Q2 2022 LSI Industries Inc Earnings Call
Greetings and welcome to the LSI industries fiscal second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker 1: Greetings. Welcome to the LSI Industries Fiscal Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question
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I'll now turn the conference over to your host Jim Gleason CFO .
Speaker 1: I will now turn the conference over to your host, Jim Gilles of CFO , you may begin.
Good.
Good morning, everyone and thank you for joining we issued a press release before the market opened this morning detailing our fiscal second quarter results.
Speaker 2: Good morning, everyone, and thank you for joining. We issued a press release before the market opened this morning, detailing our fiscal second quarter results.
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.
Speaker 2: In conjunction with this release, we also posted a conference call presentation in the investor relations portion of our corporate website at www.lsicorp.com.
Information contained in this presentation will be referenced throughout today's conference call included are certain non-GAAP measures for improved transparency of our operating results.
A complete reconciliation of second quarter GAAP and non-GAAP results is contained in our press release and 10-Q.
Please note that management's 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 second quarter results at the conclusion of these prepared remarks, we will open the line for questions.
With that I'll turn the call over to LSI, President and Chief Executive Officer, Jim Clark.
Thank you Jim.
Morning, all and happy new year.
I'm proud to say that folks had always hire starting the year off right.
Halfway through our fiscal year, we have achieved two consecutive quarters of growth in revenues above $100 million each of the last two quarters.
Total sales for Q2 are $111 million up 45% year over year organic sales were up almost 20%.
Lighting sales are up 27% this.
The Slayer solutions with J S. I are up 72% year over year and.
And adjusted net income and adjusted EBITDA are up over 65% year over year.
Simply put we're coming off a strong second quarter and a great first half.
So what's driving this performance.
It's more than a pandemic recovery bump.
Its momentum and a fundamental shift in the way we do business.
I've mentioned before that LSI had to build a better business before we could build a bigger business.
I'm happy to say that we've done just that and then you can start to see the progress we're making on building that bigger business.
As a reminder.
We sat down three years ago and started this transformation.
The first thing we did was change the way we manufactured our products designed our products and sourced our components.
We recognize that we had a number of inefficiencies in our manufacturing process and we implemented lean programs and operational improvements looking for ways to streamline our manufacturing process.
While we are improving our on time delivery quality customer satisfaction and overall margin profile.
From a design perspective, we've introduced 20, plus new or re engineered products each year over the last three years.
We have looked to lead our market in innovation product performance and cost profiles.
<unk> engineering team across our lighting and display solutions group, along with our product marketing group have laid the groundwork for growth not only through technical improvements, but also in the way we design our products for manufacturing and the way, which we design them for installation.
Finding ways to simplify and reduce onsite installation cost pays dividends for our customers and creates loyalties with the folks at install our products.
Lastly, we re engineered our sourcing program.
We reduced our concentration or exposure to the far east we developed backups sourcing partners as well as backup components that were pre qualified and ready to go if we experienced supply chain disruption.
We concentrated on re shoring, our sources, reducing our exposure to ocean freight and time in transit.
The best part of all.
We did this all before Covid hit.
We were ready when we needed it and we have benefited greatly because of it.
The next thing we focused on was our sales and marketing efforts as.
As most of you know we have multiple channels to market from agents and reps to distribution and direct.
Our focus over the last few years has been narrowed the markets, we serve and offer solutions that best fit our capabilities and thereby giving us the greatest chance of differentiating yourselves in winning high value opportunities.
We've put a lot of time and effort into identifying increasing our visibility in key vertical markets, we serve and enhance that differentiation.
J S. <unk> acquisition is an example of that vertical market strategy.
While we expand our offering in the grocery vertical and now we have a solution that offers a bigger basket of products and services for our grocery customers.
Vertical market expertise reduces our cost of sales reduces the cost of installation and improves our differentiation, making it harder for competitors to compete Sim.
Simply put we create continuity in our solution that benefits our customers and our company.
Speaking of J S. I, we just recently announced an 800 store 2500 unit refrigerated project with one of the country's largest grocery store change.
I'm happy to say that GSI has performed above plan since the close of the acquisition back in May and we anticipate that sales will be double digit for both the fiscal and calendar year of 2022.
