LSI(LYTS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and related notes ITEM 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and related notes Condensed Consolidated Statements of Operations Details the company's revenues, costs, and net income over specific reporting periods Condensed Consolidated Statements of Operations (In thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Sales | $128,804 | $111,143 | $255,873 | $217,540 | | Gross profit | $34,140 | $25,448 | $68,878 | $49,958 | | Operating income | $9,038 | $4,422 | $19,059 | $8,866 | | Net income | $6,417 | $3,105 | $12,678 | $6,238 | | Basic EPS | $0.23 | $0.11 | $0.45 | $0.23 | | Diluted EPS | $0.22 | $0.11 | $0.44 | $0.22 | Condensed Consolidated Statements of Comprehensive Income Presents net income and other comprehensive income components, such as foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (In thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Income | $6,417 | $3,105 | $12,678 | $6,238 | | Foreign currency translation adjustment | $68 | $9 | $75 | ($35) | | Comprehensive Income | $6,485 | $3,114 | $12,753 | $6,203 | Condensed Consolidated Balance Sheets Summarizes the company's assets, liabilities, and shareholders' equity at specific points in time Condensed Consolidated Balance Sheets (In thousands) | Metric | December 31, 2022 | June 30, 2022 | | :-------------------- | :---------------- | :------------ | | Cash and cash equivalents | $2,765 | $2,462 | | Accounts receivable, net | $67,352 | $77,750 | | Inventories | $73,205 | $74,421 | | Total current assets | $149,025 | $158,917 | | Total assets | $296,283 | $311,080 | | Total current liabilities | $64,134 | $74,618 | | Long-term debt | $59,250 | $76,025 | | Total shareholders' equity | $161,316 | $147,769 | | Total liabilities & shareholders' equity | $296,283 | $311,080 | Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity, including net income, stock compensation, and dividends Condensed Consolidated Statements of Shareholders' Equity (In thousands) | Metric | Balance at June 30, 2022 | Net Income | Other comprehensive loss | Stock compensation awards | Restricted stock units issued, net | Shares issued for deferred compensation | Activity of treasury shares, net | Deferred stock compensation | Stock compensation expense | Stock options exercised, net | Dividends — $0.20 per share | Balance at December 31, 2022 | | :-------------------- | :----------------------- | :--------- | :----------------------- | :------------------------ | :--------------------------------- | :-------------------------------------- | :------------------------------- | :-------------------------- | :------------------------- | :--------------------------- | :---------------------------- | :--------------------------- | | Common Shares (Amount) | $139,500 | - | - | $173 | ($465) | $1,087 | - | - | $1,415 | $1,278 | - | $142,988 | | Treasury Shares (Amount) | ($5,927) | - | - | - | - | - | ($1,061) | - | - | - | - | ($6,988) | | Key Executive Compensation | $5,927 | - | - | - | - | - | - | $1,061 | - | - | - | $6,988 | | Accumulated Other Comprehensive Income (Loss) | $45 | - | $75 | - | - | - | - | - | - | - | - | $120 | | Retained Earnings | $8,224 | $12,678 | - | - | - | - | - | - | - | - | ($2,694) | $18,208 | | Total Shareholders' Equity | $147,769 | $12,678 | $75 | $173 | ($465) | $1,087 | ($1,061) | $1,061 | $1,415 | $1,278 | ($2,694) | $161,316 | Condensed Consolidated Statements of Cash Flows Reports cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | | Net cash flows provided by (used in) operating activities | $20,062 | ($16,543) | | Net cash flows used in investing activities | ($994) | ($245) | | Net cash flows (used in) provided by financing activities | ($18,779) | $15,445 | | Cash and cash equivalents at end of period | $2,765 | $914 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, segment information, and specific financial items NOTE 1 - Interim Condensed Consolidated Financial Statements Explains the basis of preparation for the unaudited interim financial statements, adhering to GAAP and SEC rules - The interim financial statements are unaudited and prepared in accordance with GAAP for interim financial information and SEC rules. They include all normal