Q2 2025 LSI Industries Inc Earnings Call
Speaker Change: 2018 Season Pass premieres Friday, July 11 at 8 p.m. ET on NBC
Speaker Change: Greetings and welcome to LSI Industries Fiscal 2025 Second Quarter Results Conference Call.
Speaker Change: At this time all participants are on 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 like to turn the conference over to your host, Mr. Jim Galeese. Thank you. You may begin.
Jim Galeese: Welcome everyone and thank you for joining today's call. We issued a press release before the market opened this morning detailing our fiscal 25 second quarter results.
Jim Galeese: In addition to this release, we also posted a conference call presentation in the investor relations section of our corporate website.
Jim Galeese: Information contained in this presentation will be referenced throughout today's conference call. Included are certain non-GAP measures for improved transparency of our operating results.
Jim Galeese: A complete reconciliation of GAAP and non-GAAP results is contained in our press release in 10-Q.
Jim Galeese: Such statements involve risks and opportunities and actual results could differ materially.
Jim Galeese: I refer you to our Safe Harbor Statement, which appears in this morning's press release, for more details.
Jim Galeese: Today's call will begin with remarks summarizing our fiscal second quarter results. At the conclusion of these prepared remarks, we will open the line for questions.
Jim Galeese: With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark.
Speaker Change: Thank you, Jim, and good morning all. Thank you for joining us this morning. Today we'll be discussing our second quarter in mid-year 2025 earning results.
Speaker Change: So we're halfway through our fiscal year and as you've likely seen from our press release this morning, we had a very good quarter with some strong orders across the board.
Speaker Change: The grocery segment has begun to recover, while our refueling projects and QSR segment continue to move forward with projects booked throughout the remainder of our fiscal year, and they extend through the calendar year.
Speaker Change: We saw strong growth in our display solution segment and additional growth in our refrigeration business this quarter.
Speaker Change: EMI, who we acquired early last year, continues to do very well and the entire team at EMI has been an immediate asset to our company.
Speaker Change: Net sales for the quarter were above $147 million, with adjusted EBITDA above $13 million, and free cash flow of almost $9 million, leaving our TTM net debt ratio at 0.6 times leverage. Jim Galeese will provide more of the financial details in a few minutes.
Speaker Change: I think the key word for Q2 is growth, particularly as it relates to organic growth. Whereas top line sales were up 36% on a year-over-year basis, 14% of that growth was organic, and I think it continues to show the opportunities we have in front of us.
Speaker Change: Lighting had some top-line pressures in Q2, but activity inquiries remain strong.
Speaker Change: The display solution segments shine, though, across the board, creating a compelling story for the quarter.
Speaker Change: We continue to have very strong project and quote activity levels across all vertical segments, but order timing and mix remains a bit choppy, and I think you see some of that choppiness in Q2.
Speaker Change: As we've been discussing for some time now, we anticipated a recovery in our grocery segment as a proposed merger between two of the larger grocery players in the United States achieved some clarity.
Speaker Change: Unfortunately, the courts in the state of Washington and Colorado did not support the merger based on antitrust and competitive concerns.
Speaker Change: But through their findings, they did give some clarity in the market, and many of the update and remodel projects that have been on hold have begun to move forward.
Speaker Change: The choppiness I was referring to is in relation to the surge of orders that came through in the last quarter.
Speaker Change: When order mix and demand slowed last year, we made some immediate changes to our manufacturing process and overall workforce.
Speaker Change: When the surge of orders came through in the last quarter, we needed to ramp up quickly. And because of this fast ramp up, we were a little bit less efficient than we would normally be. And I think you see some of that affecting our margin a bit.
Speaker Change: The good news is we did not miss a beat, and we didn't leave any orders on the table. In fact, we were able to capture some orders from competitors that were not able to respond in a timely fashion.
Speaker Change: We anticipate that those order opportunities remain high for some time, and we'll be ready to serve our customers.
Speaker Change: Right now, it's hard to tell what this volume increase will look like in the long term and what part of it is a surge in pent-up demand versus what part is a customer's longer-term plans.
Speaker Change: I feel we'll develop more clarity around this order momentum as we move through the winter and early spring, but all in all, we expect order activity to remain robust for some time.
