LSI(LYTS) - 2025 Q4 - Annual Report

PART I ITEM 1. BUSINESS LSI Industries Inc. provides non-residential lighting and retail display solutions, with segments in Lighting (43% of FY2025 net sales) and Display Solutions (57%) - LSI Industries Inc. is a leading producer of non-residential lighting and retail display solutions, providing American-made fixtures and custom products/services[17] Overview LSI Industries Inc. specializes in non-residential lighting and retail display solutions, aiming to provide comprehensive package solutions to customers in target vertical markets - LSI Industries Inc. specializes in non-residential lighting and retail display solutions, aiming to provide comprehensive package solutions to customers in target vertical markets[17] Segment Net Sales | Segment | FY2025 Net Sales % | | :---------------------- | :----------------- | | Lighting Segment | 43% | | Display Solutions Segment | 57% | Lighting Segment The Lighting Segment manufactures and sells outdoor and indoor LED lighting fixtures and controls for various vertical markets - The Lighting Segment manufactures and sells outdoor and indoor LED lighting fixtures and controls for various vertical markets, including refueling/convenience stores, parking lots, quick-service restaurants, and warehouses[19] - Products are designed for energy efficiency, reliability, performance, and ease of installation, adhering to safety and performance standards like UL Solutions and Design Lights Consortium[20] Display Solutions Segment The Display Solutions Segment expanded significantly through recent acquisitions, offering custom retail fixtures, store design, and visual image elements - The Display Solutions Segment expanded significantly through the acquisitions of Canada's Best Holdings (CBH) in Q3 FY2025 and EMI Industries, LLC (EMI) in Q4 FY2024[21] - This segment provides custom retail fixtures, store design solutions, visual image elements (signage, graphics, digital displays), and project management services for grocery, QSR, c-store, and other retail industries[21][22] Sales, Customers and Marketing Sales are primarily in the U.S., with lighting products sold through project-based business and display solutions through a direct sales force - Sales are primarily in the U.S., with approximately 3% of consolidated net sales from Canada, Mexico, Latin America, and the Caribbean[23] - Lighting products are sold through project-based business and stocking distributors, primarily via manufacturer's sales representatives. Display solutions are program-driven and sold through a direct sales force[23] - The company leverages cross-selling opportunities between segments to act as a single-source provider and uses various marketing methods including trade shows, digital platforms, and direct customer contact[25][26] Manufacturing and Distribution LSI operates 18 manufacturing facilities across the U.S., Mexico, and Canada, sourcing key raw materials from multiple suppliers - LSI operates 18 manufacturing facilities across 11 U.S. states, one leased facility in Mexico, and two provinces in Canada, utilizing lean manufacturing principles[27][28] - Key raw materials include steel, aluminum, LEDs, power supplies, and various graphics substrates, sourced from multiple suppliers to mitigate supply chain risks[29] Research and Development R&D investments focus on new product development and existing product enhancements, including new technology for LED products and software R&D Costs | Fiscal Year | R&D Costs (Millions) | | :---------- | :------------------- | | 2025 | $3.3 | | 2024 | $3.5 | - R&D investments focus on new product development and existing product enhancements, including new technology for LED products and software, expensed as incurred[30] Competition The company faces intense competition in both segments across all markets, based on factors such as price, quality, and service - The company faces intense competition in both segments across all markets, based on factors such as price, quality, brand recognition, delivery, and service capabilities[31] Working Capital Discussion of working capital is referenced to 'Liquidity and Capital Resources' in Item 7 - Discussion of working capital is referenced to 'Liquidity and Capital Resources' in Item 7[32] Environmental Regulations The company is subject to federal, state, and local environmental regulations, with non-compliance potentially leading to fines and liabilities - The company is subject to federal, state, and local environmental regulations concerning hazardous materials and waste, with non-compliance potentially leading to fines and liabilities[32] Seasonality Both segments experience seasonality due to weather, construction/installation programs, and major customers' annual budget cycles - Both lighting and display solutions segments experience seasonality due to weather, construction/installation programs, and major customers' annual budget cycles, particularly affecting sales during winter and holiday seasons[33] Intellectual Property The company relies on patents, trademarks, copyrights, and trade secret laws to protect its intellectual property and competitive position - The company relies on patents, trademarks, copyrights, and trade secret laws to protect its intellectual property, which is important to its competitive position[34] Human Capital As of June 30, 2025, the company has approximately 2,000 full-time/part-time employees and 175 agency employees - As of June 30, 2025, the company has approximately 2,000 full-time/part-time employees and 175 agency employees[36] - The company focuses on attracting, retaining, and motivating talent through internal development, external hires, a diverse workforce, and a comprehensive compensation and benefits program[35][36] Information Concerning the Company The company files reports with the SEC and uses its website and social media channels for information distribution - The company files reports with the SEC (Forms 10-K, 10-Q, 8-K) and uses its website (www.lsicorp.com) and social media channels for company information distribution[37][38] ITEM 1A. RISK FACTORS Strategic, operational, legal, and financial risks that could materially impact the company's business and financial performance are detailed - The company's success is subject to risks related to strategy execution, including new product development, market penetration, and potential obsolescence[40][45] - Operational risks include price increases and shortages of raw materials, transportation