Q2 2024 LSI Industries Inc Earnings Call
Greetings and welcome to L. S. I industries fiscal second quarter 'twenty 'twenty four results conference call. At this time all participants are in a listen only mode. A 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 I would now.
Now I'd like to turn the conference over to your host Jim Gullies. Thank you you may begin.
Jim Gullies: Good morning, everyone and thank you for joining we issued a press release before the market opened this morning detailing our fiscal 'twenty for second quarter results in.
Jim Gullies: In addition to this release, we posted a conference call presentation in the Investor Relations section of our corporate website.
Jim Gullies: 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.
Jim Gullies: A complete reconciliation of 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.
Jim Gullies: Such statements involve risks and opportunities and actual results could differ materially.
Jim Gullies: 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.
Jim Gullies: Today's call will begin with remarks summarizing our fiscal second quarter results at the conclusion of these prepared remarks, we will open up the line for questions.
With that I'll turn the call over to <unk>, President and Chief Executive Officer, Jim Clark.
Jim Clark: Thank you Jim and good morning, all thank you for joining us on today's call.
Jim Clark: As noted in our press release issued earlier today LSI continues to perform well and in line with our expectations. Despite some temporary headwinds in our grocery vertical.
Jim Clark: In our lighting segment sales were down 3% for the quarter on prior year sales, while gross margin improved meaningfully to 35%.
Jim Clark: This performance both in sales and margin reflects our continued ability to manage the business and take share even while we were in a challenging year over year comparison and general business environment.
Our quote and order activity remains high up almost 10% from last year, while our conversion rate from quote to sales remains extended but stable.
Jim Clark: While the broader lighting market in many of our competitors have struggled to maintain top line momentum LSI has been successful in finding and creating opportunities for growth and we remain focused on profitable sales.
Jim Clark: In our display solutions segment the headwinds in the grocery vertical have had broader impact as they've challenged momentum in our graphics standalone displays and refrigerated products.
Jim Clark: This impact is more apparent when compared to our lighting segment.
Jim Gullies: As we noted a few months back we were recently awarded a significant win in our display solutions group and the refueling space with 1300, and 25 sites set to span of three years and another award. It will include more than 7000 locations, averaging 700 to 1000 sites per year.
Jim Gullies: Year.
This project will span considerably longer.
Jim Gullies: Our normal flow of business in this space and the overall refueling vertical appeals very robust right now.
In addition to these recent project wins, we are currently engaged with two major C store customers, who are multi site testing, our refrigerated product and a number of locations.
Jim Gullies: In fact, a recent article published in the last months Wall Street Journal Underlines. Our thesis of continued growth in this segment and the solutions approach offered by LSI fits very well.
Jim Gullies: The article is titled gas with aside of Pizza.
Jim Gullies: And it goes to underlying the opportunity the investment in our higher margin sales that accompany a traditional gas station by engaging in store sales.
We are very experienced and recognized in this phase is a high quality solutions provider and we're confident we will have continued notable wins.
Jim Gullies: Addressing this slowdown in the grocery vertical specifically I would like to note that two of the largest grocery chains in the U S are currently engaged in a proposed merger.
Jim Gullies: This merger has been under an extended federal regulatory review process.
Jim Gullies: It's caused a temporary slowdown across the entire grocery vertical as companies with business sector await the results of the review and the possible changes to the competitive landscape.
Jim Gullies: Although it's impossible to see what the future will hold in this space and the timing associated with the approval process. We anticipate that there will be continued growth and pent up demand as the merger process moves forward.
Jim Clark: While we are disappointed with the time. This process is taking we believe that whether the merger occurs or fails to move forward it will likely generate significant opportunity for additional business.
Jim Clark: As the landscape continues to evolve and change.
Jim Clark: These changes did help our customers engage and retain customers fit very well with the products and services LSI offers and we will be prepared to serve this market now and into the future.
Jim Clark: On the new products front LSI continues to set the bar and new product introductions and innovation.
Jim Clark: Staying on pace with our 20, plus new product introductions for product revisions each of the last five years.