adjustments and disclosures necessary to present fairly the Company's financial position as of December 31, 2022, and results of operations and cash flows for the periods ended December 31, 2022 and 2021[29] NOTE 2 - Summary of Significant Accounting Policies Details the company's revenue recognition policies and other significant accounting principles - Revenue is recognized when performance obligations are satisfied, typically at shipment for products, or over time for customized products and installation services where control transfers as work is performed. The Company applies practical expedients for contracts with expected duration of one year or less, expensing sales commissions as incurred and omitting disclosures on remaining performance obligations[31][33][43] Disaggregation of Revenue by Timing of Recognition (In thousands) | Metric | Lighting Segment 2022 | Display Solutions Segment 2022 | Lighting Segment 2021 | Display Solutions Segment 2021 | | :------------- | :-------------------- | :----------------------------- | :-------------------- | :----------------------------- | | Products and services transferred at a point in time | $58,591 | $47,027 | $50,141 | $35,437 | | Products and services transferred over time | $8,242 | $14,944 | $7,135 | $18,430 | | Total | $66,833 | $61,971 | $57,276 | $53,867 | Disaggregation of Revenue by Type of Product and Services (In thousands) | Metric | Lighting Segment 2022 | Display Solutions Segment 2022 | Lighting Segment 2021 | Display Solutions Segment 2021 | | :------------- | :-------------------- | :----------------------------- | :-------------------- | :----------------------------- | | LED lighting, digital signage solutions, electronic circuit boards | $54,410 | $5,801 | $47,626 | $12,551 | | Poles, printed graphics, display fixtures | $11,632 | $41,683 | $9,079 | $31,127 | | Project management, installation services, shipping and handling | $791 | $14,487 | $571 | $10,189 | | Total | $66,833 | $61,971 | $57,276 | $53,867 | NOTE 3 - Segment Reporting Information Provides financial data for the company's Lighting and Display Solutions operating segments - The Company operates in two segments: Lighting and Display Solutions. The Lighting Segment focuses on non-residential LED lighting fixtures and electronic circuit boards. The Display Solutions Segment manufactures and installs visual image and display elements, including digital signage and project management services[41][42] Segment Net Sales (In thousands) | Segment | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Lighting Segment | $66,833 | $57,276 | $134,366 | $108,536 | | Display Solutions Segment | $61,971 | $53,867 | $121,507 | $109,004 | | Total Net Sales | $128,804 | $111,143 | $255,873 | $217,540 | Segment Operating Income (Loss) (In thousands) | Segment | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Lighting Segment | $6,754 | $4,623 | $15,912 | $8,962 | | Display Solutions Segment | $7,762 | $3,837 | $14,258 | $7,586 | | Corporate and Eliminations | ($5,478) | ($4,038) | ($11,111) | ($7,682) | | Total Operating Income | $9,038 | $4,422 | $19,059 | $8,866 | Segment Identifiable Assets (In thousands) | Segment | December 31, 2022 | June 30, 2022 | | :---------------------- | :---------------- | :------------ | | Lighting Segment | $143,741 | $152,431 | | Display Solutions Segment | $145,722 | $152,302 | | Corporate and Eliminations | $6,820 | $6,347 | | Total Identifiable Assets | $296,283 | $311,080 | NOTE 4 - Earnings Per Common Share Calculates basic and diluted earnings per share based on net income and weighted average shares outstanding Earnings Per Common Share (In thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income | $6,417 | $3,105 | $12,678 | $6,238 | | Weighted average shares outstanding (Basic) | 28,078 | 27,292 | 27,874 | 27,144 | | Basic income per share | $0.23 | $0.11 | $0.45 | $0.23 | | Weighted average shares outstanding (Diluted) | 29,204 | 28,067 | 28,766 | 27,895 | | Diluted income per share | $0.22 | $0.11 | $0.44 | $0.22 | NOTE 5 – Inventories, Net Details the composition of inventories, including raw materials, work-in-progress, and finished goods Inventories, Net (In thousands) | Inventories | December 31, 2022 | June 30, 2022 | | :------------------------- | :---------------- | :------------ | | Raw materials | $51,532 | $51,637 | | Work-in-progress | $6,844 | $3,029 | | Finished goods | $14,829 | $19,755 | | Total Inventories | $73,205 | $74,421 | NOTE 6 - Accrued Expenses Lists various accrued liabilities, such as customer prepayments, compensation, and warranty obligations Accrued Expenses (In thousands) | Accrued Expenses | December 31, 2022 | June 30, 2022 | | :------------------------------ | :---------------- | :------------ | | Customer prepayments | $3,940 | $6,416 | | Compensation and benefits | $9,865 | $9,611 | | Accrued warranty | $4,516 | $4,491 | | Operating lease liabilities | $1,347 | $1,274 | | Accrued FICA | $3,528 | $1,122 | | Finance lease liabilities | $3,348 | $275 | | Accrued income tax | $396 | $109 | | Other accrued expenses | $281 | $4,503 | | Accrued sales commissions | $6,049 | - | | Accrued Freight | - | - | | Total Accrued Expenses | $33,270 | $36,264 | NOTE 7 - Goodwill and Other Intangible Assets Reports goodwill and other intangible assets, including customer relationships and LED technology, and their amortization - Goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment, using qualitative factors or a combination of market and income approaches. The Company has three reporting units with goodwill: one in Lighting and two in Display Solutions[54][55] Goodwill, Net (In thousands) | Segment | December 31, 2022 | June 30, 2022 | | :---------------------- | :---------------- | :------------ | | Lighting Segment | $9,208 | $9,208 | | Display Solutions Segment | $35,822 | $35,822 | | Goodwill, net | $45,030 | $45,030 | Other Intangible Assets, Net (In thousands) | Asset Class | December 31, 2022 Net Amount | June 30, 2022 Net Amount | | :-------------------------- | :----------------------------- | :----------------------- | | Customer relationships | $45,975 | $47,683 | | LED technology firmware, software | $5,775 | $6,368 | | Trademarks and trade names (indefinite-lived) | $12,102 | $12,102 | | Total Other Intangible Assets | $65,584 | $67,964 | Amortization Expense of Other Intangible Assets (In thousands) | Period | 2022 | 2021 | | :-------------------- | :--- | :--- | | Three Months Ended Dec 31 | $1,190 | $1,198 | | Six Months Ended Dec 31 | $2,380 | $2,413 | NOTE 8 - Debt Details the company's debt facilities, including secured line of credit and term loan, and compliance with covenants Debt (In thousands) | Debt | December 31, 2022 | June 30, 2022 | | :------------------ | :---------------- | :------------ | | Secured line of credit | $42,310 | $57,275 | | Term loan, net | $20,511 | $22,321 | | Total debt | $62,821 | $79,596 | | Less: amounts due within one year | $3,571 | $3,571 | | Total amounts due after one year, net | $59,250 | $76,025 | - The Company's debt facilities include a $25 million term loan and a $75 million secured revolving line of credit, both expiring in fiscal 2026. As of December 31, 2022, the borrowing rate on the revolving line of credit was 6.1%, and $32.7 million was available for borrowing. The Company is in compliance with all loan covenants[60][61] NOTE 9 - Cash Dividends Reports cash dividends paid and declared, indicating the company's dividend policy - The Company paid cash dividends of $2.7 million in both the six months ended December 31, 2022, and 2021. A quarterly cash dividend of $0.05 per share was declared in January 2023, indicating an annual rate of $0.20 per share[62] NOTE 10 – Equity Compensation Outlines the company's equity compensation plans, including authorized shares and stock compensation expense - Shareholders approved an amendment to the 2019 Omnibus Award Plan in November 2022, increasing authorized shares by 2,350,000. As of December 31, 2022, 2,637,095 shares remained reserved. Stock compensation expense was $0.8 million for the three months and $1.4 million for the six months ended December 31, 2022[63][64] NOTE 11 - Supplemental Cash Flow Information Provides additional details on cash payments for interest and income taxes, and non-cash investing/financing activities Cash Payments (In thousands) | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------------- | :---------------------------- | :---------------------------- | | Interest | $1,689 | $627 | | Income taxes | $4,299 | $2,820 | | Non-cash investing and financing activities | | Issuance of common shares as compensation | $173 | $150 | | Issuance of common shares to fund deferred compensation plan | $1,087 | $2,569 | NOTE 12 - Commitments and Contingencies Discusses legal proceedings and other commitments, assessing their potential financial impact - The Company is involved in various legal proceedings in the normal course of business and provides reserves when losses are probable and estimable. Management believes the ultimate disposition of these matters will not materially adversely affect the Company's financial position, results of operations, cash flows, or liquidity[66] NOTE 13 - Leases Details the company's lease arrangements for facilities and equipment, including lease costs and liabilities - The Company leases manufacturing facilities, office space, and equipment, primarily through operating leases with terms of one to seven years. Lease expense is recognized on a straight-line basis[68][70] Total Lease Cost (In thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating lease cost | $885 | $870 | $1,776 | $1,749 | | Financing lease cost | $91 | $94 | $183 | $189 | | Sublease income | ($116) | ($94) | ($232) | ($188) | | Total lease cost | $882 | $892 | $1,771 | $1,794 | Operating Lease Liabilities (In thousands) | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------- | :---------------- | :------------ | | Total operating right-of-use assets | $7,548 | $8,664 | | Total operating lease liabilities | $8,304 | $9,514 | | Weighted Average remaining Lease Term (in years) | 2.72 | 3.05 | | Weighted Average Discount Rate | 4.82% | 4.81% | Maturities of Lease Liability (In thousands) | Year | Operating Lease Liabilities | Finance Lease Liabilities | Operating Subleases | Net Lease Commitments | | :--- | :-------------------------- | :------------------------ | :------------------ | :-------------------- | | 2023 | $2,134 | $207 | ($189) | $2,152 | | 2024 | $3,399 | $337 | ($377) | $3,359 | | 2025 | $2,253 | $362 | ($31) | $2,584 | | 2026 | $952 | $362 | - | $1,314 | | 2027 | $323 | $303 | - | $626 | | Thereafter | $4 | - | - | $4 | | Total lease payments | $9,065 | $1,571 | ($597) | $10,039 | NOTE 14 – Income Taxes Explains the company's effective income tax rate and its reconciliation to the statutory rate - The Company's effective income tax rate is based on expected income and statutory rates, with quarterly adjustments to reflect the anticipated annual rate[73] Reconciliation of Effective Tax Rate | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Provision for income taxes at the anticipated annual tax rate | 21.5% | 23.8% | 24.0% | 24.0% | | Uncertain tax positions | (1.2)% | (3.9)% | - | (1.5)% | | Tax rate changes | (1.9)% | - | - | - | | Share-based compensation | (0.3)% | 0.1% | 0.8% | (0.3)% | | Effective tax rate | 18.1% | 20.0% | 24.8% | 22.2% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition, results of operations, non-GAAP measures, and liquidity Summary of Consolidated Results Summarizes the company's consolidated net sales and operating income performance across segments Consolidated Net Sales by Business Segment (In thousands) | Segment | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Lighting Segment | $66,833 | $57,276 | $134,366 | $108,536 | | Display Solutions Segment | $61,971 | $53,867 | $121,507 | $109,004 | | Total Net Sales | $128,804 | $111,143 | $255,873 | $217,540 | - Net sales increased by 16% to $128.8 million for the three months ended December 31, 2022, and by 18% to $255.9 million for the six months ended December 31, 2022, driven by double-digit growth in both Lighting (17% and 24%) and Display Solutions (15% and 12%) segments[79][80] - Operating income for the three months ended December 31, 2022, increased by $4.6 million to $9.0 million, and for the six months, it increased by $10.2 million to $19.1 million, attributed to increased volume, higher-value sales mix, price discipline, and effective cost management[81][82] Non-GAAP Financial Measures Reconciles GAAP to Non-GAAP financial measures, providing enhanced visibility into operating performance - The Company uses Non-GAAP financial measures, including Adjusted Operating Income, Adjusted Net