Later this week, we'll be holding our first in person sales meeting in two years.
We are taking extensive precautions to ensure a safe working environment and feel confident that we can manage this meeting safely and effectively.
Our focus is around increasing sales in the key vertical markets we serve.
The standalone value of each of our solutions and the added value of combining multiple products and services from LSI to compete on an entirely different level.
We have designed a training program that is a culmination of months of homework and seminars around new business development and prospecting.
We want to continue to add value to our agents and partners, our direct business and our national accounts group and improve our overall sales effectiveness with actionable opportunities, while increasing our contact with end use customers.
In addition to our sales training.
Number of breakout sessions, covering technical training solution, selling along with price and margin management.
This is a well designed program.
We've put a lot of time into it and we're excited to see months of training reach a real inflection point.
In late February we will host our second virtual sales conference specifically oriented to our agents and our partners.
This program was noted as one of our most successful programs in our space last year.
The feedback we heard from our partners and our customers underlying the format. The sessions in the training, we provided well well received created real value and far above those programs in our space those other programs in our space.
We've taken the feedback from the first program and we're truly excited about the next evolution of this type of conference.
All of these efforts you've put LSI in a great spot to compete now and into the future.
We're confident we're taking share in our space, both lighting and display solutions, because our customers are telling us delay.
Delays missed shipments excessive lead times from other suppliers has created a real opportunity for LSI, we've capitalized on it and we plan to hold onto that advantage.
Last Friday, we had our single biggest order volume day in lighting and more than four years.
Although I Love Big program orders. These were actually a collection of regular project orders kind of our day to day flow that added up to almost three times, our normal daily order rate on top of an already strong weak and a strong month.
And the and the success and momentum is all about culture and a desire to serve our customers with the best possible customer service products and solutions, we can deliver.
We're making real progress.
We have a long ways to go.
With a lot of opportunity ahead of us.
With that said I'll turn the call back over to Jim <unk> for a deeper look at our financials.
Kim.
Thank you Jim.
I'll start with a few comments on the operating environment.
We entered fiscal Q2 with improving momentum.
Positive Q1 book to Bill ratio increased backlog and positive leading indicators for the nonresidential construction market.
This provided the conditions for a potential solid second quarter.
But successful execution required managing through several ongoing obstacles.
One being reoccurring supply chain challenges.
We continued to take proactive actions in Q2 to ensure ongoing product availability.
<unk> the investment in additional component and select finished product inventory.
Various disruptions continue to impact construction installation in Q2, causing site schedule changes and as a result fluctuating demand requirements from our customers.
Our countermeasures provided the flexibility to quickly respond to these requirements and capitalized on short lead time market opportunities throughout the quarter.
In summary, our inventory build and U S. Based manufacturing was an important factor in achieving sales of $111 million for the quarter.
Our second obstacle was widening impact of inflation.
We continued to adjust selling prices throughout the quarter.
Aligning with ongoing increases to input costs and services such as freight.
And lighting, depending on the product group, we've had five to six price increases since March 2021 .
Moving to key financial statistics for the second quarter sales increased 45% over prior year, including the incremental impact of the GSI acquisition.
Excluding the <unk> acquisition comparable growth was 19% with both reportable segments generating sales growth.
Net income was $3 1 million for the quarter and adjusted net income was $4 2 million an increase of 67% from last year.
Earnings per diluted share were <unk> 11 cents and adjusted earnings per share were 15 cents compared to adjusted EPS of nine <unk>.
Last year.
Adjusted EBITDA increased to $8 4 million from $5 1 million last year with the adjusted EBITDA margin, expanding 90 basis points to seven 6%.
Shifting to segment performance the.
The lighting segment produced a strong quarter with sales increasing 27% above prior year.
Generating operating income, which more than doubled last year.
Sales growth was again widespread across multiple market verticals, including petroleum as todays press release highlighted the short lead time challenge presented by one of our Petro customers on a large order.
Our component availability and U S manufacturing allowed us to successfully fulfill that order as well as other time sensitive opportunities.
Both our project business and sales to distributor stock increased over 25%, reflecting the level of market activity and impact of our commercial initiatives.
Lighting gross margin rate finished just below 30% for the quarter, reflecting the success in aligning selling prices with cost.
