LSI Industries Inc. (NASDAQ: LYTS) Q2 2025 Earnings call | 08/21/2025

LSI Industries reported a very strong second quarter, highlighted by significant growth in net sales, profitability, and cash flow. The company successfully capitalized on a resurgence in demand, particularly within its grocery segment, while also seeing robust activity in its refueling/convenience store and QSR verticals.

Key Financial Highlights:

• Net Sales: Increased 36% year-over-year (YoY), with an impressive 14% of that growth being organic (not from acquisitions).

• Profitability: Adjusted EBITDA grew 20% YoY to $13.3 million.

• Cash Flow: Generated strong free cash flow of $8.8 million for the quarter.

• Balance Sheet: Net debt was reduced to $33 million, lowering the leverage ratio to 0.6x (down from 1.3x nine months ago).

Business Segment Performance:

1. Display Solutions Segment (Star Performer):

   • Sales doubled YoY, with organic growth of 50%.

   • Strength was driven by a resurgence in grocery projects (sales up over 60%) and continued strong execution in the refueling/c-store vertical.

   • The segment served approximately 1,000 sites in Q2, a multi-year high.

   • Service revenue grew over 100%, indicating customers are valuing LSI's end-to-end solutions.

2. Lighting Segment:

   • Sales were below prior year, facing "choppy" demand.

   • Small project activity remains strong, but larger indoor projects (e.g., data centers, chip plants) are moving slower than expected.

   • The company launched a new flagship outdoor product, Velocity, which has received strong initial interest.

Key Drivers and Challenges:

• Grocery Recovery: A major catalyst was the clarity from courts blocking a large grocery merger, which unlocked pent-up demand for remodels and updates that had been on hold.

• Operational Inefficiencies: The sudden surge in orders required a rapid ramp-up in manufacturing, leading to temporary margin pressure due to higher labor and logistics costs. These inefficiencies are expected to persist into Q3 before normalizing.

• Strategic Acquisitions: The acquisition of EMI (April 2024) is performing very well and is successfully being integrated, contributing to growth and cross-selling opportunities.

Outlook and Strategy:

• Backlog: The company exits Q2 with a comparable backlog 14% above the prior year, providing visibility into future growth.

• Guidance: Management expressed confidence in continued elevated demand through the second half of the fiscal year, particularly in display solutions.

• M&A: LSI has an active pipeline of acquisition targets and stated it is "very likely" a deal will happen in this calendar year.

• Tariffs: Due to a strategic shift to 70% domestic manufacturing (up from 20% in 2019), the company believes it is well-insulated from potential tariff impacts.