LSI Reports Fiscal 2Q 2020 Results

CINCINNATI — LSI Industries Inc. (NASDAQ:  LYTS, or the “Company”) a leading U.S.-based manufacturer of indoor/outdoor lighting and graphics solutions, today announced results for the fiscal second quarter 2020.

Second Quarter 2020 Highlights

• Sales of $82.4 million reflects success in demand-shaping initiatives
• EPS of $0.07 vs. $(0.61) prior year; Adjusted EPS of $0.06 vs. $0.03 prior year
• Net Income of $1.7 million compared to net loss of $(15.8) million last year
• Adjusted Net Income of $1.6 million vs. $0.9 million prior year
• Free Cash Flow of $13.8 million
• Net Debt reduced to $9.2 million, a decrease of $29 million in the fiscal year
• Announced agreement to sell the North Canton, Ohio facility

During the second quarter of fiscal 2020 the Company achieved improved earnings on lower sales, consistent with management’s continued transition toward a less commoditized, higher-value sales mix.  Sales were $82.4 million, a decrease of 8% versus $89.5 million in the prior-year period.  Net Income was $1.7 million compared to a net loss of $(15.8) million in the same period of fiscal 2019.  Earnings per diluted share were $0.07 versus a loss of $(0.61) for the prior year second quarter.

Second-quarter adjusted net income was $1.6 million versus $0.9 million prior year.  Adjusted earnings per share were $0.06 compared to $0.03 for the same quarter prior year. Fiscal second-quarter adjusted operating earnings of $2.1 million increased 36% versus last year.

The Company generated free cash flow of $13.8 million in the second quarter, resulting in a further reduction of long-term debt during the period.  At the end of the fiscal second quarter, LSI has net debt of $9.2 million, or 0.7x trailing twelve-month Adjusted EBITDA.

In January 2020, the Company announced a definitive agreement to sell a graphics manufacturing facility in North Canton, Ohio.  Advancements in graphics technology and the Company’s improved operating productivity have reduced the quantity of floor space required by the business.  Production at the existing facility will be relocated to a smaller, leased facility in the North Canton area.  Under the terms of the agreement, the Company will receive approximately $8 million in gross cash proceeds.  The transaction is expected to close by March 31, 2020.

The Company declared a regular cash dividend of $0.05 per share payable February 26, 2020 to shareholders of record on February 18, 2020.

Management Commentary
James A. Clark, President and Chief Executive Officer commented, “During the fiscal second quarter, we continued to pivot away from low margin commodity business and focus on higher-margin applications and solutions.  Although this approach contributed to a near-term decline in total sales, both operating income and net income increased on a year-over-year basis in the period. The business continues to generate strong free cash flow from operations, positioning us to reduce net debt by nearly $30 million during the last twelve months.  At the end of the quarter, total net debt was $9.2 million, the lowest level in approximately three years.

“Execution of our change in commercial policy is evident in the Lighting Segment where we elected to exit a supply relationship with a low-margin retail account during the fiscal second quarter.  While this unfavorably impacts sales short-term, the improved mix contributed to a 420 basis point improvement in the Lighting Segment gross margin rate in the quarter, resulting in increased adjusted operating income.  We have made progress to replace this commodity business with higher value opportunities, as reflected by the recent win of several large orders received in the quarter that will ship throughout the second half of the fiscal year and into early fiscal 2021.  Importantly, recent actions to align our manufacturing capacity and asset base with the demand of the business have positioned us to execute this transition while improving our financial performance.

“New products are also important to our transition, and our updated lighting product roadmaps are beginning to deliver as we launched several key new products during the quarter.  Some of our recent product launches include: the next generation Alliance high bay; new distribution area light; new controls platform and configuration app for mobile devices; Low Profile recessed troffer with Lutron Wireless Integral fixture control; field-selectable Troffers; and Pole retro-fit kits.  We are excited about the impact these products will have in the market during the coming quarters, and will continue to invest in innovative products and solutions.

“Our Graphics Segment project pipeline remains strong, resulting in sales and operating income growth of 12% and 81% respectively. The Graphics segment has now reported nine consecutive quarters of year-over-year growth. We were awarded a four-year contract extension with ChevronTexaco during the quarter, one of our largest customers in the petroleum vertical. With a branded network of nearly 8,500 locations, ChevronTexaco continues to leverage LSI as a major provider of image-oriented graphic/lighting products and related services. The contract extension illustrates another example of the proven, long-term relationships we have with major petroleum customers and the innovative products and solutions that we provide.

“As announced in January, we have entered into a definitive agreement to sell the North Canton Graphics manufacturing facility.  The sale proceeds, retention of our valuable skilled workforce in North Canton, and improved productivity ensures we will continue to provide the innovation, quality, and service our customers expect from LSI.

“Our goal to build a high-performance organization continues with the addition of our new sales leader, Jeff Davis, as well as several other additions throughout the business.  Jeff is a successful commercial executive in the construction and building products markets, with experience in both project and distribution environments.  I look forward to Jeff’s sales leadership as we drive for profitable growth.

“Our transformation continues, positioning the Company to gain share in select vertical markets, and generating profitable growth as we move forward.  Our strong foundation, combined with accelerating innovation, more focused sales efforts, and enhanced service to our partners and customers, provide the blueprint to achieve success.”

CONFERENCE CALL

A conference call will be held today at 11:00 A.M. ET to review the Company’s financial results and conduct a question-and-answer session.

A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of LSI Industries’ website at www.lsi-industries.com.  Individuals can also participate by teleconference dial-in.  To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.

Details of the conference call are as follows:

A replay of the conference call will be available between February 5, 2020 and February 19, 2020.  To listen to a replay of the teleconference via webcast, please visit the Investor Relations section of LSI Industries’ website at www.lsi-industries.com.