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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________________
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________. |
Commission File No.
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
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Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
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Emerging growth company
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Non-accelerated filer ☐ |
Smaller reporting company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 27, 2023, there were
LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
INDEX
| PART I. FINANCIAL INFORMATION | 3 | |
| ITEM 1. | FINANCIAL STATEMENTS | 3 |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | 3 | |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 4 | |
| CONDENSED CONSOLIDATED BALANCE SHEETS | 5 | |
| CONDENSED CONSOLIDATED BALANCE SHEETS | 6 | |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY | 7 | |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 8 | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 9 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 25 |
| ITEM 4. | CONTROLS AND PROCEDURES | 25 |
| PART II. OTHER INFORMATION | 26 | |
| ITEM 5. | OTHER INFORMATION | 26 |
| ITEM 6. | EXHIBITS | 26 |
| SIGNATURES | 27 | |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
||||||||
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September 30 |
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(In thousands, except per share data) |
2023 |
2022 |
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Net Sales |
$ |
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$ |
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Cost of products and services sold |
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Severance and restructuring costs |
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Gross profit |
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Severance and restructuring costs |
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Selling and administrative expenses |
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Operating income |
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Interest expense |
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Other expense |
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Income before income taxes |
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Income tax expense |
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| Net income | $ |
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$ |
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Earnings per common share (see Note 4) |
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Basic |
$ |
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$ |
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Diluted |
$ |
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$ |
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Weighted average common shares outstanding |
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Basic |
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Diluted |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
||||||||
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September 30 |
||||||||
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(In thousands) |
2023 |
2022 |
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Net Income |
$ |
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$ |
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Foreign currency translation adjustment |
(
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) |
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Comprehensive Income |
$ |
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$ |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, |
June 30, |
|||||||
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(In thousands, except shares) |
2023 |
2023 |
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| ASSETS | ||||||||
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, less allowance for credit losses of $
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Inventories |
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Refundable income taxes |
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Other current assets |
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Total current assets |
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Property, Plant and Equipment, at cost |
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Land |
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Buildings |
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Machinery and equipment |
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Buildings under finance leases |
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Construction in progress |
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Less accumulated depreciation |
(
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(
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Net property, plant and equipment |
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Goodwill |
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Other intangible assets, net |
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Operating lease right-of-use assets |
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Other long-term assets, net |
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Total assets |
$ |
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$ |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, |
June 30, |
|||||||
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(In thousands, except shares) |
2023 |
2023 |
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LIABILITIES & SHAREHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
$ |
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$ |
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Accounts payable |
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Accrued expenses |
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Total current liabilities |
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Long-term debt |
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Finance lease liabilities |
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Operating lease liabilities |
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Other long-term liabilities |
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Commitments and contingencies (Note 12) |
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Shareholders' Equity |
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Preferred shares,
par value; Authorized
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Common shares,
par value; Authorized
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Treasury shares, without par value |
(
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(
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Deferred compensation plan |
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Retained earnings |
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Accumulated other comprehensive income |
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Total shareholders' equity |
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Total liabilities & shareholders' equity |
$ |
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$ |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Common Shares |
Treasury Shares |
Key Executive |
Accumulated Other |
Total |
||||||||||||||||||||||||||||
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Number Of |
Number Of | Compensation | Comprehensive |
Retained |
Shareholders' | |||||||||||||||||||||||||||
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(In thousands, except per share data) |
Shares |
Amount |
Shares |
Amount |
Amount |
Income |
Earnings |
Equity |
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Balance at June 30, 2022 |
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$ |
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(
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) | $ |
(
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) | $ |
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$ |
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$ |
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$ |
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Net Income |
- |
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- |
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Other comprehensive gain |
- |
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- |
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Board stock compensation |
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Restricted stock units issued, net of shares withheld for tax withholdings |
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(
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(
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) | ||||||||||||||||||||||
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Shares issued for deferred compensation |
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Activity of treasury shares, net |
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(
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) |
(
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) |
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(
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) | |||||||||||||||||||||
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Deferred stock compensation |
- |
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- |
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Stock-based compensation expense |
551 |
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- |
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Stock options exercised, net |
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Dividends — $
