LSI(LYTS) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for LSI Industries Inc ITEM 1. FINANCIAL STATEMENTS Presents LSI Industries Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q3 and YTD fiscal 2023 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Details the company's net sales, gross profit, operating income, net income, and EPS for the specified periods | Metric (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Sales | $117,470 | $110,111 | $373,343 | $327,651 | | Gross profit | $32,204 | $26,793 | $101,082 | $76,751 | | Operating income | $7,732 | $5,161 | $26,791 | $14,027 | | Net income | $4,669 | $3,618 | $17,347 | $9,856 | | Basic EPS | $0.16 | $0.13 | $0.62 | $0.36 | | Diluted EPS | $0.16 | $0.13 | $0.60 | $0.35 | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Presents net income and other comprehensive income components, such as foreign currency translation adjustments | Metric (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Income | $4,669 | $3,618 | $17,347 | $9,856 | | Foreign currency translation adjustment | $117 | $46 | $192 | $11 | | Comprehensive Income | $4,786 | $3,664 | $17,539 | $9,867 | CONDENSED CONSOLIDATED BALANCE SHEETS Outlines the company's financial position, including assets, liabilities, and shareholders' equity at specific dates | Metric (In thousands) | March 31, 2023 | June 30, 2022 | | :-------------------------------- | :------------- | :------------ | | ASSETS | | | | Cash and cash equivalents | $1,350 | $2,462 | | Accounts receivable, net | $69,288 | $77,750 | | Inventories | $67,661 | $74,421 | | Total current assets | $145,822 | $158,917 | | Net property, plant and equipment | $25,264 | $27,158 | | Goodwill | $45,030 | $45,030 | | Other intangible assets, net | $64,394 | $67,964 | | Total assets | $291,019 | $311,080 | | LIABILITIES & SHAREHOLDERS' EQUITY | | | | Current maturities of long-term debt | $3,571 | $3,571 | | Accounts payable | $24,749 | $34,783 | | Accrued expenses | $37,717 | $36,264 | | Total current liabilities | $66,037 | $74,618 | | Long-term debt | $46,002 | $76,025 | | Total shareholders' equity | $167,743 | $147,769 | | Total liabilities & shareholders' equity | $291,019 | $311,080 | CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Details changes in shareholders' equity, reflecting net income, dividends, and equity compensation impacts - Total shareholders' equity increased from $147,769 thousand at June 30, 2022, to $167,743 thousand at March 31, 2023, primarily driven by net income of $17,347 thousand and increases in common shares issued for compensation and stock option exercises, partially offset by cash dividends paid[21][22] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Summarizes cash flows from operating, investing, and financing activities for the reporting periods | Metric (In thousands) | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :----------------------------------------------------- | :------------------------------- | :------------------------------- | | Net cash flows provided by (used in) operating activities | $32,548 | $(12,668) |\n| Net cash flows (used in) investing activities | $(1,753) | $(776) |\n| Net cash flows (used in) provided by financing activities | $(31,985) | $12,402 |\n| (Decrease) in cash and cash equivalents | $(1,112) | $(1,034) |\n| Cash and cash equivalents at end of period | $1,350 | $1,248 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Confirms the interim financial statements are unaudited and prepared in accordance with GAAP - The interim financial statements are unaudited and prepared in accordance with GAAP for interim financial information, including all normal adjustments and disclosures necessary to present fairly the Company's financial position, results of operations, and cash flows as of and for the periods ended March 31, 2023 and 2022[28] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines key accounting policies, including revenue recognition and the impact of new accounting standards - Revenue is generally recognized at the point of shipment when control transfers to the