Jim Clark: I'm proud to say that our new our 290 environmentally sustainable refrigerated product was D O E or department of energy certified and UL approved earlier this month and our first article has already shipped to one of our customers.
Interest in this product is very high and we anticipate continued growth with the solutions as customers test the effectiveness of our 290 in their own store environment.
Jim Clark: Turning to our lighting segment, we recently introduced two completely new lighting products, including our linear art Harrier outdoor lighting product and our new peak series High Bay light, which is a modular product that includes a rotator bowl light engine and lens that can be rotated to a 180 degrees.
Jim Clark: In fixed 30 degree increments. These.
Jim Clark: These products not only expand our broad solution set but allow our customers and agents to access unique lighting solutions.
Jim Clark: So showcase their properties and their business.
Jim Gullies: Next week LSI will be hosting our national sales conference.
Jim Gullies: This annual meeting provides an elevated form for our sales marketing engineering and product development teams.
Jim Gullies: To meet discuss debate and create opportunities.
Is it a real learning experience for our team and our company and we always gain momentum coming off of this conference.
Jim Gullies: I'm proud of the work the team is doing and I feel we have a lot of opportunities in front of us.
Jim Gullies: There is no question the impact across the entirety of our grocery vertical is causing some headwinds, but I feel the team has pivoted quite effectively to offset a majority of those headwinds and we're enthusiastic about the possible tailwind we could experience as this process works its way to conclusion.
Jim Gullies: We have the capabilities and the capacity to respond and we're excited about the ongoing improvements to our business and the possibilities that lie ahead.
Jim Gullies: With that I'll turn the call back over to Jim <unk> for a deeper look at our overall financial performance.
Jim Gullies: Jim.
Thank you Jim.
Jim Gullies: Our fiscal second quarter results reflect ongoing strong execution in key vertical markets, while managing the expected temporary demand disruption in the grocery vertical.
We maintained a steadfast focus on quality of earnings, including successfully managing selling price and product cost.
Jim Gullies: These efforts generated a year over year 240 basis point improvement in gross margin and an adjusted EBITDA margin of 10, 1% equal to prior year on lower sales.
Jim: This resulted in adjusted earnings per share of 21 cents for the second quarter and for the first half of the fiscal year earnings per share were <unk> 58.
Jim: Equal to the prior year first half.
Jim Clark: The business again generated over $7 million of free cash flow in the quarter further reducing debt now under $19 million and lowered the TTM ratio of adjusted EBITDA to net debt to 0.4 times.
Jim Clark: Our cash flow and debt position support our capital allocation priorities and provide the balance sheet optionality for future investments.
Jim Clark: One of those priorities includes investing in profitable organic growth.
Jim Clark: Investment in critical capital programs was over $3 million for the first half of the fiscal year.
Jim Clark: Investments were spread across both lighting and display solutions and included key machinery and tooling to support new products increased operating capacity throughput and productivity.
Jim Clark: In addition, we remain committed to a balanced approach for driving shareholder value.
Jim Clark: Announcing our quarterly cash dividend of <unk> <unk> per share to be paid on February 13th for shareholders of record February 5th.
Jim Clark: Now a few comments on segment performance.
Jim Clark: Momentum continues in our lighting segment operating income increased 28% year over year on sales of $65 million or 3% below last year, we continue to outperform the broader market further improving our share position.
Jim Clark: The lighting gross margin rate improved significantly increasing 440 basis points to 35% with multiple items contributing to the rate of expansion.
Jim Clark: Items include a higher value mix stable pricing moderately lower material input cost value engineering and manufacturing productivity.
Jim Clark: Lighting orders for the quarter was 10% above prior year, increasing the backlog as we enter fiscal Q3.
Jim Clark: Quote activity remains favorable as our key verticals continue to generate higher activity rates than.
Jim Clark: Then the broader nonresidential construction market.
Jim Clark: Our team has done an effective job managing the timing variability and our quote to order conversion cycle.
Jim Clark: Structuring our supply chain and production planning to allow for fluctuating demand patterns.
Jim Clark: We expect <unk> momentum to continue in the second half of the fiscal year.
Jim Clark: Moving to display solutions second quarter performance reflects the disruption in project activity throughout the grocery vertical.