Price realization for the quarter averaged approximately 11%.
And different across product groups.
Lighting exit Q2 with positive momentum.
The book to Bill ratio was again above one in a period, where the historical seasonality has orders trending measurably below shipment levels.
New products continue to gain market acceptance and the lighting backlog is approximately 30% above prior year.
Second quarter sales for our display solutions segment increased 72% versus prior year with comparable growth of 7%.
Operating income for display solutions increased to 4 million or seven 4% of sales building on a strong prior year quarter.
The J S. I acquisition continues to achieve expectations sales were 21 million for the quarter above your internal projections given grocery chains typically paul's renovation activity for the heavy holiday shopping season.
The book to Bill rate was six six was significantly above one <unk>.
Including the significant order referenced in our press release last week.
The GSI team also navigated supply chain challenges.
A supplier of critical fabricated parts for display cases more than tripled their lead time.
As a countermeasure manufacturing team members from J S I and I always say lighting collaborated and accelerated and acquisition synergy.
Transferring production of these display case parts in house to the lighting fabrication center.
This enabled J S I to hold customer lead times, when some competitors are significantly expanding promise states to customers.
J S. I entered Q3 with a record backlog.
Petroleum graphics sales increased sequentially from Q1.
But finished below a very strong prior year quarter.
Our petroleum customers continued to incur site scheduling complications driven by non LSI supply challenges.
Pricing for all major display solution programs have all been fully implemented as we exit the second quarter positioning the business for margin expansion moving forward.
New program proposal activity remains very active and all major display solution market verticals.
Moving to capital allocation.
Regular cash dividend of five cents per share was declared payable February 15th for shareholders of record on February 7th.
Working capital increased in fiscal Q2, driven by the investment in additional inventory and consume continued sales growth.
Resulting in a 9 million use of cash in the quarter.
We continue to prioritize near term actions required to support our growth strategy, including temporary supplemental investments, which ensure product availability.
I will now turn the call back to the moderator.
And at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Okay. Our first question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Good morning, and thanks for taking my questions first I should say congratulations this is a very strong quarter and continued momentum on the turnaround you guys have done a really good job.
I wanted to start off by asking about your a $17 million order.
That you included in the press release can you maybe give us a little bit more color on what kind of customer decisions.
What are the specific products.
But they're taking on how this fertilizers activity sort of cross the chance XI and LSI teams. Yeah is there a greater mix on one side or the other any sort of potential opportunity to pull additional orders over the next series of quarters.
Yeah. Good morning, Craig Jim Clark here, Thank you for getting on the call and thanks for the comments, we are really excited about the quarter.
We just came off of and in particular, when we combine it with the first quarter. These are.
You know the first quarters in the company's history of over $100 million in revenue in a quarter and it's pretty exciting stuff.
As I mentioned.
Earlier. This week, we had one of our highest order rates in writing that we've had since I've been here and it was a combination of a lot of smaller orders.
But the order you were referencing two was $17 million order 800 store location 2500 units and its for one of the.
Top three grocery chains in the United States and I wish we could reference them, but we can't.
But it for one of the top three and.
This is a customer that we have done business with and we continue to do business with on a regular basis are they had this order out in front of one of the Giants in the refrigerated freezer display case industry.
And they simply were not able to deliver this order in fact their lead times were in excess of 46 weeks.
This order came to us and.
It was a lot of hard work on the part of our team to get this type of volume order I think that the original hesitation around this customer's position was around our ability to deliver this kind of quantity we've already started shipping.
Some of this we will this order will be completely shipped and billed in the second half year in our second half with.
With the majority of it going out in Q3.
Really exciting win technically you know we were the lead guys.
I think that this this customer has a connection with their suppliers, where they they choose a supplier and they don't deviate a lot unless yours, you know a significant circumstance and this created an opportunity for US we won and we are hopeful that this is a.
This is the groundwork for what will become.
A position for us to be primary and first choice supplier going forward because it's the only represents.
A small piece of what we could do overall.
And Craig I think this investment like this customer reflects the ongoing investment.
In the grocery and.
Market vertical overall, which.
It's been strong the last 18 months or so.