Speaker Change: On the refrigeration side of the business, we've worked hard over the last few months to wind down our inventory of R448 products and fully transition to R290.
Speaker Change: A change in the EPA rulings around synthetic refrigerants makes this a smart move for LSI and we're looking for this solution to continue to be a product of choice and a competitive advantage for LSI for us and for our customers into the future.
Speaker Change: Our lighting segment, small project activity, continues to move along nicely with strong quote activity and project opportunities.
Speaker Change: But, in a comparative view, our large project activity has experienced some headwinds over the last few months, and activity is a bit slower.
Speaker Change: We remain vertically focused in our efforts, but I did want to mention, much like the EV battery plant we had last year, we are actively engaged in a number of larger projects this year, including a half a dozen data centers and chip manufacturing facilities.
Speaker Change: But they're all moving slower and the mix of products used in these projects is a bit different
Speaker Change: I feel like we have good momentum, but timing is just proving to be a bit tricky right now.
Speaker Change: Staying within lighting, I'm happy to say that interest in our next generation of our outdoor lighting product called Velocity has been very strong.
Speaker Change: I mentioned Velocity in our last call, and it offers a total update to our core outdoor lighting offering from its performance to its aesthetics to its modular construction and build options.
Speaker Change: We anticipate that it will be complementary to our current flagship outdoor product offering called Murata, and it will create some openings for new project opportunities that Murata just didn't offer.
Speaker Change: As I mentioned before, in the design of this new fixture, we built on top of our prior investments in adaptability, customization, and our ReadyMount technology, providing a product that offers next-generation performance along with reduced installation time and weight reduction.
Speaker Change: This is a significant investment for LSI and it continues to underline and illustrate our commitment to new product development and our product vitality.
Speaker Change: Next week, we'll be hosting our National Sales Meeting in Cincinnati.
Speaker Change: This is an opportunity for our internal LSI sales folks to get together from around the country and learn a little bit more about the company, the efforts of each other, our successes and our challenges.
Speaker Change: I know that most of our folks are hoping for some warmer weather, but I know they're going to be generally excited to listen, learn, and network with each other.
Speaker Change: We always learn so much about our company, our customers, and our competitors from these meetings. And I'm genuinely excited for everyone to get together for this great event.
Speaker Change: Our thesis around vertical market orientation remains very attractive to us, and our model continues to gain strength as we work to offer more and more goods and services to the markets and customers we focus on.
Speaker Change: We accomplished a lot this quarter. We continue to build a stronger, more capable business with a strong platform equipped to deliver profitable growth consistent with our growth objectives outlined in our Fast Forward Plan.
Speaker Change: We are using the experiences of our management team to effectively integrate EMI and optimize other parts of our operations on an ongoing basis.
Speaker Change: We believe that we have significant growth opportunities in front of us and we remain committed to growing our business while balancing the needs of our customers, our shareholders, and our employees alike.
Speaker Change: With that, I'll turn the call back over to Jim Galeese for a closer look at our financials.
Jim
Thank you, Jim.
Speaker Change: Our fiscal second quarter results reflect improved year-over-year performance in all major financial metrics.
Speaker Change: Growth was realized in both total and comparable sales, adjusted EPS and EBITDA both increased, and cash generation was again strong.
Speaker Change: Total sales for the quarter was 36% and comparable organic sales increased 14%.
Speaker Change: Growth was driven by the display solution segment, where total sales doubled and organic growth of 50% was realized.
Speaker Change: Multiple verticals were responsible for the increase, including the demand resurgence in grocery and continued site implementations in the refueling vertical, covering multiple customer programs.
Speaker Change: Second quarter adjusted earnings per share were 26 cents versus 24 cents last year and adjusted EBITDA was 13.3 million or 20% above the prior year quarter.
Speaker Change: Pre-cash flow was $8.8 million and $20 million for the second quarter and first half respectively, 21% above the first half of last year.
Speaker Change: Solid cash generation has reduced net debt to $33 million at the end of the fiscal second quarter.
Speaker Change: Consequently, we have reduced our leverage ratio by more than half from 1.3 to .6 times since the acquisition of EMI nine months ago in April 2024.
Speaker Change: Looking forward to Q3 and the second half of the year, we exit fiscal Q2 with a total comparable backlog, excluding EMI, 14% above prior year.