|
- |
|
- |
|
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(
|
) |
(
|
) | ||||||||||||||||||||||
|
Balance at September 30, 2022 |
|
$ |
|
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Common Shares |
Treasury Shares |
Key Executive |
Accumulated Other |
Total |
||||||||||||||||||||||||||||
| Number Of |
Number Of |
Compensation | Comprehensive | Retained |
Shareholders' |
|||||||||||||||||||||||||||
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Shares |
Amount |
Shares |
Amount |
Amount |
Income |
Earnings |
Equity |
|||||||||||||||||||||||||
|
Balance at June 30, 2023 |
|
$ |
|
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
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Net Income |
- |
|
- |
|
|
|
|
|
||||||||||||||||||||||||
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Other comprehensive loss |
- |
|
- |
|
|
(
|
) |
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(
|
) | ||||||||||||||||||||||
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Board stock compensation |
|
|
|
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|
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||||||||||||||||||||||||
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ESPP stock awards |
|
|
|
|
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||||||||||||||||||||||||
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Restricted stock units issued, net of shares withheld for tax withholdings |
|
|
|
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Shares issued for deferred compensation |
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|
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|
|
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||||||||||||||||||||||||
|
Activity of treasury shares, net |
|
|
(
|
) |
(
|
) |
|
|
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(
|
) | |||||||||||||||||||||
|
Deferred stock compensation |
- |
|
- |
|
|
|
|
|
||||||||||||||||||||||||
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Stock-based compensation expense |
1,220 |
|
- |
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|||||||||||||||||||||||||
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Stock options exercised, net |
|
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||||||||||||||||||||||||
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Dividends — $
|
- |
|
- |
|
|
|
(
|
) |
(
|
) | ||||||||||||||||||||||
|
Balance at September 30, 2023 |
|
$ |
|
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Cash Flows from Operating Activities |
||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Non-cash items included in net income |
||||||||
|
Depreciation and amortization |
|
|
||||||
|
Deferred income taxes |
(
|
) |
|
|||||
|
Deferred compensation plan |
|
|
||||||
|
ESPP Discount |
|
|
||||||
|
Stock compensation expense |
|
|
||||||
|
Issuance of common shares as compensation |
|
|
||||||
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Loss on disposition of fixed assets |
|
|
||||||
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Allowance for credit losses |
(
|
) |
|
|||||
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Inventory obsolescence reserve |
|
|
||||||
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Changes in certain assets and liabilities |
||||||||
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Accounts receivable |
(
|
) |
|
|||||
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Inventories |
|
(
|
) | |||||
|
Refundable income taxes |
|
(
|
) | |||||
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Accounts payable |
|
|
||||||
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Accrued expenses and other |
(
|
) |
(
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) | ||||
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Customer prepayments |
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(
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) | |||||
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Net cash flows provided by operating activities |
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||||||
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Cash Flows from Investing Activities |
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Purchases of property, plant and equipment |
(
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) |
(
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) | ||||
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Net cash flows used in investing activities |
(
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) |
(
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) | ||||
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Cash Flows from Financing Activities |
||||||||
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Payments of long-term debt |
(
|
) |
(
|
) | ||||
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Borrowings of long-term debt |
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Cash dividends paid |
(
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) |
(
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) | ||||
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Shares withheld for employees' taxes |
|
(
|
) | |||||
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Payments on financing lease obligations |
(
|
) |
(
|
) | ||||
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Proceeds from stock option exercises |
|
|
||||||
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Net cash flows used in financing activities |
(
|
) |
(
|
) | ||||
|
Change related to foreign currency |
(
|
) |
|
|||||
|
Increase in cash and cash equivalents |
|
|
||||||
|
Cash and cash equivalents at beginning of period |
|
|
||||||
|
Cash and cash equivalents at end of period |
$ |
|
$ |
|
||||
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of September 30, 2023, the results of its operations for the three-month periods ended September 30, 2023, and 2022, and its cash flows for the three-month periods ended September 30, 2023, and 2022. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2023 Annual Report on Form 10-K. Financial information as of June 30, 2023, has been derived from the Company’s audited consolidated financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2023 Annual Report on Form 10-K.
Revenue Recognition:
The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.
Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.
A number of the Company's display solutions and select lighting products are customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows:
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● |
Customer specific branded print graphics |
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● |
Electrical components based on customer specifications |
|
● |
Digital signage and related media content |
The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided through the installation process.
For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the performance obligation.
On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.
Disaggregation of Revenue
The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:
|
Three Months Ended |
||||||||||||||||
|
(In thousands) |
September 30, 2023 |
September 30, 2022 |
||||||||||||||
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
|||||||||||||
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Timing of revenue recognition |
||||||||||||||||
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Products and services transferred at a point in time |
$ |
|
$ |
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$ |
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$ |
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||||||||
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Products and services transferred over time |
|
|
|
|
||||||||||||
| $ |
|
$ |
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$ |
|
$ |
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|||||||||
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Three Months Ended |
||||||||||||||||
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September 30, 2023 |
September 30, 2022 |
|||||||||||||||
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
|||||||||||||
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Type of Product and Services |
||||||||||||||||
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LED lighting, digital signage solutions, electronic circuit boards |
$ |
|
$ |
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$ |
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$ |
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||||||||
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Poles, other display solution elements |
|
|
|
|
||||||||||||
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Project management, installation services, shipping and handling |
|
|
|
|
||||||||||||
| $ |
|
$ |
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$ |
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$ |
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|||||||||
Practical Expedients and Exemptions
|
● |
The Company’s contracts with customers have an expected duration of one year or less, as such, the Company applies the practical expedient to expense sales commissions as incurred and has omitted disclosures on the amount of remaining performance obligations. |
|
● |
Shipping costs that are not material in context of the delivery of products are expensed as incurred. |
|
● |
The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing; therefore, payments do not contain significant financing components. |
|
● |
The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations. |
New Accounting Pronouncements:
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. There has not been a material impact on the Company’s consolidated financial statements and related disclosures as a result of its adoption of the guidance on July 1, 2023.
