LSI Industries Q1 2027 Earnings Call Transcript

LSI Industries (NASDAQ:LYTS) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.

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Summary

LSI Industries reported a 44% increase in revenue to $226 million for the fiscal 2027 first quarter, driven by the Royston acquisition, with adjusted EBITDA up 41% to $22.2 million.

The integration of Royston is progressing well, contributing to a 100 basis point improvement in adjusted EBITDA margin and an 8% sales growth.

Strategic initiatives include the ‘Category of One’ concept launched at the NACS convention, focusing on expanding into vertical markets like convenience stores, grocery, and refueling.

The company faces challenges in the lighting and quick-service restaurant (QSR) segments, with lighting sales down 6% due to weaker demand, although margin improvements were noted.

LSI Industries is consolidating operations for cost savings, such as moving manufacturing from Collingwood to Toronto, to achieve over $1 million in annual savings.

Future outlook includes continued focus on operational efficiency and customer engagement, with plans to share a multi-year strategic plan with investors in December.

The company reduced net debt by $14 million in the quarter, with a target to bring the leverage ratio below two times in the next 12 to 18 months.

Full Transcript

OPERATOR (Moderator)

Greetings and welcome to the LSI Industries Fiscal 2027 First Quarter Results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jim Galise, Chief Financial Officer.

Thank you, sir. You may begin.

Jim Galise (Chief Financial Officer)

Welcome everyone, and thank you for joining today’s call. We issued a press release before the market opened this morning detailing our fiscal 2027 first quarter results. In addition to this release, we posted a conference call presentation in the investor relations section of our corporate website. Information contained in this presentation will be referenced throughout today’s conference call. Included are certain non-GAAP measures for improved transparency of our operating results.

A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10-Q. Please note that management’s commentary and responses to questions on today’s conference call may include forward-looking statements about our business outlook. Such statements involve risks and opportunities, and actual results could differ materially. I refer you to our safe harbor statement which appears in this morning’s press release for more details.

Today’s call will begin with remarks summarizing our fiscal first quarter results. At the conclusion of these prepared remarks, we will open the line for questions. With that, I’ll turn the call over to LSI President and Chief Executive Officer Jim Clark.

James Clark (President & CEO)

Thank you, Jim, and good morning everyone. I appreciate you joining us today. Today we’re reviewing our first quarter results for fiscal 2027. As you saw in our earnings release, we reported revenue of approximately $226 million, which is an increase of 44% over the prior year, reflecting the addition of Royston to our business. Adjusted EBITDA increased 41% to $22.2 million and we generated nearly $14 million in free cash flow. Overall, I would characterize the quarter as one where we made good progress on a number of important initiatives while continuing to work through some challenging market conditions.

Jim Galise will cover the financial details in a few minutes. So let me start with Royston. We are now several months into the integration and I’m very pleased with the progress we’re making. Royston delivered a solid quarter with sequential sales growth of 8% and a 100 basis point improvement in adjusted EBITDA margin. We’re beginning to see the benefits of initiatives focused on improving operating efficiency and strengthening commercial execution. As I’ve said before, we didn’t acquire Royston simply to become a larger company.

We acquired Royston because it fits directly into our vertical market strategy that we’ve been executing for the past seven years. Our strategy hasn’t changed. What’s changed is our ability to serve those markets. With Royston, we’ve significantly expanded the products, services and manufacturing capabilities we can bring to our customers, and we’re beginning to see the benefits of that expanded platform in the conversations we’re having across our customer base.

A few weeks ago, we formally introduced our Category of One initiative at the NACS convention. NACS is the National Association of Convenience Stores and it’s one of our largest trade shows. This was an opportunity to bring together the full scope of LSI’s capabilities and present them to many of the largest convenience store and refueling customers in North America. The response was extremely positive. I think many of our customers are just beginning to appreciate the breadth of what we can now offer, and while these opportunities take time to develop, the conversations we’re having today are broader and more strategic than they were just a few years ago.

