LSI Industries Inc. Q3 2023 Earnings Call
Good day and welcome to the LSI industries fiscal third quarter 2023 results conference call.
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I'd like to turn the conference over to Jim Police Chief Financial Officer. Please go ahead.
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.
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.
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.
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 thank you for joining us on today's call.
You've likely seen from our press release, we had another strong quarter in our Q3 fiscal 'twenty three.
Hard to believe but we are over just about 60 days from the end of our fiscal year and I could not be prouder of the efforts and progress of our employees agents and partners.
Well as the continuing confidence of our customers.
Choosing LSI to be the partner of choice.
Sales for the quarter were up more than 7% year over year with net income up over 29%.
We had a strong free cash flow performance and I'm happy to say, our net debt is below $50 million with a one times net leverage ratio.
We are in a good spot going into the fourth quarter of the year and Jim <unk> will provide a deeper dive of the financials in a few minutes.
Lighting provided another strong quarter of growth with sales, increasing 17% and operating income increasing 31% in what is historically, a weaker quarter for LSI and against a very strong third quarter last year.
As you May have noted last week, we published a press release, providing an overview of our recent win with a large EV battery manufacturing plant being built in Kentucky. This.
Is one of the largest manufacturing development projects and Kentucky's history, and it says a lot about the confidence of the customer in LSI.
We were chosen to be the lighting provider for this project.
It also says a lot about the focused nature of our selling efforts and the capabilities of our company.
As you all know we have a manufacturing facility in Kentucky, and I'm thrilled that we were able to support a project of this size and complexity with folks that live and work in Kentucky.
Thank you to everyone that recognize the importance of this decision.
Over the last few weeks, we've had a flurry of customer and agent activity in our facility for both lighting and display solutions.
It's great to have the opportunity to sit down and talk with these folks that are making decisions that impact their companies performance.
This week, we have more than 30 of our top automotive agents in house for training and discussions.
I can honestly say that almost all of our conversations continued acknowledgment and an appreciation for the values we hold dear.
Chair of our company.
And the focus on meeting our commitments.
Our vertical market orientation and respect for our customers continues to pay dividends and I'm confident that it will never go out of style and hopefully never go unnoticed.
Speaking of our display solutions group, we continue to work a large number of developing opportunities in projects, including ongoing activity in our digital and print menu.
<unk> along with a 450 site renovation project for a large oil company.
Our mobile displays group offering both refrigerated and non refrigerated displays at a record breaking performance in the third quarter, while building some real momentum in the C store refueling marketplace.
Our ability to offer even more goods and services to our grocery and C store customers underlines the opportunities we see in front of us and I am thrilled with the progress we are making.
New products and innovations continue to be a cornerstone of our performance over the last few years.
And I'm happy to say that the company continues to demonstrate our commitment to ongoing investments in this area.
Last quarter I spoke about a number of new product introductions in our lighting segment, including their ready Mt.
This quarter I'm happy to announce a very meaningful investment in the display solutions group.
With continued growth in this segment and opportunities in the future.
We're expanding our footprint in our refrigerated displays group, adding more than 65000 square feet of manufacturing research and development space.
More importantly, we're adding the capacity and capability to provide next generation refrigerated solutions with the addition of an art to 90 based product.
Our 290 is an environmentally friendly nontoxic propane based gas refrigerant it.
It is free of ozone depleting properties.
Is currently one of the most climate friendly solutions available and we're excited to be able to offer this option to our customers.
I don't mention this often on these calls, but I'd like to point out that LSI is making a real impact on the environment.
From energy savings that are provided by our OLED solutions, it's a reduction in light pollution and the use of ozone friendly products. So the way we run our factories, we're proud to be doing our part to meaningfully and positively impact the environment.
Going into Q4, our quote activity.
And prospects across all sectors remained strong.
We're still facing some headwinds, but we believe that many opportunities lie in front of us and we're continuing to work to improve both our topline and bottomline.
With that I'll turn the call over to Jim <unk> for a look at our financials.
