Q3 2024 LSI Industries Inc Earnings Call
Greetings and welcome to the LSI industries fiscal 2024 third quarter results conference call. At this time, all participants are in a listen only mode.
Operator: Greetings. Welcome to the LSI Industries Fiscal 2024 Third Quarter Results Conference. 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 operating assistance during the conference, please press star zero on your telephone key. I will now turn the conference over to your host, James Galeese, Chief Financial Officer. You may begin.
James E. Galeese: 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.
James E. Galeese: I'll now turn the conference over Geos, Jim <unk>, Chief Financial Officer, you may begin.
James E. Galeese: Welcome everyone and thank you for joining.
James E. Galeese: Welcome, everyone, and thank you for joining us. We issued a press release before the market opened this morning detailing our Fiscal 24 3rd Quarter results. In addition to this release, we also posted a conference call presentation in the Investor Relations section of our corporate website. Information contained in this presentation will be referenced throughout today's conference call. Also included are certain non-GAAP measures for improved transparency of our operating results. A complete reconciliation of GAAP and non-GAAP results is contained in our press release in the 10-Q. Please note that management's commentary and responses to questions on today's conference call may include forward-looking statements about our business outlook. Such statements involve risks and opportunities, and actual results could differ materially.
James E. Galeese: We issued a press release before the market opened this morning detailing our fiscal 'twenty for third quarter results.
James E. Galeese: In addition to this release, we also posted a conference call presentation in the Investor Relations section of our corporate website.
James E. Galeese: 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.
James E. Galeese: A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10-Q.
James E. Galeese: Please note that managements commentary and responses to questions on today's conference call May include forward looking statements about our business outlook.
James E. Galeese: Such statements involve risks and opportunities and actual results could differ materially.
James E. Galeese: I refer you to our Safe Harbor Statement, which appears in this morning's press release, for more detail. 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.
James E. Galeese: I refer you to our Safe Harbor statement, which appears in this morning's press release for more details.
James A. Clark: Today's call will begin with remarks, summarizing our fiscal third quarter results.
James A. Clark: At the conclusion of these prepared remarks, we will open the line for questions.
James E. Galeese: With that I'll turn the call over to LSI, President and Chief Executive Officer, Jim Clark.
James A. Clark: Thank you Jim and good morning, all thank you for joining us on today's call.
James A. Clark: Thank you, Jim, and good morning all. Thank you for joining us on today's call. It's truly hard to believe, but we are closing out our third quarter of fiscal year 2024 and well into our fourth quarter as we speak today. We are just over two months away from the end of our fiscal year 2024, and we've just begun developing our operating plans for 2025. Things have been busy, and the LSI team continues to do well.
James A. Clark: It is truly hard to believe but we're closing out our third quarter of fiscal year, 2024, and well into our fourth quarter as we speak today.
James A. Clark: We are just over two months away from the end of our fiscal year 'twenty 'twenty four and we've just begun developing our operating plans for 2025 things.
James A. Clark: Things have been busy in the LSI team continues to execute well.
James A. Clark: Working through the second half of the year, we are still facing some ongoing headwinds related to the current pause in our grocery vertical.
James A. Clark: Working through the second half of the year, we are still facing some ongoing headwinds related to the current pause in our grocery vertical. However, despite these challenges, total sales for the third quarter were down only 8%, while adjusted net income was up 14% on a year-over-year basis.
James A. Clark: Fight. These challenges total sales for the third quarter were down only 8% while adjusted net income was up 14% on a year over year basis.
James A. Clark: These results demonstrate and underline the resiliency of the management team to operate the company with a continued focus on execution and earnings while being fully prepared to capitalize on developing opportunities. As you are all well aware, LSI has developed and published our strategic plan to grow the company and its earnings to $800 million in sales and 12.5% in EBITDA in 2028. This plan, which is known as our Fast Forward Plan, provides insight for investors, employees, and customers alike to understand our goals and the path we intend to take to reach that $800 million milestone.
James A. Clark: These results demonstrate an underlying the resiliency of the management team to operate the company with a continued focus on execution and earnings will be.
James A. Clark: And fully prepared to capitalize on developing opportunities.
James A. Clark: As you are all well aware LSI has developed and published our strategic plan to grow the company and its earnings to $800 million in sales in 12.5% in EBITDA in 2028.
James A. Clark: This plan, which is known as our fast forward plan provides insight for our investors employees and customers alike to understand our goals in the past, we intend to take to reach that $800 million milestone.
James A. Clark: Late last week, LSI announced the acquisition of EMI industries.
James A. Clark: Late last week, LSI announced the acquisition of EMI Industries. EMI is based in Tampa, Florida, and they have a long established history as a fixture, display, and food equipment manufacturer in the grocery, convenience store, and restaurant industry. EMI has been in business for more than 40 years, and they serve a well-established customer base, ranging in size from regional brands with several hundred store locations to national and international brands operating thousands of sites.
James A. Clark: E M. I is based out of Tampa, Florida, and they have a long established history as a fixture display in food equipment manufacturer in the grocery convenience store and restaurant industries.
James A. Clark: EMI has been in business for more than 40 years and they serve a well established customer base ranging in size from regional brands with several hundred site locations, the national and international brands operating thousands of sites.