Income, EBITDA, Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA, to provide greater comparability and enhanced visibility into operating performance by excluding items such as stock compensation, severance, and consulting expenses related to commercial growth initiatives[83] Reconciliation of Operating Income to Adjusted Operating Income (In thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating Income as reported | $9,038 | $4,422 | $19,059 | $8,866 | | Stock compensation expense | $1,002 | $1,130 | $1,553 | $1,686 | | Consulting expense: Commercial Growth Initiatives | $486 | - | $789 | - | | Acquisition Costs | - | $340 | - | $340 | | Severance costs | $33 | - | $46 | - | | Adjusted Operating Income | $10,559 | $5,892 | $21,447 | $10,892 | Reconciliation of Net Income to Adjusted Net Income (In thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Diluted EPS 2022 | Three Months Ended Dec 31, 2021 | Diluted EPS 2021 | | :------------------------------------------ | :------------------------------ | :--------------- | :------------------------------ | :--------------- | | Net Income as reported | $6,417 | $0.22 | $3,105 | $0.11 | | Stock compensation expense | $785 | $0.03 | $867 | $0.03 | | Consulting expense: Commercial Growth Initiatives | $399 | $0.01 | - | - | | Acquisition Costs | - | - | $269 | $0.01 | | Severance costs | $26 | - | - | - | | Net Income adjusted | $7,627 | $0.26 | $4,241 | $0.15 | Reconciliation of Operating Income to EBITDA and Adjusted EBITDA (In thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating Income as reported | $9,038 | $4,422 | $19,059 | $8,866 | | Depreciation and Amortization | $2,419 | $2,538 | $4,840 | $5,101 | | EBITDA | $11,457 | $6,960 | $23,899 | $13,967 | | Stock compensation expense | $1,002 | $1,130 | $1,553 | $1,686 | | Consulting Expense - Commercial Growth Initiatives | $486 | - | $789 | - | | Acquisition Costs | - | $340 | - | $340 | | Severance costs | $33 | - | $46 | - | | Adjusted EBITDA | $12,978 | $8,430 | $26,287 | $15,993 | Reconciliation of Cash Flow from Operations to Free Cash Flow (In thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cash Flow from Operations | $9,481 | ($8,654) | $20,064 | ($16,543) | | Capital expenditures | ($561) | ($448) | ($994) | ($745) | | Free Cash Flow | $8,920 | ($9,102) | $19,070 | ($17,288) | Net Debt to Adjusted EBITDA (In thousands) | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------- | :---------------- | :------------ | | Total Debt | $62,821 | $79,596 | | Less: Cash and cash equivalents | ($2,765) | ($2,462) | | Net Debt | $60,056 | $77,134 | | Adjusted EBITDA - Trailing 12 Months | $45,387 | $35,091 | | Net Debt to Adjusted EBITDA | 1.3 | 2.2 | Results of Operations (Three Months Ended December 31, 2022 vs 2021) Compares the company's financial performance for the three months ended December 31, 2022, against the prior year Lighting Segment Analyzes the Lighting Segment's net sales, gross profit margin, and operating income for the three-month period - Lighting Segment net sales increased 17% to $66.8 million, driven by broad-based growth across vertical markets and enhanced product offerings. Gross profit margin improved to 30.6% from 29.5%, leading to a 45.9% increase in operating income to $6.8 million[94][95][96] Display Solutions Segment Analyzes the Display Solutions Segment's net sales, gross profit margin, and operating income for the three-month period - Display Solutions Segment net sales increased 15% to $62.0 million, primarily due to growth in grocery and refueling/convenience-store verticals. Gross profit margin significantly improved to 22.1% from 15.9%, resulting in a 102.3% increase in operating income to $7.8 million[97][98][100] Corporate and Eliminations Discusses changes in corporate operating expenses and eliminations for the three-month period - Operating expenses for Corporate and Eliminations increased by $1.5 million to $5.5 million, mainly due to higher performance-based incentive plan expenses and $0.5 million in commercial growth initiative consulting expenses[102] Consolidated Results Summarizes consolidated net interest expense, effective tax rate, net income, and diluted EPS for the three-month period - Net interest expense increased to $1.3 million from $0.5 million