Turning to our vertical markets, refueling and convenience stores continue to perform well. Sales increased approximately 5% during the quarter, supported by activity across several of our largest customers. The 2,500-site renovation program we discussed last quarter continues to progress as planned, with activity expected to build through fiscal 2027 and into fiscal 2028. We are also working with another major convenience store chain on a potentially significant renovation program, beginning with store concept developments right now.

As we’ve discussed on previous calls, the competitive environment in the convenience store market continues to drive investment in new locations, remodels and the overall customer experience. We love it. We believe this is a long-term trend and one that aligns very well with our capabilities. Grocery also remains healthy. We’re seeing continued investment across a broad customer base and order activity in that vertical increased 12% during the quarter. Across display solutions, overall orders increased 4% and our pro forma backlog also improved. These are encouraging indicators, particularly given the broader economic environment.

Quick-service restaurants remain a more challenging market. We’ve talked about the uneven investment patterns in QSR over the last several quarters and those conditions have continued. Some customers are moving forward with their programs, others are delaying investment decisions. The softness has affected both our sales and margin. However, we recently received some very encouraging news from one of our larger QSR customers. They approved a 3,000-store interior renovation program that we’ve been working on for some time and selected LSI as one of three providers.

The program is expected to begin late in our third quarter fiscal 2027 and continue over approximately three years. It’s another example of the opportunities developing within our existing customer base and we’re thrilled to be part of it. Turning to Lighting, the broader market remains soft. Sales for LSI declined approximately 6% during the quarter, reflecting weaker demand across several key commercial and industrial applications. We did see growth in refueling, sports and banking, but that was offset by weakness in parking, smaller retail, warehousing and automotive. Despite the lower volume, our lighting team improved gross margin during the quarter, reflecting continued discipline around pricing and cost management.

Order activity was relatively stable and we continue to invest in new product development, training and customer engagement. We built a very competitive lighting business over the last several years and I believe we’re well positioned when the broader market recovers. I also want to touch briefly on operational efficiency. We spent the last several years building a broader and more capable organization. Now we’re focused on bringing those capabilities together and identifying opportunities to operate more efficiently. One example is a consolidation of our Collinwood, Ontario manufacturing operation. We’re bringing that into our existing Canada’s Best facility near Toronto. We expect to complete that transition through the end of this fiscal year and we’ll generate more than a million dollars in annual savings through this move.

This is the type of work we’ll continue to pursue across LSI, not simply reducing costs, but improving the way our businesses operate together, making better use of our facilities and our equipment and creating a more effective organization. Looking ahead, I want to be realistic about our near term. We’re seeing positive order activity and a number of encouraging customer developments, but the timing of the opportunities doesn’t always align neatly with our fiscal quarters. We’re also dealing with continued softness in Lighting and QSR, inflationary pressures and the normal seasonal slowdown in our retail renovation activity as we move into the holiday period. At the end of the day, I feel very good about where we’re positioned as a company.

Over the past several years, we’ve been focused on building a broader and more capable organization through a combination of our organic growth activities and strategic acquisitions. We’ve assembled a platform that I believe is unique in the market that we serve today. As we look ahead, our focus is increasingly shifting from building that platform to realizing its full potential. That means expanding our share of wallet with existing customers, introducing those new products and capabilities, and continuing to improve the efficiency and profitability of our operations.

And importantly, many of these opportunities are within our control. We don’t need to rely entirely on an improving economy or others to continue to make this progress. We’re approaching an important milestone in our strategic planning process. In December, we expect to share our next multi-year strategic plan with the investment community, outlining how we intend to build on the progress we’ve made under the Fast Forward plan and continue to create long-term shareholder value. We’ve always placed a great deal of emphasis on our high say-do ratio, setting expectations carefully and delivering against them. This discipline will remain central to how we approach this next chapter.

As always, I want to thank our entire team for their continued hard work and commitment. There’s a lot going on across LSI right now and I’m pleased with the progress we’re making. I’m encouraged by what we see ahead and I’m looking forward to sharing more about our future plans in December. With that, I’m going to turn the call back over to Jim Galise for a more detailed review of our financial results.