Speaker Change: While performance varies across verticals and product segments, total comparable orders increased 4% versus last year, contributing to the increased backlog.
Now, a few comments on segment performance.
Speaker Change: Display Solutions had a robust quarter as project activity continues in the refueling C-Store vertical, including strong contributions from specific customer programs in Mexico and Central America.
Speaker Change: To accentuate our scope of capabilities, LSI provided product and or services for approximately 1,000 refueling C-Store sites in Q2, meeting the demanding requirements for multiple large customers with sites located throughout North and Central America.
This represents our highest quarter in many years.
Speaker Change: Our service business continue to realize significant growth in the quarter as customers continue to see the value of our end-to-end product integration capabilities.
Service revenue increased over 100% in Q2.
Speaker Change: with average service per revenue site continuing to grow, while the share of LSI projects containing both products and services continues to expand.
Speaker Change: We expect steady growth in service revenue for the refueling C-store vertical moving forward.
Jim referenced a resurgence in the grocery vertical demand.
Sales increased over 60% in this vertical.
Speaker Change: With two levers impacting demand, customers releasing programs previously put on hold and shipments of refrigerated display cases utilizing R448 technology, which can no longer be produced after December 31st, 2024.
Speaker Change: Our manufacturing team did a great job meeting the accelerated demand requirements and managing the overall phase-in phase-out process of the DOE mandated technology change.
Speaker Change: Display Solutions operating income doubled in Q2 compared to the previous year driven by organic growth along with the addition of EMI.
Speaker Change: Operating margin improved 100 basis points, reflecting volume leverage while absorbing incremental one-time costs required to ramp up production to successfully support the volume increase.
Speaker Change: Demand strength continues in small project activity, while larger project activity remains choppy, particularly in indoor applications.
Overall project quote trends continue to increase.
Speaker Change: with the total value unfavorably impacted by the project size mix.
Speaker Change: Large project orders in Q2 did improve sequentially over Q1, contributing to the Q2 backlog increasing 6% over the previous year.
Speaker Change: Working closely with all our independent agency partners, contractors, and key end customers, all indicate larger project design and proposal work is improving, and expect that activity to translate into a measurable pickup in orders as we progress through calendar year 2025.
In summary, Q2 was a successful quarter for LSI.
Speaker Change: with increased financial performance, solid organic growth in many of our key verticals, noteworthy operations execution, growing customer recognition of our integral solution capabilities, and the ongoing successful integration and performance of EMI.
Speaker Change: EMI enhances LSI's position with many key customers, and the reverse is true as well.
Speaker Change: Teams have identified key cross-selling opportunities, with progress made on numerous opportunities.
Speaker Change: all contribute to the increasing momentum as we enter the second half of the fiscal year.
Speaker Change: I'll now turn the call back to the moderator for the question and answer session.
Oh, fuck it.
Okay.
Thank you.
Speaker Change: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: 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.
Thank you very much.
Speaker Change: Our first question comes from Aaron Spicella with Craig Hallam Capital Group. Please proceed with your question.
Aaron Spicella: Yeah, good morning, Jim and Jim. Thanks for taking the questions, you know first for me Can you just kind of talk a little bit? It sounds like you expect the the strength to continue here in the second half
Speaker Change: combination of backlog and orders and maybe a pickup of activity. So just want to kind of unpack that a little bit and then maybe just talk a little bit about you know seasonality here you know potentially in the third quarter off of a strong second quarter. Just curious your thoughts there.
Jim Galeese: Yeah, well, good morning. Thanks for calling, Aaron. Good to hear you on the call. You know, listen, we've been talking, you know, we've been under this cloud that's been impacting grocery for, you know, two years, as we said a number of times.
Jim Galeese: We, you know, our preference would have been that the project move forward.
Jim Galeese: But certainty, at least some type of certainty, was going to be a good result no matter what.
Jim Galeese: As you know, the courts in Colorado and Washington voted against a merger, the two big players in the grocery sector, that merger. And so that, you know, when that went in the direction it did, it gave some clarity. And I think it opened up the gates for projects.
and programs that were being held back.
Jim Galeese: We got a big surge in Q2, as you see from the numbers.
