Q3 2025 LSI Industries Inc Earnings Call
Operator: Greetings and welcome to the LSI Industries third quarter 2025 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Greetings and welcome to the LSI industries third quarter 2025 results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.
Operator: 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.
Please press Star zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Jim Galena. Please go ahead.
Jim Galeese: It is now my pleasure to introduce your host, Jim Galeese. Please go ahead. 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 third 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, included are certain non gap measures for improved transparency of our operating response. A complete reconciliation of GAAP and non-GAAP results is contained in our press release in 10-Q.
Welcome everyone and thank you for joining today's call we issued a press release before the market opened this morning detailing our fiscal 'twenty five third 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 included are certain non-GAAP measures for improved transparency of our operating results.
A complete reconciliation of GAAP and non-GAAP results.
And in our press release and 10-Q.
Jim Galeese: Please note that management's commentary and responses to questions on today's conference call may include forward-looking statements about our business outcomes. Such statements involve risks and opportunities, and actual results could differ materially. I refer you to our Safe Harbor Statement, which appears in this morning's press release, for more detail. Today's call will begin with remarks summarizing our fiscal third quarter results.
Please note that managements commentary and responses to questions on today's conference call May include forward looking statements about our business outlook.
Such statements involve risks and opportunities and actual results could differ materially.
I refer you to our Safe Harbor statement, which appears in this morning's press release for more details.
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.
Jim Galeese: At the conclusion of these prepared remarks, we will open the line for questions.
Jim Clark: With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark. Thank you, Jim. Good morning, all. Thank you for joining us this morning.
Speaker Change: With that I'll turn the call over to <unk>, 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 third quarter 2025 earnings results.
Jim Clark: Today, we'll be discussing our third quarter 2025 earnings results. First, let me say we had a very busy quarter. The entire LSI team delivered some very solid results. We achieved sales growth at 22% through some very choppy customer demand schedules. Although our margin was impacted by manufacturing and logistics inefficiencies created by these choppy schedules, our team has been able to serve our customers well, and I'm confident we will regain this margin as things stabilize. The service levels we are able to provide our customers continue to demonstrate why our vertical model and full-service approach is such a compelling benefit.
Speaker Change: First let me say, we had a very busy quarter the entire LSI team delivered some very solid results, we achieved sales growth of 22% through some very choppy customer demand schedules, although our margin was impacted by manufacturing and logistics inefficiencies created by these choppy schedules. Our team has been able to serve our COO.
Speaker Change: Customer as well and I'm confident we'll we will regain this margin as things stabilize.
Speaker Change: The service levels, we are able to delight our customers continued to demonstrate why our vertical model and full service approach is such a compelling benefit one stop shopping with a partner you can trust.
Jim Clark: One-stop shopping with a partner you can trust.
Jim Clark: In the quarter, we completed the acquisition of Canada's best store pictures in Ontario, Canada, and we welcome the entire team into the LSI family.
Speaker Change: In the quarter, we completed the acquisition of Canada's best store fixtures in Ontario, Canada, and we welcome the entire team into the LSI family.
Jim Clark: We held our national sales meeting in February in Cincinnati, which we have all our LSI sales, marketing, and product development folks together for four days, introducing our new products, discussing customer and market opportunities, and developing strategies to retain existing customers and pursue new business opportunities. All these efforts resulted in net sales for the quarter at $132.5 million. That is sales growth of 22% year over year, driven by strong performance in the display solutions business. Total sales and display solutions increased by 70% versus the prior year, including 15% organic growth in segments with 20% growth in grocery and some strong long-term projects in petroleum C-store market space.
Speaker Change: We held our national sales meeting in February in Cincinnati, which we have all our LSI sales marketing and product development folks together for four days, introducing our new products discussing customer and market opportunities and developing strategies to retain existing customers and pursue new business opportunities.
Speaker Change: Yeah.
Speaker Change: All these efforts resulted in net sales for the quarter at $132 5 million and as sales growth of 22% year over year, driven by strong performance in the display solutions business.
Speaker Change: <unk> sales in display solutions increased by 70% versus the prior year, including 15% organic growth in the segment with 20% growth in grocery and some strong long term projects and petroleum C store market space.
Jim Clark: Last Friday we celebrated the one-year anniversary of EMI joining LSI and the business continues to perform very well and we have worked on cross-selling opportunities and overall margin improvements in the EMI business. Very encouraged. Lighting sales lagged a bit on a year-over-year basis, but margins continued to do very well with 110 basis point improvement in operating margins. Most of the headwinds in lighting sales have been driven by a slowdown in large project activities, whereas these sales haven't been lost. They've frequently been put on pause with various construction delays and other factors. The good news in lighting is we've seen a strong rebound in the third quarter with large project order activity and our book-to-bill ratio for the third quarter being better than 1.13 times as we've seen a number of larger project activities in quotes convert to orders.
Speaker Change: Last Friday, we celebrated the one year anniversary of EMI, joining LSI and the business continues to perform very well and we have worked on cross selling opportunities and overall margin improvements in the <unk> business.
Speaker Change: Very encouraging.
Speaker Change: Lighting sales lagged a bit on a year over year basis, but margins continue to do very well with 110 basis point improvement in operating margins.
Speaker Change: Most of the headwinds in lighting sales have been driven by a slowdown in large project activities, whereas he sales haven't been loss. They very frequently been put on pause with various construction delays and other factors.
Speaker Change: The good news in lighting is we've seen a strong rebound in the third quarter with large project order activity and our book to Bill ratio for the third quarter being better than 1.13 times as we've seen a number of larger project activities and quotes convert to orders.
Jim Clark: We're exiting the corridor with a lighting backlog of 18%. above prior year. This is very encouraging on the large project front and it's a trend we would like to see continue.
Speaker Change: Sitting in the quarter with our lighting backlog of 18%.