Jim Clark: We continue to work closely with our customers on project timing with several large projects in turnkey position waiting on release.
Jim Clark: We use this disruption period to prepare for the return to normal demand activity.
Jim Clark: Relocation and startup of our new refrigeration production facility is complete and operation.
Jim: And as Jim mentioned, we received final UL approval on the new environmentally friendly or $2 90 display case.
Jim: The first customer units shipped last week.
Jim: Our backlog in the refueling C store vertical has increased significantly in the last several quarters and.
Jim: In fiscal Q2, a large oil company awarded LSI the brand refresh program for over 1300 locations.
The program is structured for LSI to be the turnkey provider responsible for site planning through installation.
Jim: We're seeing an increasing trend in programs requesting or requiring turnkey solutions as customers recognize the value of our comprehensive solution capabilities.
Jim Clark: Looking forward, we expect Q3 display solution sales to increase modestly from Q2 levels performance will vary by vertical with.
Jim Clark: With refueling graphics, increasing at site release activity begins on several major programs.
Jim Clark: Refuelling activity is projected to remain strong throughout calendar year, 'twenty, four and 'twenty five.
Jim Clark: As project release activity begins to occur grocery sales will increase somewhat sequentially in Q3 from Q2, but remained below prior year.
Jim Clark: Grocery project activity is expected to accelerate in the fourth quarter and into fiscal 'twenty five.
Jim Clark: Our focus and priorities for Q3 remain the same.
Jim Clark: Advancing our strategic growth initiatives exhibit smart disciplined business execution, and effectively managing cash debt and capital allocation.
Underlying trends for our target markets remain positive and we're confident in our plans moving forward.
Jim Clark: I'll now turn the call back to the moderator for the question and answer session.
Jim Clark: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Jim Clark: Information tailwind to Kate your line is in the question queue.
Jim Clark: You May press star two if you'd like to remove your question from the queue.
Jim Clark: 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.
Halle: Hi, first question comes from Aaron Spy, Halle with Craig Hallum Capital Group.
Halle: Proceed with your question.
Jim Gullies: Yes, good morning, Jim and Jim Thanks for taking the questions.
Jim Clark: First for me on C stores, good commentary on the move to fresh food that's happening there and initial progress on the cross selling can you just talk about maybe how big that opportunity can be with those initial customers and overtime as we look out a couple of years.
Jim Clark: Yeah.
Jim Clark: Are the speakers muted.
Jim Clark: If you have muted on mute yourself at this time.
Jim Clark: Okay.
Jim Clark: I believe the speakers were disconnected and I think they are dialing back in now.
Jim Clark: Okay.
Jim Clark: Okay bear with Us and we'll get the conference back get them back on hold now.
Jim Clark: Yeah.
Jim Clark: Other speakers back on.
Jim Clark: Yeah.
One SEC.
I believe our speakers alive.
Jim Clark: Proceed.
Jim Clark: Apologies everyone.
Aaron Michael Spychalla: Okay, Aaron you've seen continue.
Aaron: Yeah, Hi, Jim and Jim.
Aaron: Yeah.
Aaron: Good morning.
Jim Clark: Okay I appreciate the commentary on the move to fresh foods in that industry and initial progress on the cross selling can you just talk about how big that opportunity could be for you as we look out a couple of years and then just separately on the 7500 site Award.
Jim Clark: As Tom mentioned, it that being three and a half years instead of four and a half years before.
Tom: Can you just kind of talk about shortening refresh cycles, there and that project has started yet and just maybe some more details there.
Jim Clark: Yes, absolutely. Thank you for joining thanks for the call and apologies to everyone on the line for the technical issue.
Jim Clark: We see the opportunity in terms of their expansion and cross selling particularly in grocery store environment and a few others quick serve retail.
Jim Clark: With the combination of our graphics lighting and display and refrigerated display solutions as being very big I mean, I don't know how to quantify it or qualify it bigger than that but we're talking about markets that are annually in the billions of dollars.