Jim Galeese: You know, there was a lot of inefficiency in that, as I mentioned in the comments here, and we mentioned a little bit in the press release, because we had to ramp back up quickly. We didn't want to leave any orders on the table and that type of thing.
Jim Galeese: What's hard for us to see right now as we sit here, you know on January 23rd is
Jim Galeese: is sorting out what was surge, what is the remainder of the pent-up demand look like, and what is the normal run rate look like going forward.
Jim Galeese: So, I'm going to need, we're going to need another quarter to give you a lot of clarity on that.
But, I mean the short answer is we do anticipate
that, you know, will remain at an elevated rate.
on the display solution side.
Jim Galeese: particularly as it relates to grocery and the work we're doing in the convenience store refueling side. We anticipate those will remain in an elevated rate, you know, through Q3 and Q4, maybe not quite at the same rate as Q2, but still at an elevated rate.
Jim Galeese: All right, thanks for that. And then, you know, on growth margins, I know you've been navigating, you know, some issues there for a long time. You know, can you just maybe talk about the kind of trajectory of growth and EBITDA margins as we move into the back half? You kind of touched on some of those inefficiencies in the quarters. Do we see, you know, improvements there as we move forward?
Jim Galeese: Yeah, I mean, I think the whole story, you know, that LSI, if I were to kind of tell the five-year story of LSI, it is about that.
Jim Galeese: you know, that continual focus on operational efficiency, utilization, effectiveness, and that equals margin. Anytime we step out of that and we become less efficient, the byproduct is an impact on margin.
Jim Galeese: So, when you look at what happened in Q2, we had, you know, we didn't know what the timing would look like. We knew that there was going to be pent-up demand, there was going to be demand related to it.
Jim Galeese: You know, we had a choice of fork in the road, so to speak.
absorbed the cost.
and let the clock tick until that opportunity presented itself.
or have a plan and be ready.
Jim Galeese: to execute when those orders came in. We took the latter. We had a plan. We executed it, but there was inherent efficiencies in it. You have, you know, you're bringing back a lot of people all at once. We talk about workforce, scaling up the workforce.
Jim Galeese: We have a new product design that we're, you know, that we're not kind of pumping out on a daily basis. So there's some inefficiency in learning how to manufacture that best.
Jim Galeese: There's some challenges around materials to make sure we get them
materials in.
Jim Galeese: So those are the inefficiencies that we experience, and those will carry into Q3 a bit too. I don't anticipate that the margins will be
lower, any lower
Jim Galeese: Not that they were low, by the way, but that they, you know, they'll probably match Q2, maybe a little bit of incremental improvement. But as we move through this, you know, the consecutive quarters in front of that, we'll get that efficiency back and, you know, we'll start performing back up to that level that we like.
Jim Galeese: There was also a couple things in there, I know I've mentioned it, but I want to remind everybody.
Jim Galeese: When we brought EMI on board, their performance is lower than LSI's performance. And we knew that, and EMI knows that. And they've done a phenomenal job of moving that needle already. We've done a phenomenal job collectively of moving it.
but they're still a little less efficient, they're still less...
Jim Galeese: a little less profitable from a margin standpoint and that's a program that will take us, you know, 12 to 18 months, you know, to move that needle.
Jim Galeese: And then the last thing, I just want to bring it up because I haven't talked about it out loud, but with the port strikes occurring in, you know, the potential for port strike, ports went on strike the East Coast, that
Jim Galeese: you know gummed up some materials for us, and then there was the potential of another issue here in January.
Jim Galeese: That got settled, but we made the management decision some four or five months back that we were going to hedge our bet and reroute a lot of materials through the West Coast at an, you know, at an additional cost.
Jim Galeese: But it was worth the you know, it was worth the risk
Jim Galeese: So we did do that and we're going to be burning off those additional costs over, you know, last quarter and into the third quarter here. But it was still a bet we would have made it all over again based on the information we had. But those are things that are impacted.
are margins a little bit.
Speaker Change: Understood. Thanks for the color. And then just maybe last for me, you know, curious your thoughts on some of the proposed tariffs and what that might mean for your business and maybe competitive position in the market as well.