issues, cybersecurity threats, labor shortages, and product liability claims[47][49][52][53] - Financial risks encompass stock price volatility, inflation, interest rate increases, and the inability to raise additional capital[65][66] RISKS RELATED TO OUR STRATEGY Inability to effectively execute business strategies, manage competitive pressures, or integrate acquisitions could adversely affect financial results - Inability to effectively execute business strategies, including new product development and market penetration, could adversely affect financial condition and results of operations[40] - Highly competitive markets may lead to pricing pressures, impacting operating results, especially with foreign competitors having different cost structures[41] - Concentration of sales in refueling/convenience store and grocery markets makes the business vulnerable to changes in these industries[42][43] - Future growth through strategic acquisitions may not yield anticipated benefits due to integration difficulties, resource diversion, and potential impairment of goodwill[44] - Failure to develop appropriate new products or customer non-acceptance could lead to loss of competitive position and impact future revenues[45] - Inadequate protection of intellectual property (patents, trademarks, trade secrets) could result in loss of competitive advantage[46] RISKS RELATED TO OUR OPERATIONS Operational risks include raw material price increases, supply chain disruptions, cybersecurity threats, labor issues, and product liability claims - Price increases and significant shortages of raw materials and components, along with increased transportation and fuel prices, could adversely affect operating margins[47][48] - Information technology systems are subject to cyber risks, interruptions, and malicious activity, which could lead to service disruptions, data loss, and reputational damage[49][50][51] - Labor shortages or increases in labor costs could negatively impact business operations and profitability[52] - Improperly designed, manufactured, packaged, or labeled products could necessitate recalls, increase warranty costs, and lead to product liability claims[53] - Changes in customer demands or failure to honor commitments for proprietary inventory could result in significant inventory write-offs[54] - Turnover of independent commissioned sales representatives, particularly in the Lighting Segment, could disrupt sales volume[55] - Inability to sustain significant customer and/or channel partner relationships could harm the company[56] - Loss of key personnel or inability to attract qualified personnel could adversely affect operating results[57] - Changes in product mix can significantly impact gross margins, as certain products have higher profitability[58] - The company may not recognize all revenues from its backlog or receive all anticipated payments under awarded projects if customers terminate contracts or defer shipments[59] RISKS RELATED TO LEGAL AND REGULATORY MATTERS Potential changes in U.S. trade policies, tax rates, and increased emphasis on ESG matters could negatively affect the business - Potential changes in U.S. trade policies, including tariffs, could increase product costs, reduce demand, or lower margins[60][61] - Changes in tax rates and exposures to additional income tax liabilities could unfavorably affect reported results[62] - Increased emphasis on environmental, social, and governance (ESG) matters by stakeholders could negatively affect the business through non-compliance, reputational damage, or increased investment costs[63] - Climate changes and extreme weather conditions create financial risks, potentially leading to reduced demand, product obsolescence, or pressure on manufacturing costs[64] RISKS RELATED TO FINANCIAL MATTERS Financial risks include stock price decline, inflation, interest rate increases, and limitations in internal controls - A significant decline in stock price could adversely affect the company's ability to raise additional capital[65] - Increases in inflation and interest rates could negatively affect the business by increasing expenses and interest costs[66][67] - Anti-takeover provisions in organizational documents and Ohio law could make it difficult or delay a change in management or negatively impact share price[68][69] - Inherent limitations in disclosure and internal controls and procedures mean there is no absolute assurance against errors, theft, or fraud[70] ITEM 1B. UNRESOLVED STAFF COMMENTS No unresolved SEC staff comments were received regarding periodic or current reports issued 180 days or more before fiscal year 2025 end - No unresolved written comments from SEC staff regarding periodic or current reports issued 180 days or more preceding the end of fiscal year 2025[71] ITEM 1C. CYBERSECURITY The company's NIST-guided cybersecurity program manages threats, with Board oversight through the Audit Committee and IT leadership - The company's cybersecurity program follows the National Institute of Standards and Technology (NIST) Cybersecurity Framework for risk assessment, prevention, and incident response[72][75] - An incident response team, comprising senior leaders from IT, finance, and compliance, is responsible for diagnosing cyber events and determining materiality for SEC reporting[74] - The Board of Directors, with delegated oversight to the Audit Committee, is responsible for cybersecurity risk oversight, policy, and compliance, receiving periodic updates from IT leadership[77][78] Risk Management and Strategy The company employs a cybersecurity program to assess, identify, and manage information security and data privacy threats - The company employs a cybersecurity program to assess, identify, and manage information security and data privacy threats, including risk assessment, prevention, training, and incident response[72][73] - A Security Action Committee, composed of senior IT, finance, and compliance leaders, guides the cybersecurity program's evolution and reviews potential incidents[75] - Despite security measures, the company acknowledges susceptibility to cybersecurity incidents, which could materially affect business, operating margins, revenues, and competitive position[76] Governance The Board of Directors oversees cybersecurity risks, with specific oversight delegated to the Audit Committee, and the CIO leads strategic direction - The Board of Directors oversees cybersecurity risks, with specific information security and data privacy oversight