Thank you Jim.
Fiscal Q3 was an active quarter from several perspectives, we delivered a solid quarter of financial performance demonstrated durable sustained operational execution and we continue to make progress on key growth initiatives.
I'll briefly comment on all three let me start with summary financials.
Sales for the quarter was 7% above last year building on the record setting fiscal third quarter last year.
Adjusted operating income net income and EBITDA, all increased with adjusted operating income increasing 47%, while adjusted EBITDA of $11 2 million improved 32%.
Great expansion was achieved in all margin categories with adjusted operating income and adjusted EBITDA, improving 210, and 190 basis points respectively.
Volume, coupled with improved program pricing and favorable program mix all contributed to the rate expansion.
Adjusted diluted earnings per share were <unk> 19.
Versus 15 last year, increasing our year to date earnings per share to <unk> 70.
62% above prior year EPS of 43.
Free cash flow generation was strong for the quarter 11, 7 million, increasing our fiscal year to date cash flow to $31 million.
Increased earnings and a reduction in working capital was responsible for the significant year over year improvement.
Inventory decreased for the second consecutive quarter, while successfully supporting 7% sales growth.
Collecting ongoing stabilization and reliability in the supply chain.
Our strong free cash flow reduce net debt to $48 million at the end of the quarter with net debt decreasing $35 million over the last 12 months.
As a result, the ratio of net debt to trailing 12 months adjusted EBITDA declined to an even one times.
Lower debt levels provide the financial stability and Optionality for the business moving forward.
As part of our capital allocation the company declared a regular cash dividend of <unk> <unk> per share payable on may 16th to shareholders of record on May eight.
Now some brief comments on segment performance.
Lighting had an excellent quarter with sales, increasing 17% and operating income improving 31% with.
We continue to make progress in the market increasing sales in all major verticals.
I referenced growth initiatives in my opening comments and we have multiple in lighting.
<unk> has historically had a strong position in outdoor applications.
But as part of our overall vertical market strategy and objective of increasing our customer share of wallet.
We have been strengthening our capabilities for indoor applications.
As a result, our growth rate for indoor applications is measurably measurably above our total growth rate enhancing our overall position with customers.
Quotation activity for lighting remains healthy with quote levels equal to the high fiscal Q3 levels last year.
As we've mentioned previously we are experiencing a lengthening quote to order conversion period.
Which has increased the backlog of outstanding quotes.
While we expect activity to remain healthy the lengthened quote to order conversion could cause timing fluctuations moving forward.
For the display solutions segment earnings increased measurably on slightly lower sales.
Total Q3 sales were down 4% driven by the forecast decrease and digital signage shipments as large <unk> program peaked in the second half of fiscal 'twenty two.
This will also impact digital signage sales in Q4, as we transition to the indoor phase of the program as well as early phase activity and other programs.
Order and inquiry demand remained steady and other verticals and products, including mobile display cases to the grocery vertical and static or print graphics for the petroleum C store environment.
Operating income for display solutions increased 23% on slightly lower sales driven by a 430 basis point improvement in gross margin reflecting.
Strong improved program management pricing and favorable program mix.
We continue to aggressively pursue growth initiatives in the display solutions segment as well.
So highlight in March we announced the lease of additional manufacturing space, providing additional capacity to support the ongoing market demand for refrigerated display cases, and as Jim mentioned support the planned introduction of new products.
In addition, cross selling initiatives continue including several pilot projects for display cases into the C store vertical.
In summary, Q3 was a successful quarter for LSI with improved financial performance and continued progress on our growth initiatives.
Given the current environment of broader economic uncertainties, we continue to be diligent.
Maintaining a strong focus on operational execution, including margin and cash flow management.
I will now return the call back to the moderator for the question and answer session.
Thank you.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Aaron <unk> with Craig Hallum. Please go ahead.
Good morning, Jim and Jim Thanks for taking the questions.