Speaker Change: Above prior year. This is very encouraging on the large project front and it's a trend where you'd like to see continue Jimmy.
Jim Galeese: Jim Galeese will provide additional financial details in a minute.
Speaker Change: <unk> will provide additional financial details in a minute.
Jim Clark: Now let me change gears and turn to the remainder of our fiscal year 2025 and the remainder of our calendar year 2025. Back in 2019, LSI as a company was highly dependent on foreign source products and components, particularly in our lighting segment. At that time, we were approximately 80% foreign source and 20% domestic. In that same year, 2019, we made the decision to onshore and reshore a lot of our manufacturing and sourcing activities. And today, we stand about 70% domestic product and components and 30% foreign. The reason why I bring this up is the trade and terror effect.
Speaker Change: Now, let me change gears and turning to the remainder of our fiscal year 2025, and the remaining for our calendar year 2025.
Speaker Change: Back in 2019, LSI as a company was highly dependent on foreign source products and components, particularly in our lighting segment.
Speaker Change: At that time, we were approximately 80% foreign sourced and 20% domestic source.
Speaker Change: In that same year 2019, we made the decision to onshore and re sure a lot of our manufacturing and sourcing activities and today, we stand at about 70% domestic product and components and 30% foreign insurers.
Speaker Change: The reason why I bring this up is to trade and tariff activities.
Jim Clark: Now while no one is immune from the impact of this ongoing trade war, I do believe LSI will have an advantage to many of our competitors who rely solely on, or heavily on, foreign source products. We believe suppliers from China who provide direct imports of finished goods will be heavily impacted and that should bode well for our value-oriented products and create an opportunity for some new customers to experience the LSI differently. Lastly, on the subject of procurement, our folks have been working for the past few months to identify alternative sources for foreign sourced items that could be impacted and they continue to look for ways in which we can leverage our current position.
Speaker Change: Now well no one is immune from the impact of this ongoing trade War I do believe L. S. I will have an advantage to many of our competitors, who rely solely on where heavily on foreign sourced products.
Speaker Change: We believe suppliers from China, who provide direct imports of finished goods will be heavily impacted and that should bode well for our value oriented products and create an opportunity for some new customers experience the LSI difference.
Speaker Change: Lastly, on the subject and procurement are folks who've been working for the past few months identifying alternative sources for foreign sourced items it could be impacted and they continue to look for ways in which we can leverage our current position.
Jim Clark: More to come on this, but again, I think this could be an advantage for our company and we look forward to seeing how it will play out.
Speaker Change: More to come on this but again I think this could be an advantage for our company and we look forward to seeing how it will play out.
Jim Clark: I think the most important message I'm trying to convey is we have a plan. We cannot control tariffs, how they'll be applied and to whom. We can't control the amount of the tariffs or how other countries will react, but we do have a team of folks that are committed to minimizing the impact to our customers and trying to turn this situation into an advantage for our company, our customers, our partners, and our shareholders.
Speaker Change: I think the most important message I'm trying to convey is we have a plan.
Speaker Change: We cannot control tariffs, how there'll be applied to whom we can't control the amount of the terrorists or how other countries will react.
Speaker Change: We do have a team of folks who are committed to minimizing impact to our customers and trying to turn this situation into an advantage for our company our customers our partners and our shareholders.
Jim Clark: We accomplished a lot in this quarter. We continue to build a stronger, more capable business with a strong platform equipped to deliver profitable growth consistent with our objectives outlined in our fast forward. We're using the experiences of our management team to effectively integrate Canada's best store fixtures and continue our work with EMI. 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, shareholders and employees alike.
Speaker Change: We accomplished a lot in this quarter, we continued to build a stronger more capable business with a strong platform equipped to deliver profitable growth consistent with our objectives outlined in our fast forward plan.
Speaker Change: Using the experiences of our management team to effectively integrate Canada's best store fixtures and continue our work with EMI.
Speaker Change: We believe that we have significant growth opportunities in front of us and we remain committed to growing our business, we're balancing the needs of our customers shareholders and employees alike.
Jim Galeese: With that, I'll turn the call over to Jim Galeese for a closer look at our financials. Thank you, Jim. Our focus in Fiscal Q3 was effective execution, operating in an environment with significant variability in customer delivery requirements. We engaged in high levels of customer collaboration to manage the ongoing schedule changes and site release activity steadied as the quarter progressed. Our operations teams did a notable job, pivoting to shift production in process from one project to another, a strong competency in a custom project job environment.
Speaker Change: With that I'll turn the call over to Jim <unk> for a closer look at our financials.
Speaker Change: Jim.
Speaker Change: Thank you Jim.
Speaker Change: Our focus in fiscal Q3 was effective execution operating in an environment with significant variability in customer delivery requirements. We engaged in high levels of customer collaboration to manage the ongoing schedule changes and site release activity studied <unk>.
Speaker Change: The quarter progressed.
Speaker Change: Our operations teams did a notable job pivoting to shift production in process from one project to another a strong competency in a custom project job environment.
Jim Galeese: The focused effort generated third-quarter sales of $132 million, or growth of 22% over prior year, and adjusted EBITDA of $11.3 million, while attaining adjusted earnings per share of $27.
Speaker Change: The focused effort generated third quarter sales of $132 million or growth of 22% over prior year and adjusted EBITDA of $11 3 million well attaining adjusted earnings per share of 2000.
Jim Galeese: Also in the quarter, we announced the acquisition of Toronto-based Canada's Best Holding. Canada's Best was acquired for an all-cash purchase price of $24 million U.S. with a $7 million performance-based earnout.
Speaker Change: Also in the quarter, we announced the acquisition of Toronto based candidates first holdings Canada's best was acquired for an all cash purchase price of $24 million with a $7 million performance based earn out potential.
Jim Galeese: LSI generated cash flow of $4.7 million in the third quarter. increasing our TTM cash flow to approximately $35 million.