customer, except for customized products and installation services, where revenue is recognized over time using a cost-based input method due to no alternative use and a legal right to payment[30][32][33] Disaggregation of Revenue by Timing and Type (Three Months Ended March 31, In thousands) | Segment / Type of Revenue | 2023 (Lighting) | 2023 (Display Solutions) | 2022 (Lighting) | 2022 (Display Solutions) | | :--------------------------------------- | :-------------- | :----------------------- | :-------------- | :----------------------- | | Products and services transferred at a point in time | $57,249 | $42,378 | $49,283 | $41,231 | | Products and services transferred over time | $9,458 | $8,385 | $7,843 | $11,754 | | Total Net Sales | $66,707 | $50,763 | $57,126 | $52,985 | | LED lighting, digital signage, electronic circuit boards | $55,894 | $4,907 | $47,196 | $6,906 | | Poles, printed graphics, display fixtures | $9,920 | $37,019 | $9,358 | $35,536 | | Project management, installation, shipping | $893 | $8,837 | $572 | $10,543 | Disaggregation of Revenue by Timing and Type (Nine Months Ended March 31, In thousands) | Segment / Type of Revenue | 2023 (Lighting) | 2023 (Display Solutions) | 2022 (Lighting) | 2022 (Display Solutions) | | :--------------------------------------- | :-------------- | :----------------------- | :-------------- | :----------------------- | | Products and services transferred at a point in time | $173,917 | $136,894 | $144,006 | $114,099 | | Products and services transferred over time | $27,157 | $35,375 | $21,656 | $47,890 | | Total Net Sales | $201,074 | $172,269 | $165,662 | $161,989 | | LED lighting, digital signage, electronic circuit boards | $165,839 | $17,883 | $136,701 | $31,885 | | Poles, printed graphics, display fixtures | $32,681 | $120,173 | $27,403 | $99,965 | | Project management, installation, shipping | $2,554 | $34,213 | $1,558 | $30,139 | - The Company is evaluating the impact of ASU 2021-08 on business combinations, which requires applying ASC 606 to contract assets and liabilities acquired[37] NOTE 3 - SEGMENT REPORTING INFORMATION Details financial performance and assets for the Lighting and Display Solutions operating segments - The Company operates two segments: Lighting and Display Solutions. The Lighting Segment focuses on LED lighting fixtures and controls for various markets, while the Display Solutions Segment provides visual image and display elements, including digital signage and project management services[39][40][41] Segment Financial Information (Three Months Ended March 31, In thousands) | Metric | 2023 (Lighting) | 2023 (Display Solutions) | 2022 (Lighting) | 2022 (Display Solutions) | | :-------------------- | :-------------- | :----------------------- | :-------------- | :----------------------- | | Net Sales | $66,707 | $50,763 | $57,126 | $52,985 | | Operating Income | $6,529 | $5,501 | $4,959 | $4,556 | Segment Financial Information (Nine Months Ended March 31, In thousands) | Metric | 2023 (Lighting) | 2023 (Display Solutions) | 2022 (Lighting) | 2022 (Display Solutions) | | :-------------------- | :-------------- | :----------------------- | :-------------- | :----------------------- | | Net Sales | $201,074 | $172,269 | $165,662 | $161,989 | | Operating Income | $22,441 | $19,759 | $13,921 | $12,142 | Identifiable Assets by Segment (In thousands) | Segment | March 31, 2023 | June 30, 2022 | | :---------------------- | :------------- | :------------ | | Lighting Segment | $142,656 | $152,431 | | Display Solutions Segment | $140,666 | $152,302 | | Corporate and Eliminations | $7,697 | $6,347 | | Total Identifiable Assets | $291,019 | $311,080 | NOTE 4 - EARNINGS PER COMMON SHARE Presents basic and diluted earnings per common share calculations for the reporting periods Earnings Per Common Share (In thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net income | $4,669 | $3,618 | $17,347 | $9,856 | | Basic EPS | $0.16 | $0.13 | $0.62 | $0.36 | | Diluted EPS | $0.16 | $0.13 | $0.60 | $0.35 | | Weighted average common shares outstanding (Basic) | 28,306 | 27,378 | 28,012 | 27,220 | | Weighted average common shares outstanding (Diluted) | 29,611 | 28,083 | 29,055 | 27,945 | NOTE 5 – INVENTORIES, NET Provides a breakdown of inventory components, including raw materials, work-in-progress, and finished goods Inventories, Net (In thousands) | Category | March 31, 2023 | June 30, 2022 | | :-------------- | :------------- | :------------ | | Raw materials | $49,946 | $51,637 | | Work-in-progress | $7,800 | $3,029 | | Finished goods | $9,915 | $19,755 | | Total Inventories | $67,661 | $74,421 | NOTE 6 - ACCRUED EXPENSES Details the various categories of accrued expenses, such as customer prepayments and compensation Accrued Expenses (In thousands) | Category | March 31, 2023 | June 30, 2022 | | :------------------------ | :------------- | :------------ | | Customer prepayments | $3,847 | $6,416 | | Compensation and benefits | $12,683 | $9,611 | | Accrued warranty | $5,127 | $4,491 | | Operating lease liabilities | $1,290 | $1,274 | | Accrued sales commissions | $5,629 | $4,783 | | Accrued freight | $3,625 | $3,680 | | Accrued FICA | $546 | $1,122 | | Finance lease liabilities | $325 | $275 | | Accrued income tax | $- | $109 | | Other accrued expenses | $4,645 | $4,503 | | Total Accrued Expenses | $37,717 | $36,264 | NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS Discusses goodwill impairment testing, and provides a breakdown of other intangible assets and amortization - The Company performed its annual preliminary goodwill impairment test as of March 1, 2023, for its three reporting units (one in Lighting, two in Display Solutions), and all units passed the test with significant business enterprise values above their carrying values. The definitive test is expected in Q4 fiscal 2023 with no anticipated changes[52] Goodwill, Net (In thousands) | Segment | March 31, 2023 | 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) | Category | March 31, 2023 (Net Amount) | June 30, 2022 (Net Amount) | | :---------------------------- | :-------------------------- | :------------------------- | | Customer relationships | $45,121 | $47,683 | | LED technology firmware, software | $5,480 | $6,368 | | Trade name (amortized) | $1,529 | $1,609 | | Trademarks and trade names (indefinite-lived) | $12,102 | $12,102 | | Total Other Intangible Assets | $64,394 | $67,964 | Expected Annual Amortization Expense (In thousands) | Year | Amount | | :---------- | :----- | | 2023 | $4,808 | | 2024 | $4,760 | | 2025 | $4,760 | | 2026 | $4,760 | | 2027 | $4,754 | | After 2027 | $32,020 | NOTE 8 - DEBT Outlines the company's long-term debt, including credit facilities and compliance with loan covenants Long-Term Debt (In thousands) | Category | March 31, 2023 | June 30, 2022 | | :------------------------ | :------------- | :------------ | | Secured line of credit | $29,930 | $57,275 | | Term loan, net | $19,643 | $22,321 | | Total debt | $49,573 | $79,596 | | Less: amounts due within one year | $3,571 | $3,571 | | Total amounts due after one year, net | $46,002 | $76,025 | - As of March 31, 2023, the Company had $45.1 million available for borrowing under its $75 million revolving line of credit, with a borrowing rate of 6.3%. The Company is in compliance with all loan covenants[57][58] NOTE 9 - CASH DIVIDENDS Reports cash dividends paid and declared, including the quarterly and annual dividend rates - The Company paid cash dividends of $4.1 million for the nine months ended March 31, 2023, and declared a regular quarterly cash dividend of $0.05 per share in April 2023, indicating an annual rate of $0.20 per share[59] NOTE 10 – EQUITY COMPENSATION Details changes to the equity compensation plan and the associated stock compensation expense - Shareholders approved an amendment to the 2019 Omnibus Award Plan, increasing authorized shares by 2,350,000. As of March 31, 2023, 2,463,673 shares remained reserved for issuance. Stock compensation expense was $0.9 million for the three months and $2.3 million for the nine months ended March 31, 2023[60][61] NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION Provides additional details on cash payments for interest and