LSI(US:LYTS)2023-08-17 19:54Financial Data and Key Metrics Changes - The company reported fourth quarter earnings per share of $0.28, with adjusted EPS at $0.30, compared to $0.18 and $0.21 for the prior year quarter, reflecting improved profitability and a lower effective tax rate [22] - Full year sales increased to $497 million, representing a 9% year-over-year growth, while adjusted net income increased 61% to $29 million, and adjusted earnings per share increased 55% to $0.99 per share, marking the highest full year EPS in over 20 years [46] - The adjusted EBITDA for the full year increased to $52 million, with the adjusted EBITDA margin rate expanding 270 basis points to 10.4% [46] Business Line Data and Key Metrics Changes - Display Solutions sales for the full year increased by 1%, but increased by 13% when excluding a large digital menu board order, indicating ongoing strength in grocery, c-store, and QSR market verticals [25] - Lighting sales increased by 5% in Q4, marking the ninth consecutive quarter of growth, with full year lighting sales increasing by 17% [47] - The gross margin rate for lighting improved to 33% in Q4, while the full year margin rate improved to 32%, 190 basis points above last year [47] Market Data and Key Metrics Changes - The company entered fiscal '24 with a project quotation level steady at a high level, and Q4 bookings were favorable with a book-to-bill ratio above 1 [24] - There is a noted slowing in large projects, but small and medium project activity remains healthy, with lengthening quote-to-order conversion periods being observed [24] - The company continues to see strong inquiry levels for branding and image initiatives, particularly in the refueling c-store and grocery space [25] Company Strategy and Development Direction - The company aims to reach $800 million in sales and nearly $100 million in EBITDA performance by 2028, with a balanced approach to growth through organic activities and M&A [14][16] - The strategic focus is on high potential vertical markets such as grocery, c-store, warehousing, manufacturing, automotive, and sports courts, with differentiated goods and services designed for these markets [16] - The introduction of more than 20 new products is planned for 2024, including a next-generation environmentally friendly refrigerated display solution [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage and seek out continued productivity and cost opportunities while managing price, margin, and cash flow [20] - The company noted that while there are external pressures affecting timing, the overall inquiry levels and project activity remain healthy [39] - Management highlighted that the macroeconomic environment is stable, but there are extended timelines for project execution due to external factors such as financing and labor issues [79] Other Important Information - The company reduced its net debt to about $35 million, lowering the ratio of net debt to trailing 12-month adjusted EBITDA to 0.7x, providing balance sheet flexibility for growth initiatives [23] - A regular cash dividend of $0.05 per share was declared, payable September 5 for shareholders of record on August 28 [23] Q&A Session Summary Question: Factors influencing the second half of FY '24 being stronger than the first half - Management indicated that while they are not shielded from macroeconomic factors, their strategy focuses on vertical markets that are more resistant to economic cycles, which has proven effective over the past five years [51] Question: Update on capital allocation priorities - Management stated that there would be no material changes in capital allocation models, with a focus on organic growth and maintaining a disciplined approach to M&A opportunities [55] Question: M&A outlook and environment - Management expressed optimism about the current M&A environment, noting that they are actively looking for opportunities but remain disciplined in their approach to ensure strategic fit and cultural alignment [58] Question: Impact of lead time delays on operating profits - Management indicated that while there could be mid-single digit adjustments on a quarter-by-quarter basis due to delays, these do not significantly disrupt overall quarterly performance [89] Question: Size of the opportunity for the R-290 refrigerated display - Management emphasized the importance of earning every project and maintaining customer loyalty, noting that while the market is larger than their current share, they need to actively pursue new opportunities [93]