delegated to the Audit Committee[77] - The Chief Information Officer, supported by the CEO and CFO, is responsible for strategic direction, compliance, and day-to-day information security management[80] ITEM 2. PROPERTIES The company operates 18 manufacturing and office facilities across the U.S., Canada, and Mexico, including owned and leased properties - The company operates 18 manufacturing and office facilities across 11 U.S. states, one leased facility in Mexico, and two provinces in Canada[82] Company Facilities | Description | Size (sq. ft.) | Location | Status | | :---------------------------------------------- | :------------- | :---------------- | :----- | | Corporate HQ & Lighting/Display Mfg. | 243,000 | Cincinnati, OH | Owned | | Lighting Mfg. | 122,000 | Cincinnati, OH | Owned | | Lighting Office & Mfg. | 96,000 | Independence, KY | Owned | | Display Solutions Office & Mfg. | 183,000 | Houston, TX | Leased | | Display Solutions Mfg. | 77,000 | Milo, ME | Owned | ITEM 3. LEGAL PROCEEDINGS Legal proceedings information is incorporated by reference from Note 15 – Contingencies of the Consolidated Financial Statements - Legal proceedings information is detailed in Note 15 – Contingencies of the Notes to the Consolidated Financial Statements[83] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine Safety Disclosures are not applicable to LSI Industries Inc.[84] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES LSI common stock trades on NASDAQ (LYTS), with 497 holders, a $0.20 annual dividend, and no share repurchases in fiscal 2025 - LSI's common stock is traded on the NASDAQ Global Select Market under the symbol 'LYTS'[86] - The company has paid quarterly cash dividends since fiscal 1995, with an indicated annual rate of $0.20 per share for fiscal 2025[87] - A share repurchase program of up to $15 million was authorized in April 2022, but no shares were repurchased during the fiscal year ended June 30, 2025[88] ITEM 6. [RESERVED] This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analysis of LSI's FY2025 and FY2024 financial performance, covering sales, operating income, non-GAAP measures, liquidity, and critical accounting policies Consolidated Net Sales and Operating Income (in thousands) | Metric | 2025 | 2024 | | :----------------- | :-------- | :-------- | | Total Net Sales | $573,377 | $469,638 | | Total Operating Income | $35,769 | $35,517 | | Adjusted Operating Income | $48,361 | $46,395 | - Fiscal 2025 net sales increased 22% year-over-year, primarily due to a 57% increase in the Display Solutions Segment's net sales, which included $85.3 million from EMI and CBH acquisitions and 17% organic growth[131] - Operating income increased by 1%, while adjusted operating income rose 4%, with the increase in sales partially offset by the dilutive impact of acquisitions and customer mix[132] Overview LSI Industries Inc. is a leading producer of non-residential lighting and retail display solutions, offering integrated solutions to customers in target vertical markets - LSI Industries Inc. is a leading producer of non-residential lighting and retail display solutions, offering integrated solutions to customers in target vertical markets[129] Summary of Consolidated Results Consolidated net sales increased by 22% in fiscal 2025, driven by the Display Solutions Segment's growth, while operating income saw a slight increase Net Sales by Business Segment (in thousands) | Segment | 2025 | 2024 | | :---------------------- | :-------- | :-------- | | Lighting Segment | $248,357 | $262,413 | | Display Solutions Segment | $325,020 | $207,225 | | Total Net Sales | $573,377 | $469,638 | Operating Income (Loss) by Business Segment (in thousands) | Segment | 2025 | 2024 | | :---------------------- | :-------- | :-------- | | Lighting Segment | $30,253 | $33,327 | | Display Solutions Segment | $26,353 | $19,969 | | Corporate and Eliminations | ($20,837) | ($17,779) | | Total Operating Income | $35,769 | $35,517 | - Display Solutions Segment's net sales increased by $117.8 million (57%), driven by 17% organic growth and $85.3 million from EMI and CBH acquisitions. Lighting Segment sales declined by $14.1 million (5%) due to fewer large projects[131] Non-GAAP Financial Measures The company uses non-GAAP measures like adjusted operating income, adjusted net income, and Adjusted EBITDA to provide transparency into core operating performance - The company uses non-GAAP measures like adjusted operating income, adjusted net income, adjusted EPS, EBITDA, Adjusted EBITDA, Net Debt to Adjusted EBITDA, and organic sales growth to provide increased transparency into core operating performance[133] Reconciliation of Net Income to Adjusted Net Income (in thousands, except per share data) | Metric | 2025 Net Income | 2025 Diluted EPS | 2024 Net Income | 2024 Diluted EPS | | :------------------------------------------- | :-------------- | :--------------- | :-------------- | :--------------- | | Net income as reported | $24,383 | $0.79 | $24,977 | $0.83 | | Long-term performance based compensation | 3,951 | 0.13 | 3,272 | 0.11 | | Acquisition costs | 838 | 0.03 | 735 | 0.02 | | Amortization expense of acquired intangible assets | 4,745 | 0.16 | 3,671 | 0.13 | | Net income adjusted | $32,883 | $1.07 | $32,294 | $1.07 | Reconciliation of Operating Income to Adjusted Operating Income (in thousands) | Metric | 2025 | 2024 | | :------------------------------------------- | :-------- | :-------- | | Operating income as reported | $35,769 | $35,517 | | Long-term performance based compensation | 4,939 | 4,380 | | Acquisition costs | 1,047 | 1,001 | | Amortization expense of acquired intangible assets | 5,869 | 4,958 | | Adjusted operating income | $48,361 | $46,395 | Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | 2025 | 2024 | | :------------------------------------------- | :-------- | :-------- | | Net income - reported | $24,383 | $24,977 | | Depreciation and amortization | 12,575 | 9,999 | | EBITDA | $48,344 | $45,516 | | Acquisition costs | 1,047 | 1,001 | | Long-term performance based compensation | 4,939 | 4,380 | | Adjusted EBITDA | $55,067 | $51,436 | Net Debt to Adjusted EBITDA | Metric | June 30, 2025 | June 30, 2024 | | :---------------------- | :------------ | :------------ | | Net debt | $45,100 | $50,119 | | Adjusted EBITDA | $55,067 | $51,436 | | Net debt to adjusted EBITDA | 0.82 | 0.97 | Organic vs. Inorganic Sales (in thousands) | Segment/Source | FY 2025 | FY 2024 | % Variance | | :------------------------ | :-------- | :-------- | :--------- | | Lighting Segment | $248,357 | $262,413 | -5% | | Comparable Display Solutions Sales | $221,641 | $189,152 | 17% | | EMI (Acquisition) | $94,830 | $18,073 | | | Canada's Best (Acquisition) | $8,549 | - | | | Total organic net sales | $469,998 | $451,565 | 4% | Results of Operations (2025 Compared to 2024) This section details the financial performance of the Display Solutions and Lighting segments, as well as corporate consolidated results Display Solutions Segment Display Solutions net sales increased 57% year-over-year, driven by organic growth and acquisitions, though gross profit percentage declined Display Solutions Segment Performance (in thousands) | Metric | 2025 | 2024 | | :--------------- | :-------- | :-------- | | Net Sales | $325,020 | $207,225 | | Gross Profit | $57,476 | $44,195 | | Operating Income | $26,353 | $19,969 | - Display Solutions net sales increased 57% (YoY), driven by 17% organic growth across product categories and vertical markets (grocery, refueling/C-Store), and $85.3 million from EMI and CBH acquisitions[142] - Gross profit increased 30%, but gross profit as a percentage of net sales decreased from 21% to 18% due to the dilutive impact of acquisitions and customer mix[143] Lighting Segment Lighting Segment net sales decreased 5% year-over-year due to fewer large projects, but gross profit percentage marginally improved Lighting Segment Performance (in thousands) | Metric | 2025 | 2024 | | :--------------- | :-------- | :-------- | | Net Sales | $248,357 | $262,413 | | Gross Profit | $84,390 | $89,026 | | Operating Income | $30,253 | $33,327 | - Lighting Segment net sales decreased 5% (YoY) due to the non-recurrence of several large lighting projects from fiscal 2024, though small project activity and large project order activity increased in Q4 FY2025[145] - Gross profit declined 5% in line with sales, but gross profit as a percentage of sales marginally improved due to a higher mix of value applications and effective cost management[146] Corporate and Eliminations Corporate operating expenses increased 17% year-over-year due to investments in commercial initiatives, acquisition costs, and compensation programs Corporate and Eliminations Operating (Loss) (in thousands) | Metric | 2025 | 2024 | | :--------------- | :---------- | :---------- | | Operating (Loss) | ($20,837) | ($17,779) | - Operating expenses increased 17% (YoY) due to increased investment in commercial initiatives, acquisition costs, and performance-related compensation programs[148] Consolidated Results Consolidated net income slightly decreased, while adjusted net income increased, with higher interest expense and effective tax rate Consolidated Net Income and EPS | Metric | 2025 | 2024 | | :---------------------- | :---------- | :---------- | | Net income | $24.4 million | $25.0 million | | Non-GAAP adjusted net income | $32.9 million | $32.3 million | | Diluted adjusted EPS | $1.07 | $1.07 | - Net interest expense increased to $3.1 million in fiscal 2025 from $2.2 million in fiscal 2024, primarily due to funds borrowed for EMI and CBH acquisitions[149] - The consolidated effective tax rate increased to 26.2% in fiscal 2025 from 24.5% in fiscal 2024, driven by higher state, local, and foreign income taxes[150] Liquidity and Capital Resources Working capital increased to $96.8 million at June 30, 2025, with $35.7 million available under the credit facility - Working capital increased to $96.8 million at June 30, 2025, from $83.3 million at June 30, 2024, with $9.7 million of the increase attributed to the CBH acquisition[154] Key Liquidity Metrics (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :----------------------------------- | :------------ | :------------ | | Working Capital | $96,800 | $83,300 | | Current Ratio | 2.0 to 1 | 2.1 to 1 | | Net Accounts Receivable | $104,300 | $78,600 | | Net Inventories | $79,800 | $70,900 | | Cash from Operating Activities | $38,100 | $43,400 | | Cash used in Investing Activities | $28,000 | $55,300 | | Cash (used in)/provided by Financing Activities | ($11,400) | $14,300 | - The company has a $100 million credit facility ($25 million term loan, $75 million revolving line of credit) expiring in Q1 fiscal 2027, with $35.7 million available as of June 30, 2025[157] Off-Balance Sheet Arrangements The company has no financial instruments with off-balance sheet risk - The company has no financial instruments with off-balance sheet risk[162] Cash Dividends In August 2025, the Board declared a regular quarterly cash dividend of $0.05 per share, maintaining an annual rate of $0.20 per share - In August 2025, the Board declared a regular quarterly cash dividend of $0.05 per share, maintaining an indicated annual rate of $0.20 per share for fiscal 2025[163] Critical Accounting Policies and Use of Estimates The company's critical accounting policies involve significant judgments and estimates, particularly for warranty reserves and business combinations - The company's critical accounting policies involve significant judgments and estimates, particularly for warranty reserves and business combinations, which can materially impact financial results[164] Warranty Reserves Warranty liabilities are recorded based on historical claims and estimates for known issues, with terms generally ranging from one to five years - The company records warranty liabilities based on historical claims and estimates for known issues, with terms generally ranging from one to five years, and up to 10 years for some products[165] - Warranty reserves are subject to adjustments if actual costs differ significantly from estimates, potentially affecting gross profit and operating results[165] Business Combination Business acquisitions are accounted for using the acquisition method, requiring significant estimates for fair value allocation of acquired assets and liabilities - Business acquisitions are accounted for using the acquisition method, requiring significant estimates for fair value allocation of acquired assets and liabilities, including intangible assets and goodwill[166] - Adjustments to preliminary estimates during the measurement period (up to one year) or subsequent adjustments outside this period could materially impact financial condition and results[166][167] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces market risks from variable interest rates, raw material prices, and foreign currency, managing them through sourcing and price adjustments - The company is exposed to