James A. Clark: This acquisition fits well into our fast forward plan and we see a number of opportunities from additional goods and services that we can offer to our cause.
James A. Clark: This acquisition fits well into our fast-forward plan, and we see a number of opportunities for additional goods and services that we can offer to our customers. A key component of our strategy is identifying and developing a solution set for higher-value verticals where our customers recognize the value of our products and services. This approach has served us well over the last several years, and we've advanced our position in multiple verticals.
James A. Clark: A key component of our strategy is identifying and developing a solution set for higher value verticals, where our customers recognize the value of our products and services.
James A. Clark: This approach has served us well over the last several years and we've advanced our position in multiple verticals.
James A. Clark: The acquisition of EMI further expands and accelerates this strategy. I mentioned in previous calls published information regarding the significant multi-year planned investment by C-Stores, QSR, and grocery industry participants as they target in-store sales growth as a means to increase profitability, and an Improved Image and Brand enhances the consumer shopping experience.
James A. Clark: The acquisition of EMI further expands and accelerates this strategy.
James A. Clark: I mentioned in previous calls published.
James A. Clark: Published information regarding a significant multi year planned investment by C stores U S. Saar in grocery industry participants.
James A. Clark: As a target in store sales growth as a means to increase profitability.
James A. Clark: And improved image and brand enhances the consumer shopping experience.
James A. Clark: The acquisition of EMI positions LSI to exploit further growth opportunities in this multi-year investment cycle. As we've discussed before, company culture and commercial synergies are always an important element for LSI when looking at any type of transaction. Our work with EMI over the last few months has shown a highly experienced management team that plans to stay on board with EMI and LSI well into the future. In terms of commercial synergies, we see a customer base that's about a third, a third, and a third. In other words, about one-third of the combined company's customers are new to EMI. About one-third of the combined company's customers are new to LSI and JSI, and about one-third of the customers are shared.
James A. Clark: The acquisition of EMI positions LSI to exploit further growth opportunities in this multi year investment cycle.
James A. Clark: As we've discussed before company culture, and commercial synergies are always important element to LSI when looking at any type of transaction.
James A. Clark: Our work with EMI over the last few months has shown a highly experienced management team in place to stay on board with EMI and LSI well into the future.
James A. Clark: In terms of commercial synergies, we see a customer basis about a third a third and a third.
James A. Clark: In other words about one third of the combined company customers are new to EMI.
James A. Clark: About one third of the combined customers are new to L. S. I N J S I and about one third of the customers are shared.
James A. Clark: As a result, we've identified substantial cross-selling opportunities across our expanded customer base. In fact, in regards to common customers, we had one customer of a large quick-serve chicken restaurant chain reach out to us already, letting us know they do business with both LSI and EMI, and they look forward to working with us as a combined entity. In his own words, he thought this was a great combination.
James A. Clark: As a result, we've identified substantial cross selling opportunities across our expanded customer base.
James A. Clark: In fact in regards to common customers, we had one customer a large quick serve chicken restaurant chain reach out to us already letting us know they do business with both L. S. I N D M I <unk> and I look forward to working with us as a combined entity.
James A. Clark: Its own words he thought this was a great combination.
James A. Clark: Aside from these commercial opportunities, we see a number of operational and integration opportunities. It will help EMI lower cost improve production capabilities.
James A. Clark: Aside from these commercial opportunities, we see a number of operational and integration opportunities that will help EMI lower costs, improve production capabilities, and product quality, while improving customer service and profit. We seek combined technology capabilities and benefits that we can offer our customers. We won't get to all these opportunities overnight, but working with the team at EMI, we are confident of our ability to work together, share capabilities, and learn from each other.
James A. Clark: Capabilities and product quality, while improving customer service and profit.
James A. Clark: We see combined technology capabilities and benefits, we can offer our customers.
James A. Clark: We won't get to all of these opportunities overnight, but working with the team at EMI, we're confident of our ability to work together sure capabilities and learn from each other.
James A. Clark: E M I in GSI today provide adjacent products through our combined customer base and in fact, they make a perfect combination, whereas EMI and LSI helped J S I and metal fabrication and design and J S. I will help EMI in refrigeration and cold fixture business.
James A. Clark: EMI and JSI today provide adjacent products to our combined customer base. And, in fact, they make a perfect combination, whereas EMI and LSI help JSI with metal fabrication and design, and JSI will help EMI with its refrigeration and cold fixture business. EMI and JSI both work in the millwork and refrigeration space, and we believe the capabilities and purchasing power will complement each other. Over the next few quarters, we'll explore these opportunities, including having JSI work with EMI in the introduction of an R290 solution, allowing EMI to offer an environmentally friendly refrigerated solution to those customers who value this offer.
James A. Clark: E M I N J S. Si both work and the millwork and refrigeration space and we believe the capabilities and purchasing power will complement each other.
James A. Clark: Over the next few quarters, we will explore these opportunities, including having J S. I worked with EMI and the introduction of an art to 90 solution, allowing <unk> to offer an environmentally friendly refrigerated solution for those customers who value this offering.
James A. Clark: In the full calendar year 2023, EMI reported total revenues of $87 million and EBITDA performance of $5 5 million.
