Q3 2022 LSI Industries Inc Earnings Call
Greetings and welcome to LSI industries fiscal third quarter 2022 earnings conference call.
At this time, all participants are in listen only mode.
Question and 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 now.
Now I'd like to turn the conference over to your host Jim Police.
Chief Financial Officer.
LSI industries.
Sir Please go ahead.
Good morning, everyone and thank you for joining.
We issued a press release before the market opened this morning detailing our fiscal third 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.
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 third 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 third 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 and good morning, all.
As I'm sure you've seen from our earnings release earlier today.
I had a great third quarter and our performance year to date has been outstanding.
Net sales were up 53% year over year net income is up 146% adjusted net income up 130% and EBITDA is up 92% year over year.
As many of you know.
LSI historically has had some seasonality as outdoor lighting tends to slow during the winter months.
Normally the seasonal softness shows in our second and third quarters October through April .
Outstanding performance in both our second and third quarter. This year helps underlying the changes we've made to our business our ability to deliver products, despite a challenging labor market and supply chain.
Our new product introductions over the last few years and a very active sales and agent network along with the success of our display solution group, including GSI.
Six months ago, we celebrated LSI as first quarter with sales over $100 million.
Today, we're celebrating our third consecutive quarter with sales exceeding $100 million.
I'm very proud of the effort by our employees our agents our partners and the confidence of our customers that have allowed us to achieve such a strong quarter and year to date performance.
In 2020, we established a goal to achieve $500 million in sales and double digit EBITDA in our fiscal year 2025.
We talked frequently about this $500 million goal and the steps, we're taking to achieve the necessary growth.
At the center of our plan is our vertical market strategy, which allowed us to focus our commercial efforts our product development efforts and our overall messaging and customer value proposition on the markets, where we can deliver a higher quality solutions and separate our company from a commodity offering of others.
This year, our grocery pharmacy segment is on track to be our single largest vertical market overtaking our C store refueling vertical for the first time in the company's history.
The combination of outdoor and indoor lighting Io markers signage department graphics, along with refrigerated and non refrigerated displays has proven to be a very powerful offering for our customers.
Our ability to provide multiple solutions, along with our onsite project management through our group called the DAP.
Those are our customers to solve more of their business challenges, while reducing costs and simplifying their overall program management.
The grocery store pharmacy space is experiencing significant growth and the need to update the look and feel of the in store experience is critical to our customers as it is to theirs.
We see many opportunities ahead in decades of growth in this space.
We will continue to position <unk> as a partner of choice from small to large customers and we will continue to look to expand our offering and services in this segment.
Our C store refueling space will come in as our second largest market this year, but it does not show any signs of slowing down.
The reinvestment cycle in imaging and lighting solutions in the C store market space, a shortened considerably over the last 10 years with more frequent changes to attract and educate customers.
Occasionally I'm asked about the lifecycle of this market and the competitive threats to this sector is EV and alternative fuel cars and trucks continue to expand their presence.
Honestly I do not see this market or this customer base slowing down anytime soon.
The first petroleum refueling station started to appear in the U S. Just over 100 years ago today.
They've gone through many changes over the years from fuel and repair.
Services to fuel and convenience stores today.
Through it all they found a way to adapt and offer valuable services to their customers.
And I fully expect they will continue to adapt and serve many customers for decades into the future, including offering EV charging and other fuel options side by side with their current offerings.
Changing gears for a minute.
In January of last year, We released news of $100 million Project award to provide outdoor digital displays and solutions across one of the world's largest quick serve burger restaurants.
Since the beginning of this project I'm happy to say, we've added approximately $20 million of future orders focused on indoor displays for this customer.
That project will be started after we complete the <unk> at the outdoor portion rather of this project.
Throughout this project, we gained a lot of visibility into this market.
Our ability to not only design and build the equipment, but also the manage the installation and post sales support is a very compelling proposition to our customers.
Much like our grocery pharma vertical in our C store refueling vertical we're able to lead with one solution, but offer many others, which decreases the project management aspect for our customers and increases the overall project value for LSI.
In fact as you May have noted just a few weeks ago, we issued a press release regarding another large display order for <unk> customer focused on the chicken segment.