Speaker Change: LSI generated cash flow of $4 7 million in the third quarter, increasing our TTM cash flow to approximately $35 million.
Jim Galeese: The company's balance sheet after the acquisition of Canada's Best remained strong, with net debt of $51 million, or a ratio of net debt to trailing 12 months adjusted EBITDA of $1,000. Looking forward, it was a solid orders quarter. and we exit the third quarter with a backlog of 15% above last year. Our 22% sales growth was led by display solutions. which realized Q3 sales growth of 70% with organic sales growth of 50%. Growth was led by the refueling C-store vertical and continued recovery and growth. refueling C store sales increased 60% versus prior led by multiple ongoing customer grantees.
Speaker Change: The companys balance sheet after the acquisition of Kern as fast remains strong with net debt of $51 million or a ratio of net debt to trailing 12 months adjusted EBITDA of one times.
Speaker Change: Looking forward it was a solid orders quarter for the business and we exit the third quarter with a backlog 15% above last year.
Speaker Change: Our 22% sales growth was led by display solutions segment, which realized Q3 sales growth of 70% with organic sales growth of 15%.
Speaker Change: Growth was led by the refueling C store vertical and continued recovery in grocery.
Early C store sales increased 60% versus prior year led by multiple ongoing customer graphics programs.
Jim Galeese: Sales of refrigerated and non-refrigerated display case products to the grocery vertical generate a substantial growth of 20%. Despite the vertical incurring the highest level of order fulfillment changes in the course.
Speaker Change: Sales of refrigerated and non refrigerated display case products to the grocery vertical generate a substantial growth of 20%. Despite the vertical incurring the highest level of order fulfillment changes in the quarter.
Jim Galeese: EMI continued at solid performance, generating year-over-year pro forma growth, and integration activities are progressing ahead of schedule. Display Solutions adjusted operating income increased 11% compared to prior year, while the rapid increase in demand, high level of scheduling disruptions, together with the mixed impact of EMI, resulted in a lower margin. We continue to collaborate closely with major customers and expect scheduling to further stabilize, improving efficiency and operating margins. Display Solutions order activity remained at a high level with orders matching a strong sales Subsequently, a large order was booked in early April, further increasing our back... A $5-plus million order from a large grocer is for a refrigerated display case.
Speaker Change: <unk> continued its solid performance generating year over year pro forma growth and integration activities are progressing ahead of schedule.
Speaker Change: Display solutions adjusted operating income increased 11% compared to prior year, while the rapid increase in demand high level of scheduling disruptions together with the mix impact of EMI resulted in a lower margin rate.
Speaker Change: We continue to collaborate closely with major customers and expect scheduling to further stabilize improving efficiency and operating margin performance.
Speaker Change: Display solutions order activity remained at a high level with the orders matching a strong sales quarter.
Speaker Change: Subsequently a large order was booked in early April further increasing our backlog.
Speaker Change: Five plus million dollar order from a large grocer is for refrigerated display cases more indication of the resumption in plan store renovation activity.
Jim Galeese: More indication of the resumption and planned store renovation act. The project will be produced and shipped to customer sites across the country over the next five years.
Speaker Change: The project will be produced and shipped to customer sites across the country over the next five months.
Jim Galeese: For the lighting segment, adjusted operating income was approximately flat the prior year on lower sales. Operating margins increased 110 basis points over the prior year quarter led by project pricing aligned with current material input costs as well as project. While large project shipment activity was lower in Q3, we realized a stair-step improvement in lighting order. Orders, increased order levels generated a book to bill of 1.1 as numerous large project quotes converted to order. We've discussed previously the lengthening quote-to-order conversion process for larger projects and are encouraged by the improved release. The increased order activity occurred in verticals, which had been soft for several including We believe favorable order rates will continue, but performance for any one period will be choppy due to the length of quote-to-order conversion.
Speaker Change: For the lighting segment adjusted operating income was approximately flat to prior year on lower sales.
Speaker Change: Operating margins increased 110 basis points over the prior year quarter led by project pricing align with current material input cost as well as project mix.
Speaker Change: While a large project shipment activity was lower in Q3, we realized a stair step improvement in lighting order levels.
Speaker Change: Orders increased order levels generated a book to bill of one one as numerous large project quotes converted to orders we've.
Speaker Change: We have discussed previously the lengthening quote to order conversion process for larger projects and are encouraged by the improved release levels.
Speaker Change: The increase order activity occurred in verticals, which had been soft for several quarters, including warehousing.
Speaker Change: We believe favorable order rates will continue but performance for any one period will be choppy due to the wines in quote to order conversion cycle.
Jim Galeese: In summary, our business is built to be effective in demanding environments, and our high-level execution in Q3 generates repeat business as customers recognize our capabilities and value as a led by favorable third quarter orders and increased backlog, we expect to generate both reported and comparable sales growth in the fiscal fourth quarter.
Speaker Change: In summary, our business is built to be effective and demanding environments and our high level of execution in Q3 generates repeat business as customers recognize our capabilities and value as a partner.
Speaker Change: Led by favorable third quarter orders and increased backlog, we expect to generate both reported and comparable sales growth in the fiscal fourth quarter.
Moderator: I'll now turn the call back to the moderator for the question and answer. Thank you.
Speaker Change: I'll now turn the call back to the moderator for the question and answer session.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Operator: We will now be conducting a question and answer session. If you would 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. 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 the star keys.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Aaron Spychalla: First question comes from Aaron Spychalla with Craig Howell. Please go ahead. Yeah, good morning, Jim and Jim. Thanks for taking the questions. You know, maybe first for me on just the fluctuating demand levels and kind of changing customer schedules. Can you just give a little bit more color on, you know, any certain verticals or examples of kind of some of those changes? Sounds like, you know, some grocery, but just curious if there's others. And then, you know, you noted stability exiting the quarter. Sounds like that's kind of continued, but just wanted to make sure, you know, understand those dynamics of that continuing since early April.