You know first on U S or maybe you touched a little bit on it there Jim at the end, but just maybe an update on the on the large digital menu award sounds like where were kind of wrapping that up at least on the outdoor portion, but good to see you know translating to a new pilot award for a new customer maybe just can you share a little more details on potential size, you know anything on rollout or timing there.
Sure.
Yeah. Good morning, Aaron Jim Clark here. Thanks for the question, Yeah, I mean, the U S. Our particularly on digital menu Board continues to do well. We you know we have rolled off substantially off of the Big program I think our peak was probably Q2 Q3 of last year and we've been working.
That down is that project became wholly complete we have picked up other element with that particular customer.
Specifically, we're doing what started off as a $20 million indoor order now moving to $30 million into order.
It's just timing.
Coordination on their side right now so we don't anticipate that taking off.
Till Q1 of next year.
But subsequent to that we've been in filling it for quite some time with other customers and we do have another.
Couple of larger projects that we've been looking at that.
We're very hopeful, but I would say that what you're not going to see is.
You know a big drop off Youre, just going to see the beginning project was large but then we had time to develop all of these smaller and medium sized projects and there are still large project sitting out there. If you think about what happened to them during an inflationary period anybody that had a static menu board.
Menu board was really at a disadvantage to move their pricing.
And it's really created a sense of awareness I won't say urgency, but awareness and with some.
Some sense of speed count So we're happy with the activity that's going on there and all the activity you see moving forward is really just been infill as that project is substantially completed.
Good thanks for the color there and then maybe second just great to see the margin expansion, especially you know incremental margins given.
Given the supply chain challenges can you just maybe give us an update there are you kind of mentioned some stabilization, but you know what have you seen in the market is permitting still kind of the biggest push point and then just how you're thinking margins can maybe trend over over the near term.
Yes, so depending on the projects, we're doing any type of retrofit or anything like that permitting is the number one issue. We are running into sometimes you were delayed by progress of maybe.
Another contractor or something like that but new construction.
It has just a litany of things that are putting pressure on it permitting is one.
Switch gear I'm sure you guys hear all the time.
From what we understand and we stay pretty close to a lot of the electrical guys switch.
Switch gears.
Still massive demand massive back orders and just time taking to fill.
But from a from a margin standpoint, it was primarily mix.
We have a very favorable mix and good pricing discipline has allowed us to maintain those margins.
Alright, and then maybe last for me just you know anything on fiscal 'twenty three targets you kind of provided back in March you.
You know maybe an early read on the fourth quarter I know you have a nice.
Nice comp year over year, there as well.
And then just thinking about that given that kind of talk on quote to conversion cycles lengthening.
You are saying I'm, just trying to make sure I understood that right fiscal 'twenty four targets for fiscal 'twenty three targets no just kind of 'twenty three I think back in March when you gave kind of fast forward. You know there was some some FY2023 so just kind of you know any early read on what the fourth quarter, Mike that might look like.
Yes, I mean, I think it's going to remain.
Fairly strong we're anticipating staying right in the range.
That we expected to land in.
We certainly have our eye on on fully completing that you know hitting that half billion dollar mark but it it's just a lot of market conditions.
I'm going to win on the on every front and we anticipate.
Our solid Q4, but I wouldn't want to give any specific guidance right now, but I think it's safe to say, we'll be pretty darn close to our goals.
Alright understood. Thanks, I will turn it over.
Thanks Sharon.
Yeah.
Our next question.
Comes from Amit.
They all with H C. Wainwright. Please go ahead.
Good morning, everyone and appreciate you taking my questions and congrats on another really solid quarter.
Jim to begin with maybe on the operating margin and cash flow side is there room for you know opening leverage too.
The new coming through as you grow revenues or are you at a point now where you need to add some more resources.
Yeah, Hi, Amit Kimco lease here I know there certainly is room.
Successful and continuing to meet our growth objectives that provides the leverage to continue to see margin rate expansion, but as well as invest in some of the.
The key resources in order to make that happen, so it's not an either or.
Continue to grow the business that provides leverage for margin expansion and also the opportunity to continue key reinvestment and you see some of those investments we're making on it.