Again. This is just another demonstration of our strategy in action.
Each of these vertical segments tend to offer a large multi site projects, which creates the opportunities for LSI.
On top of this we feel the refresh cycles are compressing.
Meaning in some cases as we finish one project.
We are often starting work on the next cycle with the same customer.
Straight to the point, we see a lot of growth ahead.
Lastly, I want to mention the work of our traditional and general sales team our agents and our partner network.
For decades, we've enjoyed relationship with some of the industry's best lighting professionals across the U S. A.
In connection with these folks we work a variety of projects together from large to small.
Within these segments, we're investing and increasing our contact with customers agents and others.
And providing training and other activities, which are all reflected by growth in a number of other vertical segments, including warehousing parking sports court automotive and many others.
Geographically, Canada is a market, we're increasing our presence in by using our GSI location as a platform for growth.
And Mexico is finally opening back up again on a number of projects that are installed because of permitting and labor issues.
The Bottomline is LSI is in a very strong position as we look to the fourth quarter and the year ahead.
As we discussed our third quarter order rate with strong achieving a book to bill ratio of 112.
As such our backlog entering the fiscal fourth quarter increased increased sequentially from the third quarter.
While being significantly above prior year levels.
Market indicators remain favorable and current quote levels remained at a very high level within our company.
Recent market share gains with new and existing customers together with effective and consistent operational execution.
Positions us for sustained growth as we balanced the rest of the year and into fiscal 2023.
I'm excited by what we've done so far.
I am confident of it.
A strong fourth quarter.
With that I'll turn the call back over to Jim <unk> for detailed comments on our financial performance.
Thank you Jim we.
We delivered a successful fiscal third quarter highlights.
Highlighted by sales exceeding $100 million for the third consecutive quarter, an increase of 53% versus prior year.
Excluding GSI comparable growth was 12% our fourth consecutive quarter of double digit comparable growth.
In our prior call. We commented on entering Q3 with a strong backlog and expected favorable demand levels to continue.
That combination along with solid manufacturing execution drove the strong sequential and year over year sales performance.
Performance was broad based we remain encouraged with the number of target vertical markets continuing to generate high activity levels.
Earnings were strong as net income was $3 6 million for the quarter and adjusted net income $4 2 million, 130% above last year.
Earnings per diluted share were <unk> <unk>.
And adjusted earnings per share were <unk> 15.
More than double adjusted EPS of <unk> <unk>.
Last year.
Adjusted EBITDA increased to $8 5 million from $4 4 million last year.
Operating and EBITDA margins increased sequentially in the prior year evidence of our rigorous focus on margin management.
The results were achieved in an ongoing challenging operating environment.
Supply chain issues persist.
While delivery reliability for many suppliers has improved lead times remain extended.
We identified this emerging issue over a year ago, and our team adapted sourcing and production scheduling processes to account for the current reality.
These actions have allowed us to meet the requirements of our customers and capitalize on short lead time opportunities.
We highlight an example in our press release of one of the largest warehouse retailers, having a delivery requirement other manufacturers could not meet.
And we had the capability to satisfy their requirements and one the additional business.
Material input costs have stabilized somewhat albeit at a high level.
However transit costs increased in the third quarter, the result of volatile oil prices.
We continue to closely manage our end to end operating cost and utilize this information in our pricing models.
Shifting to segment performance lighting continues its strong momentum with sales, 25% above prior year and adjusted operating income of $5 1 million and operating margin of eight 9%.
Sales growth was balanced from several standpoints sales.
Sales increased double digits in both project and distribution channels.
Digital sales growth was realized in both indoor and outdoor applications and.
And sales increased double digits and multiple priority market verticals.
Specific verticals, including parking area lighting refueling C store automotive sports scores and warehousing all generated growth led by new products.
And warehousing, we completely refreshed our product offering over the last 18 months.
And is now our highest growth rate vertical over the last three quarters.
Flagging again generated a book to bill ratio exceeding one in Q3 and.
And enter Q4 with a backlog sequentially improved from Q3 and substantially above prior year.
Moving to display solutions sales increased 100% and operating income more than tripled to $4 7 million with an operating margin improving to eight 8% compared to four 7% last year.