income taxes, and non-cash activities Supplemental Cash Flow Information (In thousands) | Category | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :------------------------------------------- | :------------------------------- | :------------------------------- | | Cash Payments: Interest | $2,325 | $1,067 |\n| Cash Payments: Income taxes | $7,808 | $3,581 |\n| Non-cash investing and financing activities: Issuance of common shares as compensation | $270 | $225 |\n| Non-cash investing and financing activities: Issuance of common shares to fund deferred compensation plan | $1,530 | $3,089 |\n| Non-cash investing and financing activities: Issuance of common shares to fund ESPP plan | $97 | $- | NOTE 12 - COMMITMENTS AND CONTINGENCIES Addresses legal proceedings and other commitments, noting no material adverse effects are anticipated - The Company is involved in various legal proceedings in the normal course of business but management believes their ultimate disposition will not have a material adverse effect on financial position, results of operations, cash flows, or liquidity. No standby letters of credit were issued as of March 31, 2023[63][64] NOTE 13 - LEASES Describes the company's operating and finance leases, including lease terms, costs, and liabilities - The Company leases manufacturing facilities, office space, and equipment, with most being operating leases. Lease terms range from one to seven years, with some renewal options. Total lease cost for the nine months ended March 31, 2023, was $2,650 thousand[65][69] Operating and Finance Lease Information (In thousands) | Category | March 31, 2023 | June 30, 2022 | | :------------------------------------- | :------------- | :------------ | | Total operating right-of-use assets | $6,770 | $8,664 | | Total operating lease liabilities | $7,405 | $9,514 | | Weighted Average remaining Lease Term (Operating) | 2.52 years | 3.05 years | | Total finance lease assets, net | $1,196 | $1,410 | | Total finance lease liabilities | $1,361 | $1,521 | | Weighted Average remaining Lease Term (Finance) | 4.06 years | 4.80 years | | Weighted Average Discount Rate | 4.86% | 4.86% | Maturities of Lease Liability (In thousands) | Year | Operating Lease Liabilities | Finance Lease Liabilities | Net Lease Commitments | | :---------- | :-------------------------- | :------------------------ | :-------------------- | | 2023 | $1,235 | $182 | $1,323 | | 2024 | $3,399 | $337 | $3,359 | | 2025 | $2,253 | $362 | $2,584 | | 2026 | $952 | $362 | $1,314 | | 2027 | $323 | $303 | $626 | | Thereafter | $4 | $- | $4 | | Total lease payments | $8,166 | $1,546 | $9,210 | | Less: Interest | $(761) | $(185) | $(946) | | Present Value of Lease Liabilities | $7,405 | $1,361 | $8,264 | NOTE 14 – INCOME TAXES Explains the consolidated effective tax rate and factors influencing its changes for the periods - The consolidated effective tax rate increased to 32.6% for the three months ended March 31, 2023 (from 22.9% in 2022), and to 27.0% for the nine months ended March 31, 2023 (from 22.4% in 2022). This increase is primarily due to higher pre-tax profits in higher-taxing jurisdictions (Puerto Rico and Canada) and unfavorable discrete tax adjustments[73][99][113] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analyzes the company's financial performance, liquidity, and capital resources for the reported periods Note About Forward-Looking Statements Highlights that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements, identified by words like 'believe,' 'expect,' and 'will,' which are subject to risks and uncertainties that could cause actual results to differ materially. The Company undertakes no obligation to update these statements[74] Summary of Consolidated Results Provides an overview of consolidated net sales and operating income, segmented by business unit Net Sales by Business Segment (In thousands) | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Lighting Segment | $66,707 | $57,126 | $201,074 | $165,662 | | Display Solutions Segment | $50,763 | $52,985 | $172,269 | $161,989 | | Total Net Sales | $117,470 | $110,111 | $373,343 | $327,651 | Operating Income (Loss) by Business Segment (In thousands) | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Lighting Segment | $6,529 | $4,959 | $22,441 | $13,921 | | Display Solutions Segment | $5,501 | $4,556 | $19,759 | $12,142 | | Corporate and Eliminations | $(4,298) | $(4,354) | $(15,409) | $(12,036) | | Total Operating Income | $7,732 | $5,161 | $26,791 | $14,027 | - Net sales for the three months ended March 31, 2023, increased 7% YoY to $117.5 million, driven by a 17% growth in the Lighting Segment, partially offset by a 4% decline in the Display Solutions Segment due to timing of shipments and program transitions. For the nine months, net sales increased 14% YoY to $373.3 million, with growth in both segments[78][79] - Operating income for the three months ended March 31, 2023, increased by $2.6 million to $7.7 million, and for the nine months, it increased by $12.8 million to $26.8 million. This improvement was attributed to increased volume, a higher value sales mix, price discipline, improved program pricing, and effective cost management[80][81] Non-GAAP Financial Measures Reconciles GAAP to Non-GAAP financial measures, including Adjusted Operating Income, Net Income, EBITDA, and Free Cash Flow - The Company uses Non-GAAP financial measures, including Adjusted Operating Income, Adjusted Net Income, EBITDA, Adjusted EBITDA, and Free Cash Flow, to provide greater comparability and enhanced visibility into operating performance by excluding items such as long-term performance-based compensation, severance, acquisition, and consulting costs[82] Reconciliation of Operating Income to Adjusted Operating Income (In thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Operating Income as reported | $7,732 | $5,161 | $26,791 | $14,027 | | Long-Term Performance Based Compensation | $968 | $780 | $2,521 | $2,466 | | Consulting expense: Commercial Growth Initiatives | $75 | $- | $864 | $- | | Acquisition Costs | $- | $21 | $- | $361 | | Severance costs | $- | $5 | $46 | $5 | | Adjusted Operating Income | $8,775 | $5,967 | $30,222 | $16,859 | Reconciliation of Net Income to Adjusted Net Income (In thousands, except per share data) | Metric | Three Months Ended March 31, 2023 (Net Income) | Three Months Ended March 31, 2023 (Diluted EPS) | Three Months Ended March 31, 2022 (Net Income) | Three Months Ended March 31, 2022 (Diluted EPS) | | :---------------------------------------- | :--------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :---------------------------------------------- | | Net Income as reported | $4,669 | $0.16 | $3,618 | $0.13 | | Long-Term Performance Based Compensation | $769 | $0.03 | $576 | $0.02 | | Consulting expense: Commercial Growth Initiatives | $59 | $- | $- | $- | | Acquisition Costs | $- | $- | $16 | $- | | Severance costs | $- | $- | $4 | $- | | Net Income adjusted | $5,497 | $0.19 | $4,214 | $0.15 | | Metric | Nine Months Ended March 31, 2023 (Net Income) | Nine Months Ended March 31, 2023 (Diluted EPS) | Nine Months Ended March 31, 2022 (Net Income) | Nine Months Ended March 31, 2022 (Diluted EPS) | | :---------------------------------------- | :-------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :--------------------------------------------- | | Net Income as reported | $17,347 | $0.60 | $9,856 | $0.35 | | Long-Term Performance Based Compensation | $2,107 | $0.08 | $1,850 | $0.07 | | Consulting expense: Commercial Growth Initiatives | $708 | $0.02 | $- | $- | | Acquisition costs | $- | $- | $285 | $0.01 | | Severance costs | $38 | $- | $4 | $- | | Net Income adjusted | $20,200 | $0.70 | $11,995 | $0.43 | Reconciliation of Operating Income to EBITDA and Adjusted EBITDA (In thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Income as reported | $4,669 | $3,618 | $17,347 | $9,856 | | Income Tax | $2,257 | $1,074 | $6,434 | $2,851 | | Interest Expense, net | $877 | $524 | $2,924 | $1,287 | | Other expense (income) | $(71) | $(55) | $86 | $33 | | Operating Income as reported | $7,732 | $5,161 | $26,791 | $14,027 | | Depreciation and Amortization | $2,455 | $2,531 | $7,295 | $7,632 | | EBITDA | $10,187 | $7,692 | $34,086 | $21,659 | | Long-term performance based compensation | $968 | $780 | $2,521 | $2,466 | | Consulting Expense - Commercial Growth Initiatives | $75 | $- | $864 | $- | | Acquisition Costs | $- | $21 | $- | $361 | | Severance costs | $- | $5 | $46 | $5 | | Adjusted EBITDA | $11,230 | $8,498 | $37,517 | $24,491 | Reconciliation of Cash Flow from Operations to Free Cash Flow (In thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Cash Flow from Operations | $12,486 | $3,875 | $32,548 | $(12,668) |\n| Capital expenditures | $(759) | $(531) | $(1,754) | $(1,276) |\n| Free Cash Flow | $11,727 | $3,344 | $30,794 | $(13,944) | Net Debt to Adjusted EBITDA (In thousands) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------ | :------------- | :------------- | | Total Debt | $49,573 | $84,958 | | Less: Cash and cash equivalents | $(1,350) | $(1,248) | | Net Debt | $48,223 | $83,710 | | Adjusted EBITDA - Trailing 12 Months | $48,117 | $31,309 | | Net Debt to Adjusted EBITDA Ratio | 1.0 | 2.7 | Results of Operations Compares the company's financial performance for the three and nine months ended March 31, 2023 and 2022 THREE MONTHS ENDED MARCH 31, 2023, COMPARED TO THREE MONTHS ENDED MARCH 31, 2022 Analyzes the financial performance of Lighting and Display Solutions segments for the three-month period Lighting Segment Performance (Three Months Ended March 31, In thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Net Sales | $66,707 | $57,126 | $9,581 | 17% | | Gross Profit | $20,278 | $16,654 | $3,624 | 22% | | Operating Income | $6,529 | $4,959 | $1,570 | 32% | - Lighting Segment net sales grew 17% due to continued growth in indoor and outdoor applications across multiple verticals, supported by new product introductions and diverse price-points. Gross profit margin improved to 30.4% from 29.2% due to increased sales, focus on competitive verticals, and price discipline[89][90] Display Solutions Segment Performance (Three Months Ended March 31, In thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Net Sales | $50,763 | $52,985 | $(2,222) | (4)% | | Gross Profit | $11,927 | $10,171 | $1,756 | 17% | | Operating Income | $5,501 | $4,556 | $945 | 21% | - Display Solutions Segment net sales decreased 4% due to changes in shipment timing and the completion of large digital signage programs, transitioning to new ones. Despite lower sales, gross profit margin improved significantly to 23.5% from 19.2% due to improved program pricing and a favorable project mix[93][94] - Consolidated net income for the three months ended March 31, 2023, was $4.7 million, up from $3.6 million in the prior year, with diluted EPS of $0.16 compared to $0.13. The effective tax rate increased to 32.6% from 22.9% due to higher pre-tax profits in higher-taxing jurisdictions[99][100] NINE MONTHS ENDED MARCH 31, 2023, COMPARED TO NINE MONTHS ENDED MARCH 31, 2022 Analyzes the financial performance of Lighting and Display Solutions segments for the nine-month period Lighting Segment Performance (Nine Months Ended March 31, In thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Net Sales | $201,074 | $165,662 | $35,412 | 21% | | Gross Profit | $63,015 | $49,009 | $14,006 | 29% | | Operating Income | $22,441 | $13,921 | $8,520 | 61% | - Lighting Segment net sales increased 21% for the nine months, driven by broad-based growth across all vertical market applications and strengthened lighting offerings. Gross profit margin improved to 31.3% from 29.6% due to increased sales, focus on competitive verticals, and price discipline[101][102] Display Solutions Segment Performance (Nine Months Ended March 31, In thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Net Sales | $172,269 | $161,989 | $10,280 | 6% | | Gross Profit | $38,061 | $27,766 | $10,295 | 37% | | Operating Income | $19,759 | $12,142 | $7,617 | 63% | - Display Solutions Segment net sales increased 6% for the nine months, primarily due to growth in grocery and refueling/convenience-store verticals. Gross profit margin significantly improved to 22.1% from 17.1% due to increased sales, improved