James A. Clark: In the full calendar year 2023, EMI reported total revenues of $87 million and EBITDA performance of $5.5 million. EMI will be immediately accretive to LSI on an adjusted earnings per share basis. LSI has been working with EMI over the last few months as we underwent our full due diligence on the company. Our purchase price of $50 million was fully funded from our existing revolver, leaving our net debt at approximately 1.3 times.
James A. Clark: <unk> will be immediately accretive Dallas eye on an adjusted earnings per share basis.
James A. Clark: <unk> been working with EMI over the last few months as we underwent our full due diligence of the company.
James A. Clark: Our purchase price of $50 million was fully funded from our existing revolver, leaving our net debt at approximately one three times.
James A. Clark: We will add about 300 employees to LSI in five additional manufacturing locations located in Florida, Georgia, New Jersey, Rhode Island in Dallas, Texas.
James E. Galeese: We will add about 300 employees to LSI and five additional manufacturing locations located in Florida, Georgia, New Jersey, Rhode Island, and Dallas, Texas. This acquisition helps make a meaningful step toward our $800 million goal and provides an expanded set of products, services, and solutions in our targeted vertical market. We have more work to do. Organic growth is an important piece of our plan, and we continue our efforts to secure new customers and experiment with new vertical markets.
James E. Galeese: This acquisition helps make a meaningful step towards our $800 million goal and provides an expanded set of products services and solution in our target targeted vertical markets.
James E. Galeese: We have more work to do.
James E. Galeese: Unit growth is an important piece of our plan and we continue our efforts in securing new customers and experimenting with new vertical markets.
James E. Galeese: New product development and new product introductions remain at a healthy pace at LSI. Our outreach with our agents and partners remains a high priority, and in fact, next month, we will have our agent meeting here in Cincinnati. It's currently slated to be one of our largest attention agent meetings ever. We have a lot of work to do and a lot of opportunities in front of us. We remain committed to reaching our $800 million goal, and we're excited about what the future offers. With that, I'll turn the call back over to Jim Galeese for a closer look at our financials. Jim?
James E. Galeese: Product development, and new product introductions remain at a healthy pace at LSI.
James E. Galeese: Our outreach with our agents and partners remains a high priority and in fact next month, we will have our agent meeting here in Cincinnati.
James E. Galeese: Currently slated to be one of our largest attention agent meetings ever.
James E. Galeese: We have a lot of work to do and a lot of opportunities in front of us.
James E. Galeese: We remain committed to reaching our $800 million goal.
James E. Galeese: We're excited about what the future offers.
James E. Galeese: With that I'll turn the call back over to Jim <unk> for a closer look at our financials.
James E. Galeese: Jim.
Jim: Thank you Jim and.
James E. Galeese: In fiscal Q3, we continued our strong focus on execution and quality of earnings. For the quarter, LSI generated increased net income and earnings per share, margin rate expansion, and strong cash flow, all while continuing to invest in the business with increased capital expenditures and other growth initiatives. Our adjusted gross margin rate improved 160 basis points versus last year, contributing to our improved net income and margin expansion. Adjusted EBITDA margin increased 80 basis points to 10.4%, while adjusted earnings per share increased $0.02 to $0.21 a share.
James E. Galeese: In fiscal Q3, we continued our strong focus on execution and quality of earnings.
James E. Galeese: For the quarter LSI generated increased net income and earnings per share margin rate expansion and strong cash flow all while continuing to invest in the business.
James E. Galeese: With the increased capital expenditures and other growth initiatives.
James E. Galeese: Our adjusted gross margin rate improved 160 basis points versus last year contributing to our improved net income and margin expansion.
James E. Galeese: Adjusted EBITDA margin increased 80 basis points to 10, 4%.
James E. Galeese: Adjusted earnings per share increased to <unk> 21, a share.
James E. Galeese: Multiple factors drove the improvement with favorable mix stable pricing moderating material input cost and factory productivity all contributed.
James E. Galeese: Multiple factors drove the improvement, with favorable mix, stable pricing, moderating material input costs, and factory productivity all contributing. Results were achieved in a divergent market environment with vertical performance ranging from robust activity levels to the continued pause in grocery. In refueling CSTOR, for example, our recent large program wins for display solutions generated significant growth in the third quarter, as site release activity for these programs was initiated. Our site work ranged from product only to being the single source provider of comprehensive products and services. Many of these sites specify our unique forward-throw technology and Archer perimeter lighting.
James E. Galeese: Results were achieved in a divergent market environment with vertical performance ranging for a robust activity levels through the continued pause in grocery.
James E. Galeese: And refueling C store for example, our recent large program wins for display solutions generated significant growth in the third quarter.
James E. Galeese: Site release activity for these programs were initiated.
James E. Galeese: Our site work range from product only to being a single source provider of comprehensive products and services.
James E. Galeese: Many of these sites specify our unique forward throw technology and Archer perimeter lighting system.
James E. Galeese: This differentiation creates increased revenue per site and strengthens our importance to customers. The adoption rate continues to increase as customers recognize the value these systems provide. The refueling C-STOR outlook for the fiscal fourth quarter and entering fiscal 25 is strong, with high levels of site release activity for multiple programs expected to continue. Conversely, refueling C-Store growth is offset by continued disruption in grocery demand levels caused by the slow progress in the proposed merger of two large industry participants. We maintain ongoing contact with our grocery customers, and plans for interior refresh programs remain, but with schedules deferred pending more clarity on the merger.