The display solutions gross margin rate improved 430 basis points.
Driven both by the addition of GSI and improvements in our core business.
Increased sales were led by the grocery vertical.
GSI display fixture shipments began in Q3 for the large order received last quarter from one of the nation's largest grocery store chains and.
And shipments will continue throughout Q4.
We've already secured an additional $12 million in orders from this customer for shipment in fiscal 2023.
Quotation and order activity remains healthy in this vertical as grocers continue to invest in infrastructure and merchandising solutions.
Site conversions continue for our large <unk> digital menu Board program, we provide complete program management responsibilities integrating planning multiple products installation and other services for successful turnkey implementation.
Our team continues to effectively manage the program completing over 3600 sites to date, leaving approximately 700 sites remaining in the initial phase.
Our customer has acknowledged the outstanding performance in fact, the customer again awarded LSI additional business for their Canadian locations.
The total committed activity will take us well into fiscal 2024.
Our performance was also a factor in the award to supply digital menu Board solutions to a <unk> focused on the chicken segment, which will begin in fiscal 2023.
Display solutions also entered Q4 with a strong backlog, while inquiry and quote levels remain high.
Moving to capital allocation, our regular cash dividend of <unk> <unk> per share was declared payable may 17th.
For shareholders of record on May 9th.
Strong third quarter earnings generated free cash flow of $3 3 million in the quarter, including the additional investment in working capital.
We've invested over $19 million in additional inventory since the beginning of the fiscal year.
Additional inventory has been in a central part of our flexible manufacturing model compensating for the inconsistent supply chain and greatly contributing to the significant sales growth achieved the first three quarters of the fiscal year.
We expect cash flow to be positive for the second half of the fiscal year.
I will now return the call back to the moderator.
Operator, this is Jim Clark before we move into the question and answer period I'd like to make one additional comment as you may have noticed we issued a second in separate press release today announcing at LSI has authorized a share repurchase program.
Carefully evaluating our capital allocation model and work closely to best balanced use of capital, including the acquisition of complementary assets and distribution of dividends and organic growth initiatives.
This newly authorized program will allow LSI to repurchase up to $15 million of its outstanding shares on a common stock of common stock on the open market in accordance with all applicable security laws and regulations. The approval of this share repurchase program by our board of directors.
Demonstrating the confidence we have in our business.
Provides another tool for us to optimize value for our shareholders and our customers I am pleased to have this as another tool in our toolbox.
With that I'll turn the call back to the moderator to open up our question and answer period.
Thank you very much.
At this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
We have a first question from the line of Craig Irwin.
With Roth Capital Partners. Please go ahead.
Hi, Good morning, gentlemen, thank you for taking my questions.
J Assai continues.
Off the ball so congratulations on some very successful execution there.
My first.
That shouldn't be what's gone right can you maybe give us a little bit more color.
Are they benefiting from the <unk>.
The legacy <unk> sales force.
This.
Really them executing on what they already had in hand or is this an expanded customer base.
Anything you can do to unpack that would be great.
Yes.
Craig Jim Clark. Thank you. Thank you for being on the call.
GSI has gone very well I think there's a lot of things first of all GSI the team up there.
The management team up there and the entire team they're doing a great job the team as a partner into our business. When we met we sat down and talked with the management team and we look for a cultural fit and that cultural fit was there from day, one and I think that.
They're excited to be here and they're executing well.
In the background I think that.
Everything from our ability to help with supply chain with operations, even the financial controls, we're able to put in gave them a better view on their business and help them execute better that's number one.
Number two we have had some cross pollination in fact.
J S. I is going to be the lead on our grocery vertical going forward. So they're in a leadership position there and LSI with our experience in the C store environment is going to be the lead position on that market.
There's been a lot of cross pollination relative to areas of responsibility looking at opportunities really breaking it down in fact in the January February timeframe. We've got the two sales teams together and made that official a lot of that work it already started being done prior to that.
But we made kind of some of the lines.
Drew them in a little bit thicker and made them official.
And then lastly, you kind of touched on it.
If we look at the total market maybe.