market risks from changes in variable interest rates, raw material prices, and foreign currency translation rates[90] Interest Rate Risk The company is exposed to interest rate fluctuations on its cash, investments, and debt, particularly its revolving line of credit and term loan - The company is exposed to interest rate fluctuations on its cash, cash equivalents, short-term investments, and debt, particularly its $75 million revolving line of credit and $25 million term loan[91][92] Raw Material Price Risk The company is susceptible to raw material price fluctuations, mitigating risk through multiple suppliers and attempting to pass increased costs to customers - The company purchases large quantities of raw materials (e.g., steel, aluminum, LEDs) and components, making it susceptible to price fluctuations[93] - Strategic sourcing plans include using multiple suppliers and negotiating annual contracts to mitigate supply chain risk and price volatility[93] - The company attempts to pass increased costs to customers through price increases, but timing lags and competitive reasons may limit success[94] Foreign Currency Translation Risk The company has foreign currency risk from its Mexican and Canadian subsidiaries, whose sales represent approximately 3% of consolidated net sales - The company has foreign currency risk from its Mexican and Canadian subsidiaries, whose sales in pesos and Canadian dollars represent approximately 3% of fiscal 2025 consolidated net sales[95] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Audited consolidated financial statements for FY2025 and FY2024, including core statements, internal control report, auditor reports, and detailed accounting notes - The consolidated financial statements for the years ended June 30, 2025, and 2024, are presented in accordance with U.S. GAAP[96][177] - Management concluded that internal control over financial reporting was effective as of June 30, 2025, with the exclusion of Canada's Best Holdings (CBH) due to its recent acquisition[173][174] - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 30, 2025[177][178][187][188] Index to Financial Statements The index lists the various financial statements and supplementary data included in this item - The index lists the various financial statements and supplementary data included in this item, such as Consolidated Statements of Operations, Balance Sheets, Cash Flows, and Notes to Consolidated Financial Statements[96] Management's Report On Internal Control Over Financial Reporting Management is responsible for internal control over financial reporting and concluded its effectiveness as of June 30, 2025, excluding Canada's Best Holdings - Management is responsible for establishing and maintaining adequate internal control over financial reporting and evaluated its effectiveness as of June 30, 2025, based on the COSO framework[169] - Management excluded Canada's Best Holdings (CBH) from its evaluation of internal control effectiveness as of June 30, 2025, as CBH represented 10% of total consolidated assets and 1% of total consolidated sales[173] - The principal executive officer and principal financial officer concluded that internal control over financial reporting was effective as of June 30, 2025[174][175] Report of Independent Registered Public Accounting Firm (Opinion on Financial Statements) Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements, identifying the valuation of acquired customer relationships as a critical audit matter - Grant Thornton LLP issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position and results of operations for the periods ended June 30, 2025, and 2024[177] - The valuation of acquired customer relationships from Canada's Best Holdings (CBH) was identified as a critical audit matter due to significant auditor judgment required for fair value measurements[182][183] Report of Independent Registered Public Accounting Firm (Opinion on Internal Control) Grant Thornton LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting, excluding Canada's Best Holdings - Grant Thornton LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of June 30, 2025, based on COSO criteria[187] - The audit of internal control over financial reporting excluded Canada's Best Holdings (CBH), which was acquired during fiscal year 2025 and represented 10% of total assets and 1% of revenues[191] Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing net sales, gross profit, operating income, and net income for fiscal years 2025 and 2024 Consolidated Statements of Operations (in thousands, except per share data) | Metric | 2025 | 2024 | | :------------------------- | :-------- | :-------- | | Net Sales | $573,377 | $469,638 | | Gross profit | $141,780 | $133,168 | | Operating income | $35,769 | $35,517 | | Income before income taxes | $33,038 | $33,099 | | Net income | $24,383 | $24,977 | | Basic EPS | $0.82 | $0.86 | | Diluted EPS | $0.79 | $0.83 | Consolidated Statements of Comprehensive Income This section presents the company's consolidated statements of comprehensive income, including net income and foreign currency translation adjustments Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2025 | 2024 | | :---------------------------- | :-------- | :-------- | | Net Income | $24,383 | $24,977 | | Foreign currency translation adjustment | 627 | (137) | | Comprehensive Income | $25,010 | $24,840 | Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and shareholders' equity as of June 30, 2025, and 2024 Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | June 30, 2025 | June 30, 2024 | | :------------------------------- | :------------ | :------------ | | ASSETS | | | | Total current assets | $194,166 | $162,499 | | Net property, plant and equipment | $31,154 | $32,960 | | Goodwill | $64,548 | $57,397 | | Intangible assets, net | $78,258 | $73,916 | | Total assets | $396,362 | $348,800 | | LIABILITIES & SHAREHOLDERS' EQUITY | | | | Total current liabilities | $97,349 | $79,207 | | Long-term debt | $44,986 | $50,658 | | Total shareholders' equity | $230,722 | $204,355 | | Total liabilities & shareholders' equity | $396,362 | $348,800 | Consolidated Statements of Shareholders' Equity This section presents the company's consolidated statements of shareholders' equity, detailing changes in common shares, treasury shares, retained earnings, and comprehensive income Consolidated Statements of Shareholders' Equity (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :--------------------------- | :------------ | :------------ | | Common Shares Amount | $163,692 | $156,365 | | Treasury Shares Amount | ($10,011) | ($8,895) | | Retained Earnings | $66,201 | $47,788 | | Accumulated other comprehensive income | $829 | $202 | | Total Shareholders' Equity | $230,722 | $204,355 | - Total shareholders' equity increased from $204.4 million in 2024 to $230.7 million in 2025, driven by net income, stock-based compensation, and other comprehensive gain, partially offset by dividends[201] Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Activity | 2025 | 2024 | | :------------------------------------- | :---------- | :---------- | | Net cash flows provided by operating activities | $38,118 | $43,392 | | Net cash flows used in investing activities | ($27,967) | ($55,253) | | Net cash flows provided by (used in) financing activities | ($11,431) | $14,308 | | Increase (decrease) in cash and cash equivalents | ($653) | $2,282 | | Cash and cash equivalents at end of period | $3,457 | $4,110 | - Cash from operating activities decreased from $43.4 million in 2024 to $38.1 million in 2025. Cash used in investing activities decreased from $55.3 million to $28.0 million, primarily due to the timing of EMI and CBH acquisitions[203] Notes to Consolidated Financial Statements The consolidated financial statements are prepared in accordance with U.S. GAAP, with critical accounting policies involving significant judgments and estimates - The consolidated financial statements are prepared in accordance with U.S. GAAP, including wholly-owned subsidiaries, with all intercompany transactions eliminated[204] - Revenue is recognized when performance obligations are satisfied, typically at shipment for products, or over time for customized products and installation services using a cost-based input method[205][207][208] - Critical accounting policies include warranty reserves and business combinations, which involve significant management judgment and estimates[164][165][166] NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's significant accounting policies, including consolidation, revenue recognition, inventory valuation, and employee benefit plans Consolidation Consolidated financial statements include LSI Industries Inc. and its wholly-owned subsidiaries, prepared in accordance with U.S. GAAP - Consolidated financial statements include LSI Industries Inc. and its wholly-owned subsidiaries, prepared in accordance with U.S. GAAP, with all intercompany transactions eliminated[204] Revenue Recognition Revenue is recognized when performance obligations are satisfied, typically at shipment for most products, or over time for customized products and installation services - Revenue is recognized when performance obligations are satisfied, typically at a point in time upon shipment for most products when control transfers to the customer[205] - For customized products (metal/millwork, print graphics, digital signage) and installation services, revenue is recognized over time using a cost-based input method[207][208][210] Disaggregation of Revenue This section provides a breakdown of revenue by timing of transfer and product/service type for fiscal year 2025 Disaggregated Revenue by Timing and Type (FY2025, in thousands) | Category | Lighting Segment | Display Solutions Segment | | :---------------------------------------- | :--------------- | :------------------------ | | Products and services transferred at a point in time | $208,193 | $259,432 | | Products and services transferred over time | $40,164 | $65,588 | | LED lighting, digital signage solutions, electronic circuit boards | $202,552 | $26,144 | | Poles and other display solutions elements | $43,211 | $233,792 | | Project management, installation services, shipping and handling | $2,594 | $65,084 | Practical Expedients and Exemptions The company expenses sales commissions for short-term contracts and omits disclosures on remaining performance obligations - The company expenses sales commissions as incurred for contracts with expected durations of one year or less and omits disclosures on remaining performance obligations[214] - Shipping costs are expensed as incurred if not material, and sales tax is excluded from revenue[214] Credit and Collections Allowances for credit losses are maintained for estimated losses from customer disputes or inability to pay - Allowances for credit losses are maintained for estimated losses from customer disputes or inability to pay, determined by known problems and historical percentages against aging receivables[213] Net Accounts Receivable (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Accounts receivable | $105,499 | $79,474 | | Less: Allowance for credit losses | ($1,152) | ($848) | | Accounts receivable, net | $104,347 | $78,626 | Cash and Cash Equivalents Cash and cash equivalents include bank deposits and money market accounts with original maturities of less than three months - Cash and cash equivalents include bank deposits and money market accounts with original maturities of less than three months, stated at cost approximating fair value[218] Inventories, Net Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis - Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, including raw materials, direct labor, and manufacturing overhead[219] - An inventory reserve is maintained for obsolete and excess inventory, based on specific known items and percentages applied to inventory categories[220] Property, Plant and Equipment and Related Depreciation Property, plant, and equipment are stated at cost, with depreciation computed on the straight-line method over estimated useful lives - Property, plant, and equipment are stated at cost, with depreciation computed on the straight-line method over estimated useful lives (e.g., buildings 28-40 years, machinery 3-10 years)[221] Depreciation Expense (in thousands) | Fiscal Year | Depreciation Expense | | :---------- | :------------------- | | 2025 | $6,700 | | 2024 | $5,000 | Goodwill and Intangible Assets Definite-lived intangible assets are amortized over 5 to 20 years, while goodwill and indefinite-lived intangible assets are subject to annual impairment review - Definite-lived intangible assets (customer relationships, technology, trade names, non-compete) are amortized over 5 to 20 years, while goodwill and indefinite-lived intangible assets (trademarks/trade names) are not amortized but are subject to annual impairment review[223] Fair Value The fair value of financial instruments approximates their carrying