LSI(LYTS) - 2022 Q3 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited financial statements, management's analysis of operations and liquidity, and disclosures on market risk and internal controls Financial Statements (Unaudited) The unaudited financial statements for March 31, 2022, reveal substantial growth in net sales and income, with total assets increasing to $312.6 million, while operating cash flow shifted to a $12.7 million use Condensed Consolidated Statements of Operations Q3 fiscal 2022 net sales surged 52.7% to $110.1 million, with net income up 145.8% to $3.6 million, reflecting strong top-line and profitability growth Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $110,111 | $72,204 | $327,651 | $218,597 | | Gross Profit | $26,793 | $18,092 | $76,751 | $56,070 | | Operating Income | $5,161 | $2,096 | $14,027 | $6,984 | | Net Income | $3,618 | $1,472 | $9,856 | $5,670 | | Diluted EPS | $0.13 | $0.05 | $0.35 | $0.21 | Condensed Consolidated Balance Sheets Total assets increased to $312.6 million as of March 31, 2022, driven by higher inventories and accounts receivable, while total liabilities also rose to $170.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $158,558 | $125,008 | | Inventories | $78,364 | $58,941 | | Total Assets | $312,555 | $286,821 | | Total Current Liabilities | $75,171 | $70,895 | | Long-term Debt | $81,387 | $68,178 | | Total Liabilities | $170,010 | $155,651 | | Total Shareholders' Equity | $142,545 | $131,170 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $12.7 million for the nine months ended March 31, 2022, a notable reversal from the prior year's $24.6 million inflow, primarily due to working capital investments Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(12,668) | $24,634 | | Net cash used in investing activities | $(776) | $(1,517) | | Net cash provided by (used in) financing activities | $12,402 | $(3,207) | | (Decrease) increase in cash and cash equivalents | $(1,034) | $20,011 | Notes to Condensed Consolidated Financial Statements The notes detail the JSI Store Fixtures acquisition, revenue recognition policies, segment performance, goodwill impairment, debt amendments, and lease obligations - The company recognizes revenue for most products at a point in time (upon shipment), but recognizes revenue over time for customized products (e.g., branded graphics, digital signage) and installation services using a cost-based input method[30][32][33] - On May 21, 2021, the Company acquired JSI Store Fixtures for $93.7 million to expand its presence in the grocery and convenience store markets, funded by cash and $71.6 million from the credit facility[41] - As of March 1, 2022, the annual preliminary goodwill impairment test was performed, and no impairment was indicated for any of the three reporting units[65] - In September 2021, the company amended its $100 million credit facility into a $25 million term loan and a $75 million revolving line of credit, with $13.2 million available for borrowing as of March 31, 2022[70] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 53% Q3 net sales increase driven by Lighting and Display Solutions, noting operating income doubled, while addressing cost pressures and increased working capital investments for growth and supply chain mitigation Results of Operations Q3 Lighting segment sales grew 25% to $57.1 million with margin compression, while Display Solutions sales surged 100% to $53.0 million, boosted by the JSI acquisition and improved gross margin Lighting Segment Performance - Q3 (in thousands) | Metric | Q3 2022 | Q3 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $57,126 | $45,740 | +$11,386 | +25% | | Gross Profit | $16,654 | $14,159 | +$2,495 | +18% | | Operating Income | $4,959 | $3,797 | +$1,162 | +31% | - Lighting segment gross margin decreased from 31.0% to 29.2% in Q3 YoY, as selling price increases lagged behind rising input and transportation costs[108] Display Solutions Segment Performance - Q3 (in thousands) | Metric | Q3 2022 | Q3 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $52,985 | $26,464 | +$26,521 | +100% | | Gross Profit | $10,171 | $3,933 | +$6,238 | +159% | | Operating Income | $4,556 | $1,230 | +$3,326 | +270% | - The increase in Display Solutions sales and gross profit was driven primarily by the acquisition of JSI, with gross margin improving to 19.2% from 14.9% due to the accretive effect of the acquisition and core business improvements[110][111] Liquidity and Capital Resources Working capital increased to $83.4 million, driven by higher inventory and accounts receivable, while operating cash flow shifted to a $12.7 million use, reflecting strategic working capital investments - Working capital increased by $29.3 million since June 30, 2021, primarily driven by a $19.4 million increase in inventory and a $15.9 million increase in accounts receivable[132] - The increase in inventory is a strategic decision to support product availability initiatives, capitalize on short-lead time opportunities, and mitigate ongoing supply chain challenges[134] - For the nine months ended March 31, 2022, the company used $12.7 million of cash from operating activities, a significant change from the $24.6 million of cash provided in the prior-year period, mainly due to the growth in working capital[136] Non-GAAP Financial Measures The company presents non-GAAP measures like Adjusted Operating Income and Adjusted EBITDA to enhance comparability, showing significant year-over-year increases for both Q3 and the nine-month period Reconciliation of Operating Income to Adjusted Operating Income (in thousands) | Description | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Operating Income as reported | $5,161 | $2,096 | $14,027 | $6,984 | | Stock compensation expense | $780 | $415 | $2,466 | $1,317 | | Acquisition costs | $21 | $- | $361 | $- | | Severance/Restructuring costs | $5 | $- | $5 | $24 | | Adjusted Operating Income | $5,967 | $2,511 | $16,859 | $8,325 | EBITDA and Adjusted EBITDA (in thousands) | Description | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | EBITDA | $7,692 | $4,016 | $21,659 | $12,927 | | Adjusted EBITDA | $8,498 | $4,431 | $24,491 | $14,268 | Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risk exposure since June 30, 2021, beyond the general economic impacts of the COVID-19 pandemic - There have been no material changes in the company's market risk exposure since the fiscal year ended June 30, 2021, other than the general impacts of the COVID-19 pandemic on the global economy[143] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period, March 31, 2022[145] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[146] PART II. Other Information This section addresses other pertinent information, including a correction regarding a shareholder vote and a list of filed exhibits Other Information The company invalidated a prior shareholder vote to increase authorized common stock due to a broker non-vote discrepancy and plans to seek a new vote - The company is invalidating a previously reported shareholder approval to increase authorized common stock from 40 million to 50 million shares due to a discrepancy in counting broker non-votes[149] - The company plans to seek a new shareholder vote on the proposal to amend its Articles of Incorporation to increase authorized shares at a future date[149] Exhibits This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications and Inline XBRL data files - Key exhibits filed include CEO and CFO certifications under Rule 13a-14(a) and Section 1350[150]