James E. Galeese: This differentiation creates increased revenue per site and strengthens our importance to customers.
James E. Galeese: The adoption rate continues to increase as customers recognize the value these systems provide.
James E. Galeese: The refueling C store outlook for the fiscal fourth quarter and entering fiscal 'twenty five is strong with high levels of site release activity for multiple programs expected to continue.
James E. Galeese: Conversely refueling C store growth was offset by continued disruption in the grocery demand levels caused by the slow progress in the proposed merger of two large industry participants.
James E. Galeese: We maintain ongoing contact with our grocery customers and plans for interior refresh programs remain but with schedules deferred pending more clarity on the merger.
James E. Galeese: The underlying fundamentals of the grocery vertical remains solid and support multi year investment in store refresh programs.
James E. Galeese: The underlying fundamentals of the grocery vertical remain solid and support multi-year investment in store refresh programs. For lighting, market performance is varied across verticals as well as project size. Overall, lighting project quote activity for fiscal Q3 was above the prior year level. However, we're also experiencing the quote-to-order conversion period continuing to lengthen, particularly for larger projects.
James E. Galeese: For lighting market performance has varied across verticals as well as project size.
James E. Galeese: Overall lighting project quote activity for fiscal Q3 was above prior year levels.
James E. Galeese: However, we're also experiencing the quote to order conversion period continuing to lengthen.
James E. Galeese: Particularly for larger projects.
James E. Galeese: Small project activity remains stable across multiple verticals, and we expect this trend to continue in the fourth quarter. Despite the lengthening quote-to-order conversion period, the Q3 book-to-bill ratio was above 1. Lighting Adjusted Operating Income increased 11% for the quarter on 3% lower sales.
James E. Galeese: <unk> project activity remains stable across multiple verticals and we expect this trend to continue in the fourth quarter.
James E. Galeese: Despite the lengthening quote to order conversion period Q3 book to Bill ratio was above one.
James E. Galeese: Lighting adjusted operating increased income increased 11% for the quarter on 3% lower sales.
James E. Galeese: The Lighting Gross Margin Rate was 280 basis points above the prior year period, reflecting in part the healthy level of small project activity, as well as stable pricing, moderating material input costs, and factory protocol. Next, a few comments on cash and capital allocation. Pre-cash flow was $11 million in the quarter, with our TTM cash flow over $43 million.
James E. Galeese: Lighting gross margin rate was 280 basis points above the prior year period, reflecting in part the healthy level of small project activity as well as stable pricing moderating material input cost and factory productivity.
James E. Galeese: Next a few comments on cash and capital allocation.
James E. Galeese: Free cash flow was $11 million in the quarter with our TTM cash flow over $43 million.
James E. Galeese: Solid cash flow generation to reduce net debt to $9 million and lowered our ratio of adjusted EBITDA to net debt to 0.2 times as of March 31.
James E. Galeese: Solid cash flow generation reduced net debt to $9 million and lowered our ratio of adjusted EBITDA to net debt to 0.2 times as of March 31st. We have been successful in the last several years with our Earn-to-Invest model, generating increased earnings and cash flow, significantly reducing debt, and positioning the business to execute on both organic and inorganic growth initiatives, as identified in our fast-forward strategic plan. Last week, we announced the acquisition of EMI Industries as part of that inorganic growth.
James E. Galeese: We have been successful the last several years with our earned to invest model generating increased earnings and cash flow significantly reducing debt and positioning the business to execute on both organic and inorganic growth initiatives as identified in our fast forward strategic plan.
James E. Galeese: Last week, we announced the acquisition of EMI industries as part of that inorganic growth.
James E. Galeese: We expect the combined cash flows of two entities to significantly reduce outstanding debt over the next two years.
James E. Galeese: We expect the combined cash flow of the two entities to significantly reduce outstanding debt over the next two years, supporting the cycle of investment to achieve our 2028 target. On a reporting basis, EMI will become part of LSI's display solutions segment, beginning with a partial impact, beginning in fiscal Q4. As part of its capital allocation and total return to shareholders, the company declared a regular cash dividend of five cents per share payable on May 14th to shareholders of record on May 6th.
James E. Galeese: Porting the cycle of investment to achieve our 2028 targets.
James E. Galeese: On a reporting basis <unk> will become part of Ela size display solutions segment, beginning with a partial impact beginning in fiscal Q4.
James E. Galeese: As part of our capital allocation and total return to shareholders.
James E. Galeese: Company declared a regular cash dividend of <unk> per share payable on may 14th to shareholders of record of May six.
James E. Galeese: In summary, our third quarter performance reflects the diversity and durability of our business model.
James E. Galeese: In summary, our third quarter performance reflects the diversity and durability of our business model. The last two quarters demonstrate LSI can achieve solid results while overcoming event-driven interruptions, the key markers. The addition of EMI will further strengthen our diversity of markets and customers and durability of. I'll now turn the call back to the moderator for the question and answer session.
James E. Galeese: The last two quarters demonstrates LSI can achieve solid results, while overcoming event driven interruptions to key markets.
James E. Galeese: The addition of EMI will further strengthen our diversity of markets and customers and durability of performance.