NOTE 3 - SEGMENT REPORTING INFORMATION
The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s operating segments are Lighting and Display Solutions (formerly known as the Graphics Segment), with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.
The Lighting Segment includes non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. In addition to the manufacture and sale of lighting fixtures, the Company offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Lighting Segment also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.
The Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage.
The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing, and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
There were
customers or customer programs representing a concentration of 10% or more of the Company’s consolidated net sales in the three months ended September 30, 2023, or 2022. There was
concentration of accounts receivable at September 30, 2023.
customer in the Display Solutions Segment represents $
Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of September 30, 2023, and September 30, 2022:
|
Three Months Ended |
||||||||
|
(In thousands) |
September 30 |
|||||||
|
2023 |
2022 |
|||||||
|
Net Sales: |
||||||||
|
Lighting Segment |
$ |
|
$ |
|
||||
|
Display Solutions Segment |
|
|
||||||
| $ |
|
$ |
|
|||||
|
Operating Income (Loss): |
||||||||
|
Lighting Segment |
$ |
|
$ |
|
||||
|
Display Solutions Segment |
|
|
||||||
|
Corporate and Eliminations |
(
|
) |
(
|
) | ||||
| $ |
|
$ |
|
|||||
|
Capital Expenditures: |
||||||||
|
Lighting Segment |
$ |
|
$ |
|
||||
|
Display Solutions Segment |
|
|
||||||
|
Corporate and Eliminations |
|
|
||||||
| $ |
|
$ |
|
|||||
|
Depreciation and Amortization: |
||||||||
|
Lighting Segment |
$ |
|
$ |
|
||||
|
Display Solutions Segment |
|
|
||||||
|
Corporate and Eliminations |
|
|
||||||
| $ |
|
$ |
|
|||||
|
September 30,
|
June 30,
|
|||||||
|
Total Assets: |
||||||||
|
Lighting Segment |
$ |
|
$ |
|
||||
|
Display Solutions Segment |
|
|
||||||
|
Corporate and Eliminations |
|
|
||||||
| $ |
|
$ |
|
|||||
The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations.
The Company records a
|
Inter-segment sales |
||||||||
|
Three Months Ended |
||||||||
|
(In thousands) |
September 30 |
|||||||
|
2023 |
2022 |
|||||||
|
Lighting Segment inter-segment net sales |
$ |
|
$ |
|
||||
|
Display Solutions Segment inter-segment net sales |
$ |
|
$ |
|
||||
NOTE 4 - EARNINGS PER COMMON SHARE
The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
2023 |
2022 |
|||||||
| BASIC EARNINGS PER SHARE | ||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Weighted average shares outstanding during the period, net of treasury shares |
|
|
||||||
|
Weighted average vested restricted stock units outstanding |
|
|
||||||
|
Weighted average shares outstanding in the Deferred Compensation Plan during the period |
|
|
||||||
|
Weighted average shares outstanding |
|
|
||||||
|
Basic earnings per common share |
$ |
|
$ |
|
||||
|
DILUTED EARNINGS PER SHARE |
||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Weighted average shares outstanding: |
||||||||
|
Basic |
|
|
||||||
|
Effect of dilutive securities (a): |
||||||||
|
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any |
|
|
||||||
|
Weighted average shares outstanding |
|
|
||||||
|
Diluted earnings per common share |
$ |
|
$ |
|
||||
|
Anti-dilutive securities (b) |
|
|
||||||
|
(a) |
|
|
(b) |
|
NOTE 5 – INVENTORIES, NET
The following information is provided as of the dates indicated:
|
September 30, |
June 30, |
|||||||
|
(In thousands) |
2023 |
2023 |
||||||
|
Inventories: |
||||||||
|
Raw materials |
$ |
|
$ |
|
||||
|
Work-in-progress |
|
|
||||||
|
Finished goods |
|
|
||||||
|
Total Inventories |
$ |
|
$ |
|
||||
NOTE 6 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
|
September 30, |
June 30, |
|||||||
|
(In thousands) |
2023 |
2023 |
||||||
|
Accrued Expenses: |
||||||||
|
Customer prepayments |
$ |
|
$ |
|
||||
|
Compensation and benefits |
|
|
||||||
|
Accrued warranty |
|
|
||||||
|
Operating lease liabilities |
|
|
||||||
|
Accrued sales commissions |
|
|
||||||
|
Accrued Freight |
|
|
||||||
|
Accrued FICA |
|
|
||||||
|
Finance lease liabilities |
|
|
||||||
|
Other accrued expenses |
|
|
||||||
|
Total Accrued Expenses |
$ |
|
$ |
|
||||
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired.