value, with fair value measurements for nonfinancial assets primarily used in impairment analyses - The fair value of financial instruments like cash, receivables, debt, and payables approximates their carrying value due to short-term maturity or variable interest rates[224] - Fair value measurements for nonfinancial assets and liabilities are primarily used in impairment analyses and valuation of acquired assets/liabilities[225] Product Warranties The company offers limited warranties against defects and records warranty liabilities based on historical claims and estimates for future costs - The company offers limited warranties (1-10 years) against defects and records warranty liabilities based on historical claims and estimates for future repair/replacement costs[226] Changes in Warranty Liabilities (in thousands) | Metric | June 30, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------ | | Balance at beginning of the period | $6,623 | $6,501 | | Additions charged to expense | $5,304 | $3,781 | | Deductions for repairs and replacements | ($4,495) | ($4,004) | | Balance at end of the period | $7,505 | $6,623 | Employee Benefit Plans The company offers a 401(k) retirement plan with matching contributions and a non-qualified deferred compensation plan - The company offers a 401(k) retirement plan with matching contributions and a non-qualified deferred compensation plan for certain employees[228] Total Employee Benefit Plan Costs (in millions) | Fiscal Year | Total Costs | | :---------- | :---------- | | 2025 | $2.4 | | 2024 | $2.3 | Research and Development Costs R&D costs, primarily for new product and technology development, are expensed as incurred and totaled $3.3 million in FY2025 - R&D costs, primarily for new product and technology development (including LED software), are expensed as incurred and totaled $3.3 million in FY2025 and $3.5 million in FY2024[229] Cost of Products and Services Sold Cost of products sold includes direct materials, labor, manufacturing overhead, distribution, freight, and warehousing - Cost of products sold includes direct materials, labor, manufacturing overhead, distribution, freight, and warehousing. Cost of services sold includes internal/external labor for project management and installation[230] Stock-Based Compensation Stock-based compensation for equity instruments is measured at grant date fair value and recognized as expense over the vesting period - Stock-based compensation for equity instruments (stock options, RSUs, PSUs) is measured at grant date fair value and recognized as expense over the vesting period[231] Earnings Per Common Share Basic EPS is based on weighted average common shares outstanding, while diluted EPS includes common share equivalents from stock options, RSUs, and contingently issuable shares - Basic EPS is based on weighted average common shares outstanding, net of treasury shares. Diluted EPS includes common share equivalents from stock options, RSUs, and contingently issuable shares[232][233] Income Taxes Deferred income taxes are provided for temporary differences, requiring significant management judgment in estimating taxable income and effective tax rates - Deferred income taxes are provided for temporary differences between financial reporting and tax purposes, requiring significant management judgment in estimating taxable income and effective tax rates[234] Foreign Exchange Assets and liabilities of foreign subsidiaries are translated using period-end exchange rates, with translation gains/losses reported in accumulated other comprehensive income - Assets and liabilities of Mexican and Canadian subsidiaries are translated using period-end exchange rates, while revenue and expenses use average rates. Translation gains/losses are reported in accumulated other comprehensive income[235] New Accounting Pronouncements The company adopted ASU 2023-07 (Segment Reporting) in FY2025 and is evaluating ASU 2023-06 and ASU 2023-09 - The company adopted ASU 2023-07 (Segment Reporting) in FY2025, providing greater visibility into segment performance metrics, with no significant impact on financial statements[237] - The company is evaluating ASU 2023-06 (Disclosure Improvements) and ASU 2023-09 (Income Tax Disclosures), with no material impact anticipated from ASU 2023-06 and early adoption permitted for ASU 2023-09[236][237] Use of Estimates Financial statement preparation requires management to make estimates and assumptions, and actual results may differ from these estimates - Financial statement preparation requires management to make estimates and assumptions, and actual results may differ from these estimates[238] Subsequent Events The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is expected to monetize the capitalized R&D deferred tax asset in the next fiscal year - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is expected to monetize the capitalized R&D deferred tax asset in the next fiscal year[239][309] NOTE 2 — ACQUISITION OF EMI INDUSTRIES, LLC On April 18, 2024, the company acquired EMI Industries, LLC for $50.0 million, expanding its vertical market presence and adding goodwill and intangible assets - On April 18, 2024, the company acquired EMI Industries, LLC for $50.0 million, funded by cash and a revolving line of credit[240] - The acquisition expanded LSI's vertical market presence in Grocery, C-Store, and QSR/Restaurant, adding $12.4 million in goodwill and $15.7 million in intangible assets[240][241][242] EMI Intangible Assets Acquired (in thousands) | Intangible Asset | Estimated Fair Value | Estimated Useful Life (Years) | | :------------------ | :------------------- | :---------------------------- | | Tradename | $4,880 | Indefinite life | | Technology assets | $3,160 | 7 | | Non-compete | $140 | 5 | | Customer relationships | $7,490 | 20 | Pro Forma Impact of the Acquisition of EMI (Unaudited) Unaudited pro forma results for FY2024, assuming EMI acquisition on July 1, 2022, show sales of $535.8 million and operating income of $36.3 million - Unaudited pro forma results for FY2024, assuming EMI acquisition on July 1, 2022, show sales of $535.8 million and operating income of $36.3 million[244][246] NOTE 3— ACQUISITION OF CANADA'S BEST HOLDINGS On March 11, 2025, the company acquired Canada's Best Holdings (CBH) for $25.9 million, resulting in $6.7 million in goodwill and $9.6 million in intangible assets - On March 11, 2025, the company acquired Canada's Best Holdings (CBH) for $25.9 million, with total purchase consideration