GSI was very familiar with a third of the market LSI was familiar with a third of the market and both collectively we had an opportunity to go after another third of the market. So that cross pollination really brought each of the businesses from <unk>.
<unk> penetration to two thirds penetration I'm, saying those numbers representative Lee, but it gives you an idea of what I'm talking about just cross pollinating, our customer our customer set with their customer set and vice versa as really paid off for us.
Correct.
I'll just add.
Performance is broad based we referenced the one large order we have with <unk>.
Nations largest retailers are grocers.
But that only represented about 15% of their sales for a quarter. So it is they have very broad based penetration into virtually all of the major grocers.
<unk> segment continues to invest to capitalize on.
Changing buyer buying consumer habits et cetera. So.
We're well positioned both now and moving forward.
Element of of refrigerated mobile displays the demand the demand levels there continue to be very very strong.
Understood understood. So just as a follow up on the display segment and I guess, maybe the relative importance of the core sort of legacy business. There is adjusted by the strength of GSI, but it seems that the organic growth rate in the legacy businesses has slowed down.
A little bit.
Is this really because of the strong preference for <unk> customers.
For their products.
Is it really sort of an opportunity cost where the sales force is focused on executing that.
Whats available which ASI.
Can you talk through a little bit sort of what's going on on the original display side is that something that we still see a lot of growth ahead in display.
Yes, I mean I think that.
To answer your question directly yes, there is a lot of growth still available in our traditional display solution.
I wouldn't call it softness as much as some of the challenges we've had in one of them I outlined in my comments Mexico has.
Those projects, which were had been ramping up for us very well.
Pre COVID-19 and then even through the beginning parts of Covid.
At virtually come to a stop mostly around permitting issues and things like that.
And so that created some softness a little pocket of softness, but the demand didn't go anywhere the orders didn't go anywhere things just kind of froze. So on balance when I look at the display solutions group without GSI theyre doing very well.
And like I said, we can identify where those pockets of softness are.
But theyre doing theyre strong or solid and then GSI coming on has certainly accelerated the overall group's performance, but it's not I don't want to make one of the shining star over the other this is really both groups, making each other better.
I understand that that's a great. That's a great thing to see so next question I wanted to ask about is gross margins. So gross margins ticked up sequentially. So im guessing.
Your strategy on dealing with supply chain and components, just working out pretty well.
Can you maybe give us a little color about how this is likely to put gas.
In your June quarter, and do you see potential sort of step wise margin gains over the over the next few quarters.
I think well first of all I think if we had been able to execute our programs like a lot of companies I'm sure, but if we have been able to execute against our strategic plan minus Covid you would have seen even better margin improvement.
We fully intend to kind of continue to incrementally move it up X amount of basis points each quarter and everything we're doing indicates that we'll get that.
Where we get surprised or we get pressure on margin is obviously cases, where we have supply chain hiccups or labor issues or things like that and one of the things that we've decided to do.
Over a year ago was really be that dependable supplier.
Onshoring here in the U S. Our decision back pre Covid 2018 to kind of move a bunch of our material onshore back onshore in the North American continent has really paid off.
And we continue to think we'll get a lot of momentum from that but we're always fighting the same challenge as everybody else's.
If I were to put them in order right now it's labor, it's transportation and its pockets in the supply chain that can be disrupted easily even though we have alternative.
Suppliers, we have backups to our backup plans those hiccups hit us occasionally and it's something that we need to be aware of.
But with all that said our plan is to continue to ratchet up that margin performance.
Okay.
Thank you we have next question from the line of Chad No Humira.
With Canaccord Genuity. Please go ahead.
Hey, Thanks and congratulations.
I guess.
Just a follow on to maybe the last question. If we look at the supply chain and you look at that.
Components that may have the greatest exposure to inflationary pressures.
Could you.
Is it equally weighted or do you have a couple of hotspots in terms of those.
And then I have a follow up.
Yes, Jed. Thank you thanks for being on the line. Thanks for the question.
I mean I think it's.
It's kind of a little bit of whack them all in terms of where those inflationary pressures show up.
I were to say one category Thats hit us hardest and has been most volatile across everything it's our metals products steel and aluminum and for us to forecast what happens there has been very difficult now with that said we.