The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of reporting units that contain goodwill. reporting unit is within the Lighting Segment and reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.
The following table presents information about the Company's goodwill on the dates or for the periods indicated:
|
Goodwill |
Display |
|||||||||||
|
(In thousands) |
Lighting |
Solutions |
||||||||||
|
Segment |
Segment |
Total |
||||||||||
|
Balance as of September 30, 2023 |
||||||||||||
|
Goodwill |
$ |
|
$ |
|
$ |
|
||||||
|
Accumulated impairment losses |
(
|
) |
(
|
) |
(
|
) | ||||||
|
Goodwill, net as of September 30, 2023 |
$ |
|
$ |
|
$ |
|
||||||
| Balance as of June 30, 2023 | ||||||||||||
|
Goodwill |
$ |
|
$ |
|
$ |
|
||||||
|
Accumulated impairment losses |
(
|
) |
(
|
) |
(
|
) | ||||||
|
Goodwill, net as of June 30, 2023 |
$ |
|
$ |
|
$ |
|
||||||
The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:
|
Other Intangible Assets |
September 30, 2023 |
|||||||||||
|
(In thousands) |
Gross |
|||||||||||
|
Carrying |
Accumulated |
Net |
||||||||||
|
Amount |
Amortization |
Amount |
||||||||||
|
Amortized Intangible Assets |
||||||||||||
|
Customer relationships |
$ |
|
$ |
|
$ |
|
||||||
|
Patents |
|
|
|
|||||||||
|
LED technology firmware, software |
|
|
|
|||||||||
|
Trade name |
|
|
|
|||||||||
|
Non-compete |
|
|
|
|||||||||
|
Total Amortized Intangible Assets |
|
|
|
|||||||||
|
Indefinite-lived Intangible Assets |
||||||||||||
|
Trademarks and trade names |
|
- |
|
|||||||||
|
Total indefinite-lived Intangible Assets |
|
- |
|
|||||||||
|
Total Other Intangible Assets |
$ |
|
$ |
|
$ |
|
||||||
|
Other Intangible Assets |
June 30, 2023 |
|||||||||||
|
(In thousands) |
Gross |
|||||||||||
|
Carrying |
Accumulated |
Net |
||||||||||
|
Amount |
Amortization |
Amount |
||||||||||
|
Amortized Intangible Assets |
||||||||||||
|
Customer relationships |
$ |
|
$ |
|
$ |
|
||||||
|
Patents |
|
|
|
|||||||||
|
LED technology firmware, software |
|
|
|
|||||||||
|
Trade name |
|
|
|
|||||||||
|
Non-compete |
|
|
|
|||||||||
|
Total Amortized Intangible Assets |
|
|
|
|||||||||
|
Indefinite-lived Intangible Assets |
||||||||||||
|
Trademarks and trade names |
|
- |
|
|||||||||
|
Total indefinite-lived Intangible Assets |
|
- |
|
|||||||||
|
Total Other Intangible Assets |
$ |
|
$ |
|
$ |
|
||||||
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Amortization Expense of Other Intangible Assets |
$ |
|
$ |
|
||||
The Company expects to record annual amortization expense as follows:
|
(In thousands) |
||||
|
2024 |
$ |
|
||
|
2025 |
$ |
|
||
|
2026 |
$ |
|
||
|
2027 |
$ |
|
||
|
2028 |
$ |
|
||
|
After 2028 |
$ |
|
NOTE 8 - DEBT
The Company’s long-term debt as of September 30, 2023, and June 30, 2023, consisted of the following:
|
September 30, |
June 30, |
|||||||
|
(In thousands) |
2023 |
2023 |
||||||
|
Secured line of credit |
$ |
|
$ |
|
||||
|
Term loan, net of debt issuance costs of $
|
|
|
||||||
|
Total debt |
$ |
|
$ |
|
||||
|
Less: amounts due within one year |
|
|
||||||
|
Total amounts due after one year, net |
$ |
|
$ |
|
||||
In September 2021, the Company amended its existing $
The Company is in compliance with all of its loan covenants as of September 30, 2023.