Jim Galise (Chief Financial Officer)

Good morning all. LSI Industries delivered 226 million in sales, over 22 million in adjusted EBITDA and just under 14 million in cash flow in Q1, and I’ll comment on all three areas starting with sales. The year-to-year 44% increase was led by Display Solutions segment, which includes the incremental impact of the Royston acquisition. Excluding the acquisition, Display Solutions sales increased 1% versus prior year, with significant fluctuation realized across key vertical markets for display.

Both C-store and Grocery generated mid-single-digit growth rates, sustaining a high level of customer project activity, while QSR and Banking were soft, both down double digits. In C-store, our largest customer generated double-digit growth in the quarter as we completed renovation work on additional pilot sites. The multi-year renovation program proposed by this customer has different renovation package options depending on the site, and we’re working closely with their team on finalizing content and overall project planning.

Also in the quarter, we began renovation work for the 2,500 site award we announced last quarter in the Refueling vertical. The initial award did not include Royston, but now includes signage, representing an early cross-selling win. For Grocery, demand also remains favorable, led by sales to large chains. Notably, the nation’s largest retailer completed their line reviews for the next calendar year, and the result is LSI Industries will be awarded additional share of product as projected.

The QSR vertical remains very soft as chains respond to inflation-driven lower consumer traffic. However, as Jim mentioned, a large QSR chain selected LSI Industries as a supplier for renovation of 3,000 stores over the next three plus years. Separately, we continue to make progress on the Royston acquisition. Sales improved sequentially, and all three businesses realized pro forma sales growth versus the prior-year quarter. Looking forward, display segment orders and backlog both increased 4% compared to the prior-year quarter. As project release activity continues in our two largest verticals, the operating environment has become more challenging, with the number of customer schedule changes and pushouts increasing. Reschedules range from several weeks to several months. There’s multiple reasons driving this, one being the status of project budgets as we near the end of the calendar year.

Another is job sites lagging behind schedule, and skilled labor availability is also an issue. We continue to collaborate closely with customers on scheduling, particularly as we enter the slower seasonality period, as customers limit renovation activity ahead of the holiday high sales and consumer traffic period. Shifting to the lighting segment, lighting sales were 6% below prior year, the result of ongoing softness in the broader commercial and industrial market. While the near-term outlook remains soft, we remain focused on margin management, where alignment of selling price to current cost supported a 10 basis point improvement in the year-to-year gross margin rate. Lighting quote activity continues to exceed orders, with quotes for the last three months increasing 5% over last year, while orders increased 1%, reflecting the ongoing delayed quote-to-order conversion process.

Next, several comments on Adjusted EBITDA. LSI Industries generated adjusted EBITDA of 22 million in the first quarter, or 41% above prior year. To summarize, EBITDA and EBITDA margin was favorably impacted by the incremental impact of Royston and C-store and Grocery volumes, while being unfavorably impacted by lower volume in Lighting and vertical customer mix in Display Solutions, and the continued cycling through the lower margin backlog. In the Sign Resource business, progress was achieved in multiple margin improvement initiatives in the quarter.

Royston EBITDA margin, which is accretive to LSI Industries, increased 100 basis points sequentially from the fourth quarter. All three brands realized improved margins, including the Sign Resource business. We expect Sign Resource margin improvements to continue, targeting a 200 plus basis point increase for fiscal Q2 over Q1. In addition, processes have been implemented to ensure pricing on all Royston project quotes and orders are aligned with current costs and provide for changes in key commodity costs.

Further, we remain focused on identifying and implementing synergy savings across the business. We have already identified and are in process of implementing 1 million in incremental procurement savings across the company. Also, we recently announced the closure of the Collingwood, Ontario manufacturing facility and consolidation of production into the Toronto area, Canada’s Best facility. The consolidation will be completed by the end of the fiscal year and generate over 1 million of annual cost savings.