But our large grocery customers continue to see opportunities invest in there.
In store merchandising displays and we plan on being a big part of that.
Now last thing I'll say on that just to finish your question Craig first of all Jim mentioned it in his comments earlier, we were able to get there by using some of our metal fabrication facility in house. So you know when we look at the operational back of house synergies everything from our electronics manufacturing wire harnesses.
And such from our electronics manufacturing group over to our displays you know over to our metal fab.
And then additionally, our display solutions group, which can help with the aesthetics. The signage the graphics that are on the projects. It's really a good fit GSI has really proved to be a good fit for us in the back end on the front end on the commercial side. The introductions have started we.
These are typically you know the things that we would talk about that are meaningful or large project runs they're not a single store those aren't really the things that we.
We highlight in our calls or our press releases. So we anticipate you know coming off of a win win like this and.
Well, we're very confident we will deliver to the customers expectations or better.
This creates a lot of groundwork for us and we've already started having discussions with a number of customers about cross selling opportunities, but we fully anticipate that these larger projects you know they have a.
They have a.
The development cycle, it's measured in you know six nine months periods not in you know four to six week periods. So we're very excited about that work that has started to in the seat at the table that we've gotten for a number of different potential opportunities and we're confident that.
We'll develop well, but there are further down the road for us.
Understood so as a follow up.
To that answer.
Can you maybe comment about whether or not you have product already installed at the other two of the top three grocers nationally.
And then you said 36 weeks for the competitor as senior Yeah, you know a tiny fraction of that but can you give us you know.
Proximate lead time.
I'm guessing it's less than 10 weeks given that you already started shipping.
Yeah. So it was it was 46 weeks for six Oh God.
Paul.
Yeah, Yeah, and so and I think the risk for the customer was the first of all this orders not going out.
All at once we're not shipping 2500 units.
One day.
So our delivery time as I said, our delivery time, we will complete this project far before the competitor would have delivered their first unit.
We anticipate that more than half of that more than half of this order will ship out in the <unk>.
Last week of January here through February and March will be slightly over halfway in terms of what we deliver and will be fully delivered.
Well before the end of our fiscal year in June 30th.
You know I think that the big thing for the customer was.
The risk of going 46 weeks and seeing that pushed even further in the lost revenue opportunity in their program opportunity associated with this.
The competitor is you know their focus is really on the big freezer case are the larger type projects in the larger type of components in the store, which is an area. We don't compete in we don't have any plans to get into ours is a display.
Frigerator in Standalone displays that are typically found in the front of the store in the produce vegetable fruit and those type of areas and we have products that extend into the center of the store too.
But I you know we think that the.
Our competitor or walked away from that because it's just not a priority to them.
Not it's not their day to day business and although they came up with something that.
Ah is a product that suits the customers need our product is just that much better.
That much more differentiated and I think it bodes well to us for a long time.
And in terms of the other the other grocery stores the answer is yes.
To not to this one we've had very little impact in this one we've had small orders over a years.
Mostly infill when a competitor when another supplier wasn't able to fully fulfill the order, but we never really gotten the traction that we're anticipating now and as far as the other two large grocers. The answer is yes, we've done business with them in one particular case, where the lead meaning the lighting group and the <unk>.
<unk> group is the lead in GSI is playing a little bit of it'll be an opportunity for them and then the other J S is in the lead in and it'll be a bigger opportunity for our graphics and lighting group.
And we're talking about the top three by the way that list extends you know 15 deep.
That's really good tier that's certainly good to hear so my next question is about core LSI sounds so it's crystal clear.
Things are going exceptionally well with your acquisition of GSI.
The organic growth of 7% was really nice that's kind of to the high end of the range over the last number.
A number of years.
Can you talk a little bit about what's working and there is there a specific product group or customer set.
I assume some of that sort of quick serve and petroleum.
But where there may be other areas that were contributing to the strength.
Yeah I mean.
For our organic growth for the quarter was around 19%.
And it was chiefly driven by lighting and this particular quarter.
We have sat down a long time ago with our sales team.
Got it back up a year ago, we took the opportunity with our sales team when there was downtime.
Were they were not able to get in front of their customers and there was a big cone of uncertainty about what to do and a lot of you know a lot of our customers and a lot of it you know every industry was kind of at home.