NOTE 9 - CASH DIVIDENDS
The Company paid cash dividends of $
NOTE 10 – EQUITY COMPENSATION
In November 2022, the Company’s shareholders approved the amendment and restatement of the 2019 Omnibus Award Plan (“2019 Omnibus Plan”) which increased the number of shares authorized for issuance under the plan by
In the three months ended September 30, 2023, the Company granted
In November of 2021, our board of directors approved the LSI Employee Stock Purchase Plan (“ESPP”). A total of
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
|
Three Months Ended |
||||||||
|
(In thousands) |
September 30 |
|||||||
|
2023 |
2022 |
|||||||
|
Cash Payments: |
||||||||
|
Interest |
$ |
|
$ |
|
||||
|
Income taxes |
$ |
|
$ |
|
||||
|
Non-cash investing and financing activities |
||||||||
|
Issuance of common shares as compensation |
$ |
|
$ |
|
||||
|
Issuance of common shares to fund deferred compensation plan |
$ |
|
$ |
|
||||
|
Issuance of common shares to fund ESPP plan |
$ |
|
$ |
|
||||
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.
The Company may occasionally issue a standby letter of credit in favor of third parties. As of September 30, 2023, there were no such standby letters of credit issued.
NOTE 13 - LEASES
The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items, and various items of office equipment. The Company also acquired buildings, machinery, and forklift leases with the acquisition of JSI, as well as one sublease. All but two of the Company’s leases are operating leases. Leases have a remaining term of to years some of which have an option to renew. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments.
The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The Company elected not to record these leases on the balance sheet. For the three months ended September 30, 2023, and 2022, the rent expense for these leases is immaterial.
The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component.
Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments.
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Operating lease cost |
$ |
|
$ |
|
||||
|
Financing lease cost: |
||||||||
|
Amortization of right of use assets |
|
|
||||||
|
Interest on lease liabilities |
|
|
||||||
|
Variable lease cost |
|
|
||||||
|
Sublease income |
|
(
|
) | |||||
|
Total lease cost |
$ |
|
$ |
|
||||
|
Supplemental Cash Flow Information: |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Cash flows from operating leases |
||||||||
|
Fixed payments - operating cash flows |
$ |
|
$ |
|
||||
|
Liability reduction - operating cash flows |
$ |
|
$ |
|
||||
|
Cash flows from finance leases |
||||||||
|
Interest - operating cash flows |
$ |
|
$ |
|
||||
|
Repayments of principal portion - financing cash flows |
$ |
|
$ |
|
||||
|
Operating Leases: |
September 30, |
June 30, |
||||||
|
2023 |
2023 |
|||||||
|
Total operating right-of-use assets |
$ |
|
$ |
|
||||
|
Accrued expenses (Current liabilities) |
$ |
|
$ |
|
||||
|
Long-term operating lease liability |
|
|
||||||
|
Total operating lease liabilities |
$ |
|
$ |
|
||||
|
Weighted Average remaining Lease Term (in years) |
|
|
||||||
|
Weighted Average Discount Rate |
|
% |
|
% | ||||
|
Finance Leases: |
September 30, |
June 30, |
||||||
|
2023 |
2023 |
|||||||
|
Buildings under finance leases |
$ |
|
$ |
|
||||
|
Equipment under finance leases |
|
|
||||||
|
Accumulated depreciation |
(
|
) |
(
|
) | ||||
|
Total finance lease assets, net |
$ |
|
$ |
|
||||
|
Accrued expenses (Current liabilities) |
$ |
|
$ |
|
||||
|
Long-term finance lease liability |
|
|
||||||
|
Total finance lease liabilities |
$ |
|
$ |
|
||||
|
Weighted Average remaining Lease Term (in years) |
|
|
||||||
|
Weighted Average Discount Rate |
|
% |
|
% | ||||
|
Maturities of Lease Liability: |
Operating Lease Liabilities |
Finance Lease Liabilities |
Operating Subleases |
Net Lease Commitments |
||||||||||||
|
2024 |
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
|
2025 |
|
|
(
|
) |
|
|||||||||||
|
2026 |
|
|
|
|
||||||||||||
|
2027 |
|
|
|
|
||||||||||||
|
2028 |
|
|
|
|
||||||||||||
|
Thereafter |
|
|
|
|
||||||||||||
|
Total lease payments |
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
|
Less: Interest |
(
|
) |
(
|
) |
(
|
) | ||||||||||
|
Present Value of Lease Liabilities |
$ |
|
$ |
|
$ |
|
||||||||||
NOTE 14 – INCOME TAXES
The Company's effective income tax rate is based on expected income, statutory rates, and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
2023 |
2022 |
|||||||
| Reconciliation of effective tax rate: | ||||||||
|
Provision for income taxes at the anticipated annual tax rate |
|
% |
|
% |
||||
|
Uncertain tax positions |
|
|
||||||
|
Deferred Income Tax Adjustment |
|
|
||||||
|
Share-based compensation |
(
|
) |
|
|||||
|
Effective tax rate |
|
% |
|
% |
||||
ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note About Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “focus,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2023, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
Our condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Summary of Consolidated Results
|
Net Sales by Business Segment |
||||||||
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Lighting Segment |
$ | 67,641 | $ | 67,533 | ||||
|
Display Solutions Segment |
55,800 | 59,536 | ||||||
| $ | 123,441 | $ | 127,069 | |||||
|
Operating Income (Loss) by Business Segment |
||||||||
|
Three Months Ended |
||||||||
|
September 30 |
||||||||
|
(In thousands) |
2022 |
2022 |
||||||
|
Lighting Segment |
$ | 8,753 | $ | 9,158 | ||||
|
Display Solutions Segment |
7,219 | 6,496 | ||||||
|
Corporate and Eliminations |
(4,944 | ) | (5,633 | ) | ||||
| $ | 11,028 | $ | 10,021 | |||||
Net sales of $123.4 million for the three months ended September 30, 2023, decreased $3.6 million or 3% as compared to net sales of $127.1 million for the three months ended September 30, 2022. Lighting Segment net sales of $67.6 million held steady compared to strong prior year quarter net sales of $67.5 million. Net sales in the Display Solutions Segment of $55.8 million declined 6% compared to the same quarter last year sales of $59.5 million. Sales growth was realized in the Refueling/C-Store vertical and in the QSR vertical with Digital Signage applications. Sales growth in these two verticals was offset by a modest decline in the Grocery vertical. The decline in sales is attributed to the disruption caused by the pending merger of the nation’s two largest grocery chains.