Our first quarter sales and EBITDA performance generated solid free cash flow of 13.8 million, serving to reduce net debt by 14 million. In the six months since the acquisition of Royston, LSI Industries has reduced net debt by over 23 million, resulting in a net debt to pro forma TTM adjusted EBITDA of 2.6 times. To conclude, we are encouraged by the increasing level of program interactions with our customers as well as the progress on our key performance improvement initiatives. While we may continue to incur timing fluctuations in our projects and markets, we are confident in our direction and path and will accelerate our execution throughout fiscal 2027. I will now turn the call back to the moderator for the question and answer session.

OPERATOR (Moderator)

Thank you. We’ll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions.

Our first question comes from the line of Aaron Spychala with Craig-Hallum. Please proceed with your question.

Aaron Spychala (Analyst)

Yeah, good morning Jim and Jim, thanks for taking the questions. Maybe first for us on the C-store vertical, in the release you mentioned a pilot program with an existing customer kind of early in a large-scale renovation, and then earlier on the call I heard about kind of store concept developments with another chain. So just want to kind of confirm or just understand: are those one and the same, or those two separate? And then just any other color on kind of timing or size potential for number of sites and pull-through on the Royston side of things as you look to expand wallet share with those opportunities.

James Clark (President & CEO)

Yeah, good morning Aaron. And so first of all, just to answer your question, the 3,000 store is a program we’ve been awarded, and that’ll bridge out through the third quarter, late third quarter, early Q4 of ’27 here, and then go into 2028. As you remember with our, you know, some of our other programs, this isn’t unusual for us to come in where there’s multiple suppliers, but we’ve been very effective at capturing a bigger share of, you know, the initial award as we go forward, and we’re hopeful we’ll be able to do the same here.

The development is another separate customer, and we’re in the early stages of that right now, but it’s very encouraging. And we’ve just moved on, you know, through some stores, through some actual, you know, field deployments. So it’s always an encouraging sign because it usually indicates, you know, a final decision and a go forward. And then lastly, separate, but you know, we still have the 2,500 site program that we talked about last quarter, and this is on top of our normal rhythm of business.

So these are kind of newer projects that are rolling in, and ones that we thought were worth mentioning.

Aaron Spychala (Analyst)

Understood, thanks for that. And then can you just provide a little bit more detail on some of the significant opportunities to drive operating leverage? You talked a little bit about the facility consolidation, you know, some on procurement, but just any other details there as you kind of balance that with just some of the other kind of macro issues that you’re navigating as well?

James Clark (President & CEO)

Yeah, I mean, I look at them as, you know, all those opportunities, right, where we’ve got 23 facilities spread out across the US right now. There are locations where we could consolidate some things. We could make better utilization of equipment and time we have. So we’re looking at all of those things. We’ve always said we were going to kind of come back and do this, and I think this is really all about that focus to getting, you know, to our 12 and a half percent EBITDA.

This is where this efficiency comes from: better asset utilization. If we’re using a piece of equipment right now on a single shift, eight hours a day, we’ve got 16 hours we could be using that piece of equipment, or at least a portion of that. Those are all opportunities for us. We’ve got, you know, we’re moving product between one or two facilities, partial here, partial there, to get a completed product. If we can get that all under one roof, that creates a tremendous opportunity for us.

So I think over the next two years, you’re going to see us really kind of invest in that. You know, the Collingwood facility is a good example. Taking that and creating a center of excellence for Canada in Canada has always been our idea, and it has shielded us from the tariffs and the cross-border, you know, communication and the issues going on there. Those may improve, those may stay like they are, they may get worse. But when we have a business that’s fully capable of supplying almost everything we can do in Canada, that’s a big plus for us.

And then the additional plus is bringing it all under one roof. So I think you’re going to see us continue to execute on a lot of all these operational opportunities. And that’s going to go right towards our margin profile and our effectiveness in running the company.