James E. Galeese: I'll now turn the call back to the moderator for the question and answer session.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. One moment, please, while we pull for questions. And our first question comes from the line of Aaron Spychalla with Craig Hallam. Please proceed with your question.
Aaron Michael Spychalla: A confirmation tone will indicate your line is in the question queue.
Aaron Michael Spychalla: You May press Star two if you would like to remove your question from Nicky participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
Aaron Michael Spychalla: One moment, please while we poll for question.
Aaron Michael Spychalla: And our first question comes from the line of Erin Oh, I sleep like candidly Craig Hallum.
Aaron Michael Spychalla: Yeah, good morning, Jim and Jim. Thanks for taking the questions.
Aaron Michael Spychalla: Proceed with your question.
Aaron Michael Spychalla: Yes, good morning, Jim and Jim Thanks for taking the questions.
James E. Galeese: You know, first of all, good to see the lighting book-to-bill above 1 and activity on the quotation front that you talked about. Is that pretty broad-based, or are any verticals kind of leading that? And then you also mentioned the order conversion period continues to lengthen. Can you just give a little bit more detail behind that on the kind of gating factors that you're seeing there?
Aaron Michael Spychalla: You know first for me good to see the lighting book to Bill above one and activity on the quotation front that you talked about is that pretty broad based or any verticals kind of leading that and then you also mentioned the order conversion period continued to lengthen can you just give a little bit more detail behind that on non kind of gating factors that you're seeing there.
Speaker Change: Yeah, Erin thanks for calling in thanks for the question.
James E. Galeese: Yeah, Aaron, thanks for calling and thanks for the question. Yeah, the lighting. Our whole lighting segment remains very kind of broad-based across all the segments that we serve. You know, interestingly enough, we're only down a few points in terms of lighting, and remember even lighting is impacted by the slowdown in groceries, so I think it goes to underline some, you know, underlying growth opportunities there had we not had the, you know, this gap. And in terms of, what was the second question?
James E. Galeese: Yeah. It is they'll biting our whole lighting segment remains very kind of broad based across all the segments that we serve you know interestingly enough. We're only down a few points in terms of lighting and remember even lighting is impacted by the slowdown in grocery. So I think it goes to underline some of them.
James E. Galeese: Underlying growth opportunities there had we not had this gap created by.
James E. Galeese: Grocery.
James E. Galeese: And in terms of.
Speaker Change: Was the second question I'm sorry.
James E. Galeese: Lengthening of the order conversion period just, just you know gating factors or what's you know what's going on Yeah, I mean, I
James E. Galeese: Lengthening of the Oh the Lincoln.
James E. Galeese: It's been kind of the order conversion period.
James E. Galeese: Just you know gating factors are what's what's going on there yeah.
James E. Galeese: Yeah, I mean, we've been pointing it out for the better part of a year, you know, that we have a trend. We have a trend analysis that we do relative to incoming quotes from the time it takes from initial quote activity to order, and we track that, and that gives us kind of our cycle, how long, you know, that quote to order conversion ratio takes. And we just noted that it continues to stay at an extended length, and, you know, over certain periods of time, particularly at the beginning of this year, we noticed that it even added a couple more days to it.
James E. Galeese: Yeah, I mean, I think that we've been pointing it out for the better part of the year you know that we have a trend that we have a trend analysis that we do relative to.
James E. Galeese: Incoming quotes from the time it takes from initial quote activity to order and we track that and that gives us kind of our our cycle, how long that quote to order conversion ratio takes and we just noted that it continues to stay.
James E. Galeese: <unk> had an extended length and you know over certain periods of time, particularly in the beginning here of this year, we noticed that even added a couple more days to it it doesn't indicate anything.
James E. Galeese: It doesn't indicate anything, you know, as though we're losing business or anything, just that the time from initial inquiry to the time to close continues to kind of lengthen. And I would say that it's only, you know, days and that it's normalized now, coming back to that extended period that we've had for the last couple quarters, but it's just another observation that it's lumpy.
James E. Galeese: So, we're losing business or anything just that.
James E. Galeese: Time from initial inquiry to the time to close continues to kind of Linkedin and I would say that it's only days and then it's normalized now coming back to that extended.
James E. Galeese: Period that we've had for the last couple quarters, but its just another observation that it's lumpy.
Speaker Change: Right right. Okay. Thanks, and then they'll also good to see mention of the recent program awards in C store in Q S or.
James E. Galeese: Right, right. Okay, thanks.
James E. Galeese: And then, also good to see mention of the recent program awards and CSTOR and QSR. Any new or large awards to note there? And then I know you've had some pilots for like refrigerated and CSTORs and broader pilots and QSR. Can you just give an update on how those have been going and if those are turning to program awards here in the near term?
James E. Galeese: Any new large awards too to note there and then I know you've had some pilots for like refrigerated in C stores and broader pilots in Q S. R. Can you just give an update on how those have been going and if those are turning to program awards here in the near term yes.
James E. Galeese: Yeah, so from last quarter, we did have a couple of notable wins that we mentioned last quarter. You know, those are projects that are going to take us years to kind of work through. So, you know, big project wins there. I can't say that there was anything notable in this quarter, although, you know, I will say much the same as you just pointed out. We have a number of test locations We have a number of test products, everything from our R290 and refrigerated products right through some of our graphics and lighting products, so we have a number of systems out there that are in test and reconfiguration. But no notable big wins this quarter that I could underline.
