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LSI INDUSTRIES INC (LYTS)·Q2 2025 Earnings Summary

Executive Summary

  • Revenue rose 36% year over year to $147.7M, with organic growth of 14%; Display Solutions more than doubled (+103%) while Lighting declined 10% due to tough comps and slower large projects .
  • Diluted EPS was $0.18 (vs. $0.20 LY), while adjusted EPS held at $0.26; adjusted EBITDA increased >20% to $13.3M, though margin compressed to 9.0% amid ramp inefficiencies and EMI dilution .
  • Backlog entered Q3 up 12% y/y, with Display Solutions orders +25% y/y; service revenue increased >100%, and net leverage fell to 0.6x on strong free cash flow ($8.8M) .
  • Management highlighted grocery demand resurgence (post Kroger–Albertsons merger termination) and a smooth refrigerant transition to R290, supporting continued Display Solutions strength into 2H FY25 .
  • No quantitative guidance provided; qualitative outlook points to sustained Display Solutions growth and a 2H pickup in Lighting large projects; quarterly dividend maintained at $0.05 per share .

What Went Well and What Went Wrong

What Went Well

  • Display Solutions delivered organic sales growth of 50% and total segment sales +103% y/y, driven by refueling/c‑store, QSR, and grocery programs; EMI contributed $23.4M in Q2 sales and operating margin improved 100 bps y/y .
  • Grocery vertical sales grew >50–60% y/y, aided by pent‑up demand release post merger termination and DOE‑driven refrigerant transition; management launched new R290 product line and executed a proactive technology shift .
  • Strong cash generation and deleveraging: Q2 free cash flow $8.8M; TTM FCF >$41M; net debt/TTM adjusted EBITDA down to 0.6x from 1.0x at FY24 YE .

Quotes:

  • “LSI delivered 14% organic sales growth... supported by strong demand across our core refueling, c‑store, and grocery verticals.” – CEO James A. Clark
  • “We successfully managed... conversion to R290... We are well positioned to capitalize on increased demand levels for display case products throughout the calendar year.” – CEO James A. Clark
  • “Service revenue increased over 100% in Q2... We expect steady growth in service revenue for the Refueling/C-Store vertical moving forward.” – CFO James Galeese

What Went Wrong

  • Lighting segment sales declined 10% y/y on tough prior‑year large project comps (e.g., EV battery plant) and slower large project timing; adjusted operating margin fell to 11.5% from 14.5% .
  • Gross/EBITDA margin headwinds from rapid ramp to meet surge orders, EMI’s initially lower margin profile, and contingency logistics costs (rerouting to West Coast amid potential port strikes) .
  • Reported diluted EPS fell to $0.18 from $0.20 LY despite stronger revenue; adjusted gross margin percent declined y/y reflecting mix and ramp inefficiencies (29.0% → 23.6%) .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$109.0 $138.1 $147.7
Diluted EPS ($USD)$0.20 $0.22 $0.18
Adjusted EPS ($USD)$0.24 $0.26 $0.26
Adjusted Operating Income ($USD Millions)$9.893 $11.898 $11.686
Adjusted EBITDA ($USD Millions)$11.060 $13.430 $13.296
Adjusted EBITDA Margin %10.1% 9.7% 9.0%
Adjusted Gross Margin % (Total)29.0% N/A23.6%

Segment performance (Q2 2025 vs. Q2 2024):

MetricQ2 2024Q2 2025
Lighting Net Sales ($USD Millions)$64.8 $58.2
Display Solutions Net Sales ($USD Millions)$44.2 $89.5
Lighting Adjusted Operating Income ($USD Millions)$9.421 $6.715
Lighting Adjusted EBITDA ($USD Millions)$10.110 $7.392
Display Solutions Adjusted Operating Income ($USD Millions)$4.189 $9.358
Display Solutions Adjusted EBITDA ($USD Millions)$4.590 $10.209

KPIs and cash metrics:

KPIQ2 2024Q1 2025Q2 2025
Cash from Operations ($USD Millions)$9.276 $11.846 $9.891
Capital Expenditure ($USD Millions)$(1.956) $(0.759) $(1.066)
Free Cash Flow ($USD Millions)$7.320 $11.087 $8.825
Net Leverage (Net Debt/TTM Adj. EBITDA, x)0.4x 0.8x 0.6x
Working Capital ($USD Millions)N/A$86.8 $84.9
Display Solutions Orders YoYN/AN/A+25%
Backlog YoY entering Q3N/A+10–12% comparable backlog +12% total backlog
Lighting Backlog YoY entering Q3N/AN/A+6%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Display Solutions sales trajectoryFY25 2HQ1: Double-digit organic DS growth in Q2; backlog improving Q2: Expect strong DS growth into fiscal second half; orders +25% y/y; backlog +12% y/y entering Q3 Maintained/positive
Lighting large projectsFY25 2HQ1: Large project releases to begin in Q2, improving 2H FY25 Q2: Expect order rates to accelerate in 2H FY25; backlog +6% y/y Maintained
Margins (near term)Q3 FY25Q1: DS operating margin to improve with volume/mix Q2: Margins likely similar to Q2 with incremental improvement as ramp inefficiencies and added logistics costs burn off; EMI margin improvement over 12–18 months Maintained/clarified
Refrigeration transitionCY2025Q1: R290 adoption driving book-to-bill 1.3x in grocery Q2: Conversion to R290 executed; positioned for increased demand Achieved/ongoing
DividendQ2 FY25$0.05 per share quarterly $0.05 per share quarterly; payable Feb 11, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25)Current Period (Q2 FY25)Trend
Grocery demandOrders +90% y/y; book-to-bill 1.3x; recovery anticipated post legal clarity Sales +60% y/y; demand resurgence post merger termination; ramp inefficiencies impacted margins Improving
Refueling/C‑store programsRobust backlog; carrying through FY25 >1,000 sites supported in Q2; orders remain elevated; service revenue >100% growth Strong/accelerating
EMI integrationRecord Q1; synergies ahead; culture fit $23.4M Q2 sales; on track; margin improvement program 12–18 months On track
Lighting large projectsTiming choppiness; releases expected in Q2 Sales -10% y/y; backlog +6% y/y; expect 2H pickup; V‑LOCITY launch gaining traction Stabilizing to improving 2H
Refrigerant transition (R290)Pilots successful; move off R448/R449 by Jan 1, 2025 Transition executed; positioned for increased demand Executed/positive
Supply chain/portsNoted Q1 readiness and component availability Hedged potential East Coast strike via West Coast reroute, adding costs; contingency plans for tariffs Managed risk; cost headwind near term
Tariffs/macroN/ADomestic sourcing (70% US) limits exposure; contingency with Tier 1/2 suppliers Resilient positioning
Latin AmericaN/AMomentum picking up in Mexico/Central America; positive outlook Improving

Management Commentary

  • “Second quarter order rates increased versus the prior year, resulting in a 12% year‑over‑year increase in backlog entering the fiscal third quarter... We anticipate that order rates will remain positive into the second half of our fiscal year.” – CEO James A. Clark
  • “Display Solutions segment generated organic sales growth of 50% in the second quarter… second quarter sales to refueling/c‑store customers increased by more than 60%.” – CEO James A. Clark
  • “Adjusted earnings per share were $0.26 versus $0.24 last year, and adjusted EBITDA was $13.3 million or 20% above the prior year quarter… leverage ratio reduced from 1.3x to 0.6x since EMI acquisition.” – CFO James Galeese
  • “Lighting segment project quote activity remains above prior‑year levels… backlog was 6% above the prior year… expect order rates to accelerate as we enter the second half.” – CEO James A. Clark
  • “We successfully managed the Department of Energy legislation… conversion to R290… we are well positioned to capitalize on increased demand.” – CEO James A. Clark

Q&A Highlights

  • Backlog/seasonality: Management expects Display Solutions activity to remain elevated into Q3 and Q4, though Q2 represented a surge; clarity on sustained run‑rate should improve over the next quarter .
  • Margins trajectory: Near‑term margins likely similar to Q2 with incremental improvement as ramp inefficiencies and added logistics costs burn off; EMI margins to improve over 12–18 months .
  • Tariffs exposure: Domestic sourcing at ~70% reduces impact; contingency plans in place for Tier 1/2 suppliers; shifted 20% of remaining China‑sourced inputs; net expected impact marginal vs peers .
  • Product launches: ~40 new products planned FY25; comprehensive launch process spanning internal/external education and manufacturing optimization; V‑LOCITY complements Mirada without full cannibalization .
  • EMI synergies and pipeline: Strong cultural fit and commercial integration; cross‑selling opportunities building; disciplined M&A pipeline with likely action in calendar 2025 .

Estimates Context

  • S&P Global consensus estimates for revenue and EPS were unavailable at the time of analysis due to data access limits; as a result, a formal beat/miss assessment versus Wall Street estimates cannot be provided today (will update when accessible).
  • Given the magnitude of top-line upside (+36% y/y) and adjusted EPS stability ($0.26), sell-side models may need to raise Display Solutions revenue and service revenue assumptions, while incorporating near‑term margin dilution from ramp inefficiencies and EMI integration .

Key Takeaways for Investors

  • Display Solutions is the growth engine: organic +50% y/y with strong refueling/c‑store and resurgent grocery demand; service revenue scaling rapidly (>100% y/y) .
  • Margin headwinds are transitory: ramp inefficiencies, EMI mix, and hedged logistics costs weighed on Q2 margins, but management anticipates gradual improvement from Q3 and ongoing EMI margin uplift over 12–18 months .
  • Lighting weakness is timing‑driven: backlog +6% y/y, quotes elevated, V‑LOCITY adoption positive; expect 2H FY25 acceleration in large projects .
  • Balance sheet optionality: consistent FCF and net leverage at 0.6x support continued organic investment and selective bolt‑on M&A; dividend maintained .
  • Structural tailwinds: R290 transition, multi‑year c‑store programs, and cross‑border projects (Mexico/Central America) underpin demand visibility .
  • Execution focus: integrated solutions model is resonating; backlog/orders support near‑term growth trajectory, with risk mitigation around tariffs and supply chain already in place .
  • Trading lens: Near‑term narrative centers on Display Solutions momentum vs. temporary margin/mix pressure; catalysts include backlog conversion, R290 case shipments, service attach growth, and any incremental M&A updates .