Jim Galise (Chief Financial Officer)

Aaron, I would—Jim Galise here—I would just add to Jim’s comments. As you know, we’ve talked before, you know, quality of earnings is very important, you know, to LSI Industries for a number of reasons. And so we take both our business improvement initiatives and synergies, you know, associated with the acquisition very seriously. And we have, you know, quite a roadmap of items to build on. Jim mentioned a few, and I’ll just mention a couple more.

I think I mentioned in my comments how we’ve identified and are in the process of implementing, you know, a million dollars of procurement savings in key commodity areas, and that’s just a start. And our alignment, our ability to continue to align selling price to current cost continues to get better. That’s something LSI Industries has always had a pretty good competency in, and we’re expanding that into the Royston product areas. And you’re seeing that—Jim commented on it and I did as well—you know, the sequential improvement we’ve seen there and the sequential improvement we continue to expect moving forward and will realize moving forward.

So quality of earnings and margin management, margin realization is a high, high priority for us.

James Clark (President & CEO)

You know, last quarter we talked about a little bit of softness in margin around some of the Sign Resource projects that rolled forward after the acquisition. We’ve already been able to go in there and make significant improvement. I mean, we’ve still got a ways to go. We said that it would take us through the remainder of the calendar year to kind of get us on par. But I’m very happy with, you know, the progress we’ve made there and the team has done.

And that’s just, you know, that pricing discipline that we’ve always been very good at.

Jared (Analyst)

Good. Thanks for the call there. And then maybe one last one if I could sneak in just on the balance sheet. Can you talk about the timeline and kind of confidence in continued EBITDA free cash flow conversion to get that leverage down below? I think the target has been two times.

Jim Galise (Chief Financial Officer)

Yes, I think we’ve been very clear about our timetable in terms of driving our leverage ratio to two times and lower. And we continue to expect that to happen within the next 12 to 18 months. We see no reason that our free cash flow will not continue the pattern that it is and, in fact, should improve once we see a little more uplift and larger releases on some of these programs.

Jared (Analyst)

Understood. Thanks for taking the questions. I’ll turn it over.

Jim Galise (Chief Financial Officer)

Thanks, Jared.

OPERATOR (Moderator)

Thank you. Our next question comes from the line of Brent Thillman with Oppenheimer. Please proceed with your question.

Brent Thillman (Analyst)

Hey, thanks. Good morning, Jim. And Jim, I guess first question. There was a comment just around customer discussions becoming more kind of broader and more strategic than a few years ago. Jim, if you wouldn’t mind just expanding upon that. And what degree did that give you visibility here? Even as it seems like we’re working through kind of a dynamic macro right now.

James Clark (President & CEO)

Yeah, I never want to get the cart before the horse, but NACS is a big trade show for us, probably the biggest. And it’s a concentration of very large customers, both from the Royston perspective and from LSI Industries. And that’s been historical. I think that there was an epiphany, a realization, a kind of a finger snap of “I get it now” from a customer perspective. And I just felt like there was a lot of energy about that realization and that it still takes time to mature because in every one of these cases, our customers are currently buying from some incumbent, and we’re going to make the assumption that that incumbent is doing a good job for them. We need to continue to articulate that the benefits that we’re bringing, the category of one we’re developing under one roof as the manufacturer and as the integration partner to help our customers get it installed, has real value.

What I was commenting to is coming off of NACS where you get a high density of customers in one location in a short amount of time, you get a lot of input rapidly. And in the realization of “I get it.” That connection with what we can do across their stores was clear and apparent, and the energy level was very high. And so I just come off of that whole trade show very kind of excited. It’s nice to see the program, the dream that we’ve kind of built and sketched out, connect with these customers.

And now it’s just realizing that forward momentum and creating it into something that we are able to capture more of that wallet share and we are able to move from two or three solutions to five or six solutions. And I feel like there was a lot of connection at this show about that capability. And in individual conversations, just mentioning that when you’re there for three days and you can connect it one after another, it really creates some energy.