Jim Clark: By every measure we're still on aggregate a small player not that there is necessarily a larger player than us with the aggregated solution that we offer it's just that the market opportunity is very big I don't know how to quantify it over that except to say again that it's in the billions of <unk>.
Jim Clark: Dollars.
Jim Clark: And then in terms of that.
Cycle time.
Jim Clark: And the projects. We've won there are two projects. It just take a second to mention them specifically.
Jim Clark: There is.
Jim Clark: <unk> thousand 300 location project, which is a refresh and that is scheduled and we have a firm commitment on a three year span.
Jim Clark: There is a second project, which is over 7000 locations and the goal is to get it done in three and a half years, but factoring in some of the.
Jim Clark: Some of the materials challenges and some of the customers own challenges and realistically kind of trying to set a guidepost goalposts for that we think it's going to be.
Jim Clark: In excess of.
Jim Clark: Likely be 700 to 1000 sites a year end.
Jim Clark: So it puts us in excess of five to seven years to get that done but as we are in the project I think we will have more updates maybe annually or in a couple of quarters, we'll get a better feel for the customer's ability to move forward.
Jim Clark: We think we can easily double their current number.
Jim Clark: Within our existing footprint within our existing system, but again it may.
Jim Clark: It requires the cooperation of the customer and the sites to be available in all of those type of things. So it's good news I think that we'll find out more in terms of the timing as we move forward.
Jim Clark: Yeah.
Right. Okay. Thanks for the color there and then just on grocery your commentary on the increase a slight in the third quarter, but accelerating into <unk>. In 2025 can you just talk a little bit about how much of this is coming from the new RG 90 offering.
Jim Clark: Versus just overall activity starting to recover.
Jim Clark: And then just maybe.
Thoughts on how big the two large customers as a part of this recovery.
Yeah. So number one let me just talk on the on the headwinds we're facing the temporary slowdown in the grocery vertical if you will it doesn't it isn't specifically related to one or two customers, it's really broad across the market that we serve and I believe the reason being that.
Jim Clark: Should this.
Jim Clark: D C.
Related review and et cetera continue to drag on.
Jim Clark: The uncertainty about who from a competitor standpoint, who are you competing against are you competing against one of the newly merged stores are you competing against your known competitor are you, possibly buying a location that they're exiting are you competing against a location where they will <unk>.
Jim Clark: Completely.
Jim Clark: I think the impact we believe the impact is much broader than just one or two customers it's across the segment as they as.
Jim Clark: As the entire segment looks to see who will my competition be and how do I have to compete against them and where will I have to invest to compete against this new entity or the momentum.
Jim Clark: They are likely to drive in this sector. So.
Jim Clark: Right now for us the delays are strictly regulatory related and the progress on that is we just don't have a crystal ball to see where that ends up happening.
Jim Clark: With that said, though whether things move forward or whether they don't we believe that there is pent up demand and there is pent up opportunity. We have we're hopeful that regardless of the progress on that.
Jim Clark: Things will continue to shake loose in the third quarter here, which we're already in.
Jim Clark: But certainly into the fourth quarter any of the timing on those things could be disrupted.
Jim Clark: In terms of our $2 90 versus our traditional.
Jim Clark: Solutions right now everything is based on the traditional solution.
Jim Clark: Changeover to our 290 or conversations that are going on now and we anticipate that we ship. These products. There is high interest in them, but we expect that the adoption rate could take certainly could take the better part of the year I think most of our customers will look to experiment with the product make sure that it performs to the.
Jim Clark: <unk>.
We're marketing it will perform two we're very confident it will.
Jim Clark: But I think that.
Jim Clark:
Jim Clark: And a solid process.
Jim Clark: They will take and nil.
Jim Clark: Slowly.
Jim Clark: Put this out into the field and see how it performs.
Jim Clark: <unk> feedback.
Jim Clark: Then continue to move forward to that so I wouldn't suspect that over the next year.
Jim Clark: This year this calendar year 2024.
Jim Clark: And any of our calls were going to be talking about a big momentum shift but.
Jim Clark: But we will be.
Jim Clark: Be supplying more and more of that product as we move forward.
Jim Clark: Understood. Thanks for taking the questions I will turn it over.
