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LSI Reports Fiscal 1Q 2021 Results

CINCINNATI — LSI Industries Inc. today announced results for the first quarter fiscal 2021.

LSI reported improved first quarter adjusted earnings, EPS, gross margin rate, and lower operating costs, while realizing the initial recovery in construction markets and re-building project backlogs. The Company reported net income of $2.0 million, or $0.07 per diluted share in the fiscal first quarter, versus net income of $4.5 million, or $0.17 per diluted share in the prior-year period. LSI reported adjusted net income of $2.1 million, or $0.08 per diluted share, in the fiscal first quarter, versus $1.6 million, or $0.06 per share in the first quarter last year. Prior year first quarter results include a non-recurring pre-tax gain of $4.8 million resulting from sale of the New Windsor, NY facility.

LSI generated free cash flow of $7.2 million, an increase of 20% versus prior year when excluding cash proceeds from the facility sale. The Company exits the fiscal first quarter with a total cash balance of $9.5 million, and $75 million availability on the Company’s credit facility. The Company has no long-term debt at the end of the first quarter, having reduced its outstanding debt by $23 million on a trailing twelve-month basis.

During the fiscal first quarter, LSI incurred approximately $0.5 million in restructuring and other non-GAAP expenses. A schedule reconciling GAAP and non-GAAP financial results is included later in the release.

The Company declared a regular cash dividend of $0.05 per share payable November 17, 2020 to shareholders of record on November 9, 2020.

Management Commentary

James A. Clark, President and Chief Executive Officer commented, “Our first quarter performance reflects continued execution of our business transformation strategy. This is evidenced by our increased adjusted earnings, ongoing gross margin expansion, strengthening cash flow, improved liquidity and growing project backlogs.

“There was measurable change in market activity throughout the fiscal first quarter. The COVID-driven slowdown in the fourth quarter of fiscal 2020 was followed by improving quote and order activity, with orders increasing sequentially each month of the first quarter, resulting in an increased backlog as we enter the fiscal second quarter. While our markets are improving, the recovery is uneven across geographies and applications, reflected in continued project interruptions and delays. Conversely, we are seeing increased demand for short lead-time opportunities as delayed projects are released. Our U.S. based manufacturing model has allowed us to successfully capitalize on these requests.

“As we manage fluctuations in the ongoing market recovery, we continue to drive critical initiatives which benefit both the short and longer-term profitable growth of our business. We are investing in multiple commercial initiatives, including new market verticals, deeper penetration in current market verticals, and strengthening our channel engagement and direct customer relationships. We continue to accelerate our product development plans, following a record year of products introduced in 2020 with an even larger launch plan scheduled for fiscal 2021. Several significant manufacturing and supply chain improvements are also in-process or near completion.

“Our Graphics segment rebounded quickly in the first quarter, with sales approaching pre-pandemic sales levels. Sales were 4% below prior year, as project installation activity accelerated as the quarter progressed. Order activity for the previously announced three-year $100 million Quick Service Restaurant (QSR) program award has more than doubled since July, while the six other large, multi-year programs with petroleum-store companies remain in-process and largely unchanged. New business development activity remains healthy, with several additional opportunities on the horizon. Adjusted operating income increased significantly for the Graphics segment, with first quarter income of $1.9 million versus $1.1 million prior year.

“Also of note, we were awarded a multi-million dollar integration services contract from a major petroleum retailer in the first quarter, to be produced and shipped in the second quarter to over 11,000 locations. I highlight this award as it demonstrates our growing capability as a broader solutions provider. The petroleum company, along with LSI, has developed a new innovative pay at the pump solution for its customers. The program will enable expanded and enhanced transaction options on mobile devices using a “digital wallet,” bringing contactless payment technology to the pump. The broad program integration services utilizes LSI digital print technology and logistics capabilities to ensure site specific NFC and QR code deployment, installation and project management responsibilities.

“Within our Lighting segment, a pandemic-related slowdown exiting the fiscal fourth quarter resulted in a year-over-year decline in sales in the fiscal first quarter. Quotation and order activity steadily increased throughout the first quarter, resulting in double-digit growth in backlog entering the second quarter. Distributor stock and flow activity also improved significantly from the fiscal fourth quarter, evidence that distributor de-stocking has stabilized and market activity is improving. The gross margin rate expansion continues in Lighting, increasing 290 basis points to 30.5%, reflecting the ongoing impact of our focus on higher-value market applications, new products, design cost reductions and manufacturing efficiencies.

“Recently introduced new lighting products enable us to further improve our competitive position in several key market applications and verticals including: warehousing and aviation, sports court lighting, petroleum, automotive and various architectural applications served by our Abolite product offering. Our Air Link Blue Control solution continues to gain traction and is an example of our customer focused approach to innovation, developed for applications with a target defined of coverage and specific functionality requirements, allowing ease of use for our installation partners and end users. We have received a number of inquiries and orders are steadily increasing. This value-centric solution suite differentiates us from the more complex and expensive control solutions in the market.

“In Warehousing, we completed two large outdoor projects for the world’s largest e-retailer. This is an exciting start to what could be a much broader relationship. Within the automotive vertical, we are working with multiple brands on new comprehensive lighting programs to be launched beginning in the first quarter of calendar year 2021. These programs include the complete dealership, including indoor showroom, service area and outdoor new/pre-owned vehicle lots. These programs further demonstrate our ability to provide customer-centric solutions that build upon established concepts and designs.

“As we move forward though fiscal 2021, we remain committed to executing on our near-term objectives while continuing to position the business for sustained, profitable growth over the long-term.”

Fiscal First Quarter Financial Summary: Net Income of $2.0 million; EPS of $0.07

  • Increased Adjusted Net Income, EPS, Cash Flow versus Prior Year
  • Orders rebounded in Q1; backlog increased 10% entering Q2
  • Gross Margin rate improvement continues, driven by higher-value business focus
  • Cash balance increases to $9.5 million, total liquidity position now $84 million
  • Approved investments for three commercial growth programs
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