I mentioned in the beginning of the call you know our step into next generation refrigerants on our refrigerated line with yard to 90 last.
Last quarter, we talked extensively about the introduction of our ready Mount product.
We continue to be committed to.
Investing in new new products and in new markets and so on.
I think there is still to Jim Gleason point is still a lot of opportunity for us.
Understood.
The code to order conversion.
Any sort of pipeline build out is their impact from the interest rate environment on how customers are thinking about leasing orders or.
Just.
Ah <unk> deliveries et cetera at this point.
No I mean, we're not you know I certainly don't want to be the guy.
The Guy that says there is no impact but.
I'm going to tell you that we're not seeing it from a day to day business standpoint, meaning incoming orders and inquiries are certainly not being affected by the interest rate environment.
I do think that there are still a number of external things that are going on that are affecting it.
Continuing pace like we are in most of them are external to us labor resources permitting switch gear.
We have heard and in fact, we've heard it from our people and then we just saw an article in the Wall Street Journal, maybe a week ago or so talking about large project demand that it's all still there, but a lot of the ultra large contractors and stuff are being very selective actually turning projects down mostly because of constrained around person.
Now in an equipment and product, but we're certainly not being exposed to that but.
In terms of our ability to deliver but we are being exposed only in the sense that.
Some of those projects are slowing not slowing in terms of demand, but just moving along slower than we would've anticipated.
Thank you understood just one last one for me on the lighting side.
How is the cost of all this change in June compared to maybe a year or two ago is it more of a sort of industrial customers. This onshore in trend that is going on especially in the Texas, Oklahoma, Kentucky et cetera.
For manufacturing type of development.
Are we seeing more of those types of customers come through versus what you might have.
Yes.
Just to get a sense of you don't know what direction the lighting business sort of is heading towards.
Yeah, I think we're seeing growth across the board in general.
What we are seeing you know I wish I could say that all of our customers appreciate the domestic manufacturing and that they all turn a blind eye to import product. Unfortunately, they don't I was I was extremely happy that this large E V. When they considered that an important element.
And and.
I really like the fact that we have a factory in Kentucky.
Being here in Ohio, we're very close to that facility and we have people that are making these products that live and work in the state and live and work in joining states it will be.
Contributing to this project, it's a big project and we're very proud to.
Be associated with it and I know that our folks will be driving by and pointing it out for a long time I wish it was more of that that went on it was more.
A recognition of U S built in U S company and that type of thing, but where it is strong it's strong and where it's not it's we're still able to compete.
We make a good product.
Proud of it we're managing price really well, we're managing our margin really well product quality is strong and so we have a lot of compelling reasons for folks to buy from us.
It would be nice though.
If the made in America was was a stronger lever.
Understood have you named the EV manufacturer I may have missed this.
I did not we did not.
But I would just say, it's one of the big three.
Okay Yeah.
That's all I wanted to take my questions offline.
Very good.
Our next question comes from George DNR to suite Canaccord. Please go ahead.
Hey, guys how are you doing today.
Very good George how are you good to hear you.
Alright, thanks for taking my questions.
So I guess it would be.
First you mentioned.
Some of the timing issues and some of the delays from.
That youre seeing in the marketplace, but you still expect to see.
A good close to the year end to the year you have 1 billion target. So just.
You could help us understand how to quantify this impact are you just kind of giving us color on the marketplace.
As opposed to any sort of articulating any any sort of financial impact of the firm as we close out the year.
Yeah, I mean, I think that'd be accurate. We're we're just giving observations of what's going on outside factors outside of our control.
We I think that over the last few years, we've kind of bucked the trend about macro things that you know things happening in the macro market. If you will versus things that are happening to us.
<unk>.
From an internal standpoint, the observation that I think Jim was trying to underlying as quote activity.
Order after quarter after quarter and I'm talking eight 910 quarters, we've been seeing an increase in quote activity.