We've talked often on these calls about us beefing up our inventory.
And there is two fold to that one is to average out any of those.
Those spikes that transitory activity and the second is to hedge against any type of supply chain constraints are there was a time when steel was starting to be allocated.
So I can't I wouldn't say that there is something that we are.
Overly worried about.
And I would also not saying that there is a category that I would put my finger on in terms of.
This is this one tends to be the most volatile or anything.
Its kind of equally.
Evenly spread across maybe.
Five or 10.
Five or 10 categories, if you will but not anything we're overly worried about right now.
And Jeff Let me just add that.
We monitor that.
Very very closely on an ongoing basis, both our current cost and what we think some forward costs look like and we work rigorously to align our selling prices to that and the <unk> team across the board has been very successful in doing so and that's one of the key reasons why our March.
<unk> why we're seeing a accretive margins as well so we will continue to to align.
Our selling prices with our.
Any changes in costs.
Got it.
So far you've been really successful in terms of passing any of those costs on at a certain point, though I would assume that as prices rise you would start to see a peak in perhaps some demand destruction, which you havent seen.
Do you how do you see or how do you think of or gauge sort of how much.
Room, there is it sounds like the onshoring efforts that you've done.
And place the ability to actually deliver above any potential price increases so do you see it.
Decent.
Headroom there in terms of this strategy is that what you would attribute to.
The ability to kind of outpace sides or maybe take some market share.
Yes, so I think that our ability to deliver has been key.
In terms of market share in a lot of our growth and we want to continue to capitalize on that we wanted to be very careful about product pricing, we don't want to put ourselves out of the market for something we consider transitory.
So we've worked with our agents are and.
Our partners and their customers directly to kind of break up price into two buckets. If you will right now.
One there is none of our customers none of our agents are arguing we're in an inflationary environment and they've been very understanding and we've been very fair.
Right dealer respect back and forth about where real costs are and what those real cost will look like but.
But we want to do is we want to be very careful on transitory costs on things that may have momentary impact.
We can absorb necessarily.
But we don't want to build into the price of the product I'll use fuel as it is an easy example, but you can apply it across it.
Different categories, if you will.
Right now.
We see some increasing pressure in Europe around access to fuel that does create pressure on the global fuel market. So diesel fuel prices go up when diesel fuel prices go up we get surcharges from our carriers.
We have put a system in place that allows us to pass on those costs to our customers and so we want to be careful about.
Whats inflationary and what we think is going to stay built into the cost of the product and what we think is transitory and me we may deal with as a surcharge when we do deal with is a surcharge.
For something Thats more temporary I think the balance between those two there's headroom in bold and I feel like our relationships with our customers across a broad base and our agents is very stable and very respectful to respond to the pressure on either one of those so the headroom is still there.
<unk>.
Thank you we have next question from the lineup Amit Dayal with H C. Wainwright. Please go ahead.
Thank you good morning, everyone. Congrats on the strong execution in this environment.
Jim in terms of you know.
Run rate, we are say between $105 million to $110 million is that.
What we should be sort of modeling for going forward. I mean, you are at a pace of almost 30%.
Leo growth fiscal.
And in relation to your 500 million target.
We are approaching that number faster than anticipated can you just set expectations for us.
From that perspective.
Absolutely Amit Thank you for joining the call.
First of all.
<unk>.
Funny to me because we sat down.
Two five years ago, when we put this $500 million target out there.
There we had it.
Mixed reviews on and I've gotten a series of calls over the last month that says Hey, Youre closing in on it pretty quickly.
We will certainly be as we start to plan out our next year and the year. After that we will certainly be looking at what that next generation looks like.
Looking immediately in Q4.
And in my comments, we have a.
One point to one one to one Jim.
101 112.
Our backlog coming into Q4, so that's a book to Bill Thats very.
Very strong quarter.
Quarter for Us and those are orders that are in house.
And we will deliver.
Historically, Q2, and Q3 because of the seasonality around our outdoor products and that type of thing tend to have some pressure intended to slow.
We did not have that affect this year and we did very well in both second and third quarter, both of them being about equal with each other.
We expect that our fourth quarter will be sequentially better than our third quarter.
Not it's.