Speaker Change: First question comes from Erin <unk> with Craig Hallum. Please go ahead.
Erin: Yeah, Good morning, Jim and Jim Thanks for taking the questions.
Erin: Maybe first for me on just the fluctuating demand levels and kind of changing customer schedules can you just give a little bit more more color on any certain verticals or examples of kind of some of those changes it sounds like some grocery but just curious if there's others and then you noted stability exiting the quarter.
Erin: It sounds like that's kind of continued but just wanted to to make sure I understand those dynamics are of that continuing since early April.
Jim Clark: Yeah, Aaron, good morning, Jim Clark. Yeah, the fluctuating demand is almost exclusively around grocery. I think it speaks a lot to, you know, the decision at the end of the merger, the decision for the industry to kind of come back, and then them trying to cram a lot of things into last year's, you know, calendar year, and then, you know, brought a little bit of that chaos and that into the first quarter of this year, definitely feel like things are getting back to normal in terms of, this is the store we wanted at, this is the construction schedule, this is the timing.
Erin: Yeah, Erin good morning, Jim Clark, Yeah. The fluctuating demand is almost exclusively around grocery I think it speaks a lot too.
Erin: The decision at the end of the merger the decision for the industry to kind of come back and then im trying to cram a lot of things into.
Erin: Last year's calendar year, and then you know.
Erin: Brought a little bit of that chaos in that speed into the first quarter of this year definitely feel like things are getting back to normal in terms of this is the store we want her to add this is the construction schedule. This is the timing.
Jim Clark: It was just kind of messy. I think, you know, there were a lot of fingers in the, or a lot of cooks in the kitchen, and it just, we didn't get the efficiency that we normally have.
Erin: It was just kind of messy.
I think.
Erin: There were a lot of fingers in a lot of cooks in the kitchen and it just we didn't get the efficiency that we normally have I think you hit the nail on the head with the word stability.
Jim Clark: I think you nail on the head with the word stability. We definitely feel like things are much more stable now, or predictable might be the better word, in the sense of scheduling and all of that.
Erin: We definitely feel like things are much more stable now enter or predictable might be the better word.
Erin: In the sense of scheduling and all of that.
Aaron Spychalla: Alright, thanks for that.
Erin: Alright, Thanks for that and then maybe second on display margins can you just quantify maybe the margin impact from those.
Jim Clark: And then maybe second on display margins, can you just quantify, you know, maybe the margin impact from those schedule and kind of inefficiencies on the production side versus the EMI mix and just how you see those margins trending moving forward the next handful of quarters? Yeah, again, you know, I think most of that pain and pressure is being felt on the grocery vertical, and it's, you know, kind of mix is one thing, priority in terms of what we deliver is another. We talked about, you know, there's been a pretty significant recovery, we scaled up with, with, you know, human capital with people coming back on board.
Erin: Those schedule and kind of inefficiencies on the production side versus the EMI mix and just how you see those margins trending moving forward the next handful of quarters.
Erin: So again, you know I think most of that pain and pressure is being felt on the grocery vertical and its kind of mix is one thing a priority in terms of what we deliver is another we.
Erin: We talked about you know theres been a pretty significant recovery, we scaled up with with.
Human capital with people coming back on board.
Jim Clark: You know, I always like to use the kind of like professional sports player, you know, they've been off for, you know, a quarter or whatever, they're coming back to training camp, they're not catching the ball as well as they did, or, you know, running as fast as they did. But I think that we've gained a lot of that efficiency back, you know, through this last quarter. And I think that you'll see it much more stable as we come into the fourth and next year, as a whole.
Erin: Always like to use your analogy is kind of like professional sports player.
Erin: They've been off for a quarter or whatever they are coming back to training camp theyre not catching the ball as well as they did or running as fast as they did but I think that we've gained a lot of that efficiency back through this last quarter and I think that youll see it much more you can.
Erin: Stable as we come into the fourth and into next year.
Erin: As a whole.
Jim Galeese: Yeah, Aaron, Jim Galeese here. And just to add to Jim's, you know, comments, you know, the, you know, the disruption was pretty pretty large when you combine again the rapid increase in volume requirements so bringing on people getting our processes established, but then getting calls to, you know, halt. Those interruptions were pretty significant, so, you know, I assess that to be, you know, 200, 250 basis points that, you know, we're going to recover as we as we stabilize.
Erin: Yeah, Erin <unk> here just to.
Erin: Add to Jim's comments.
Erin: The disruption was was pretty pretty large when you combine again the rapid increase in volume.
Erin: Requirements are bringing on people.
Erin: Getting our processes established but then getting calls to halt.
Erin: Status of certain orders and replace with another and so forth those those interruptions were pretty significant so.
Erin: ISS that to be 200, 250 basis points that we're going to recover as we as we stabilize here.
Aaron Spychalla: Alright, thanks for that Jim. And that kind of 200 to 250 bps, is that EBITDA margins, gross margins? I just want to make sure I understand that. That would be gross margins.
Jim: Alright, thanks for that Jim and that kind of 200 to 250 bps is that.
Jim: Our EBITDA margins gross margins just want to make sure I understand that you have the gross margin area.
Aaron Spychalla: Okay, thanks.
Jim: Okay. Thanks, and then.
Jim Clark: And then maybe one last one just on the tariffs, you know, appreciate the color. You noted, you know, continuing to adjust pricing and kind of sourcing decisions, depending on how that progresses. You know, maybe just talk a little bit about what you've done thus far on pricing, you know, anything kind of still to come down the pipe and what changes you could potentially make on sourcing and any kind of timing or investments that might be needed there would be helpful. Yeah, well, I mean, let me break that into two. In terms of the planning and alternative sources and locations, you know, this is something we've been working on for years.
Jim: Maybe one last one just on the on the tariffs I appreciate the color.