Speaker Change: Yeah. So from last quarter, we did have a couple of notable wins that we mentioned last quarter.
James E. Galeese: Those you know those are projects that are going to take us years to kind of work through.
James E. Galeese: So big project wins, there I can't say that there was anything notable in this quarter, although I will say much as you just pointed out we have a number of test locations. We have a number of test products everything from <unk> to 90, and refrigerated products right through some of our graphics and lighting.
James E. Galeese: <unk> products. So we have a number of systems out there that are in test and reconfiguration.
James E. Galeese: But no notable big wins this quarter that I can underlying.
James E. Galeese: All right, that sounds good. Thanks for the call, Aaron. I'll turn it over.
Speaker Change: Alright that sounds good thanks for the color I'll turn it over.
James E. Galeese: Thank you. Our next question comes from the line of Samir Josh you with H C. Wainwright. Please proceed with your question.
Sameer S. Joshi: Thank you. Our next question comes from the line of Sameer Joshi with HC Wainwright. Please proceed with your question.
Sameer S. Joshi: Hey, good morning, Jim.
James A. Clark: Hey, good morning, Jim. Thanks for taking my questions on the EMI integration. EMI has a lower EBITDA margin. So should we look at this improving because of leverage and just higher sales, or do you expect to incorporate any like cost synergies, resources, and common resources elimination?
Sameer S. Joshi: Thanks for taking my questions.
Sameer S. Joshi: On the EMI integration.
James A. Clark: He might have a lower EBITDA margin.
James A. Clark: So should we look at this.
James A. Clark: Ruling.
Sameer S. Joshi: Because of leverage and just highest teams or do you expect to incorporate any like cost.
James A. Clark: Cost synergies and sauces.
Sameer S. Joshi: Common resources elimination.
James A. Clark: Sameer, thanks for calling. Thanks for the question. I think the answer is all of the above. You know, we, you have, most of the folks on this call have been following us long enough to know that we're fairly disciplined operators and we see a lot of opportunity to go in there, not just on the cost synergy side, not just on the operational improvement side, not just on the commercial side, but a combination of all of those aspects, we believe is going to create opportunities for us.
Sameer S. Joshi: Hi, its samir thanks for calling thanks for the question I think the answer is all of the above we you.
James A. Clark: You have most of the folks on this call have been following us long enough to know that we're.
James A. Clark: Fairly disciplined operators and we see a lot of opportunity to go in there are not.
James A. Clark: Not just on the cost synergy side not just on the operational improvement side not just on the commercial side, but a combination of all of those aspects. We believe are going to create opportunities for us. They are you know.
James A. Clark: They are, you know, as they sit right now, a lower margin business, but we anticipate, you know, within 12 to 24 months, we'll have made significant improvement on that, working collaboratively with them to find ways of making them more efficient, everything from purchasing synergies to just operational and back-of-the-house synergies, and then obviously the commercial momentum that we hope to create. And, you know, I would underline that by saying that anything that we deal with from a commercial product standpoint doesn't happen in weeks or months.
James A. Clark: As a ship right now are lower margin performing business.
James A. Clark: But we anticipate you know within 12 months to 24 months, while it made significant improvement on that working.
James A. Clark: Working collaboratively with them.
James A. Clark: And ways of making them more efficient everything from purchasing synergies too.
James A. Clark: Just the operational and back of the house synergies and then obviously the commercial momentum that we hope to create and I would.
James A. Clark: Underlying that would saying that anything that we deal with from a commercial product standpoint.
James A. Clark: It doesn't happen in weeks or months it usually takes.
James A. Clark: It usually takes, you know, quarters, sometimes a year, sometimes a year and a half for these large project wins. So I'm sure that we'll have some individual wins of the EMI-LSI combination, but I would expect the big wins to kick in, six, nine, 12, 18 months down the road.
James A. Clark: Quarter, sometimes a year, sometimes a year and a half on these large project wins. So I'm sure that we'll have some individual wins of the EMI LSI combination, but I would expect you know the big wins to kick in.
James A. Clark: Six 912 18 months down the road.
Speaker Change: Understood and just a quick follow up on that a possible technological synergies I think you mentioned the EMI GSA cooperation on our 290 solution than more such a technologically.
James A. Clark: Understandable. Just a quick follow-up on that.
James A. Clark: Are there possible technological synergies? I think you mentioned the EMI-JSI cooperation on the R290 solution. Are there more such technological synergies possible?
James A. Clark: No just possible.
James A. Clark: Absolutely.
James A. Clark: Absolutely, and I'll just touch on that one you just mentioned a little bit more. Both EMI and JSI offer refrigerated solutions. They're not the same, they don't compete against each other necessarily, but the technology, the underlying technology, compressor technology, that type of thing, the refrigerant that they choose, all of those are common. We believe that EMI will benefit significantly from JSI's infrastructure in terms of testing and development, and we are definitely looking forward to exploiting that.
James A. Clark: Just a touch on that one you just mentioned just a little bit more bolt EMI and J S. I operate refrigerator offer refrigerated solutions.
James A. Clark: They're not the same they don't compete against each other necessarily but the technology the underlying technology compressor technology that type of thing refrigerant that they choose all of those are common we believe that <unk> will benefit significantly from the L. S. Sizing for sure from GSI is infrastructure and terms.