Our sales leadership team pivoted really quickly and deterrent and decided to use that time as sales training.
And we sat down we got our guys together because they were remote they were they.
They had they had time on their hands and we put it into sales training and there were a couple of things that we sat out.
We set out to do.
One was increased value to our agents and partners by creating more actionable opportunities for that too.
<unk> was getting closer to the real market demand you know what was what was a loss project or a gap in the product portfolio versus what's really in front of us and what's a good you know what.
What areas do we really want to target and introduce new products too and then lastly, how do we want to combine those two so that we make sure we're getting good feedback from the market. We're prioritizing everything, but we're also adding value to the market by being out in front of me there.
So that information that came back helped us really drive our prioritization on our product development and it wasn't really just one product so to speak we reengineered a number of products, we expanded some product lines, we actually.
Reduced our investment in some knowing this was these were higher demand. This was where the market was going and those decisions really kind of are bearing fruit now for us. The other thing that we said is we anticipated that in the state. We're in right now today in January .
It was going to be more about availability then about price and you saw over the last few quarters, we've talked extensively.
Our money is cheap for us right now, but parts and inventory are hard to come by unsteady supply chains.
You know Mr orders from our suppliers things like that so we started building inventory to be able to respond to that customer demand. We started communicating to our customers that hey look at we have the products available there in the sectors. They're current they're there they're the areas where the biggest demand is and.
Give us a call and all of that work that we've done has really started to pay off dividends over these last two quarters and you know again.
Again, I mean, I don't know how to express it but I honestly couldn't be happier I mean, we're really thrilled and we've got we've got a big smiles on our face and we're ready to go out when you know again in <unk>.
Again and again.
Last question if I may.
Another area that I was I was positively surprised right was the gross margins last quarter, you were pretty clear about you.
You know putting through pricing actions, but meeting your commitments you you'd already made to customers given that most of these are long term customers.
And you know you're committed to the success of all parties.
Can you maybe talk a little bit about what went right on the margin side and how you feel about margin expansion sequentially. You did express optimism, but can you maybe give us a little bit more color.
Yeah on anything other than pricing actions that help you into the.
The March and June quarters.
Yeah, So I'll stay away from the pricing actions because like you said, we put together the programs early on and we did execute against them, but I would like to comment that we had a lot of support from our partners.
Communicated that you know the whole concept of rising input material costs are.
It's not a matter of what we want to do or what we wish we could do listen if raw materials go up 45%, we can absorb that cost so.
It will be ready for it understand that we're not we're not.
You know being predatory on pricing or anything, but we can we can work best together as partners by being ready.
Then what our shift was was about availability and our say do ratio on saying, Hey, listen if we commit to the order we're going to commit to the price and we're going to commit to the delivery and we're gonna be looking I had in working with you to talk about things that could potentially.
Impact your order. So you know shipping as an example is a huge variable for us and.
You know if if we sit there and we get the product out the door on time, you have to understand that there is a risk in shipping going out to you do we want to work together early on to find ways of working around that or are you comfortable with any of the variability in that or do you want to order early.
And all those conversations took place and I think it really.
Reflected well it matured our position with a number of our supplier I mean, a number of our customers knowing that we're thinking about that not from just the order standpoint, but all the way until it gets to them.
The new products that we you know that we talked about were very well accepted and these are things that have a lot of runway in front of you know our warehouse or warehouses.
House product line has an entry point and a performance point, depending on what you want to do what the customer wants to do we have our recommendations, but we also have what we feel some people may want and then our new <unk> product line has really outpaced our expectations.
That has been very good now I want to flip for a minute to our display solutions group.
J S. I, we just talked about you know they were really expose via supplier who tripled their lead time on a key component.
It wouldn't have put us in a 46 week lead time, but it would have put us out you know.
Maybe half of the delivery of the current delivery time that we have right now in other words. It would have been twice as long and that was really an opportunity for us and that one pivoted.
On our.
The petroleum graphics in such a real upside as Mexico has really turned back on for us.
But the U S has been really battling kind of everything from permitting issues to onsite labor and interestingly enough there's a supply.