Try to draw a parallel between how many inquiries or on what that activity is as to an early indicator of how much we'll get in orders. It doesn't it's not steady enough to be an absolute predictor or anything like that but it is an interesting statistic to look at the thing that we've picked up on lately and when I say lately.
Three to five maybe even six months is we're seeing initial inquiry to the tightening up and finalization of the quarter. The activities remained high but the time between that that first inquiry in the time between the second and the closing query is lengthening and most.
Of the time its lengthening not because there is not demand.
And not because interest rates went up and not because there's a lack of projects.
Because you know projects are just getting extended and there either ongoing things with supply.
Supply change of of other suppliers or labor issues or projects being put in the queue and just you know the contractors not being able to get to them and we're just we're just making mentioned that we noticed that.
But because Georgia as you know lighting is late cycle, alright, and a construction project. So it's so dependent on other forms of completion.
Right so.
It sounds like you're saying that the supply chain situation that we've heard from others.
Proving youre, saying is getting worse and by the way youre not the only ones, who mentioned switchgear I mean, we had a company last night that specifically mentioned switch gear as an issue in building out a facility in North Carolina.
Which is interesting.
Yes.
You're in the electrical products industry, meaning you know, we're dependent on copper wire and switch gear and switches and everything leading right up to our fixture to energize it in power it.
Switch gear is definitely a.
Pinpoint going on right now and it has been it has been since you know basically.
April of 'twenty the month after.
We went into lockdown and it just hasn't it has not recovered yet.
Interesting.
What about the permitting side, you've mentioned permits over the last couple of quarters I'm curious as to whether there's any improvement.
In receiving permits and if any.
Freeing up and on the part of municipalities in towns and issuing them any color there would be much appreciated.
I think it's I think that we're through the worst part.
And it's just going to this is the new normal you know the reality of the situation is as they built quite a backlog of projects and you know some town states cities are great and some are just awful.
But you know I think we've taken the brunt of the pain and the.
The situation is beginning to improve but I would still say that it will be a ongoing issue for at least another year, maybe two years I mean simply put many of the cities.
Townships you now have one or two guys and they have.
Our normal backlog of 10 projects and now they have a 100 M.
And they're not you know they they don't have the budget or they're not hiring the people or whatever for whatever reason, they're not doing anything too.
Work down that backlog and I think it's just going to take a while for it to completely stabilized.
Got it.
Maybe switching gears.
Pun intended for a second you talked about and you fast forward.
Strategy outlined above.
A lot of your growth.
Hinging on additional M&A, you've now got your leverage down to about one times.
Should we expect.
That will.
More closure in terms of targets are you waiting for the economic environment to clear before you initiate on any acquisitions any update there would be much appreciated.
Yeah, well you know acquisition development is an ongoing process. We have never stopped we keep that funnel filled we have always said you know ive always said that we would if the right opportunity presented itself regardless of where we were we would certainly consider it may cause additional.
Pause or we may need the deal to be structured differently or be at a different level.
As our as our debt to a little bit higher, but us getting down below one O isn't necessarily the only gate that we need.
I'm not overly worried about economic conditions were very aware of them, we will be very strategic and very thoughtful and calculated about is it. The right is at the right time is that the right.
It's the right opportunity.
But the Bottomline is acquisition is going to be a part of our go forward plan. It. It actually is a smaller part organic growth is the bigger side of it.
And we're just going to look for the right opportunity and if it.
If it materializes.
In the next three months.
Certainly I think we're in a better spot to be able to capitalize on it and if it's if it takes 13 months.
Well, we'll take that time, we're disciplined investors.
And how should we think about the financial metrics one of the lens through which you view those acquisitions do they all have to be accretive to earnings.
Any other.
Profitability metrics.
I think that they all ultimately have to be accretive to earnings, but if you know if we saw something that may be slightly dilutive initially, but we think can create a.
Great return for our shareholders and the people in the company and propel US forward. We are certainly are structured to be able to take on a challenge like that and we would certainly consider it.
But you know we're always trying to look out for the best interest of our shareholders.