It's not going to go off the roof, because we still have some constraints relative to what we can supply I mean, there is a top in terms of how many units we can produce on a daily basis.
But we've worked closely with our customers we've worked closely with our agents to kind of.
Create that schedule that puts us in an area, where we can develop where we can deliver and we put pressure on our operations team in our HR team to get us the resources, both from a head count and from a supply chain side.
No.
Fourth quarter is going to be sequentially better I don't think theres any question about that and I got to be honest and we're looking at Q1 of next year and we're looking what we think is going to be relatively strong too. So that $500 million goal will probably have to be updated at some point.
Like the celebrated a little bit of achieve.
Achieving what we've done so far before we go and paint the next picture, but we will be doing something on that.
Yes, I think the celebrations are definitely deserve.
Any change in seasonality now given the mix of business has changed a little bit like how should we think about that I mean is it a bit more evenly spread over the fourth quarter or the full quarters compared to maybe a year or two years ago.
I don't think the seasonality disappears.
I think the strength in any one quarter or in our typically our strongest quarters Q1, and Q4 are going to remain I still think there'll be.
On a relative basis, and comparative basis, youre going to see some a little bit more softness in Q2 and Q3.
But overall I think we've taken share and we'll work hard to fight to keep that share and there is still more room for us to grow.
But I do think that that seasonality.
We'll be it's going to be core to our business because again, our strongest market is outdoor in outdoor.
Cant define nature.
Winter is going to be here every year.
Yes.
And then.
In terms of any granularity with respect to the backlog.
What is in the backlog Jim.
Can you provide any additional color on that.
Yes.
It's broad it's across all all our segments.
Overall every one of our vertical markets showed improvement.
We highlighted grocery and pharma and we highlighted our C store because of the relative size. It plays in our market share, but every one of our vertical markets.
Harking Sports Court.
Warehousing.
Automotive all experienced growth in Q2, and Q3 sequential growth.
That's all I have for knowledge it might take another question is authentic.
Alright, thank you.
Thank you we have now.
Next question from the line up Rick Fearon.
With acronym please go ahead.
Hi, Good morning, Jim Jim and congrats on another great quarter.
Thank you. Thank you.
So Jim has done a terrific job.
Kind of executing on the plan you laid out a little over three years ago and there was an earlier question.
About the sales growth at Ges side kind of more curious with.
With respect to the legacy business and the.
Various verticals that you just mentioned you saw.
Saw growth it sounds like across the board.
And then the largest being the grocery pharma in the C store.
Are there other specific verticals where.
A.
Really realize some growth is kind of.
You're not fully expecting this past quarter, but.
He has kind of changed the dynamics a little bit for you and then b going forward are there areas, where you want to spend a little more attention because they really are growth opportunities that maybe.
Good morning.
Sort of in your mind at the beginning of this year.
Yes, Rick Thanks for the question and thanks again for being on the call.
I don't I wouldn't say, we were surprised by any maybe automotive was our.
It was our biggest surprise only because of their overall pressure.
Warehousing has been performing.
Like we wanted it to.
And maybe maybe our calls were a little aspirational, but.
The execution by the sales team by the engineering team I think the alignment of our product development over the last couple of years has really shined.
No pun intended on that.
We've had in warehousing, which we identified as a great market a great fit for us because it fits in that whole industrial kind of outdoor mindset, we performed very well in door don't get me wrong, but.
Is that more industrial lighting product if you will we.
We really broke up the categories to serve that warehousing market.
We have a number of different categories kind of think of it as a good better best.
Alignment in that warehousing segment in that.
That work just like we thought it was going to work, maybe even a bit better and so I'm really pleased about that because the competition in that segment is pretty significant.
<unk>.
It didn't.
It surprised us another one that we saw really come back maybe a quarter earlier than we anticipated was area of lighting and parking.
And that typically is influenced a bit by seasonality with the cold weather.
I won't say that it was made up in terms of cold weather climates, but it was it showed growth everywhere else it really kind of pleasantly surprised us.
And so are our hope is that that momentum carries in as the as we start to add spring and some of the colder weather climates.
That growth that we experienced in Q2 and Q3 in that area.
And parking.