Couple of key elements in the supply chain made by a fortune 100 company right here based in the U S. It's just really having a hard time within aluminum faced.
Component that we use and as you guys know steel and aluminum were kind of on a tear there for quite some time.
Both allocation in terms of availability and you know just massive price swings.
We have alternative products that we can use.
There were some tradeoffs in terms of durability and sometimes the you know it really turns out to be longevity, the inks and those type of things don't tend to stick to them as well.
There is a trade off.
<unk>.
Customers to pivot to those other materials, sometimes it takes time and so we battled through some of that in our display solutions group.
Some of our traditional graphics materials.
But beyond that you know I mean, I think it was just execution on all those other things we talked about it really put us in this position to win.
Great well congratulations on this really strong performance I'll go ahead and hop back hop back in the queue. Thanks.
Thank you Craig.
And our next question comes from the line of Jin Doi Sharma with Canaccord. Please proceed with your question.
Hey, guys. Thanks for taking my question and then congrats on the quarter.
I guess first you know you've touched on it in the in the previous answers your responses to craig's questions, but.
Hi.
First off congratulations on setting up.
The supply chain to be able to deliver I mean, it sounds trivial to many but it's.
Know, how hard that is and how important and so I guess my question is then.
And you look at the growth.
This quarter in the lighting business in particular, how much of that do you feel was share gain.
By being able to meet the delivery times and meet the needs of your customers versus secular growth in the different segments.
Yeah, you know that.
That's a great question Jed Thank you for getting on the call.
I'm going to share my opinion I don't Unfortunately, I don't have the data.
It kind of underlying it or back it up but I'll say a couple of things the comment about we know we're taking share and we know that because our customers are telling us.
We just got a an order from one of the top two freight companies.
Uh huh.
It came in yesterday and it came in with a March delivery.
And it's interesting to me because the primary on that is not able to make a delivery within that timeframe and you know when the when the sales team was interfacing with the operations team. We were fully prepared for them to ask for you know a February 15th or something when they said March 25th I think was the date.
You did it.
We were shocked so I think it says a lot to a couple of things one you know.
Few years ago, we narrowed our scope on our products, we purposely set out and said listen here's the vertical markets. We serve best we do not have a catalog. That's two inches thick four inches thick. We have a catalog that has very specific we play very well outdoors, we do very well in area of lighting parking.
Lighting, all that type of stuff, we do very well in warehousing, we do very well here and because of that we have a product set that aligns with those vertical markets.
And I think that what we're benefiting the most from is when we have a customer that has got another supplier or whatever and they're not able to deliver within that category and they recognize that LSI is they're making a connection between the vertical markets. We said, we were committed to and a possibility of us having inventory.
And those are the orders that we've seen the most of and we and by the way I'll tell you right upfront, we will not put a primary customer in front of a new customer in other words, you know our commitment is to our agents and partners that have been with us for a long time and we've been able to add those orders on top of that.
I think from a market perspective, I think the markets generally generally.
Flattish to up you know high single digits.
I don't think that the market in lighting has really taken off I think it's steady.
Our growth outside of that steady growth, let's say eight 9% I'm sure there'll be people that argue that it's maybe 10 or 12% or whatever it is I think that our growth is a lot of these programs. We put in place before it's a good customer service being able to respond quickly and having the tools that allow our part.
<unk>.
To understand the inventory, we've got and the options that they have.
It's that focus on the vertical market, which is so key to us.
We're not trying to be everything to everybody. We're trying to be really great at the things, we do and then really it's that market share.
We've been able to take and I think we're going to be able to hold onto a lot of it I do not look at this as just a temporary European demick bump.
Yeah, So true I mean, my experience with the certainly in the agency is I knew of an agent that that missed a you know a.
A major project in the city, I won't say, which one in <unk>.
And they'd never ordered from that company again, so being able to deliver and that's why I said it sounds trivial, but it's a it really that is a huge lasting impact so it sounds like you've done a nice job there.
And maybe just as a follow up could you touch on not a health of the channel in terms of inventory levels.
It sounds from your commentary that they might be pretty lean.
But I'm just curious.
If you could give an update there thanks.
Yeah, I think you know again. This is generally this is generally an opinion, but I think that the you know the supply of available supply is.
<unk>.