Speaker Change: Well, remember, you know, again, I'll go back to, you know, if I could retell the whole five year story in a, you know, in 30 seconds, but, you know, way back even before COVID, we made the decision to kind of onshore and, you know, we're very
Speaker Change: We're very proud to carry a flag that says, you know, American made we you know, it's not
Speaker Change: popular to be a U.S. manufacturer of some of some products that could be considered commodity like lighting or things like that but we made that decision back in you know 2019. We were at that time
Speaker Change: 20% domestic, 80% foreign-sourced. Today we are 70% domestic, 30% foreign-sourced.
Speaker Change: I don't have a crystal ball on in terms of what
the terrorists will look like and how they'll...
Speaker Change: impact us on any level or anybody else in the mix here.
But I will say because of our
domestic focus.
Speaker Change: the impact should be marginal and it should be less significant than anybody else would be exposed to.
Speaker Change: We don't manufacture in Mexico, we export from the US to Mexico. We do have some final assembly in Mexico, but I think those tariffs would be a reverse situation incoming from Mexico and we don't do that. We have a Canadian operation.
Speaker Change: We do move things across the border from Canada to the U.S. and from the U.S. to Canada, so we'll have an eye on that, but the way our Canadian operation works, it can be 100% stand-alone within the country to support Canadian operations and Canadian customers.
Speaker Change: and we have enough business there and we have supply relationships already that are stable. If we needed to, we could have minimal trading or minimal inventory moving across the border for our Canadian versus U.S. operations.
Speaker Change: And then rest of world, most of our activities in the Caribbean, you know, other places that could
Speaker Change: I don't see anything on the board that would impact any of those, but a majority of those or almost all of them are us exporting there, so I don't anticipate any impact.
Speaker Change: With all of that said, you know, depending on how the cards land and what those tariffs look like, I think we'll be least affected in our sectors and best prepared to manage through whatever those look like.
Speaker Change: Aaron, Jim G here. Just to build on what Jim said, first of all our exposure is limited from the previous actions we've taken as Jim noted.
Speaker Change: But in addition to that, we do have a complete contingency plan, both for our Tier 1 suppliers as well as Tier 2.
Speaker Change: meeting our direct suppliers, but then also our direct suppliers that have, that they source foreign material from foreign sources as well. So we've got both tiers covered, you know, and in fact, you know, so what we do source from China, which
Speaker Change: That's probably the most visible top of mind of everybody these days. What we do source today, what's remaining, we've already moved about 20% of what's remaining out of there.
Speaker Change: So, as Jim said, we feel very comfortable where we're at, and we were proactive in developing plans to address this situation.
Speaker Change: By the way, that doesn't mean that it wouldn't be a kick in the knees, it just means we'd get back up again.
Speaker Change: Right, right. No, understood. Thanks for taking the questions. Congrats on the quarter. I'll turn it over. Thank you.
Thank you for watching. Bye.
Speaker Change: Our next question is from Samir Joshi with H.C. Wainwright. Please proceed with your question.
Samir Joshi: Hey, good morning, Jim and Jim, and congrats on the quarter.
Speaker Change: I think, just stepping back, would you give us a refresher?
Samir Joshi: on how you launch new products. I think you are planning 40 new products this year.
Samir Joshi: and in terms of your product roadmap and visibility and agility or quickness, how does that work? Just give us a quick refresher.
Samir Joshi: Yeah, so what you would see if you go back and list all my calls or you look at anything that we release. I always...
Samir Joshi: reference that we have 20 plus new products each year. Last year, my head of marketing sat down and said, you know, you're underselling us because there really hasn't been a year in the last five years we haven't launched less than 30.
Samir Joshi: New products and you know close to 40. So I continue to say 20 plus new products, but they're always I've been told always has been in excess of 30 You know our new product launches fall into kind of three buckets
Samir Joshi: There is an existing product which is refreshed or re-engineered, maybe new components.
Samir Joshi: You know, maybe we're able to find more efficiency in it or lower cost components or whatever it is. So that's one version of a new product.
Samir Joshi: The second is a category change, or what I would say is we're expanding.
within that category, maybe we have...
a small, medium, and large wall sconce.
Samir Joshi: and we're adding some type of feature, a pendant mount for it or, you know, we're adding an extra large wall sconce or something like that.