<unk> continues into the warm weather climates, we should have a real boom in that in that market, but I will underline that all of our identified vertical markets experienced growth.
And so we were very happy with that.
Okay. Thanks, that's helpful and congrats again on that it seems like the.
Hi chain challenges Ironically actually had been sort of a benefit to the company where you have had the good foresight is building the inventory being prepared to meet those challenges.
And.
That clearly has led to some new business and presumably that business is sticky business. So it'll.
It'll be there in the future how much of that growth do you expect may ease with the supply chain's loosening back up.
Or is it.
At this point.
Kind of take that low hanging fruit <unk> got that new business that otherwise wouldn't have seen because we short timeframe type stuff.
You'll continue to see growth coming from both of those new customers as well as other areas.
Yes, I think the message that we underlined to our customers and agents was about predictability and about.
High say do ratio once we captured the attention of these customers, where we were able to take share maybe from some competitors or get our get included in a look where we may not have been before we've been able to deliver against that so what I would ask a customer that we're that we're supplying today.
Hey.
And doing very well executing against being a U S based company.
Having a supply chain is likely not going to be as volatile as some of the others. Why would you want to switch later and those are your questions. We're asking right now and most of the answers, we're getting Rick or there would be no need for us to switch we like the product we like the service.
And we like the performance so I'm, hoping.
I don't want to say hope because.
We're executing is it.
Value proposition, we've put in front of those customers to begin with it allowed them to come to that.
Create the opportunity for them to look at us will persist whether or not the supply chain starts to ease or whether or not our competitors.
Start to put some of their challenges behind them. So our hope is we'll hold onto to these segments and these customers.
No that makes sense. Thanks.
The new product development is an area, where it does sound like you've been able to reengineer some products so that it's more efficient installed.
Neat things.
There are a lot more cost.
Cost effective.
And I was curious also in that area are there are there specific verticals, where the new product development really is a focus and you see some opportunities.
You tweaked it existing product.
Engineering or introduce new products.
To attack.
The segment of that market that you see as an opportunity.
Yes.
The answer is yes.
And I don't I don't want to tip, our hand too much.
But I would say that warehousing is a good example of one we just recently executed.
Say recent I'll say nine months nine months ago, we were finished.
A year and a half ago, we started maybe a little bit.
<unk>.
Longer than that and that diversity of our product line and the focus on it from a performance standpoint, and an entry point for different customers really paid off.
And we've got a couple of those other markets that we're looking at and we say these are ones, where we think we can continue to differentiate ourselves.
One it is.
Fairly complete right now another one that's fairly complete as automotive that's another one.
There, where we really do well and I'd also mentioned.
Jim <unk> just passed me a note which is right on the button, which is.
Product extension product line extension, so much like our vertical.
<unk> strategy of let's.
We have confidence customer has confidence in us we get in there and we have a broader.
Basket of solutions, we can offer them. We're doing the same thing with our product line, we may be very well known our marotta product line in our area of light outdoor lighting parking et cetera is very strong brand is recognized well and we had a great offering.
Large format in the medium format, but we were a little weaker in the small format. So we put timing and completed that product line. So now we have something small medium and large and we've put a lot of time into that the other thing that I'll mention that I don't give enough attention to but it's a real winner for us is our.
<unk> platform.
We sat down three years ago and said.
We're very compatible with all of the large players out there from a control standpoint, but we also want to offer our customers a basic in and out controls platform.
And we've been able to do that.
<unk> very well for us I mean, I was just looking at excess of 6000.
Units out the door here recently and controls and it's.
It's a nice add on that just continues to add value to our core products.
So they've got a great dialogue.
<unk> your sales team and our customers. So you're getting that feedback you can kind of keep your finger on the pulse of what theyre looking for and introduce things in a timely way.
So it's terrific to hear that warehousing actually you kind of seeing some of the proof in the pudding.
With some of the.
Alex that went to market there.
Last question I had is just sort of more philosophical so I know when.
When you took over the reins Jim a little over three years ago, we sort of like let's.
Let's jettison some of the assets that really arent being put to use redundant or unnecessary and we're able to do so monetize those assets.
Good prices and pay down debt extinguished at which was.