Jim Clark: Our next question comes from Dow with H C. Wainwright. Please proceed with your question.
Thank you and good morning, everyone.
Jim Clark: With respect to this.
Jim Clark: C store investments and upgrades you are anticipating Jim.
<unk>.
Jim: Do we have the products and offerings in place already to meet this type of demand or is that something you will be working on.
Jim: And any insight on what kind of investments will be required to meet this potential.
Jim: Cycle of upgrades.
Jim: Yeah.
Jim: Absolutely Amit. Thank you for joining thanks for the question, we certainly have the capacity the skill and experience to do it as we've talked about on other calls. This is our normal kind of course of business.
Jim: We are typically get involved we were putting anywhere from nine to 18 to 24 months of preplanning of AV test systems back and forth.
Jim: Changes too.
Jim: With the actual products are going to be delivered and what theyre going to look like when a contract award is given it's not uncommon for us to be looking at anywhere from 18 to 36 to 60 months or longer a project depending on the number of sites, we feel very confident that.
Jim: We have not only these two opportunities and they will fit very well into our current production schedule. But then we also have additional capabilities and plans to scale up as we move forward so well within our current infrastructure. We have the plans we have the capacity.
Jim: Handle this plus more to provide in our normal customers or another opportunity and we have the plans, which are not excessively capital intensive to scale up beyond that.
Jim: The only change that we've made to accommodate for these two large projects is.
Jim: Our inner facility right now that allows us some expansion and we took on another what was it 12015 thousand square feet 15000 square feet just.
Jim: Just to give us a little bit more running room, but we could have done it within the space that we had.
Jim: Are you already seeing some of this in your other.
Jim: Segments like <unk> et cetera.
Jim Clark: Looks like you are benefiting from these types of.
Speaker Change: Investments by your customers already right or maybe you will in the future.
Speaker Change: Yes, we are absolutely benefiting from the changes that are going on in the market.
Jim Clark: These competitive forces as we've talked about often we believe the sectors. We're in.
Jim Clark: Grocery being a very strong sector. The C store sector I talked about it a little bit in my comments earlier about our Great Wall Street Journal Article published last month December 16th it's called gas with the side of Pizza.
Jim Clark: It just talks about that in store transaction.
Jim Clark: How well we're set up to deliver on those requirements.
Jim Clark: Spans across the entire offering that we have lighting graphics standalone displays refrigerated displays digital graphics. These are all key elements to that expansion and one that are really driving margin improvement for our customers.
Not just in the petroleum space, but in the grocery space in the <unk> space.
Jim Clark: Although grocery is temporarily disrupted right now we still feel all of our original thesis is sound and in.
Jim Clark: It's not going to it's a temporary pause it's not anything structural to this.
Jim Clark: To this market and we believe it could really be a boon to us going forward and I want to underline we have the capacity to be able to respond to it and we have the plans to be able to respond with additional capabilities, if we need to.
Jim Clark: Right.
Jim Clark: This one.
Jim Clark: Last question from me.
Jim Clark: Quality.
Jim Clark: <unk> improvement on that front.
Jim Clark: This is here to stay or do you expect some variance from these levels going forward, depending on you know.
Jim Clark: Oh the.
Speaker Change: Marketing sales and other overhead needs doughnuts are you as you're scaling the businesses.
Jim Clark: Yes, I mean, you folks who've been following us for a while a lot of the people on this call have been following us for a while we have incremental we have plans to continue to get incremental improvements out of the business I would define it as saying we still have a lot of runway left in front of US we've talked about this on prior calls that there is still just environ.
Jim Clark: Mentally out of our control, but general environmentally opportunities supply chain is.
Jim Clark: We've always been able to manage the supply chain very well.
Jim Clark: And we've had a lot of advantages that we have been able to extract from that and we'll continue to but as that continues to.
Jim Clark: Improve outside of our control that's going to benefit us stable labor and workforce that has continued to benefit us.
Jim Clark: Customer.
Jim Clark: Customer projects that have been on hold or deferred.