of $29.1 million including a $3.3 million contingent earnout liability[247] - The acquisition resulted in $6.7 million in goodwill and $9.6 million in intangible assets, primarily customer relationships[248][249] CBH Intangible Assets Acquired (in thousands) | Intangible Asset | Estimated Fair Value | Estimated Useful Life (Years) | | :------------------ | :------------------- | :---------------------------- | | Tradename | $991 | 10 | | Non-compete agreements | $180 | 3 - 5 | | Customer relationships | $8,431 | 20 | Pro Forma Impact of the Acquisition of CBH (Unaudited) Unaudited pro forma results, assuming CBH acquisition on July 1, 2023, show higher sales and gross profit for both fiscal years Pro Forma Impact of CBH Acquisition (Unaudited, in thousands) | Metric | FY 2025 | FY 2024 | | :--------------- | :-------- | :-------- | | Sales | $587,874 | $496,965 | | Gross Profit | $146,962 | $142,984 | | Operating Income | $37,848 | $41,337 | - Unaudited pro forma results, assuming CBH acquisition on July 1, 2023, show higher sales and gross profit for both fiscal years, with pro-forma operating income of $37.8 million for FY2025[250][251][253] NOTE 4 — BUSINESS SEGMENT INFORMATION The company operates two reportable segments, Lighting and Display Solutions, with profitability assessed by the CEO using adjusted operating income and adjusted EBITDA - The company operates two reportable segments: Lighting and Display Solutions, with profitability assessed by the CEO (CODM) using adjusted operating income and adjusted EBITDA[254][255] - The Lighting Segment focuses on non-residential LED lighting fixtures and controls, while the Display Solutions Segment provides visual image and display elements, including digital signage and custom fixtures[256][257] Segment Performance (FY2025, in thousands) | Metric | Lighting Segment | Display Solutions Segment | Corporate & Elims | Total | | :---------------------- | :--------------- | :------------------------ | :---------------- | :-------- | | Net sales | $248,357 | $325,020 | $0 | $573,377 | | Operating income | $30,253 | $26,353 | ($20,837) | $35,769 | | Adjusted operating income | $33,086 | $31,429 | ($16,154) | $48,361 | | Adjusted EBITDA | $35,725 | $35,144 | ($15,802) | $55,067 | NOTE 5 — EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per common share for fiscal years 2025 and 2024 Earnings Per Common Share (in thousands, except per share data) | Metric | 2025 | 2024 | | :------------------------------------------- | :-------- | :-------- | | Net Income | $24,383 | $24,977 | | Weighted average shares outstanding (Basic) | 29,903 | 29,049 | | Basic income per share | $0.82 | $0.86 | | Weighted average shares outstanding (Diluted) | 30,832 | 30,068 | | Diluted income per share | $0.79 | $0.83 | - Diluted EPS calculation includes the dilutive effect of stock options, restricted stock units, and contingently issuable shares, totaling 2,024,000 shares in FY2025 and 2,087,000 shares in FY2024[233][263] NOTE 6 — INVENTORIES, NET This note provides a breakdown of inventories by category and details open purchase orders as of June 30, 2025 Inventories, Net (in thousands) | Inventory Category | June 30, 2025 | June 30, 2024 | | :----------------- | :------------ | :------------ | | Raw materials | $60,726 | $52,644 | | Work-in-progress | $7,942 | $6,244 | | Finished goods | $11,150 | $12,025 | | Total Inventories | $79,818 | $70,913 | - The company had open purchase orders primarily related to inventory totaling $48.1 million as of June 30, 2025[264] NOTE 7 — ACCRUED EXPENSES This note details the components of accrued expenses, including customer prepayments, compensation, warranty, and operating lease liabilities Accrued Expenses (in thousands) | Accrued Expense Category | June 30, 2025 | June 30, 2024 | | :----------------------- | :------------ | :------------ | | Customer prepayments | $4,070 | $8,475 | | Compensation and benefits | $12,471 | $10,217 | | Accrued warranty | $7,505 | $6,623 | | Accrued sales commissions | $3,956 | $3,937 | | Operating lease liabilities | $6,037 | $5,560 | | Total Accrued Expenses | $45,252 | $43,444 | NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and indefinite-lived intangible assets are reviewed annually for impairment, with all reporting units passing their impairment tests in fiscal 2025 - Goodwill and indefinite-lived intangible assets are reviewed annually for impairment, using qualitative factors or a combination of market and income approaches for fair value estimation[266] - In fiscal 2025, all five reporting units (one in Lighting, four in Display Solutions) passed their annual goodwill impairment tests[268] Goodwill, Net (in thousands) | Segment | June 30, 2025 | June 30, 2024 | | :---------------- | :------------ | :------------ | | Lighting Segment | $9,208 | $9,208 | | Display Solutions Segment | $55,340 | $48,189 | | Goodwill, net | $64,548 | $57,397 | Other Intangible Assets, Net (in thousands) | Asset Class | June 30, 2025 Net Amount | June 30, 2024 Net Amount | | :-------------------------- | :----------------------- | :----------------------- | | Customer relationships | $53,234 | $48,241 | | LED technology, software | $5,432 | $7,068 | | Trademarks and trade names (indefinite-lived) | $16,982 | $16,982 | | Total Other Intangible Assets | $78,258 | $73,916 | Expected Annual Amortization Expense (in thousands) | Year | Amount | | :-------- | :-------- | | 2026 | $6,220 | | 2027 | $6,037 | | 2028 | $5,560 | | 2029 | $4,916 | | 2030 | $4,911 | | After 2030 | $33,632 | NOTE 9 — REVOLVING LINE OF CREDIT AND LONG-TERM DEBT The company has a $100 million credit facility expiring in Q1 fiscal 2027, with $35.7 million available for borrowing as of June 30, 2025 Long-Term Debt (in thousands) | Debt Type | June 30, 2025 | June 30, 2024 | | :---------------------- | :------------ | :------------ | | Secured line of credit | $36,956 | $38,766 | | Term loan, net | $11,601 | $15,463 | | Total debt | $48,557 | $54,229 | | Less: amounts due within one year | ($3,571) | ($3,571) | | Total amounts due after one year, net | $44,986 | $50,658 | - The company has a $100 million credit facility (a $25 million term loan and a $75 million revolving line of credit) expiring in Q1 fiscal 2027[276] - As of June 30, 2025, $35.7 million was available for borrowing under the revolving line of credit, and the company was in compliance with all loan covenants[276][277] [NOTE 10 — CASH DIVIDENDS](index=71&type=section&id=NOTE%2010%20%E2%80%94%20CASH%20DIVI