Brent Thillman (Analyst)

Appreciate that. Jim, I guess as a follow-up on lighting, are you seeing a market that’s starting to stabilize? I don’t think it’s been especially good for you in the last few quarters. Or is some of what you’re seeing in the quarter suggest it’s getting a little bit worse?

James Clark (President & CEO)

Well, I think that if you looked at it from an industry perspective, I think we’ve been outpacing in lighting for multiple quarters. Particularly if you go back two, three quarters, we were consistently outpacing the market. We were showing that growth. Most of our lighting, as I said, we’ve got high activity in some segments and we’ve got lower activity in others. And I think that lower is just a little bit more advanced than the higher stuff right now.

So you’re seeing that decline, that 6% decline. With that said, though, I mean, all these customers we’re talking to, and it’s kind of segment driven, are talking about projects they have in the queue, but they’re just being pushed out. They’re being pushed. We usually see a little bit of accelerated activity—we actually call this our lighting season. The time right before the fall hits, people start recognizing, “Oh, I’ve got to get this building lighting done. I’ve got maintenance work to do.

We want to button things up before the cold weather hits.” There’s a little bit of increased activity that didn’t occur this year. And I think some of that is where capital budgets—dollars associated with things, things that were improvements put in budgets at the beginning of the year—some of the companies are saying, “Wait a minute, hold on, we’re going to roll that into the beginning of next year.” So I don’t see any of the projects going away, but I did see an increased amount of customers kicking things down the road.

And that’s what we’re experiencing.

Jim Galise (Chief Financial Officer)

You know, Brent, the proof point on that is in my comments where I said in the last three months, our quote activity is actually up 5%. But our sales and our orders are up one. So that shows the delayed quote-to-order conversion cycle. It’s very frustrating, but when we get into it, there are reasons for that and a lot of it is around what you just said—how things are rolling up to their budgets and if they’re over, then they have to go in and make some changes, re-engineer some things.

And not just lighting, by the way, but other finishing elements as well. So that’s just created an elongated cycle, but that pipeline is there; it’s just backing up.

Brent Thillman (Analyst)

Understood, I’ll pass it on.

James Clark (President & CEO)

Thank you, Brent.

OPERATOR (Moderator)

Thank you. Our next question comes from the line of Min Cho with Texas Capital Securities. Please proceed with your question.

Min Cho (Analyst)

Great, thank you, Jim. And Jim, congratulations on your QSR award. You did mention that you were one of three on this award and that you gained some share. Just wanted to know if this contract included some Royston products, and are the other two vendors providing products that you cannot provide, or is this just a diversification strategy by the customer? And then a final question on that: Are you providing the project management on this contract?

James Clark (President & CEO)

Okay, Min, thanks for the question. This is an LSI Industries project. This doesn’t include any Royston at this point. And a lot of that is because I think we’ve been involved in this project almost three years. We’ve talked before about the way these cycles work. You sit down, you have design discussions, you do material selection—what’s your objective, how much do you want to do this? You put the designs to the materials, you show samples, there’s adjustments made.

So we’re just at that point where we went out, did some actual test stores. The customer kind of committed a direction, but this was all way in advance of the Royston project coming on board with LSI Industries. So this is an LSI Industries-only project. Because it’s an LSI Industries-only project, our competitive forces are a little bit more stable and mature. And so those competitors, those other people that are providing it, they provide the same category that we do. They don’t provide anything else that we don’t. In fact, we provide more than they do; it’s just that this project doesn’t require that yet. We are providing project management resources and it’s yet to be seen, but it’s not uncommon for us to walk into a project like this with a third of the project, but take more of it as we move along.

And that’s all based on our execution capability. So I’m encouraged, I’m happy with what we’ve got, and I want more, and hopefully we’ll get more as we move through the project.

Min Cho (Analyst)

Excellent. Something that you highlighted, Jim, during your Royston tour in October was the importance of your ADAPT Services kind of leading with the program management and such. Can you provide just a little more information around that? Like, how large is this? How large is the opportunity, and what does it really provide you in terms of the actual project rollout?