Jim Clark: We will continue to benefit us we think we have a lot of runway left for for continuous improvement on the margins and like I said in last quarter's call remember our EBITDA was 12, 2% for the quarter and we do have some efficiencies that we're able to gain.
Jim Clark: Through our peak seasons versus our slower seasons, Q2, and Q3 are slower seasons as seasonally affected cold weather, whether in general that type of thing construction slows down remodels slowdown so our efficiency and our ability to manage margin is a little bit more impacted but you can see.
Jim Clark: See that even in our slow slower quarters. Here Q2, Q3, you know when we're into Q3 now, but Q2, we're still able to extract those opportunities and extract improvements I think there's still a lot of runway left in front of US, Yes, Amit Jim <unk> here just to build on what Jim said, what gives us confidence is.
Jim Clark: The improvement is not being driven by one certain item, but there is multiple factors contributing both from a commercial lever as well as the operational lever commercially starting with where we play and then our ability to effectively price manage our projects.
Amit Dayal: And then secondly operationally.
Amit Dayal: Sourcing from a supply chain, Jim mentioned with material input costs, the impact of new products designed savings labor productivity. So we track all of those very closely and there is a lot of green. So it gives us confidence that our improvements which now have been.
Amit Dayal: Improving quarter on quarter for quite some time.
Jim: We're confident in our ability to sustain and build on that because of the multiple levers contributing to the improvement.
Jim: Thank you guys appreciate it on the on the on the.
Jim: Thank you.
Speaker Change: Our next question is from Lyanne Hayden with Canaccord Genuity. Please proceed with your question.
Speaker Change: Hi, everyone. This is Mike Hagan on for George.
Mike Hagan: Just a couple of questions from me can you just discuss any bottlenecks in the supply chain for example, terminating or equipment like transformer or is there any potential bottlenecks.
Lyanne Hayden: Yes, lyanne, thanks for calling.
And tell George we missed them.
Lyanne Hayden: Yeah.
Lyanne Hayden: It will say that.
Lyanne Hayden: Supply chain has become very predictable for us now are much more predictable I should say.
Lyanne Hayden: Issues like permits and.
Lyanne Hayden: Other suppliers are still variable and still exist out there.
Lyanne Hayden: Sure. There is nobody on this call that doesn't fall as the industrial markets that understand the challenges around switch gear and things like that none of those none of those cancel projects. So to speak they just disrupt the timing of them and I think where we are right. Now is we're just comfortably in that uncomfortable spot.
Lyanne Hayden: Although those disruption still occur I would say theyre much more stable and they are more reflective of the pace of the business. We have now so I don't want to say that there isn't any impact from them and I don't want to say that somebody couldn't give us a surprise, but I would like to say that within that environment.
Lyanne Hayden: We're very comfortable now, it's just a protracted and longer environment, but it doesn't result in.
Lyanne Hayden: Massive disruption to our project schedules as it had in the past and it doesn't.
Lyanne Hayden: Disrupt the customers commitment to moving forward.
Lyanne Hayden: Okay, Okay that makes sense.
Lyanne Hayden: And then I believe this was touched on briefly on the transcript, but can you share.
Lyanne Hayden: Data on your thoughts around M&A and how the target pipeline is looking at.
Lyanne Hayden: Heavier accretion parameters changed at all any updates in that realm would be great.
Lyanne Hayden: Yes, I mean, it's.
Lyanne Hayden: It's frustrating to me that I can't.
Lyanne Hayden: I can't disclose everything that we're engaged in are talking about or that we came close to or any of that type of thing, but I would categorize. It as is we are very actively involved we've looked at a number of projects we want to make sure. They are a good fit.
Lyanne Hayden: From a business perspective, obviously, and a cultural perspective, which we highly value here and anything we're looking at in terms of an acquisition.
Lyanne Hayden:
Lyanne Hayden: We are in a very good position financially as you noted.
Lyanne Hayden: As you all probably noted our leverage ratio now is <unk> four.
We're in a very good position there we have very good financial partners and we have discussed and we have plans.
Lyanne Hayden: If we needed to do something that required.
Lyanne Hayden: Beyond our current access.
Lyanne Hayden: So all of those things are lining up in general I feel the market is more active right now.