And balance that short term long term component of it.
And maybe last question.
Since you are participating in several verticals across the economy I'm curious if you can share any color when you talk about lengthening lengthening quote to order.
Cycle is are there any particular verticals that youre seeing that more pronounced than others.
Yeah.
Well I would say right now I mean, just specifically two parts of that I'll say right now automotive is moving at an incredible speed.
And they've come back with a vengeance and they are really.
There's a lot of inquiry and theyre really willing to invest.
You know warehouses slowed a bit you know I mean, I think that it's just it's just.
More cautious approach, but what's taken right over under underneath that is large manufacturing investments and you know kind of.
No.
U S manufacturing if you will the EV power plant is a good example of it you know theres a number of large.
Headline grabbing.
Ah projects going on but there's also a lot that are they're not grabbing headlines but are going on and so we're seeing those large projects. There's a lot of activity around that now that is probably the one that's most sensitive to lengthening.
The lengthening cycle because.
They're working at their moving forward, but then all of a sudden you know the the.
The concrete guys need you know an extra two months to get their project on or the you know the basic.
No rough in for electrical is taking a bit longer because.
Switch boxes or cable is not available or whatever it is so those are the ones that we see it's more acute that we see the complexity, adding to the lengthening because it requires so many more components and pieces the smaller projects. It seems as though some of the folks are able to hustle to find alternative sources.
But when you're trying to fine.
50 feet of IBM is a lot easier than when you were trying to find 5000 feet of IBM. So it might be some of that.
Thank you guys appreciate it.
Okay.
Our next question comes from Rick Fearon with accretive capital Partners. Please go ahead.
Hi, Good morning, Jim and Jim and Doug Congrats on another terrific quarter.
Was interested in the new product development. The <unk> hundred 90 refrigerant is it sounds really exciting one of those things that kind of.
Fits in nicely with.
Industry trend towards environmental consciousness, and all that.
I know last year, one of the big.
Kind of new products was the ready now.
Are you still running at roughly 20 product annual sort of new product development annual cycle and are there other.
Are there things that we can kind of expect to be introduced this year that'll be those types of drivers I mean.
It seems like certainly the our 290 <unk> can be one of those.
I'm just wondering how the pipeline looks.
Yeah, Rick good to hear you. Thank you for the call and the question.
Well first of all you know we were just going over I was just talking about the marketing department in product development and engineering, a couple of weeks ago, and I was saying about how important it is that we keep that rhythm and we keep the investment going and it.
I Love. The fact that we get to say you know 20, plus products and the reality is they were starting to add them up and show them to me and they were there every year they've been in excess of 20.
And I think that that pace will continue for.
For quite some time I mean.
I have the benefit of looking at our future development plans and were already scheduled out now starting to talk about 2025. So I think that pace will keep up there's two avenues, we have in new products completely new product.
Our $2 90, and ready amount would be something like that and then products that were going through additional enhancements your cost out initiatives or things like that there may be a new category of product or or something.
I'm happy to say that we basically for the most part have 20 brand new organic products on the roadmap 20 plus.
Again going out for at least 18 to 24 months and I don't mention this a lot, but we are in are outdoor oriented company and we really want to see outdoor be the kind of the lead but our indoor product line, which has always been very strong has really taken on legs of its own over the long.
Last couple of years and we have spent a lot of that development time on that and it has been paying off in spades for us our share or when we start to look at our mix between indoor and outdoor we still always favor the outdoor mix, but Ah.
I'll tell you, it's getting a lot closer to 50 50 than I.
I would have ever imagined.
Youre seeing the growth in the outdoor but youre seeing.
Maybe two X growth on the indoor.
And so it's great because you.
What youre seeing is us be able to provide just that much more of a solution.
Which has always been the foundation of our growth strategy either.
More vertical market or deeper into the vertical markets. We're in and when indoor continues to improve one of the things is that we're getting more of indoor on those projects run. So that just goes to underlying getting that greater share of wallet.