Operating income of $11.0 million for the three months ended September 30, 2023, represents a $1.0 million or 10% increase from operating income of $10.0 million in the three months ended September 30, 2022. Adjusted operating income, a Non-GAAP measure, was $12.7 million in the three months ended September 30, 2023, compared to $10.9 million in the three months ended September 30, 2022. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The increase in operating income on a 3% decrease in net sales was the result of a higher-value sales mix, continued price disciplines, and effective cost management,
Non-GAAP Financial Measures
We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income, and earnings per share, which exclude the impact of long-term performance based compensation expense, severance and restructuring costs, and consulting expense related to commercial growth initiatives, are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow, and Net Debt to Adjusted EBITDA. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, the non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our results in conjunction with corresponding GAAP measures. Below is a reconciliation of these Non-GAAP measures to operating income, net income, and earnings per share for the periods indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA.
|
Reconciliation of net income to adjusted net income |
Three Months Ended |
|||||||||||||||||
|
September 30 |
||||||||||||||||||
|
(In thousands, except per share data) |
2023 |
2022 |
||||||||||||||||
|
Diluted EPS |
Diluted EPS |
|||||||||||||||||
|
Net Income as reported |
$ | 8,028 | $ | 0.27 | $ | 6,262 | $ | 0.22 | ||||||||||
|
Long-Term Performance Based Compensation |
974 | (1) | 0.03 | 420 | (4) | 0.01 | ||||||||||||
|
Consulting expense: Commercial Growth Initiatives |
13 | (2) | - | 226 | (5) | 0.01 | ||||||||||||
|
Severance costs and Restructruing costs |
256 | (3) | 0.01 | 9 | (6) | - | ||||||||||||
|
Tax rate difference between reported and adjusted net income |
(531 | ) | (0.02 | ) | 160 | 0.01 | ||||||||||||
|
Net Income adjusted |
$ | 8,740 | $ | 0.29 | $ | 7,077 | $ | 0.25 | ||||||||||
The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):
(1) $351
(2) $6
(3) $97
(4) $131
(5) $77
(6) $3
|
Reconciliation of operating income to adjusted operating income: |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Operating Income as reported |
$ | 11,028 | $ | 10,021 | ||||
|
Long-Term Performance Based Compensation |
1,325 | 551 | ||||||
|
Consulting expense: Commercial Growth Initiatives |
19 | 303 | ||||||
|
Severance costs and Restructruing costs |
353 | 12 | ||||||
|
Adjusted Operating Income |
$ | 12,725 | $ | 10,887 | ||||
|
Reconciliation of Net Income to Adjusted EBITDA |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Net Income - Reported |
$ | 8,028 | $ | 6,262 | ||||
|
Income Tax |
2,338 | 2,758 | ||||||
|
Interest Expense, Net |
566 | 788 | ||||||
|
Other Expense |
96 | 213 | ||||||
|
Operating Income as reported |
$ | 11,028 | $ | 10,021 | ||||
|
Depreciation and Amortization |
2,371 | 2,421 | ||||||
|
EBITDA |
$ | 13,399 | $ | 12,442 | ||||
|
Long-Term Performance Based Compensation |
1,325 | 551 | ||||||
|
Consulting expense: Commercial Growth Initiatives |
19 | 303 | ||||||
|
Severance costs and Restructruing costs |
353 | 12 | ||||||
|
Adjusted EBITDA |
$ | 15,096 | $ | 13,308 | ||||
|
Reconciliation of cash flow from operations to free cash flow |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Cash Flow from Operations |
$ | 10,592 | $ | 10,583 | ||||
|
Capital expenditures |
(1,393 | ) | (434 | ) | ||||
|
Free Cash Flow |
$ | 9,199 | $ | 10,149 | ||||
|
Net Debt to Adjusted EBITDA |
||||||||
|
September 30, |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Current portion and long-term debt as reported |
$ | 3,571 | $ | 3,571 | ||||
|
Long-Term Debt |
25,098 | 73,975 | ||||||
|
Total Debt |
28,669 | 77,546 | ||||||
|
Less: Cash and cash equivalents |
3,533 | 9,028 | ||||||
|
Net Debt |
$ | 25,136 | $ | 68,518 | ||||
|
Adjusted EBITDA - Trailing 12 Months |
$ | 53,408 | $ | 40,836 | ||||
|
Net Debt to Adjusted EBITDA |