Jim: You noted continuing to adjust pricing and kind of sourcing decisions, depending on how that progresses.
Maybe just talk a little bit about what you've done thus far on pricing anything kind of still to come down the pipe and what changes you could potentially make on sourcing in any kind of timing or investments that might be needed there would be helpful. Yes.
Jim: Well I mean.
Jim: Let me break that into two in terms of the planning and alternative choices and locations. You know this is something we've been working on for years and I think most of that is locked and loaded what are alternative sources, who we're going to keep buying from.
Jim Clark: And I think most of that is locked and loaded. What are alternative sources? Who are we going to keep buying from? You know, the decision on, you know, what we're going to pay for tariffs and what we're not going to pay and all of that type of thing. I think a lot of that groundwork is done and we'll continue to monitor it. In terms of pricing, what we're doing, most of our activity is around awareness to our customers and our agents. We are not you know, we're not trying to take the tariff situation and leverage it against any of our customers or anything like that.
Jim: The decision on.
Jim: What we're going to pay for tariffs and what we're not going to pay in all of that type of thing I think a lot of that groundwork has done and will continue to monitor in terms of pricing. What we're doing most of our activity is around awareness to our customers and our agents.
Jim: We are not.
Jim: We're not trying to take the tariff situation and leverage it against any of our customers or anything like that we're taking real cost impacts and passing them on when we're feeling them. So in some cases, we have inventory that's going to buffer us from any type of tariff even if it is a direct import product we have inventory.
Jim Clark: We're taking real cost impacts and passing them on when we're feeling them. So in some cases, we have inventory that's going to buffer us from any type of tariff. Even if it is a direct import product, we have inventory that will buffer us and our customers from any price increases. In others, in other cases, we have things that we're feeling almost immediately. So I would say that from a workload perspective, our job is to make sure we're properly applying the tariffs and capturing that cost in the areas that we're experiencing them and then carefully monitoring, you know, what our buffers look like and what those things will look like, you know, to the customer in terms of the end use delivery.
Jim: It will buffer us and our customers for many price increases in others. In other cases, we have things that we're feeling almost immediately so I would say that from a workload perspective, our job is to make sure we're properly applying the tariffs and capturing that costs in the areas we're experiencing them.
Jim: And then carefully monitoring what our buffers look like and what those things will look like to the customer in terms of the end use delivery.
Jim Clark: that the challenging thing is the, you know, stops and starts, is the tariff on, is the tariff off, the strategic decisions about where we relocate sourcing, because what we don't want to do is, you know, maybe with a tariff, we have a, you know, a 50% increase in the price of a component. If we go to an alternative source, we have a 20% increase in the price of that component. But if the tariff goes away, then we have a 20% premium. So it's all that balancing. I have a lot of confidence. I mean, we've demonstrated our ability to work through this before.
Jim: The challenging thing is the stops and starts is the tariff on as the tariff off.
Jim: The strategic decisions about where we relocate sourcing because what we don't want to do is you don't maybe with a tariff we have.
Jim: A 50% increase in the price of a component if we go to an alternative source, we have a 20% increase in the price of that component, but if the tariff goes away. Then we have a 20% premium. So it's all of that balancing I have a lot of confidence I mean, we've demonstrated our ability to work through this before I've a lot of confidence in our.
Jim Clark: I have a lot of confidence in our procurement team and our operations team. But it's just a lot of kind of where do we put our focus? What's the current message? What's the current tariff? It'd be hard to describe exactly pieces or components where we've increased price today or where we may increase them tomorrow. But I will underline that we'll be very diligent about looking at those prices and making sure we're capturing costs that impact us.
Jim: Procurement team and our operations team, but it's just a lot of kind of where do we put our focus what's the current message. What's the current tariff it would be hard to describe exactly pieces or components, where we've increased price today or we may increase them tomorrow, but I will underline that will be very diligent about looking.
Jim: At those prices and making sure we're capturing cost to impact us.
Jim: Understood.
Aaron Spychalla: Understood.
Aaron Spychalla: Thanks for taking the questions.
Jim: Thanks for taking the questions. So I'll turn it over.
Moderator: I'll turn it over.
Amit Dayal: Next question, Amit Dayal with HC Wainwright, please go ahead. Thank you. Good morning, everyone. I appreciate you taking my questions. So, you know, you talked about potential opportunities to increase sales within existing customers. Is this mostly on the display side, Jim, or, you know, is it possible with the lighting segment as well? Yeah, well, normally it goes both ways, right? We see a lot of our lighting customers as potential customers for our display solutions, particularly when you look at the vertical markets we're in. As an example, petroleum, we may have a customer that's fully committed to our lighting solutions, fully committed to our exterior display solutions, but we're not doing as much work with them so those are always opportunities and those are ones that we continue to pursue.
Speaker Change: Next question, Amit Dayal with H C. Wainwright. Please go ahead.
Amit Dayal: Thank you good morning, everyone. I appreciate you taking my questions.
Speaker Change: So you know you talked about potential opportunities to increase <unk>.
Amit Dayal: It is within the existing customers.
Speaker Change: Is this mostly on the display side, Jim or you know.
Speaker Change: Hum.
Speaker Change: Is it possible with the lighting segment as well.
Speaker Change: Yeah, well it.
Speaker Change: Normally it goes both ways right out we see a lot of our lighting customers as potential customers for our display solutions, particularly when you look at the vertical markets. We're in as an example, petroleum we may have a customer that is fully committed to our lighting solutions fully committed to our exterior.
Speaker Change: Your display solutions, but we're not doing as much work with them interiors. So those are always opportunities in.
Speaker Change: And those are ones that we continue to pursue.
Jim Clark: And I would like to mention EMI products like beverage centers and food grade countertops and cabinetry and all of that. If we flip that equation around and we look at display solution customers, we have a lot of display solution customers that don't take advantage of our lighting solutions or take advantage of a section of our lighting solutions. Maybe they're an interior customer, but they haven't made the transition to exterior. So I still feel like that cross-selling opportunities across these markets is wide open.