Okay.
It's being able to respond in the you know in.
In the lead times that when a supplier doesn't step Bob who can step up and that's where I think youre seeing some continued weakness.
Whereas if we were to go back two years ago. There have been three or four people that may have been able to backfill in order.
From a shipment problem or delivery problem today, I think there's only a handful that have the flex and the supply chain I mean, the inventory that's out in the field isn't going to be able to do that so I think it's flat, but it's at a lower level than it has traditionally been.
Got it I'll jump back in the queue, thanks, and congratulations great to see things are panning.
Panning out for you guys.
Thank you.
And again as a quick reminder, if you have any questions you May press star one.
And our next question comes from the line of Amit Dayal with H C. Wainwright. Please proceed with your question.
Thank you and good morning, everyone.
Congrats on the quarter really good numbers.
Yeah.
In terms of you know how we should think about margins going forward I know you touched on it a little bit you know with the.
Product mix now shifting almost 50 50 between <unk> 19 and display.
You know.
And the price.
Do you have implemented.
Should we look for margin improvements from displaying I'm, you know I'm from the lighting side, a little bit more.
Any color on how we should sort of your thinking about this aspect of the business that from a modeling perspective. Thank you.
Yeah, Amit Jim Clark again, thank you for joining good to hear you.
So you know it's complicated we have.
We have goals that are above our current margin profile and we've had those wait before COVID-19 hit or any of that.
We've been in process and had programs around pricing discipline and price awareness and everything to get to get those margins up and you've seen that over the last three years, there's been a steady improvement. So we do have opportunity in front of us and we do have a focus on it and we do have the discipline to do it.
At the same time, we are not being predatory or overly opportunistic.
In other words, our value as a partner has to extend beyond just.
Having the product at whatever price that we wanted to put it out so.
We are very mindful of that and then the third component of that is.
Our efforts around managing the supply chain have been beyond my expectations. The team that we have here has really done a good job and I got to tell you publicly.
Publicly I'll just say thanks to all of them the entire operations team, but it's a day to day hand to hand combat.
And that can do that still has a lot of disruption to us and we have made a commitment to our customers when they put in an order and we hope that order is firm and we hold that price.
We have been very diligent on staying to our commitments of <unk>.
Delivering on time and the variable in there is if something disrupts the supply chain beyond our ability to respond to it we feel as though we have an obligation to do our best to.
Meet their requirements the commitments that we had to our customer and sometimes that comes at our expense.
If it got Crazy, we would certainly go back and have a.
Our conversation.
But if it's something that we can absorb too.
Maintain our commitment and our customer service level, then we're going to do it and thats. The variability that we still work on in terms of margin. So you can still see some flux in margin that are impacted by those things, but our long term goals. Our continued improvement in margin and we do.
Believe that we have the runway to get there because we're doing the right things reducing.
Reducing our cost to serve reducing our.
Cost to manufacture.
Getting the commitments from the customers across the board on pricing so.
So we think we have room to grow we're sensitive to the fact that you know short term, meaning you know through.
Through the remainder of this.
The Covid uncertainty, which you know for the most part we think will remain for the rest of this calendar year, there can be some things.
Disrupt our margin momentum, but the programs are in place to get margin.
Understood.
<unk>.
The price hikes.
Have they all been implemented and was this just doesn't the lighting segment.
This new segment also see some price hikes.
This.
Yeah, all of the or the majority of our price increases are have all been passed on in fact, there is no price increase that I'm aware of right now that's pending any acceptance or anything like that and we put programs in place to really shorten the.
Price adjustment cycles, if you will because we're in our supply chain were hit by those pricings, even though we built inventory.
We can be hit pretty.
Pretty quickly our suppliers have eliminated a lot of price notice periods and things like that so I think our customers and our suppliers in there and our customers' customers understand that.
Our ability to affect price when it's when it's impacted.
Is much shorter than it was now I would like to point out one thing.
Our smaller projects.
Our singular projects or a small group of small project projects if you will.
We were able to manage price pretty much real time.
Some notice period and things like that.
Our longer projects when we talk about display.
Display project with a major petroleum manufacturer those are typically talked about in terms of two and three year project cycles.
