statistics for the fiscal first quarter sales increased 52% over prior year, including the first full quarter of the GSI acquisition, excluding the GSI acquisition comparable growth was 19% with both reportable segments generating double digit growth.
Net income was $3 1 million for the quarter and adjusted net income was $3 5 million an increase of 71% from last year.
Earnings per diluted share were <unk> 11 cents and.
And adjusted earnings per share were <unk> 13.
Compared with adjusted EPS of eight cents last year.
Adjusted EBITDA increased to $7 6 million from $4 7 million last year.
Before I discuss segment performance, let me comment on the current supply chain operating environment as it relates directly to our Q1 sales performance and production capability as we enter Q2.
Supplier lead times for key components continue to lengthen.
And transportation reliability continues to decline.
We've taken numerous actions to mitigate these challenges, but none more important than intentionally increasing our inventory levels.
While approximately 10% of our inventory is sourced outside the United States a number of our domestic suppliers are experiencing similar challenges.
Anticipating eroding conditions.
We began increasing inventory back in April and continued to build stock levels into September.
<unk> and inventory increased $9 million in the first quarter.
This investment was critical to not only meet Q1 customer delivery requirements, but also positions the business to service the increasing backlog of customer projects scheduled in Q2.
Shifting to segment performance, both segments achieved substantial increases in sales and operating income versus prior year.
Sales for the lighting segment continued its positive momentum generating 13% growth for the quarter.
Project business led the increase with growth of 15% versus last year.
<unk> business increased in key market verticals, including parking automotive and warehousing.
Sales into the warehousing vertical increased over 80%.
As our new product range continues to gain market acceptance.
Lighting gross margin rate was 32% increasing sequentially and equal to the full year fiscal 'twenty one margin rate.
Inflation continues with increasing material input and transit cost.
Several key actions, including an average price realization of six points combined with productivity, we're successful in offsetting cost increases and maintaining our margin rate.
We exited Q1 with our lighting backlog roughly 33% above prior year levels with delivery commitments over the next two quarters.
Overall quotation and order levels remain high and our capability to produce and meet customer delivery requirements are providing additional market opportunities.
First quarter sales for our display solutions segment more than doubled versus prior year with organic growth of 29%.
Comparable growth was led by our digital signage portfolio, most notably continuation of our large <unk> menu Board order.
The outdoor portion of the program was approximately 55% complete at the end of September and will continue throughout fiscal 'twenty, two and into Q1 of fiscal 'twenty three.
Petroleum graphics sales were flat in the first quarter as site install schedules for several customer programs were pushed out driven by product availability issues unrelated to LSI.
These site releases are now scheduled throughout the next several quarters.
Design proposal requests where potential petroleum programs remains positive with over 10 proposals and development.
<unk> sales were $23 million for the quarter, continuing a strong demand pattern for multiple regional and national grocery chains.
<unk> remained favorable across both refrigerated and non refrigerated units confirming the full solution capabilities with the GSI portfolio.
Q1 orders were double digits above prior year, a positive indicator as we enter what is historically a slower quarter for in store grocery renovation.
First quarter operating income for display solutions doubled to $3 8 million from $1 9 million.
The operating margin rate decreased 80 basis points with mix and select program margins contributing.
We've secured customer acceptance for price adjustments in all national multi site and some multi year display solutions programs do.
Due to the size and significance of these programs the duration of the pricing discussions limited price realization somewhat in the first quarter contributing to the modest operating margin decline.
Improved pricing will be realized throughout Q2 and fully aligned with input costs by the end of the second quarter.
We do not anticipate any significant business interruption due to supply chain in the second quarter, but do expect some continued construction schedule changes driven by broader availability issues.
Moving to capital allocation.
Our regular cash dividend of <unk> <unk> per share was declared payable November 23rd for shareholders of record on November 15th.
Working capital increased in fiscal Q1, driven largely by the investment in additional inventory, resulting in an $8 million use.
You know that type of work and Youre fulfilling against the new backlog how should we think about you know what stage of deployments relative to the backlog you guys are working through.
Yeah show it if I you cut out there and just one section, but I think you were saying is the demand pattern relative to R. R.
Q4, coming out and coming out of Covid and into Q1.
It is still disrupted theres no question, what's happening is.
We see high demand and high request and quote activity has been continues to accelerate it as not staking or does not plateaued or order our quote to order conversion rate has it continues to kind of be lumpy. Although you know the comment would be it's on the longer side.
What we're what we're hearing from many of our customers are the although the projects moving along sometimes key elements windows doors.
Ceiling tiles things like that are missing from their project not related to us but are missing for them to complete the projects. So there's still some of that lumpiness and.
And unpredictability, but.
But we do feel as though you know the.
Next.
At least looking into the next quarter quarter and a half we believe that demand is going to stay high.
So we're encouraged but the lumpiness has not come out of it.
Okay understood.
That's all I have for now I will take.
Take my questions offline. Thank you so much.
Thank you. Thank you.
Our next question comes from Rick Fearon with accretive capital Partners. Please proceed.
Hey, Jim and Jim Congrats on another nice quarter and the smooth integration of <unk>.
Got it thank you Eric Thank you.
Just a couple couple of quick questions.
It sounds like the GSI sales synergies really have six to nine months.
Station period.
Just wondering on the other side of things if you discovered any additional cost saving synergies or or on.
On the flip side unexpected challenges that you may or may not have.
Really anticipated at the close of the GSI deal.
Sounds like management team has been just as you expected, which is a real great fit but.
Anything thats kind of pose additional challenges.