Lyanne Hayden: In terms of potential opportunities I think that a lot of the pricing.
Lyanne Hayden: Expectations from sellers has.
Is.
Lyanne Hayden: Better normalized if you will but the competition is still very fierce financial buyers are still out there.
Lyanne Hayden: They are still willing to accelerate the multiples paid and things like that so we find ourselves in a very competitive.
Lyanne Hayden: Our process, but we find that we're engaged in more opportunities now so.
Lyanne Hayden: Net on net I would say, we're very encouraged and I'm very hopeful that we'll be able to advance something.
Lyanne Hayden: Certainly within the next year, if not sooner.
Lyanne Hayden: Understood alright. Thanks. Thanks, So much you guys I'll hop back in queue.
Lyanne Hayden: Our next question is from Rick Fearon with accretive capital Partners. Please proceed with your question.
Jim Clark: Hi, Jim and Jim Congrats on another solid quarter, yes.
Jim: Really impressive uptick in your gross margin.
Jim: No no improvement in that scale doesn't come easily so just interested in hearing some of the levers that you have been to achieve this increase especially on the lighting side.
Jim: Yes, I mean I think that.
Some of the things that well first of all Rick Thanks for joining and thanks for the question I think some of the things we've talked about in the past are still the leverage we're able to pull in if I were to kind of try to paint a picture those levers that we're pulling we pulled them.
Jim: Order of the way two thirds of the way, we still have room minimum but it cheaply.
Jim: Manufacturing efficiency improvements and ongoing improvements in our manufacturing efficiency supply chain, we've got a very good team relative to supply chain and it's not just about pricing, it's about being good partners to our suppliers that supply is being predictable giving them the.
Richard Fearon: The forecast that we stay on and they're they've been reliable suppliers. When you do that you're now you're no longer expediting things youre not <unk>.
Richard Fearon: <unk> the lever for contingencies, you are not disrupting your manufacturing process.
Richard Fearon: It is expensive.
Richard Fearon: So there I want to say there is there are simple.
Richard Fearon: Well grounded basic premise basic kind of leverage of running a good business and our team is just good at doing that and we think that we still have levers to pull in room within the leverage we're pulling.
Richard Fearon: That's really helpful. Thanks.
Richard Fearon: Yes, I know, you're well aware lsa's long standing customer Burger King just announced the acquisition of their largest franchisee Carol's restaurant group.
Jim Clark: And in the announcement they also talked about remodeling over 1000 franchise stores over the next five years and so.
Jim Clark: Can't help but.
Jim Clark: Think theres some opportunity there I was just interested in your perspective on this as well.
Jim Clark: Any other sort of activity that might be on the horizon.
Jim Clark: Yes, I don't have I'm aware of that transaction and congratulations to them I'm sure that given the pace at which they're making changes within their system. They will benefit from it and we will benefit from it I will say that it's a great partnership we really respect the way they run their business and.
Jim Clark: The plans they have in mind in their execution.
Jim Clark: Matches up very well with ours and that's why I think we've become such strong partners with them and I will say, it's the exact same thing that attracts a number of the potential customers are a number of the newer customers. We're dealing with that very high say do ratio right. We're not we're not super flashy.
Jim Clark: Although I think some of our solutions are we're not we don't overcommit.
Jim Clark: Sit down and have realistic conversations with them and other partners in that space and I think we've gotten real value out of that the customers have gotten real value out of that because they know what to expect.
We deliver and we say we do what we say, we're going to do and it fits very well within that structure of that environment because.
Jim Clark: It's very hard to come in and make those changes without potentially disrupting their normal flow of business and we've earned the reputation of being able to do that.
Jim Gullies: I think that our customers responding very well to it so I'm very excited what we will see what will happen there and I would suspect that we're right there in that planning process.
Lyanne Hayden: Yes, it really speaks volumes to have a customer like Burger King and such strong customers like Burger King on the <unk> side. So you guys are obviously doing doing things right to keep them happy so.
Lyanne Hayden: Yes, my only other question really.
Lyanne Hayden: Sort of follow up on one of the other questions relates to your.