And so when materials go up we really need to sit down with the customer and say, okay look at material pricing has gone up quite a bit.
And we need to talk with that customer we've had some customers that have decided look if we're going to absorb the material pricing increase but we're going to reduce the number of stores. We rolled this out at we're going to extend the project and so where we had asked you to do 200 stores in a year, we're going to ask you to do 150. This year and then we will.
Roll it forward into next year, and so thats one conversation another conversation and I brought it up a minute ago was we have one key element that we use in our in a lot of our display solutions offer exterior signage and graphics, it's manufactured by <unk>.
<unk> 100 company here in the U S. It's an aluminum product and it's really had a lot of pressure on it.
We've sat down with some customers that have said you know what we want to stick with that product and we will accept whatever delays.
We've had other customers, who said bring us an alternative product.
And there's trade offs and some of them are going forward with that some of them are asking us to delay some of them are asking us to <unk>.
<unk> dollars it would have gone to a higher volume just ship them into <unk>.
Offsetting the cost increase so on those larger projects.
It's a daily discussion.
And our customer base is all over the map how there.
Dealing with that but I will say this we have not heard about any customer anticipating.
Canceling any projects.
They you know these image related products projects, usually entail starting on the you know I just use this as a metaphor, but starting on the east coast and moving across to the west they're not going to get halfway through it and say you know what we're out but.
But they might say, hey, slowdown because we don't have the funds. This year will still consume the same amount of funds or we're going to do less stores or we have some that say use a you know use another product that keeps us on track.
We're going to trade off maybe some of the longevity on that or we have others that are saying hey look it.
We will accept the price increase but you got to stick to the 90 day notice period, we're through all of those things we've reduced those things. So we were very hopeful that we solve that problem on that side.
Okay understood. Thank you for that.
And then guidance for revenues.
The remainder of the fiscal year.
Can we expect sequential improvements given the momentum.
Europe .
The leave management supply chain and inventory et cetera.
Hum.
How should we think about the remaining two quarters of the year compared to sort of how you've done in the first half of the fiscal year.
We believe we have a competitive advantage.
Is being noticed in the field.
But historically Q3 is always our weakest quarter and if you underline.
I talked about in the beginning of the call. We have we've really created a discipline in the organization to understand both from our customers and are in our company itself that we serve a certain segment of the market.
And a big piece of that lighting market is outdoor lighting, we have a very robust indoor product line by the way I want to put that on the table because I'll tell you that every time I talk about outdoor lighting I have more of my partners and agents call up and I do investors and say well what about our indoor very robust indoor product line that is not going anywhere and continue to invest in.
But our real lead is outdoor warehouse parking area of lighting that type of thing.
And it has a seasonality to it.
I'm not sure where you are right now, but it's about six degrees here right now so we're not getting a lot of outdoor construction activity and that usually happens in the third quarter. So we expect the demand will remain we expect it will continue to have opportunities around share but will also.
Quarter to quarter I understand that the third quarter is typically the one that's most impacted by seasonality.
Yeah.
And that's all I have my other questions have already been discussed thank you so much.
Youre welcome.
And we have reached the end of the question and answer session and I will now turn the call back over to management for closing remarks.
I think we touched on a lot of things here today I don't know if theres a lot of more comments I can say except to leave you with this that we feel very confident about our ability to grow. This company you know not just over the next couple of quarters, but over a long term years.
We have a good strategic plan in front of US we made a commitment.
Two years back will be a $500 million company in double digit EBITDA in 2025, I think everything that we've done consistently.
Through that time indicates it will not only will we meet that goal, but we will very likely beat that goal handsomely and we're already we've already got expectations and goals sit in front of us.
That will bring us beyond what we have in the short term.
We mentioned in the calls, but I'm very excited that we have our sales meeting that we've got our sales folks in town together, we've taken a lot of precautions every single person is testing.
On site as they get here.
And we have a lot of precautions should allow us to do this but we feel like we've gotten a lot of momentum out of the things we've been investing in in the background, particularly our sales training and our commercial programs.
That will pay dividends for us and I'm really looking forward to what's ahead for us as a company and I think everybody on the line and everybody that takes interest in LSI, we have great future ahead of us and I appreciate your contributions and your time.
Take care.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
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