0.5 | 1.7 | ||||||
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 2023, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2022
|
Lighting Segment |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Net Sales |
$ | 67,641 | $ | 67,533 | ||||
|
Gross Profit |
23,280 | 22,279 | ||||||
|
Operating Income |
8,753 | 9,158 | ||||||
Lighting Segment net sales of $67.6 million in the three months ended September 30, 2023, held steady compared to strong net sales of $67.5 million in the same period in fiscal 2023. The Company continues to invest in new product initiatives while maintaining strong relationships with agents, distributors, and contractors with the goal to drive sales growth.
Gross profit of $23.3 million in the three months ended September 30, 2023, increased $1.0 million or 5% from the same period of fiscal 2023. Gross profit as a percentage of net sales improved to 34.4% in the three months ended September 30, 2023, from 33.0% in the same period of fiscal 2023. The improvement in gross profit as a percentage of sales was the result of a higher-value sales mix, continued price disciplines, and effective cost management.
Operating expenses of $14.4 million in the three months ended September 30, 2023, increased $1.4 million from the same period of fiscal 2023, driven by higher commission expense along with an increase in investments in commercial growth initiatives.
Lighting Segment operating income of $8.8 million for the three months ended September 30, 2023, decreased $0.4 million from operating income of $9.2 million in the same period of fiscal 2023 primarily driven by an improvement in gross profit as a percentage of sales offset by an increase in operating expenses.
|
Display Solutions Segment |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Net Sales |
$ | 55,800 | $ | 59,536 | ||||
|
Gross Profit |
$ | 13,310 | $ | 12,453 | ||||
|
Operating Income |
$ | 7,219 | $ | 6,496 | ||||
Display Solutions Segment net sales of $55.8 million in the three months ended September 30, 2023, decreased $3.7 million or 6% from net sales of $59.5 million in the same period in fiscal 2023. The decline in sales was the net result of an increase in sales in Refueling/C-Store vertical as well as sales growth in the QSR vertical with Digital Signage applications offset by a decline in sales in the Grocery vertical. The decline in sales in the Grocery vertical is attributed to the disruption caused by the pending merger of the nation’s two largest grocery chains.
Gross profit of $13.3 million in the three months ended September 30, 2023, increased $0.9 million or 7% from the same period of fiscal 2023. Gross profit as a percentage of net sales in the three months ended September 30, 2023, increased to 23.9% from 20.9% in the same period of fiscal 2023. The improvement in gross profit as a percentage of sales was driven by favorable program pricing and prudent cost management.
Operating expenses of $6.1 million in the three months ended September 30, 2023, increased slightly from $6.0 million in the same period of fiscal 2023, primarily driven by a small increase in staffing costs.
Display Solutions Segment operating income of $7.2 million in the three months ended September 30, 2023, increased $0.7 million or 11% from operating income of $6.5 million in the same period of fiscal 2023. The increase of $0.7 million was driven by the net effect of an improvement of gross profit as a percentage of sales partially offset by a decrease in net sales, along with holding operating expenses steady compared to the same period of fiscal 2023.
|
Corporate and Eliminations |
Three Months Ended |
|||||||
|
September 30 |
||||||||
|
(In thousands) |
2023 |
2022 |
||||||
|
Gross Profit (Loss) |
$ | (1 | ) | $ | 6 | |||
|
Operating (Loss) |
$ | (4,944 | ) | $ | (5,633 | ) | ||
The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.
Operating expenses of $4.9 million in the three months ended September 30, 2023, decreased $0.7 million or 12% from the same period of fiscal 2023. The decrease was primarily the result of cost containment initiatives across several of the Company’s cost categories.