Yeah, I think that first of all I couldnt.
Couldnt do enough Justice underlining the cultural fit when we met these folks and they met US it was important on both sides and that fit has been very important.
I've mentioned in prior calls that we weren't the highest bidder on this project, but we were the best fit in both the management team at GSI and the private equity group that owned and saw that fit inside of the opportunities. So we're very grateful for that we haven't run into any challenges that we werent expecting.
Thank you.
Supply chain for them has been a little bit more lumpy than ours, but they've done a very good job of working around it and they have had the opportunity to leverage our resources a bit that's probably smooth some of that.
We see a much like we've done.
In terms of operational improvement and those things, which we're not done we're just paused right now because so much effort is associated with working through Covid.
At GSI, we do see some operational efficiencies and programs things we can work against.
But we have all our hands on deck right now just.
Navigating the choppy waters, we are in because of Covid.
So we do see we don't see any challenges, but we do see some opportunities there.
We see in the future and we see.
Primarily not just the operational things, but from a commercial standpoint.
LSI GSI can be a lead in some of those customers that were not quite as strong with.
LSI can be a lead for GSI in some of those and then we still have this whole potential new market in the Petro area, which we think that prepared foods in the refrigerated display cases. The GSI offers it can be a real boom for us, but that is going to take that sales cycle is going to take even longer than the six to nine months because.
We're really creating a whole new category in parallel with interest from our customers, but it's a whole new category and an approach I don't expect it to happen overnight.
Right and it does sound like when you have that great fit at the top.
All filters down to the team so.
It'll be exciting times ahead.
Wondering if there is any.
Peter ship positions across the board, whether it's GSR LSI.
You are looking to fill as you put together a game plan for the growth in 2022 or is the team in place really.
Is it all about execution at this point.
It is all about execution right now the GSI management team stayed intact.
And we're very committed and excited to come onboard there haven't been any major changes on the LSI Syed and art and we anticipate that this is the team we're running forward with.
No.
And we see a lot of opportunity within the team.
Okay great.
You characterized it the growth in backlog I mean are you is it comprised of lots of singles and doubles or are you seeing any.
Any potential sort of home runs that.
Our menu Board project.
As represented in the past.
Here.
Are there.
A few of the big big projects kind of in the backlog.
Yeah.
Most of the activity has been good solid doubles and triples, even.
We do have a couple of those projects out there that we're waiting on answers on that are truly.
Transformational these big projects.
Take time, and I think within Covid, it's even been exasperated, because we may be able to deliver the solution, but then all kinds of other components are enabled to come.
The good news is is that none of the larger projects we've been working on.
<unk>.
Died or been canceled but they are they have been extended I don't I don't want to put my I don't want to get to on the hook for something in this environment, but I will say that we do have a number of those are projects that are out there that we've been engaged with and we feel.
Strong about but timing could be.
Q1 of.
Calendar of next calendar year or it could be Q1 of two calendar years from now it's just very hard to tell because just like us our customers are going through massive change in.
Headwinds and they could change their mind at any point, but but most of what you see in terms of the result side of it have been a solid stream of doubles.
Doubles and triples.
Yes, you're definitely not alone with that sentiment by the way.
Other management team is just everything's much harder to get done and those bigger projects do seem to be pushed out a little bit.
With this expected sales growth an increase in profit just.
<unk> seen opportunity to restart your stock repurchase program.
We haven't really had any discussion about that yet, but I think it's something that we'll kind of defer for at least a quarter.
I'm glad you're glad you got I read about the program you put in place for employees and that seems like a really nice incentives.
So I guess, we didn't hear anything about pickle ball business strong and has everyone at LSI taken up the sport now.
Well I'll tell you it's been a couple of comments about putting pickle ball courts in our parking lot.
Behind the ear.
Got it.
We remain committed to pickle ball.
We like the energy around Pickle ball and we like the growth rates I think I mentioned before its fastest growing sport.
But it's it's all a sports court lighting, we usually when we're talking about pickle ball facility, there as tennis court and other courts activities there so.
That continues to tip drum along nicely for us that would define kind of the singles approach.
Usually there isn't a lot of.
Multinationals that are one hundreds of courts across the states or anything like that so that's a lot of singles activity.
We still are very committed to it and we like the spot we're in and we have had a good stream of wins there.
Great well I hope you are getting out there and staying in shape for us Jim.
Thanks to both of you and your team for all the great work and best of luck with the year ahead.
Thank you very much I appreciate that.
Ladies and gentlemen, we have reached the end of our question and answer session I would like to turn the call back to Mr. Jim Clark for closing remarks.
I'd just like to Echo some of the things, we just actually talked about I can't say enough.
For what our employees at this company do for US their commitment has been outstanding.
<unk>.
Really I think tough times always kind of expose.
The water line so to speak.
We are doing as a management team we are doing our best to share those the benefits of our growth and the challenges of our growth with our employees and they've been very good back to us.
The supply chain work that our folks are doing is just incredible.
Said the output is exactly the same but the input the effort is four five and six times, what it used to take before.
But.
The good thing about it is it is.
In tough times like this it's really exposing the.
The capabilities of the organization has and I'm very proud of the team that works here across the whole company thrilled with the wage ASI is integrating and we see really strong opportunities ahead for us.
I think if we werent in the Covid situation.
<unk> that growth in those opportunities you'd be even more apparent from an external standpoint, but.
We were very happy with the last quarter and we remain excited about what lies ahead and I appreciate everyone, taking the time to be on the call today with us.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.
Yes.