Speaker Change: So that might be something within a family and this extends across refrigeration and lighting there I'm just using this as a as a kind of an example I'm using lighting but it extends to all products and then the third is a totally a launch of a totally new product
and the Velocity as an example is a brand new
Speaker Change: category, we try to minimize our cannibalization of existing product, we try to make it complimentary, we try to make it serve a new set of
Speaker Change: targets within the market, new capabilities, that type of thing. It may overlap with some of the capabilities of an existing product. Like in this case, I was just mentioned Velocity. It overlaps with Murata. Murata has been one of our most successful products we've ever had.
Speaker Change: but it doesn't overlap in a way where it completely cannibalizes it.
Speaker Change: maybe let's say a third. So a third of it, a third of our customers are going to stay in the Murata family and they're going to be completely, it's going to serve them for years to come.
Speaker Change: A third of our customers will be debating, hey, do I want to stay with Murata or do I want to move to Velocity? Then a third of our customers will say, you know what, Murata wasn't able to handle this, but Velocity is, so I'm definitely going to Velocity.
Speaker Change: In terms of how we launch it, it is very comprehensive, right? It starts before the product's available. It's education to our own team, which we'll be doing some of at our upcoming sales meeting next weekend.
Speaker Change: It is education in preparation to our specifiers, the engineers that work with our products, our agents.
Speaker Change: Our technical resources, meaning our tech support teams, our engineering teams, our manufacturing teams, getting ready to manufacture and use that product.
Speaker Change: And then the last is, when the product becomes available, is that external launch, which we use social media, LinkedIn, you know.
Speaker Change: We're not Facebook ad people or anything, but we use all the social media to introduce it plus advertising plus, you know all those
Speaker Change: And then there's all the technical background that is going on during that time, sourcing the products, running through manufacturing, looking for the manufacturing efficiencies, and that'll keep going on as we gain more and more experience with that product.
Speaker Change: Great, great. Thanks for that refresher. I think it is going to be helpful for us to understand.
the future.
Speaker Change: Just digging a little bit deeper into the EMI growth, it has shown really good growth. And just wanted to understand what the reason for that is. Is it any kind of cross-selling? Is it any kind of synergies that you're...
Speaker Change: realizing from that, like working together, I do understand that you are working on the efficiency and cost side, but the top line seems to be really doing well.
Speaker Change: Yeah, so, you know, I know that we've talked about this before on these calls, but when we look at M&A, right, we we look at, you know, does it fit in our sector? Does it fit in that fast-forward plan? Is it part of our strategic plan? The second thing we look at, obviously, is we look at the financials and the performance of the company and all of that.
Speaker Change: But just as important as those two, you know, the kind of third leg to the stool, we look for the culture of the company and how we're going to integrate.
Speaker Change: We don't want to take somebody that is a diehard Yankee fan and try to get them to be a Red Sox fan. We don't want to do that. We want to find groups that are closer to our work ethic, our culture. They have similar...
Speaker Change: goals and aspirations, and we look to unlock, you know, those efficiencies, the, you know, lend a hand. As you know, we try to, we work very hard to try to retain the talent that's there, and in all cases we have. And so...
Speaker Change: You know I look at JSI and we were very happy with the velocity and the momentum we were able to create with JSI.
Speaker Change: we learned from each of these experiences coming into EMI, we looked at, you know, that culture and we looked at...
Speaker Change: you know, what we can do mechanically, you know, meaning efficiency and margin improvement and all of that.
Speaker Change: But we looked at, you know, that culture and we recognized...
Speaker Change: There was pre-planning, we got a closer alignment culturally, and then we looked at our customer base, those customer relationships and how we position, how they communicate, and it was a really good fit.
Speaker Change: And, by the way, I would be remiss in saying that's a really good team, too, across the board. EMI from the senior leadership.
Speaker Change: through the highly valued administrative pieces of that company right down through the workforce and the manufacturing team.
Speaker Change: They're good people, they're a good company, and I think the combination was really one of those one plus one equals three, and we were really able to create a lot of momentum.
Speaker Change: That efficiency is definitely carried over to, you know, cross-selling opportunities and and I want to kind of underline that the type of project work we're in
We can spend 12 to 18 months
Speaker Change: before we get a purchase order, and it can be another...
12 to 18 to 36 months that we deploy that.
Speaker Change: What you're seeing, remember, EMI has been with us for just over nine months now.