Consolidated Results
The Company reported $0.6 million and $0.8 million of net interest expense in the three months ended September 30, 2023, and September 30, 2022, respectively. The decrease in interest expense in a rising interest rate environment was the result of the Company’s ability to realize a large paydown in debt with the cash generated by operations, partially offset by increased borrowing costs. The Company also recorded other expense of $0.1 million and $0.2 million in the three months ended September 30, 2023, and September 30, 2022, respectively, both of which is related to net foreign exchange currency transaction losses through the Company’s Mexican and Canadian subsidiaries.
The $2.3 million of income tax expense in the three months ended September 30, 2023, represents a consolidated effective tax rate of 22.6%. Impacting the effective tax rate was the favorable tax treatment of the Company’s long-term performance based compensation. The $2.8 million of income tax expense in the three months ended September 30, 2022, represents a consolidated effective tax rate of 30.6%. Impacting the effective tax rate is an increase in a valuation reserve related to the Company’s deferred tax assets and from a higher anticipated annual tax rate.
The Company reported net income of $8.0 million in the three months ended September 30, 2023, compared to net income of $6.3 million in the three months ended September 30, 2022. Non-GAAP adjusted net income was $8.7 million for the three months ended September 30, 2023, compared to adjusted net income of $7.1 million for the three months ended September 30, 2022 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an increase in gross profit as a percentage of sales partially offset by a decrease in sales. Diluted adjusted earnings per share of $0.29 was reported in the three months ended September 30, 2023, as compared to $0.25 diluted adjusted earnings per share in the same period of fiscal 2023. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended September 30, 2023, were 29,955,000 shares compared to 28,664,000 shares in the same period last year.
Liquidity and Capital Resources
The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.
At September 30, 2023, the Company had working capital of $76.2 million compared to $73.3 million at June 30, 2023. The ratio of current assets to current liabilities was 2.0 to 1 for both September 30, 2023, and June 30, 2023. The increase in working capital from June 30, 2023, to September 30, 2023, is primarily driven by a $4.6 million increase in net accounts receivable and a $1.7 million increase in cash offset by a $1.7 million decrease in refundable income taxes and a $1.4 million increase in current liabilities.
Net accounts receivable was $82.3 million and $77.7 million at September 30, 2023, and June 30, 2023, respectively. DSO increased to 60 days at September 30, 2023, from 57 days at June 30, 2023.
Net inventories of $63.1 million at September 30, 2023, decreased $0.6 million from $63.7 million at June 30, 2023. The decrease of $0.6 million is the result of a decrease in gross inventory of $0.9 million and a $0.3 million decrease in obsolescence reserves. Lighting Segment net inventory increased $0.6 million whereas net inventory in the Display Solutions Segment decreased $1.2 million.
Cash generated from operations and borrowing capacity under the Company’s line of credit is its primary source of liquidity. The Company has a $25 million term loan and $75 million remaining in a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. As of September 30, 2023, $64.5 million of the credit line was available. The Company is in compliance with all of its loan covenants. The $100 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the remainder of fiscal 2024.
The Company had a source of $10.6 million of cash from operating activities in the three months ended September 30, 2023, and 2022. The Company continues to effectively manage its working capital while generating increasing cash flow from earnings in both fiscal years, resulting in strong cash flow from operations.
The Company used $1.4 million and $0.4 million of cash related to investing activities in the three months ended September 30, 2023, and September 30, 2022, respectively. The Company has invested in equipment and tooling to support sales growth.
The Company had a use of cash of $7.4 million and $3.6 million related to financing activities in the three months ended September 30, 2023, and September 30, 2022, respectively. The $3.9 million change in cash flow was primarily the result of cash generated from improved earnings and effective working capital management, which was used to pay down the Company’s line of credit in the first quarters of fiscal 2024 and fiscal 2023. The Company also received $0.5 million of cash in fiscal 2024 related to the exercise of stock options with no comparable event in fiscal 2023.
The Company has on its balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.
Off-Balance Sheet Arrangements
The Company has no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.
Cash Dividends
In November 2023, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 21, 2023, to shareholders of record as of November 13, 2023. The indicated annual cash dividend rate for fiscal 2024 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2023 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk since June 30, 2023. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 16 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.
Changes in Internal Control
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
.
ITEM 6. EXHIBITS
Exhibits:
|
10.1 |
|
10.2 |
|
31.1 |
Certification of Principal Executive Officer required by Rule 13a-14(a) |
|
31.2 |
Certification of Principal Financial Officer required by Rule 13a-14(a) |
|
32.1 |
|
32.2 |
|
101.INS |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
* Management compensatory agreement.
++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
LSI Industries Inc. |
|||
|
By: |
/s/ James A. Clark |
||
|
James A. Clark |
|||
|
Chief Executive Officer and President |
|||
|
(Principal Executive Officer) |
|||
|
By: |
/s/ James E. Galeese |
||
|
James E. Galeese |
|||
|
Executive Vice President and Chief Financial Officer |
|||
|
(Principal Financial Officer) |
|||
|
November 6, 2023 |
|||