James A. Clark: Of testing and development and we are definitely looking forward to exploiting that.
James A. Clark: They do not, EMI does not currently have a R290 solution, so we'll be looking to work to introduce that. Again, it could take, you know, three, six, nine months for us to get to a product that has that in it, but all opportunities we see in front of us.
James A. Clark: They do not EMI does not currently have a <unk> solution. So we'll be looking to work to introduce that again. It could take you know 369 months for us to get to a product that has that in there, but all opportunities we see in front of us.
James A. Clark: And then just switching just a little bit to the grocery merger that is in the works. I think there was recently submitted an updated divestiture plan which calls for around 600 stores to be sold from this combined company if it happens. Does that present you with additional upside from just like restarting the process and then new branding and new signage for these 600 stores?
Speaker Change: And then just switching gears.
James A. Clark: A little bit to the velocity merger that is in the works.
James A. Clark: I think there was recently a sub.
James A. Clark: <unk> updated the divestiture plan, which calls for around 600 stores to be from this combined company if it happens.
James A. Clark: Does that present, you with the additional upside.
James A. Clark: I'm just like restarting the process and then new branding a new.
James A. Clark: Signage for at least 600 stores.
James A. Clark: Yeah, well, I mean, we believe that those almost 600 stores will need to be rebranded completely, entirely, because they'll be coming from their legacy brand to an entirely new brand. So those would be new store opportunities. And we do believe that the other stores, depending on how the merger plays out and, you know, what the plans are from the principles, that all of those stores will still offer opportunities in terms of, you know, co-branding, rebranding, reformat, that type of thing with the two brands melded together.
Speaker Change: Yeah, well I mean, we believe that those almost 600 stores will need to be rebranded completely entirely because it'll be coming from their legacy brand to an entirely new brand.
James A. Clark: So those would be new store opportunities and we do believe that the other stores.
James A. Clark: Depending on how the merger plays out and you know what their plans are from the principles that all of those stores will still offer opportunities in terms of.
James A. Clark: Co branding rebranding re formats that type of thing with the <unk>.
James A. Clark: Two brands that all of that together, so you've got that.
James A. Clark: So you've got a completely new store opportunity, which would be 600, you know, around 600 stores minimum. You've got the combined rebranding between, you know, the combination of the other two principles. And then you've got just kind of general updates to the stores that have been a little lagging, you know, as they've been working their way through this. And then lastly, the last component I would add to this is that the other competitors are sitting on the sidelines deciding, you know, trying to figure out who they're going to be competing against.
James A. Clark: Completely new store opportunity, which would be 600 to around 600 stores minimum you've got the combined rebranding between you know the combination of the other two principles and then you've got just kind of general updates to the stores that had been a little lagging.
James A. Clark: They've been working their way through this and then lastly, the last component I would add to this is the other competitors are sitting on the sideline determining trying to figure out who they are going to be competing against or are they going to be competing against.
James A. Clark: Are they going to be competing against a store that's going to be, that's going to maintain its existing brand? Is it going to be rebranded as, you know, part of one of the two stores? Or is it going to be sold off? And we think that, you know, that piece of business is going to be a boom too and a significant benefit to us. We're looking at three bites, potentially three bites of the apple, depending on how things shake out.
James A. Clark: A store that's going to be it's going to maintain its existing brand is it gonna be rebranded as a you.
James A. Clark: You know part of one of the two stores or is it going to be sold off and we think that you know that.
James A. Clark: That piece of business is going to be a boom two and a significant benefit to us. So we were looking at three bites potentially three bites of the Apple depending on how things shake out.
Speaker Change: Sounds good thanks, a lot for taking my questions and congratulations on all the progress.
James A. Clark: Thanks a lot for taking my questions and congratulations on all the progress.
Speaker Change: Thank you.
Speaker Change: Thank you.
Leanne Hayden: Thank you. And our next question comes from the line of Leanne Hayden with Kennecourt Genuity. Please proceed with your question.
James A. Clark: And our next question comes from the line of Leon Hayden with Canaccord Genuity. Please proceed with your question.
Leanne Hayden: Good morning, everyone. Thanks, so much for taking my question and congrats on the progress this quarter.
James A. Clark: Morning, everyone. Thanks so much for taking my question and congratulations on the progress this quarter. Just to start, are you continuing to see supply and permitting constraints in the marketplace, whether this is from transformers or permits, or has there been an improvement, or is this kind of part of a new reality we should come to terms with?
James A. Clark: Just to start are you continuing to see supply and permitting constraints in the marketplace. Whether this is from transformers or permits or has there been any improvement or is this kind of part of a new reality in Chicago.
Speaker Change: Elliot and thanks for joining and thanks for the question Yeah, I mean, I you know we've been talking about it now for an extended period of time, you know years about disruptions in supply chain and in certain.
James A. Clark: Leanne, thanks for joining us and thanks for the question. Yeah, I mean, I, you know, we've been talking about it for an extended period of time, you know, years about disruptions in the supply chain and certain industries, you know, definitely being at the top of that list. Switch gear and electrical supplies still remain unsteady, but I would definitely categorize it as the new reality and the new state of business. I can't say that anything that's impacted our business directly because of that, but it does help to explain, you know, some of that longer conversion cycle we talked about as customers go to launch a new project, and they go and check on the realities of equipment and product delivery and that type of thing.