Speaker Change: You're seeing a lot of early wins, but I think the real story is the future wins.
Speaker Change: You know, 12 months down the road, 18 months down the road, but we're very happy with EMI. And, you know, it's the people there.
Speaker Change: Sounds good. Thanks for that, Kallur. And then this last one, based on what you just described, are there any significant acquisitions that you may be looking at? Like the stock is doing well, just wanted to see how management views that.
Speaker Change: Yeah, we have worked hard, you know, we've talked about this before and I hope it comes up on every call because
I welcome the opportunity to underline it.
Speaker Change: We work very hard to originate deals and you know and create relationships
Speaker Change: These are relationships that take a very long time to mature, right? And say, hey, listen, we want to know more about your company. Maybe there's a way for us to work together. You know, if you ever decide that you're looking for options, we would be interested in talking. Those conversations take place all the time. We spend a lot of time.
Speaker Change: trying to create those relationships with companies we think would fit very well with us.
Speaker Change: We have great relationships with our financial partners that do give us opportunity and exposure to, you know, projects that are out on the street, you know,
Speaker Change: companies that are in the process, and we look at a lot of those.
Speaker Change: We are very disciplined buyers, right? If we're looking at something, it's not about value. It's not about whether we're paying, you know, the absolute best price. We're not, you know, we obviously would like to get the lowest price all the time. But, you know, we'll pay the money.
Speaker Change: the company's worth, and we'll paint a picture that says it's worth more or it's worth less. And we don't mind writing the check. We just want to make sure it fits well. So with all of that said...
Speaker Change: I think we have a pretty good pipeline for M&A activity. It is very likely we will do something in this calendar year, another one. We look at M&A in two flavors, incremental
Speaker Change: which is, you know, a project the size of, like, an EMI, and transformational, which would be something that would be...
Speaker Change: you know magnitude half the size of our company something like that and we look at a we look at a mix of them all the time and we just are very selective about who we're going to pick and how it fits.
Speaker Change: But I would just say that, yeah, we have a slate and we will likely do something within this calendar year.
Great, great. Thanks. Congratulations once again and good luck.
Thank you.
Speaker Change: Our next question comes from George Gianarchis with Canaccord Genuity. Please proceed with your question.
Hi, thank you for squeezing me in.
George Gianarchis: The surge in order activity, I just wanted to clarify, is that exclusively in the grocery market or were there other other verticals that you saw an increased level of activity? And thank you.
George Gianarchis: Yeah. So a majority of the surge was definitely related to the grocery market, but I've been mentioning this for a couple quarters now. We are
George Gianarchis: We're knocking the carver off of it right now in our petroleum C store.
George Gianarchis: with a very heady for at least the calendar year, which will.
George Gianarchis: carry us through the rest of our fiscal year and into the first half of our fiscal year next year. So I don't want I don't want the the momentum there to get lost and I also want to mention QSR you know as particularly as it relates to EMI
George Gianarchis: they've done very well and you know some of the larger QSI customers, QSR customers, they have a number of projects that have been kind of
George Gianarchis: locked up for different reasons, you know, leadership changes, a few other things.
and we see a lot of potential there.
George Gianarchis: But the majority of the surge that occurred in Q2 was grocery-related. And we have spent a lot of time, unfortunately, over the last...
George Gianarchis: 12 to 18 months saying that we can see this delay in execution, we can see this delay in remodels, we can see the demand.
George Gianarchis: You know of building up and what we did see here in q2 was a release of some of that demand
George Gianarchis: And so, yeah, we're very happy with it, though. But it's grocery, it's QSR, it's our, you know, petroleum refueling C-store space.
Thanks for watching!
Speaker Change: Have you had to manage customers' expectations in other verticals? I mean you talked about having to hurry up and get orders out the door. Has there been a delay in the delivery of product to other verticals and other customers that we've had to manage expectations and maybe lead times have extended a little bit?
Speaker Change: No, none. We, you know, our plan has always been to, you know, be very efficient, particularly with, you know, capacity utilization. But remember, our fast-forward plan, we plan to grow.
Speaker Change: We had the capabilities to do it, it's just that there is inherent inefficiency in it because we only have two options.
one is to just
Speaker Change: stay at a ready state and absorb the costs associated with that or execute quickly and accept the inefficiencies that come along with that.