program pricing, and a favorable sales mix[105][106] - Consolidated net income for the nine months ended March 31, 2023, was $17.3 million, up from $9.9 million in the prior year, with diluted EPS of $0.60 compared to $0.35. The effective tax rate increased to 27.0% from 22.4% due to higher pre-tax profits in higher-taxing jurisdictions[113][114] Liquidity and Capital Resources Assesses the company's working capital, cash flow, debt, and available credit for future operations - Working capital decreased to $79.8 million at March 31, 2023, from $84.3 million at June 30, 2022, primarily due to decreases in net accounts receivable ($8.5 million) and net inventory ($6.7 million), partially offset by a $10.0 million decrease in accounts payable[116][117][119] - The Company generated $32.5 million in cash from operating activities for the nine months ended March 31, 2023, a significant improvement from a $12.7 million use of cash in the prior year, driven by effective working capital management and improved earnings[121] - As of March 31, 2023, $45.1 million was available under the $75 million revolving line of credit, which, along with cash from operations, is deemed adequate for operational and capital expenditure needs for the remainder of fiscal 2023[120] - Cash used in financing activities was $32.0 million for the nine months ended March 31, 2023, primarily for debt reduction, compared to a $12.4 million source of cash in the prior year. This reduction was supported by improved working capital and earnings, and $3.1 million from stock option exercises[123] Off-Balance Sheet Arrangements Confirms the absence of financial instruments with off-balance sheet risk or arrangements - The Company has no financial instruments with off-balance sheet risk or off-balance sheet arrangements[125] Cash Dividends Reports the latest declared cash dividend and the company's annual dividend rate - In April 2023, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share, payable May 16, 2023, to shareholders of record as of May 8, 2023, maintaining an indicated annual rate of $0.20 per share[126] Critical Accounting Policies and Estimates Refers to the summary of significant accounting policies in the prior fiscal year's annual report - A summary of the Company's significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company's fiscal 2022 Annual Report on Form 10-K[127] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK States that there have been no material changes in market risk exposure since June 30, 2022 - No material changes in market risk exposure have occurred since June 30, 2022[128] ITEM 4. CONTROLS AND PROCEDURES Confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control Disclosure Controls and Procedures Affirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2023 - As of March 31, 2023, the Company's disclosure controls and procedures were deemed effective by the Chief Executive Officer and Chief Financial Officer[130] Changes in Internal Control Reports no material changes in internal control over financial reporting during the second quarter - No material changes in internal control over financial reporting occurred during the second quarter ended March 31, 2023[131] PART II. OTHER INFORMATION Contains additional information not covered in Part I, including other disclosures and exhibits ITEM 5. OTHER INFORMATION Indicates that there is no other information to report in this section - No other information is reported in this section[133] ITEM 6. EXHIBITS Lists all exhibits filed with the Form 10-Q, including certifications and interactive data files - Exhibits include certifications (31.1, 31.2, 32.1, 32.2), Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE), and the Cover Page Interactive Data File (104)[135] SIGNATURES Confirms the official signing of the report by the company's principal executive and financial officers - The report was signed on behalf of LSI Industries Inc. by James A. Clark, Chief Executive Officer and President, and James E. Galeese, Executive Vice President and Chief Financial Officer, on May 5, 2023[137][138]