LSI(US:LYTS)2020-11-01 05:16Financial Data and Key Metrics Changes - Sales for the fiscal first quarter were $70 million, improving sequentially from Q4 but below the prior year as projected [18] - Net income was $2 million compared to $4.5 million in the same quarter last year, with prior year results including a non-recurring pretax gain of $4.8 million from a facility sale [18] - Adjusted net income increased 29% to $2.1 million versus $1.6 million in the same period last year [18] - Adjusted EBITDA was $4.7 million, representing 6.8% of sales, which is 90 basis points above last year [19] - The company generated $7.2 million of free cash flow in Q1, exiting with a total cash balance of $9.5 million and $75 million availability on the revolving credit facility [19] Business Line Data and Key Metrics Changes - The Graphics Segment experienced a sharp rebound, with sales just 4% below prior year levels, primarily due to ongoing project schedule delays [20] - Graphics sales in Mexico increased 88% year-over-year in the first quarter, with strong new business development activity [20] - Lighting sales were impacted by a pandemic-driven slowdown, but quotation and order activity increased steadily throughout the first quarter, generating an increased backlog entering Q2 [21] - Adjusted gross margin for lighting improved by 290 basis points to 30.5%, driven by a focus on higher value market applications and new product introductions [21] Market Data and Key Metrics Changes - The company noted fluctuations in construction activity depending on the region due to COVID, but reported little to no project cancellations [7] - There has been an increase in requests for short lead time projects, with the company able to respond effectively due to U.S.-based manufacturing and supply chain diversification [7] - The company is focusing on key vertical markets including petroleum, automotive, grocery, and warehousing, with notable wins in outdoor projects for a major e-retailer [9] Company Strategy and Development Direction - The company aims to become a $500 million entity with double-digit EBITDA by 2025, focusing on expanding vertical market presence, enhancing customer engagement, building services business, and accelerating growth through acquisitions [15] - The company is committed to moving away from price-sensitive, highly commoditized business towards higher value market applications [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current environment, highlighting strong financial positioning with nearly $85 million of immediate liquidity available [16] - The management remains optimistic about future growth, both organically and through M&A, indicating that the best days are ahead [17] Other Important Information - The company declared a regular cash dividend of $0.05 per share, payable on November 17 to shareholders of record on November 9 [19] - The company introduced a new digital wallet solution for contactless payments at approximately 11,000 U.S. locations, which is expected to create further opportunities [14] Q&A Session Summary Question: Is the fiscal first quarter still expected to be the weakest for the year? - Management confirmed that Q1 was in line with expectations, noting challenges but no cancellations in project orders [25] Question: Is the new digital wallet product a one-time sale or does it have recurring revenue? - The digital wallet solution does not have a recurring revenue component, but management sees potential for future opportunities in contactless payment solutions [28] Question: What specific products are driving gross margin gains in the Lighting Segment? - Management indicated that higher-margin, project-related outdoor products are driving margin improvements, with a focus on optical control and customer value [34] Question: Can you provide details on the projects with the world's largest e-retailer? - Management confirmed opportunities in both retrofit and new facilities, emphasizing the importance of performance and being a good neighbor in project execution [36] Question: What is the timeline for completing the $100 million QSR program? - Management anticipates two years remaining in the schedule for the QSR program, with potential for follow-on business [41] Question: What characteristics are being sought in potential acquisition candidates? - Management is looking for opportunities that fit well with the LSI brand, focusing on adjacencies and broader solutions rather than traditional core lighting solutions [43]