James Clark (President & CEO)

Yeah, I mean, I always talk about it like it’s ketchup for our fries. It doesn’t necessarily independently drive business, but it does help quite a bit add to the desire for us to provide more services, and having that very discussion is germane to our whole thesis, which is one stop. You can come in and we can really offload that customer from the burdens, and our capabilities really shine through there. So if you go back three years ago, it was a $10 million business. Today it’s a $30 million-plus business. But it really enables the sales that we do, and that becomes even more important as we bring Royston in. And I would also mention that Royston has a similar service capability in their business—not quite as mature as LSI Industries’—but we’ve already started the work of integrating those two and leveraging a couple things they do that we don’t, and then leveraging more things that we do that they don’t. And just for clarity, those services are not—we don’t dispatch trucks to a location. And a lot of that is because, if you think of, I’ll just take electrical licenses, for example—state by state, they vary quite a bit. So if you’re in Ohio and you’re in Indiana, you’ve got to have an electrical license in Ohio; you’ve got to have an electrical license in Indiana. And then county by county, the rules and the standards can vary, and even city by city.

So local resources are important to us. What we provide is the overall management of those resources—the permitting, the insurance discussions, the scheduling—all of that. That’s what our ADAPT Services group provides.

Min Cho (Analyst)

Great, thank you. And then just finally, any update in terms of progress that you’re making on your partnership with Carter? Is there anything in backlog yet?

James Clark (President & CEO)

There is a lot of transfer work that Carter already had in the works. There have been a lot of discussions bringing them into—bringing Carter and the services into what LSI Industries has right now in our customer base. I would say that we’re still in the early stages of that. When we signed the agreement with Carter, we explained that, again, this is project cycle timing and that project cycle is usually 12 to 18 months. So I think I’m encouraged by what we’re doing.

We’ve had some great wins already where we’ve been able to differentiate ourselves in our installation capabilities and coordinated schedules better, and the customers have seen that. And I’m encouraged by the conversations we’re in. But I wouldn’t say there’s any tangible momentum in new business quite yet.

Min Cho (Analyst)

Got it. Thank you very much.

James Clark (President & CEO)

Thank you, Min.

OPERATOR (Moderator)

Thank you. Our next question comes from the line of Amit Dayal with HC Wainwright. Please proceed with your question.

Amit Dayal (Analyst)

Thank you. Good morning, everyone. So, Jim, just from all the recent acquisitions, et cetera, and the size of the company now, how much risk to quarterly variance is there from any customer scheduling changes or push-outs?

James Clark (President & CEO)

I mean, I think that that’s the… and we’ve been dealing with this since COVID. I mean, if you… if, you know, we’re speaking historically, I think that we’ve talked about this before, that disruption in schedule and timing, and there’s a lot of things that have driven it. Coming out of COVID, I remember just getting permits through local offices, city offices, and things like that were a major impact. Today, I think it’s budgets. It is almost 100% budgeting.

And, you know, where they went in an initial budget, said, hey, we’re going to have 100 grand for each store and we’re going to do 10 stores and we’re going to spend a million. All of a sudden, by August or September timeframe, they’re saying, wait a minute, we’re still going to spend the million, but we may only get seven stores done. And so we’re going to push these other three stores down the road because we don’t have the budget for it. But the good news there is that usually when you’re doing one of these rebranding programs, that work is not going away. They’re not going to rebrand 10 of their stores and leave 40 of them in the old format. So I don’t really have a lot of concern about the business being there and their commitment to getting the business done. But that inflationary pressure on a whole build-out and broadly across an organization is just putting pressure on their ability to meet their original commitments.

So I’ll just use that kind of 10 stores as an example. They’re just not able to get 10 stores across the finish line with the same budget. Most of the businesses aren’t making additional capital available, so they adjust. We push these projects down the road a bit, and we’re pretty confident that they’re going to come back around. It’s certainly not product development. Product development, for the most part, is a dedicated, committed team across our organization. We’ve always… you know, one of my marketing folks kind of hit me up the other day on it and said, Jim, you don’t talk about new products as much as you used to on the calls. And I would like to just take a moment to say our commitment to new products is still a vital part of our strategy going forward. And we’re still very committed to it.