Speaker Change: And I would like to mentioned you know EMI products like beverage centers in food grade countertops in cabinetry and all of that if we flip that equation around and we look at display solution customers. We have a lot of display solution customers that don't take advantage of our lighting solutions or take advantage of.
Speaker Change: Section of our lighting solutions, maybe they're an interior customer, but they haven't made the transition to exterior. So I still feel like that cross selling opportunities across these markets is wide open I mean, where we're making progress but most of the progress and most of the opportunities still lays in front of us.
Jim Clark: I mean, we're making progress, but most of the progress and most of the opportunity still lays in front of us. Thank you for that. I know it looks like you have a pretty solid plan to manage the tariff environment and you already migrated a lot of the manufacturing and sourcing to U.S. suppliers. But in terms of the customer exposure, you know, given where the majority of the revenues come from. What is the risk on that side? Are these also mostly domestic customers, etc., that are not really, you know, directly kind of impacted by the tariffs?
Understood. Thank you for that.
Speaker Change: It looks like you have a pretty solid plan to manage the <unk> environment.
Speaker Change: And you're already migrated a lot of the manufacturing and sourcing to U S.
Speaker Change: <unk>.
Speaker Change: But in terms of the customer exposure.
Speaker Change: So it wouldn't be a majority.
Speaker Change: Already of the revenues come from.
Speaker Change: What is the risk would that say that these also have mostly domestic customers et cetera that are not really.
Speaker Change: Directly impacted by the tariffs I know everybody will be impacted in some fashion, but just starting to get a sense of what the customers' exposure may be you know as far as you know to the Chinese environment.
Jim Clark: I know everybody will be impacted in some fashion, but just trying to get a sense of, you know, what the customer's exposure may be, you know, as far as you know, to the tariff environment. Yeah, well, we can look at across I don't have an exact number for you. But we can look across our customer base. And we can see that almost every one of our customers could be potentially impacted, right, even if they're domestic customer source a lot domestically, they could be impacted, particularly when it comes to construction related activities. You know, as an example, I'm making this up, this is not an actual example, but I just want to use it as an example.
Speaker Change: Yeah, well, we can locate across I don't have an exact number for you, but we can look at across our customer base and we can see that almost every one of our customers could be potentially impacted right. Even if they're a domestic customer sourced a lot domestically they could be impacted particularly when it comes to construction real.
Speaker Change: <unk> activities.
Speaker Change: You know as an example.
Speaker Change: I'm, making this up this is not this is not an actual example, but I just want to use it as an example, maybe one of our customers is getting.
Jim Clark: Maybe one of our customers is getting a microwave oven from an international supplier right now that's going to be subject to tariffs. They may pivot and go to a domestic supplier. They may decide to stick with their international supplier. They may be constrained because of, you know, a relationship with an international supplier. How much impact that has on their business and their go-forward plans, I can't say that we know across the entire spectrum of our customer base, but it's something we're going to have to watch and look at. I think our initial feeling is the impact to their core operations of most of our customers will be minimally impacted, but things like construction and remodel and those type of things have a lot of elements in it that could be impacted.
Speaker Change: A microwave oven.
Speaker Change: From a international supplier right now thats going to be subject.
Two terrorists they may pivot and go to a domestic supplier they may decide to.
Stick with their international supplier, they may be constrained because of.
Speaker Change: Our relationship with an international supplier, how much impact that has on their business and their go forward plans I can't say that we know across the entire spectrum of our customer base, but it's something we're going to have to watch and look at I think our initial feeling is the impact.
Speaker Change: Back to their core operations at most of our customers will be minimally impacted but things like construction and remodel and <unk> and those type of things have a lot of elements in it that could be impacted.
Jim Clark: Automotive is a big vertical market for us.
Speaker Change: Automotive is a big vertical market for us as a matter of fact I should mentioned, we just had 70 of our automotive reps in yesterday and today I just gave.
Jim Clark: As a matter of fact, I should mention we just had 70 of our automotive reps in yesterday and today. I just gave an introductory speech to a pretty full house of folks yesterday. The sentiment across, you know, the dialogue that I had with them and stuff is they don't anticipate much change in any type of short-term, maybe extending out through the remainder of this calendar year. But if incoming sales of automotive, you know, if the duties and tariffs on, you know, importing cars and everything has a market slowdown on their market, yeah, it could create a slowdown or.
Speaker Change: Introductory speech to a pretty full house of folks yesterday.
Speaker Change: Sentiment across the.
Speaker Change: The dialogue that I had with them and stuff is they don't anticipate much change in any type of short term, maybe extending out through the remainder of this calendar year, but if incoming sales of automotive.
Speaker Change: If the duties and tariffs on importing cars and everything has a market slowdown on their market yeah. It could it could create a slowdown or.
Jim Clark: We've heard this narrative too, it could create an increase where they use that time to be a little bit more aggressive on some remodels. things like that. So I think a lot of this is going to have to just play out for us to have a real position on it. But the message I would leave is, is we feel pretty positive right now about the market. I, you know, we talk about the building backlog, you know, great recovery in lighting. That's been going on since February. All the signs internally here point to some pretty good momentum on the other side, so we just have to take a wait and see.
Speaker Change: We've heard this narrative to it could create an increase where they use that time to do be a little bit more aggressive on some remodels.
Speaker Change: Things like that so I think a lot of this is going to have to just play out for us to have a real position on it but the message I would leave us.
Speaker Change: We feel pretty positive right now about the market.
Speaker Change: We talk about the building backlog.
Speaker Change: Great recovery in lighting, that's been going on since February.
Speaker Change: Okay.
Speaker Change: Inside.
Speaker Change: All the signs internally here.
Speaker Change: Point to some pretty good momentum on the other side. So we just have to take a wait and see.