Lyanne Hayden: <unk> strong balance sheet, you once again reproduced methodical debt reduction.
Lyanne Hayden: Great work on that front and so here we are with <unk>.
Lyanne Hayden: Some I'm sure exciting opportunities that are coming across the desk and just wondered if you could provide any color on on valuations like it sounds like it.
Lyanne Hayden: It is more of a buyer's market than it has been but curious if you know.
Lyanne Hayden: That's consistent with what Youre seeing.
Lyanne Hayden: Yes.
Sure.
Lyanne Hayden: Jump on a completely a buyer's market.
Lyanne Hayden: It has changed right. So it has changed a bit I still think theres great respect for the businesses that are that are currently for sale and they want to get maximum value, whether they're financially owned or independently individually or or.
Lyanne Hayden: Our corporate owned or whatever it is so the pricing obviously pricing and valuations are still remain a key element I would say overall in perspective inflation has hit the valuations also.
Lyanne Hayden: But we feel very encouraged that the conversations are much more meaningful now they're much more balanced.
Lyanne Hayden: It kind of the best analog I can give it is kind of like the real estate market a couple of years back.
Lyanne Hayden: Properties that were up for sale agents were saying submit your best and final no home inspection.
Lyanne Hayden: All all bids are due by three pm.
Lyanne Hayden: That type of thing and much like that in the in the M&A environment, we feel that the conversations are much more meaningful theyre much more future oriented.
Lyanne Hayden: They are proud of the accomplishments they've had where the business is or they are aware of where the businesses, but they're much more willing to talk about what future opportunities and why and support their valuations and thats what we enjoy.
Lyanne Hayden: In those conversations and as you know most of the people on this call know we also are highly valued cultural fit right. There is the there are businesses, we would like to be involved in but we sit down and we realized.
Richard Fearon: We're just not a good fit we see things differently, we value things differently and although the business might.
Jim Clark: <unk> in our plan if we have to go in and.
Jim Clark: Change course of that business, we know that the value is just not there for us so it's a funny shaped little door.
Jim Clark: We continue to be very disciplined in what we look at and but we are excited and we do think that there is opportunity on the horizon for us.
Jim Clark: Got it.
Jim Clark: Discipline on the culture side I'm sure saves a lot of headaches.
Jim Clark: Uh huh.
Jim Clark: You prove yourself GSI and a wonderful acquisition and look forward to hearing more about the the next to come but.
Jim Clark: Thanks for the perspective in all your nice work.
Jim Clark: Thank you.
Jim Clark: We have reached the end of the question and answer session I would now like to turn the call back over to Jim Clark for concluding remarks.
Jim Clark: I don't think Theres any question if you've heard.
Jim Clark: Heard our comments you read our press release, we're certainly facing some headwinds, but I think that we have done exceptional job of demonstrating our ability to challenge that those headwinds and be ready and be prepared.
Jim Clark: For what the future's going to hold our expectation is.
Jim Clark: <unk> of what happens.
Jim Clark: With some of the current FTC reviews, and things that are out with some of our customers.
Jim Clark: There is a.
Jim Clark: Good opportunity a great opportunity in front of us either direction.
Jim Clark: We also believe that we have a lot of runway left in just our core businesses our platform. Our investment thesis we covered a lot today on today's call margin performance, we still believe we have.
Jim Clark: Room to manage that and room to grow and even with these headwinds we are able to demonstrate that.
Jim Clark: Q2, and Q3 are historically, our slower quarters and.
Jim Clark: You combine a couple of these challenges and you see.
Jim Clark: It looks disproportional, but it's not we don't see anything that is systemic or causes concern for any type of long term trends or anything and I'd just like to leave everybody on the call, saying that we're excited about what we see in the future. We're excited about.
Jim Clark: Yeah.
Jim Clark: The movement forward in the market, we're excited about potential on the M&A front. We're excited about other opportunities we have in terms of the way, we manage and run our business. So we come off of this quarter excited for the next in the ones after that.
Jim Clark: We appreciate the time you all take to spend a few minutes with us and learn a little bit more about the company with that I'll say, thank you and goodbye.
Jim Clark: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.