LSI(LYTS) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the second quarter of Fiscal 2026 was $147 million, essentially flat year over year, while profitability and free cash flow improved [4][14] - Adjusted EBITDA increased year over year to $13.4 million, with a strong free cash flow of $23 million, leading to a net leverage ratio of 0.4 [11][14] - Adjusted earnings per share were reported at $0.26 for the quarter, with adjusted net income and adjusted EBITDA modestly above the prior year [14] Business Line Data and Key Metrics Changes - The Lighting segment experienced a sales growth of 15% year over year, marking the third consecutive quarter of double-digit growth [15] - Display Solutions saw a slight revenue decline year over year due to prior year comparisons, but orders improved sequentially and were up year over year, resulting in a strong backlog [6][16] Market Data and Key Metrics Changes - The grocery vertical returned to normal seasonal demand, with Q2 grocery orders increasing double digits year over year, generating a strong book-to-bill ratio of 1.2 [16] - International market activity, particularly in Mexico and the islands, showed improvement, with expectations for elevated activity into Fiscal 2027 [8] Company Strategy and Development Direction - The company is focused on integrating JSI and EMI under the LSI umbrella, emphasizing talent management and operational consolidation to unlock cross-selling opportunities [9][10] - The strategy includes enhancing visibility into sales activities and strengthening alignment between sales, operations, and execution [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the secular growth outlook across key vertical markets and the ability to grow above market through a differentiated solutions-based approach [13] - The company remains optimistic about improving order trends and backlog as it exits the second quarter [13] Other Important Information - The company plans to host a national sales meeting to enhance collaboration and alignment among sales and marketing professionals [10] - The integration of Canada's Best is progressing well, with expectations for retail banking to become a significant market within the next 12 months [52] Q&A Session Summary Question: Refueling and C-store growth opportunities - Management indicated steady growth in the refueling sector with multiple mid-sized projects expected to contribute positively through 2026 and into 2027 [21][22] Question: Market drivers in Mexico - Management noted that the market in Mexico is normalizing, with expectations for increased activity as companies return to original plans [28][29] Question: Integration of EMI and margin improvements - Management reported over 200 basis points of margin improvement since the integration and expects continued progress [33] Question: Competitive environment and above-market growth - Management highlighted the dynamics in the convenience store and grocery markets, indicating a favorable environment for growth [65] Question: M&A opportunities and impact of higher rates - Management acknowledged that while higher rates are not ideal, they have led to more realistic conversations in the M&A landscape, making it a better environment for strategic acquisitions [68][69]