And we’re still releasing 20-plus new products a year. In lighting, we’re looking for all kinds of new materials and new ways of doing things. In our display solutions, we have technology upgrades and efficiencies. We’ve been able to put into our refrigerated products. All of that activity is still going on. The integration activities… does it slow it a bit? I’d say lighting is pretty much untouched. Lighting continues at the same pace it always has. I’d say some of the display solutions, minimal impact; maybe a little bit more on the refrigerated product side because we’re making big decisions with Southern CaseArts and JSI and EMI’s refrigerated products. And we might have a greater slowdown there because we need to make sure we’re making the right decision that spreads across all of them.

But I would also say that our speed and our commitment and our focus on getting some of this operational benefits out of the organization is definitely increased as of late. We’ve brought on Royston. I think we’ve got a good rhythm going with Royston. Now we’re taking our operations teams and we’re saying, okay, let’s focus on this efficiency. How do we get more out of this equipment? Like I was saying earlier, having a great piece of equipment that we’re only running eight hours a day, there’s a huge opportunity there.

Right? How do we bring more in-house where we might be subcontracting some work through an external partner? How do we move that in-house because we know we can improve the margins, we have better control of our whole supply chain. So all of those activities are things we’ve been working on over the last, I’d say, in earnest over the last three months by program, more than a year. So we’ve already identified where we want to work. That work was done a year ago. I talked about our July meeting. We really kind of put a finer point on things, and then by September we were really starting to execute. And Collingwood is kind of a first visible piece of that. But there are other activities we’re doing, and I’m very encouraged by them because I think that that’s the last part of the equation on getting us to that 12.5 under that Fast Forward 2028 plan.

OPERATOR (Moderator)

Thank you. We have reached the end of our question and answer session. I’d like to turn the call back over to Jim Clark for any closing remarks.

James Clark (President & CEO)

You know, I want to just say that I’m encouraged by a lot of what’s ahead of us. Right? We’re dealing with an inflationary environment, you know, macro trends in the economic environment. And I think that as a team, as a company, we’re doing a very good job of kind of adjusting. I mentioned in my comments that I wish everything fell into a 90-day cycle, and I think you’re seeing some of that exposure right now where we’re not able to control some of the things we’re not able to control.

We’ve got good plans going forward to go back and get this operational efficiency. We put together all the pieces, all the ingredients for this opportunity that’s in front of us now. It’s going about measuring things out correctly and making sure we’re mixing them correctly to get that recipe just right, and I’m encouraged by the work that we’re doing. It was a smaller piece of my comments, but we are going to roll out an updated Fast Forward plan. We’ll be doing that. We will be sure to give everybody notice, but it will be kind of mid-December, let’s say 12th, 15th, 16th, somewhere in that bracket, and we will give plenty of notice to everybody. And it’s not an abandonment of our 2028 plan. It’s just a fine point on it, and it extends it out to 2032. And I’m encouraged by that. We have in front of us the plans to get there.

We have in front of us the opportunities to get there. And the overall economic environment can be a headwind or a tailwind for us, but it’s not going to stop us from getting there. The most encouraging thing is a lot of these activities we’ll do are under our control. So there are things that we’re able to do internal in the business, and so they should be a little bit more resistant to the economic swings. But obviously, you know, there’s things we need to do that still rely on an economy that’s moving forward, but we have a little bit more control over it.

So I feel encouraged by our ability to kind of execute against those things. There’s still a lot of good runway left in front of us. I still feel like we’re in the early innings of this whole story. And I see a clarity and an acceptance by our customer base and an execution by our team that continues to just gain momentum. And I’m very encouraged by what we have in front of us. So with that, I’ll just say thank you for joining us. And I know it’s a little early, but we may not have an opportunity to talk too much directly.

Happy holidays to all of you and your families, so take care.

OPERATOR (Moderator)

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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