One of the exciting thing for the company and then.
With the ASI acquisition.
The company incurred some more leverage which by the way.
In the World of finance, where we have predictable businesses.
Not onerous level leverage by any means and two five times.
Debt to EBITDA it seems like.
That's a.
Not one of those levels that creates consternation typically.
<unk> management teams, but I'm just curious what your philosophy is with respect to.
With respect to debt levels.
No debt.
Best of all worlds, you'd probably like to operate debt free.
But there's really great opportunities, whether it means using some of the.
Some of your working capital for inventory or.
Paying your dividend now doing stock repurchases, all of which make a lot of sense and you're still generating free cash flow that can be used to retire debt.
Where do you.
Sort of come out on things with respect to sort of a run rate of leverage.
Yes.
I think that to be in the twos is about where our company should be.
In that in that range right.
And.
I wanted to underlying a couple of things.
Myself and the management team, we're not we're not.
Hesitant to use debt for the right opportunities remember I.
Though I don't think theres any operator that wouldn't say they prefer to operate debt free.
I do have a p/e background and not unfamiliar with using that to help the company grow.
With that said I want to make sure we're very responsible with it so the twos are or where we want to be I think for a business like us when we start to get into the threes and certainly not higher.
We need to be really focused on that and when we're under twos. When we're in the ones. Then we can be very opportunistic and we have a lot more freedom about how we can use our capital.
And when we are in the twos, we need to be very <unk>.
Aware buckled down and focused on the right things and it doesn't mean that that one automatically gets put above the other whether it's debt or dividend or share repurchase or capital expenditures. It just means that we're operating very closely at those levels.
Thats helpful very rational approach and appreciate the conservatism.
And just want to commend the board and thank you for introducing the stock repurchase plan is long term shareholder we consider buying shares in the six to seven range as an extraordinarily good opportunity for the company.
And <unk>.
Presumably there is someone who is willing to and we'd like to sell at those prices will provides them an exit but for those of US we're long term shareholders. It sure seems like Oh.
Great investments so thanks for all pushed forward on that front too.
Yeah Youre welcome in and I agree with you, it's six or seven.
I.
I don't get it sometimes because our performance certainly would underline and indicate.
A better value than that so for those that.
I believe in the story, it's a great opportunity I'll also say that.
I think the board always had support of this program.
We just had other things that we thought we could.
Use capital in different ways.
If the market is going to let our share price come down to these levels or lower than it creates an opportunity for us.
One other thing I wanted to touch on Rick that you had asked about I didn't give a full answer was.
Good ear to the market and I want to take a minute just to say that we do have a good year to the market and it's because of our sales team our product development, our marketing team, but it's also because.
Our agent network I mean, we have a great agent network and they've really proven to be able to provide some really good information back to us from the day, one that I've been here, but in particular.
Through this whole COVID-19 challenged supply chain challenge their insight into the market and their feedback has been very valuable in fact, one of our larger groups one of our more influential groups.
We call them, our group 10 folks.
They're going to be in here.
This month in May rather and very much looking forward to spending time with them and their feedback has always valuable and I got to tell you that closed loop between our direct customer contacts our agents our product development teams.
Our engineering team our sales team and most importantly or is important our management team has really made a good kind of closed loop communication and I think we've been able to benefit a lot permanent.
I imagine a lot of that strength in the top Jim So.
It doesn't surprise me one bit thanks, thanks, so much for answering the questions.
Congratulations on a nice quarter and looking forward to a long future together.
Yes. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Jim Clark CEO for closing remarks over to you Sir.
I just wanted to say thank you to all of you that participated in the call today I think we covered a lot of ground on the call. So I wont extend it beyond saying that we're excited about the fourth quarter.
We feel like we will have a.
Our strong sequential growth into our fourth quarter and it would be a strong fourth quarter and right now we're gaining good visibility on our first quarter of next year and we're encouraged by that also so.
As always if there's any additional questions or anything that we can provide color on please don't hesitate to reach out to us directly or through normal and we'll look forward to talking to you in the next quarter results take care.
Thank you.
Ladies and gentlemen, this concludes today's conference human.
You may disconnect your lines at this time, thank you for your participation.
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