James A. Clark: Industries.
James A. Clark: <unk> being at the top of that list, our switchgear and electrical supplies are still remain unsteady, but I would definitely categorize it as the new reality and the new state of business I can't say that anything that's impacted our businesses directly because of that but.
James A. Clark: It does help to explain some of that longer conversion cycle, we talked about as our customers go to launch a new project and they go and check on the realities of our equipment and product delivery and that type of thing I do think it helps to explain why we have that lengthening quote to conversion ratio.
James A. Clark: I do think it helps to explain why we have that lengthening quote to conversion ratio. It's just to accommodate all of these extended lead times on some of these products, but I would also underline that I just think it's our new reality, at least for the time being. And I think that, you know, over the next few quarters or maybe over the next few years, that'll just continue to come down as we work our way to, you know, the pre-2020 reality or, you know, normality in terms of delivery and that type of thing.
James A. Clark: It's just to accommodate all of these extended lead times on some of these products, but I would also underline that I just think it's our new reality at least for the time being and I think that you know over the next few quarters or maybe over the next few years that'll just continue to come down as we work our way too.
James A. Clark: Pre 2020 reality or rumor.
James A. Clark: Normality in terms of delivery and that type of thing.
Speaker Change: Got it okay that makes sense and then just a second one from me.
James A. Clark: Got it. Okay, that makes sense. And then just a second one for me. You have a lot of your own manufacturing facilities, and then you acquired several manufacturing facilities. So can you please talk about any sort of wage inflation that could impact your financials going forward?
Speaker Change: You have a lot of your own manufacturing facilities.
James A. Clark: Wired several manufacturing facilities. So can you. Please talk about any sort of wage inflation that could impact our financials going forward.
James A. Clark: There isn't anything of note to speak of in terms of wage inflation. We have always been an employee-first type company. We try to make sure that our starting wages and the wages we offer to our manufacturing employees, in particular, are competitive and compelling enough for those folks to stay with us. I think that we were on that path even prior to the inflationary period in wages that happened post-COVID. So for us, I don't think there's any significant threat or any significant changes that we think we're going to have to accommodate. We've always tried to work it towards, like I said, being kind of employee-friendly. And labor is not an exceedingly large part of our product cost. It's a component of it, but it's not the overwhelming component.
Speaker Change: I don't there isn't anything of note to speak of in terms of wage inflation. We have always been an employee first type company. We you know we try to make sure that our starting wages and the wages, we offer to our manufacturing employees in particular, our competitive and our compelling enough for those folks to stay with us.
James A. Clark: That we have we have been on that path, even prior to the inflationary period and wages that happened post COVID-19.
James A. Clark: So for US I don't think there's any significant threat or any significant changes that we think we're gonna have to accommodate we've always tried to work it towards.
James A. Clark: Like I said kind of employee.
James A. Clark: Employee friendly.
James A. Clark: And you know the labor.
James A. Clark: As you know not exceedingly large part of our product cost, it's a component of it but it's not the overwhelming component.
Speaker Change: Okay understood. That's all for me I'll jump back into queue. Thanks again.
James A. Clark: Okay, understood. That's all from me. I'll jump back into Q. Thanks again.
Speaker Change: Thank you Ian.
Speaker Change: Thank you.
James A. Clark: And we have reached the end of the question and answer session. I'll now turn the call back over to President and CEO Jim Clark for a closing statement.
James A. Clark: And we have reached the end of the question and answer session now I'll turn the call back over to <unk>, President and CEO, Jim Clark for closing remarks.
James A. Clark: Well I just wanted to say thank you again for taking the time to dial in and continue to learn a little bit more about LSI. We're very excited about the addition of EMI onto the team. We're just beginning that process. We do have our normal our integration team working hard to bring <unk> into the fold I don't think that.
James A. Clark: I just want to say thank you again for taking the time to dial in and continue to learn a little bit more about LSI. We're very excited about the addition of EMI to the team. We're just beginning that process, but we do have our normal integration team working to bring EMI into the fold. I don't think that you can expect to see anything happen overnight in terms of the synergies we think that we have there, but we do believe that we have a good path forward and a lot to capture.
James A. Clark: You can expect to see anything happen overnight in terms of the synergies we think that we have there, but we do believe we have a good path forward and a lot to capture we.
James A. Clark: We believe both companies will benefit significantly, and, more importantly, our customers will benefit. You know, we have circled around the idea of a one-stop shop for specializing in certain verticals, and the EMI just allows us to continue to expand that value to our customers, and we look forward to the benefit we're able to offer to our shareholders and our customers. So with that, I'll just say thank you for calling in, and I'll look forward to speaking to you on our next call. Take care.
James A. Clark: We believe both companies will benefit significantly and more importantly, our customers will benefit.
James A. Clark: We are have circled around the idea of a one stop shop and specializing in certain verticals and the EMI just allows us to continue to expand that value to our customers and we look forward.
James A. Clark: The benefit we're able to offer to our shareholders and our customers alike. So with that I'll just say, thank you for calling in and I look forward to speaking to you on our next call take care.
Speaker Change: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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