due to higher borrowing costs. The effective tax rate was 18.1% (2022) compared to 20.1% (2021). Net income rose to $6.4 million from $3.1 million, with diluted EPS increasing to $0.22 from $0.11[103][104][105] Results of Operations (Six Months Ended December 31, 2022 vs 2021) Compares the company's financial performance for the six months ended December 31, 2022, against the prior year Lighting Segment Analyzes the Lighting Segment's net sales, gross profit margin, and operating income for the six-month period - Lighting Segment net sales increased 24% to $134.4 million, driven by broad-based growth. Gross profit margin improved to 31.8% from 29.8%, leading to a 77% increase in operating income to $15.9 million[106][107][108] Display Solutions Segment Analyzes the Display Solutions Segment's net sales, gross profit margin, and operating income for the six-month period - Display Solutions Segment net sales increased 12% to $121.5 million, primarily from grocery and refueling/convenience-store verticals. Gross profit margin improved to 21.5% from 16.1%, resulting in an 88% increase in operating income to $14.3 million[109][110][112] Corporate and Eliminations Discusses changes in corporate operating expenses and eliminations for the six-month period - Operating expenses for Corporate and Eliminations increased by $3.4 million to $11.1 million, driven by higher performance-based incentive plan expenses and $0.8 million in commercial growth initiative consulting expenses[114] Consolidated Results Summarizes consolidated net interest expense, effective tax rate, net income, and diluted EPS for the six-month period - Net interest expense increased to $2.0 million from $0.8 million due to higher borrowing costs. The effective tax rate was 24.8% (2022) compared to 22.2% (2021). Net income rose to $12.7 million from $6.2 million, with diluted EPS increasing to $0.44 from $0.22[115][116][117] Liquidity and Capital Resources Assesses the company's working capital, cash flows, debt, and ability to meet operational and capital needs - Working capital marginally increased to $84.9 million at December 31, 2022, from $84.3 million at June 30, 2022, with the current ratio improving to 2.32 to 1 from 2.13. DSO decreased to 52 days from 55 days, and net inventories decreased by $1.2 million[119][120] - Cash generated from operations was $20.1 million for the six months ended December 31, 2022, a significant improvement from a use of $16.5 million in the prior year, primarily due to effective working capital management and improved earnings[122] - The Company used $18.8 million in financing activities, primarily to pay down its line of credit, compared to a source of $15.4 million in the prior year. As of December 31, 2022, $32.7 million was available under the $75 million revolving credit facility, which, along with operating cash flows, is deemed adequate for fiscal 2023 operational and capital expenditure needs[121][124] - The Board of Directors declared a regular quarterly cash dividend of $0.05 per share in January 2023, maintaining an indicated annual rate of $0.20 per share[127] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reports no material changes in the company's market risk exposure since June 30, 2022 - No material changes in market risk exposure since June 30, 2022[129] ITEM 4. CONTROLS AND PROCEDURES Confirms effective disclosure controls and procedures, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2022[131] - No material changes in internal control over financial reporting occurred during the second quarter ended December 31, 2022[132] PART II. OTHER INFORMATION Provides additional information not covered in the financial statements, including market risk, controls, and exhibits ITEM 5. OTHER INFORMATION Indicates no other information to report for the period - No other information to report[135] ITEM 6. EXHIBITS Lists exhibits filed with Form 10-Q, including certifications and Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[136] SIGNATURES Contains authorized signatures for the Form 10-Q report, confirming submission - The report is signed by James A. Clark, Chief Executive Officer and President, and James E. Galeese, Executive Vice President and Chief Financial Officer, on February 7, 2023[139][140]