Amit Dayal: I really appreciate that, Kola. That was very helpful. Thank you, Jim.
Speaker Change: Really appreciate that color.
Speaker Change: Could you.
Jim Clark: Just last one for me, you're creating this niche or carving out a niche in this lighting and display segment. Do you think you are one of the sort of bigger players in that niche with a focus, specialty focus sort of in that space? And what are your thoughts in terms of continuing to maybe? Find relevant acquisitions that allow you to maybe dominate the market. Yeah, I mean, I think our You know, the way we deliver it, I don't think a lot of people are packaging it the same way or representing it or selling it, integrating it into the company, into a company in the same way.
Speaker Change: Just last one for me.
Speaker Change: Creating this niche carving out a niche in the lighting and display segment.
Speaker Change: Do you think you are one of the bigger players in that niche.
Speaker Change: With this focus specialty focus sort of in that space.
Speaker Change: What are your thoughts in terms of you know.
Speaker Change: Continuing to maybe sign.
Speaker Change: Relevant acquisitions that allow you to maybe dominated.
Speaker Change: So.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Bart.
Speaker Change: These spaces.
Speaker Change: The way, we deliver it I don't think a lot of people are packaging it the same way.
Speaker Change: Representing yourself.
Speaker Change: Greetings.
Speaker Change: Any into eight company the same way.
Jim Clark: I think any of our competitors that we deal with usually have to, they get a piece of that type of product and then they go and source the solution from somebody else. For the other part, I think it creates a unique opportunity, the way we interface with our customers, the way we talk with our customers, and we believe there's a tremendous benefit to really marrying up the lighting aspect in the display along with the colors and shapes that we have. We think it's pretty unique. It's a solution sale as opposed to a component sale and I think most of our competitors approach it from a parts and pieces, from a, you know, from a component sale where we're offering a true solution set.
Speaker Change: Any of our competitors that we deal with it usually.
Speaker Change: A piece of that type of product and they go and supports the solution from somebody else for the other part I think it creates a unique opportunity the way we interface with our customers the way we talk with our customers.
Speaker Change: Yeah.
Speaker Change: Two really marrying the lighting aspect.
Speaker Change: Along with it.
Speaker Change: We have.
Speaker Change: <unk> unique.
Speaker Change: Solution sell as opposed to a component so and I think most of our or our competitors.
Speaker Change: Appropriate from a parts and pieces from a.
Speaker Change: From a component sale, where we're offering a <unk> solution set to I I do think we stand alone.
Jim Clark: So I do think we stand alone in that, in the way we go to market and it really moves us from, you know, a supplier to more of a partner and I think it's unique and we're enjoying some opportunity in there. In terms of what it does for M&A or growth activities, I don't think it diminishes our opportunities at all because we can pick up the pieces and it's unique once we get into our family. Then it becomes part of the, it moves from a supplier or component provider to a solution provider. So I think the net actually increases in size, our opportunities increase in size from an M&A perspective as opposed to decreasing.
Speaker Change: And in that in the way, we go to market and it really moves us from.
Speaker Change: Our supplier to more of a partner and I think it's unique and we're enjoying some opportunity in there in terms of what it does for M&A or growth activities I don't think it diminishes our opportunities at all because.
Speaker Change: We can pick up the pieces and its unique once we get them into our family then it becomes part of that it moves from a supplier or component provider to a solution provider. So I think.
The net actually increases in size our opportunities increase in size from an M&A inspector perspective as opposed to <unk>.
Speaker Change: Decrease in.
Amit Dayal: Thank you for that, that's all I have, thank you.
Speaker Change: Thank you for that that's all I have thank you.
Leanne Hayden: Next question, Leanne Hayden with Canaccord Genuity, please go ahead. Morning, everyone. Thanks so much for taking my questions.
Speaker Change: Next question Lyanne Hayden with Canaccord Genuity. Please go ahead.
Lyanne Hayden: Good morning, everyone. Thanks, so much for taking my questions just to start can you. Please discuss your acquisition strategy going forward.
Jim Clark: Just to start, can you please discuss your acquisition strategy going forward? And, you know, do you anticipate any additional acquisitions in specific markets or geographies? And in addition to that, how important do you expect future acquisitions being to reaching your 2028 fast forward target? Okay, so there's a lot there. It's mostly focused on M&A, and I'll just say that, yeah, we remain very active in the M&A space. I've talked about this before. We have a lot of, you know, the known players that provide us opportunities. We also do a lot of work to self-originate, creating So we do a lot of work around that, and we're continuing to do a lot of work.
Lyanne Hayden: Do you anticipate any additional acquisitions in specific markets or geographies and then addition to that how important do you expect future acquisitions being to reaching our 2028 sophomore targets.
Lyanne Hayden: So there's a lot there.
Lyanne Hayden: Mostly focused on M&A and I'll, just say that yes, we remained very active in the M&A space.
Lyanne Hayden: Talked about this before we have a lot of.
Lyanne Hayden: The known players that provide us opportunities. We also do a lot of work to go for it.
Nate: Nate creating relationships with customers.
Lyanne Hayden: Okay.
Lyanne Hayden: Yeah.
Lyanne Hayden: Okay.
Lyanne Hayden: Okay.
Lyanne Hayden: So we do work around that.
Lyanne Hayden: Continuing.
Lyanne Hayden: On that.
Jim Clark: We look at M&A in two flavors, one is kind of incremental M&A. to execute on pretty consistently, taking some of the, you know... $60, $80, $100 million business, maybe it's underperforming in terms of, you know, market performance or even upper performance, or maybe we see things we can help. move or consolidate. And we're going to continue to look for those type of opportunities. But then on the other side of that coin, we have what we call, you know, transformational, something that might add, you know, $200 million of revenue, or might really add a whole new segment for us, whether it's a new vertical market or an entirely different solution set.