But we have not
Speaker Change: We have not pushed any business off. As I mentioned, we were able to capture some business.
and we're...
Speaker Change: Our say-do ratio is very important to us, to our customers, too.
Speaker Change: We don't talk in terms of their needed delivery date. We talk in terms of our ability to deliver.
Speaker Change: When we receive an order so if a customer says to us I need all of this on February 1st And we're talking on October 1st. We say great then the order needs to be in no later than X
If they're still saying, hey, we need it February 1st...
Speaker Change: And it's January 23rd, we're not going to turn around and say, okay, we'll deliver on February 1st. We're going to say, wait a minute.
Speaker Change: to give us the order on the 23rd. This is how long it will take.
Speaker Change: And we're always willing to say to them, if this is important, we will.
Speaker Change: We will find a way to deliver it, but the only way we can do that will be, you know, overtime or expediting or bringing in other partners to help us do that. Do you want us to do that? And do you want to pay for that?
Speaker Change: And then maybe lastly, you know, you've mentioned in the past if certain bottlenecks around permitting, maybe other supply chain issues, is there anything, has there been any change?
Speaker Change: I guess in the in the cadence of getting permits or maybe in getting
Equipment or supplies?
Speaker Change: Yeah, I mean, so I'll break that into two pieces. On the permitting side, yeah, I think things have normalized. If we were to look at this in 2018, in January of 2018, the time to go from a plan to a permit to an inspection would have definitely been shorter than it is today.
Speaker Change: The only thing that has changed is now we have all, you know, meaning us, our customers, other contractors, other subcontractors on the site. We've all just
Speaker Change: customized or changed our planning cycles to say, all right, permitting takes longer than it did five years ago.
That's number one on the...
Speaker Change: supply chain side, I think we've, LSI as a company, has done a good job of making sure that we have our supply chain in order. Typically when I'm talking about supply chain in regards to our company, it doesn't mean that we don't get impacted every once in a while.
Speaker Change: It's generally about, you know, we're ready to go out and do a project, but the concrete
Speaker Change: Contractor hasn't been able to get on site yet because an additive is missing for this project that they had And so everything's been pushed a couple You know a couple
weeks or days or whatever it is.
So, yeah, I mean, that's how both of these go.
Great. Thank you so much.
Speaker Change: There is one thing I want to say just in general, our Latin America business has really started to pick up again lately.
Speaker Change: This is still lingering from COVID, that we didn't get on the same kind of execution rate that we had been prior to COVID. So the volume there, or the momentum, the velocity in Latin America has picked up for us too, so we're happy about that.
Thank you.
[inaudible]
Speaker Change: We have reached the end of the question and answer session. I'd now like to turn the call back over to Jim Clark for closing comments.
Speaker Change: Well, I think we covered a lot in that Q&A. I'm sorry there aren't more because, you know, we're...
Speaker Change: We're excited about the quarter, you know, I would be remiss if I did not mention, you know, this is a team effort.
Speaker Change: 2,000 people here at LSI that make this happen every day, every quarter, every year. I have a lot of confidence in them, and I'm grateful that they're always here and willing to execute, and, you know, and I'm proud of the culture that we have here. You know, we have plans.
to continue to grow.
Speaker Change: You are all welcome to take a look at our fast-forward plan. We're very committed to executing against that, and this was just another step towards that plan.
You know, there are...
Speaker Change: some inefficiencies that we're picking up right now between these surges in Q2 and Q3, there's work to be done on our lighting side to regain that momentum we had there, but we're very happy.
Speaker Change: with the momentum we've been able to create. We're very happy with the partner that we're able to be to our customers.
We're continually encouraged.
Speaker Change: with our customers' understanding of our ability to come in and provide a solution for a lot of their challenges, not just one or two, and I will say that particularly on our larger and our smaller customers,
Speaker Change: But when we're able to come in and be a partner that executes across so many aspects of the businesses that they have and be a reliable partner, it just makes our job so much easier and it makes their job so much easier, and we're benefiting from that and we'll remain committed to that.
Speaker Change: Thank you for taking the time for the call in today. Thank you for your continued confidence in LSI and our team here and I look forward to talking on the next quarter. Take care.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.