That's great color, Jim that's actually really exciting too im sure that helps smooth out some of the seasonality as well and.
Just curious when it comes to margins on the indoor product I'm guessing when Youre rolling out something like the Archie 90, you do see a nice bump up.
In some of the margin there are use.
That side of the business grows maybe starts picking up at a more rapid pace it's at.
Movements margin is it sort of.
Indoor and outdoor both commanding similar type margins these days or.
Is there some change that would be expected along those lines.
It's too early to tell on the <unk> hundred 90 side it will be mostly at the end of this calendar year before we are delivering our 290 solutions.
With enough color to tell you, but certainly our intentions are.
To give our customers a very competitive product with a compelling reason to move to it.
Offset by the learning curve that goes along with manufacturing with this type of technology in the investment and the startup that goes with it.
The indoor versus outdoor.
We're very disciplined around what we're going to do for lighting and if we can't keep those those margin levels comparative we're not interested in doing something that's dilutive to our overall position in lighting. So the answer to your question is the indoor.
<unk> is very competitive with our outdoor product in terms of margin and performance.
No that makes sense and I'm sure once you're in working on a larger project to the extent, you're offering additional services or products.
That in and of itself is a bit of a margin enhancement. Just so you don't have the crudes in there.
Specific to those projects, but you're already there.
So the last question I've got you I mean this is the.
The deleveraging of the company has been nothing short of impressive to be at sort of.
One times adjusted EBITDA level of debt and continuing to cash flows strong as the company does I'm sure that M&A funnel has been.
It's been active.
You just you sort of a general overview of size parameters.
Anything specific to sort of.
Areas that you'd like to strengthen that.
Yeah.
Going into a new vertical or existing verticals I'm sure, you're being opportunistic and a big part of it.
Value and then I know, 90% of its culture within Germany.
That's what gives us all of this whole lot of confidence, but it just is there are there any sort of general parameters in terms of size or.
Specific industries that you might be most interested in.
I would say that we're opportunistic.
We'll look and consider everything and you are most things that we feel would be would contribute to our ability to grow but in a way.
Hey, this is <unk>.
Financially responsible and stable.
I'm glad you mentioned culture, I know that we've talked about it before and I'm glad you mentioned it because I underlying that.
So much of this has to start with the cultural fit is.
If we're around in their square were triangle in there you know and Octagon I don't know if we want to go through all of that work to try to mesh them together, there's just there's opportunity where we can find something that creates momentum GSI being a good example of what can be done when you're measuring the tangible with.
The intangible.
As far as how far out over our skews, we would get I mean, I think that anybody that's followed us for any length of time knows where you know I'll just use the word again, we're disciplined.
We want this to be.
We're building a great company here, we're building a bigger company, we want this to be palatable for our employees for our shareholders and for our customers and what we don't want to do is do something the risk that so everything's on the table, but it would.
It would have to be the right opportunity and I would just say to you as an investor you can be confident that we would put every opportunity through the ringer, but will also required to meet a certain threshold for it to be for us to advance forward with it.
Well Jeff.
A wonderful success.
The queues.
While the confidence we need.
And just wanted to say.
Thank you.
You too to the team.
And for all the hard work and for being great custodians of our capital.
Get it.
Youre welcome.
This concludes our question and answer session I would like to turn the conference back over to Jim Clark for any closing remarks.
Thank you operator, I would just say again, thank you for taking the time to listen and learn a little bit more about LSI everybody that takes the time to get on the phone and listening to what we're doing just becomes that much more informed and that much more a greater understanding of what we're doing here.
I think that we're going to have a good fiscal 2023, and it's hard for me to believe as I mentioned in the beginning comments that we're wholly two months 60, some odd days away from the end of our fiscal year you can be assured that we're doing our best.
To hit the next objective hit the next goal for Us and where we're already moved onto our fast forward plan for 2028.
And we're excited to hit that next level of growth and achievement and do it in a way that makes our employees our customers and our shareholders.
All happy.
So with that I'll, just say good afternoon, and thank you again for the time.
Take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.