LSI(LYTS) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for LSI Industries Inc. for the period ended December 31, 2023, including key financial statements and notes Condensed Consolidated Statements of Operations Net sales decreased for both three and six-month periods ended December 31, 2023, while six-month net income increased to $13,934 thousand Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $109,005 | $128,804 | $232,446 | $255,873 | | Gross Profit | $31,536 | $34,140 | $68,125 | $68,878 | | Operating Income | $7,819 | $9,038 | $18,847 | $19,059 | | Net Income | $5,906 | $6,417 | $13,934 | $12,678 | | Diluted EPS | $0.20 | $0.22 | $0.47 | $0.44 | Condensed Consolidated Balance Sheets Total assets decreased to $287,548 thousand as of December 31, 2023, primarily due to reductions in receivables and inventory, while shareholders' equity increased Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $141,393 | $149,876 | | Inventories | $60,154 | $63,718 | | Goodwill | $45,030 | $45,030 | | Total Assets | $287,548 | $296,149 | | Total Current Liabilities | $65,554 | $76,562 | | Long-term Debt | $17,950 | $31,629 | | Total Liabilities | $94,614 | $118,571 | | Total Shareholders' Equity | $192,934 | $177,578 | Condensed Consolidated Statements of Cash Flows Operating cash flow remained stable at $19,868 thousand for the six months ended December 31, 2023, with decreased cash used in financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,868 | $20,062 | | Net cash used in investing activities | ($3,323) | ($994) | | Net cash used in financing activities | ($15,728) | ($18,779) | | Increase in cash and cash equivalents | $832 | $303 | Notes to Condensed Consolidated Financial Statements This section details accounting policies, segment reporting, debt structure, and equity compensation, providing context for the financial statements - Revenue is disaggregated by timing (point in time vs. over time) and by segment. For the six months ended Dec 31, 2023, $181,500 thousand of revenue was recognized at a point in time, while $50,900 thousand was recognized over time[36] - The company operates two reportable segments: Lighting and Display Solutions. Corporate activities are reported separately[38] - As of December 31, 2023, the company was in compliance with all loan covenants associated with its credit facility[53] - In January 2024, the Board of Directors declared a quarterly cash dividend of $0.05 per share, indicating an annual rate of $0.20 per share[54] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting a 15% Q2 net sales decrease due to project delays, improved gross margin, strong operating cash flow, and reduced net debt - Q2 FY2024 net sales decreased 15% YoY to $109,005 thousand, primarily due to a temporary delay in project demand in the grocery market affecting the Display Solutions Segment[71] - Despite a 9% sales decline for the six-month period, adjusted operating income remained flat at $21,400 thousand, demonstrating effective cost management and improved manufacturing productivity[74] - The company significantly improved its leverage, with the Net Debt to Trailing 12-Month Adjusted EBITDA ratio decreasing to 0.4x at December 31, 2023, from 1.3x a year prior[78] Results of Operations The Lighting segment's operating income grew 31% despite a sales dip, while Display Solutions saw a 29% sales decline and 57% operating income drop due to a temporary pause Segment Performance - Three Months Ended Dec 31, 2023 vs 2022 (in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | % Change | Operating Income 2023 | Operating Income 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Lighting | $64,795 | $66,833 | -3% | $8,856 | $6,754 | +31% | | Display Solutions | $44,210 | $61,971 | -29% | $3,302 | $7,762 | -57% | Segment Performance - Six Months Ended Dec 31, 2023 vs 2022 (in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | % Change | Operating Income 2023 | Operating Income 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Lighting | $132,436 | $134,366 | -1% | $17,609 | $15,912 | +11% | | Display Solutions | $100,010 | $121,507 | -18% | $10,521 | $14,258 | -26% | - Lighting segment gross margin improved to 35.0% in Q2 FY2024 from 30.6% in Q2 FY2023, attributed to stable pricing, higher-value sales mix, favorable material costs, and improved productivity[80] - The decline in Display Solutions sales was unfavorably impacted by a temporary pause in demand within the grocery market vertical related to a pending merger of two large grocery chains[83] Liquidity and Capital Resources The company maintains strong liquidity with working capital increasing to $75,800 thousand and a current ratio of 2.2 to 1, supported by $19,900 thousand in operating cash flow - Working capital was $75,800 thousand at Dec 31, 2023, up from $73,300 thousand at June 30, 2023. The current ratio improved to 2.2 to 1 from 2.0 to 1[106] - Net inventories decreased by $3,500 thousand from June 30, 2023, to $60,200 thousand at December 31, 2023, reflecting improved inventory management[107] - The company generated $19,900 thousand of cash from operating activities in the first six months of fiscal 2024, demonstrating continued strong cash flow generation[109] - As of December 31, 2023, $70,700 thousand was available for borrowing under the $75,000 thousand revolving line of credit, and the company was in compliance with all loan covenants[108] Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk exposure since June 30, 2022, referring to its Annual Report on Form 10-K - There have been no material changes in the company's exposure to market risk since June 30, 2022[116] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes in internal control over financial reporting - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[118] - No changes occurred in the company's internal control over financial reporting during the second quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[119] PART II. OTHER INFORMATION This section includes other required disclosures and exhibits Other Information There is no other information to report for the period - None[122] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents for financial reporting (101 series)[123] Signatures This section contains the official signatures certifying the report's accuracy Signatures The report is duly signed on February 6, 2024, by James A. Clark, Chief Executive Officer and President, and James E. Galeese, Executive Vice President and Chief Financial Officer - The report was signed on February 6, 2024, by James A. Clark (CEO) and James E. Galeese (CFO)[127]