Lyanne Hayden: Yeah.
Lyanne Hayden: Bonnie.
Lyanne Hayden: Okay.
Lyanne Hayden: Yes execute on pretty consistently.
Lyanne Hayden: Yeah.
Lyanne Hayden: P 60 $800 million.
Lyanne Hayden: Business.
Lyanne Hayden: They are performing.
Lyanne Hayden: And to your EBIT performance or maybe we see things.
Lyanne Hayden: Move or consolidate and we're going to continue to look for those type of opportunities, but then on the other side of that coin we have what we call transformational something that might add.
Lyanne Hayden: $200 million of revenue or might really add a whole new segment for us whether it's a new vertical market entirely different solution set and were just as active in that space.
Jim Clark: And we're just as active in that space. We just haven't been able to cross the finish line with any of those projects, or it hasn't been able to meet our requirements or whatever it is. But we're very active in both of those. And we intend to be continue to be very active in them. I think we have a good demonstrated track record of being able to bring in those companies and integrate them very well, make them part of the team, make them part of the story, and then provide back to them resources, whether it's procurement or operational, or, you know, processes around selling, or whatever it is.
Lyanne Hayden: We just haven't been able to cross the finish line with any of those projects or it hasnt been able to meet our requirements or whatever it is but we're very active in both of those and we intend to be continue to be very active in them. I think we have a good demonstrated track record of being able to bring in those companies and integrate them very well make them par.
Lyanne Hayden: The team make them part of the story and then provide back to them resources, whether it's procurement or operational or.
Lyanne Hayden: Processes around selling or whatever it is we we like that equation and we're going to keep doing that.
Jim Clark: We like that equation. We're going to keep doing that.
Leanne Hayden: Got it, thank you, that's very helpful. Just one quick one for me.
Speaker Change: Got it. Thank you that's very helpful. Just one quick one from me how is the velocity demand been since its launch and do you anticipate right now any future lighting or display segment products going forward.
Jim Clark: How has the velocity demand been since its launch and do you anticipate right now any future lighting or display segment products going forward? Yeah, so I recognize this. It's so funny. I recognize this in my conversations with our lighting agents the other day. We're still on track. We still release 20-plus new products every year. We've never fallen below that number. And in fact, as my product development team consistently reminds me, it's 30-plus products every year. We've never actually fallen below 30. And that continues. Velocity has met all of our expectations. In fact, it has kind of marched past some of our initial launch targets.
Lyanne Hayden: Yes so.
Lyanne Hayden: Recognize this is so funny I recognize this in our my conversations with our lighting agency other day.
Lyanne Hayden: We're still on track, we still released 20, plus new products every year, we've never flown fallen below that number and in fact as my product development team consistently reminds me its 30 plus products every year, we've never actually fallen below 30.
Lyanne Hayden: And that continues velocity is has met all of our expectations. In fact, it has kind of March past some of our initial.
Lyanne Hayden: Launch targets.
Jim Clark: You know, the difficult part when you come out with a whole new category like that is anticipating initial demand on that short term. I think we're better on the longer term. But we've been very pleasantly surprised on the take-up on the short side. And I think it says that we got that product right, that the customers and our agents recognize the flexibility in it and how to properly apply it, when to use it. So I'm very happy with it. We continue to release a lot of new products each year. That product fatality is important to us.
Lyanne Hayden: The difficult part when you come out with a whole new category like that is anticipating initial demand on a short term I think were better on the longer term, but we've been very pleasantly surprised on the take up on the short side and I think it says that.
Lyanne Hayden: We got that product right that the customers and our agents recognized the flexibility in it and how to properly apply when to use it. So I'm very happy with it we continue to release a lot of new products each year that product vitality is important to us and we continue we're going to continue to do it as we move forward.
Leanne Hayden: And we're going to continue to do it as we move forward. Got it. Thanks so much. Thanks for taking my questions. I'll jump back in queue. Thanks, Leanne. Thank you.
Lyanne Hayden: <unk>.
Speaker Change: Got it. Thanks, so much thanks for taking my questions ill jump back in queue.
Speaker Change: Thanks, Lee and thank you I would like to turn the floor over to Jim Clark for closing remarks.
Jim Clark: I would like to turn the floor over to Jim Clark for closing remarks. You know, I thank you, everyone, for taking the time to call in. I think, as I said, you know, it's a very busy quarter. There's a lot of external kind of elements that everybody's facing right now. But I think the team is doing an exceptional job of managing them. I think the majority of our customers have been, you know, very transparent and have done an excellent job of communicating with us. I feel good about the quarter we just had, and I feel even better about the upcoming quarter.
Speaker Change: All right.
Speaker Change: Thank you everyone for taking the time to call in I think as I said.
Speaker Change: It was a very busy quarter.
Speaker Change: A lot of our external.
Speaker Change: Kind of elements of that.
Everybody is facing right now, but I think the team is doing an exceptional job of managing them. I think are the majority of our customers have been very transparent and have done an excellent job of communicating with us.
Speaker Change: I feel good about the quarter, we just had and I feel even better about the upcoming quarter. So.
Operator: So, you know, there's going to be a lot of noise. It's going to continue to impact the markets in general. But I think that we have a very good plan about how to navigate those choppy waters. And, you know, I'm looking forward to a to a good, strong finish to our our fiscal year here as we're, you know, a good way into our Q4. So with that, I'll just say thank you for taking the time and thank you for your continued interest in LSI.
Speaker Change: There's going to be a lot of noise is going to continue to impact the markets in general, but I think that we have a very good plan about how to navigate those choppy waters.
Speaker Change: And.
Speaker Change: I'm looking forward to a good strong finish to our fiscal year here.
Speaker Change: A good way into our Q4, so with that I'll just say thank you for taking the time and thank you for your continued interest in LSI.
Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines and thank you for your participation.
Speaker Change: Yes.
Speaker Change: [music].