管理層發言
Greetings and welcome to LSI Industries' Fiscal 2024 Fourth Quarter Results Conference Call. All participants are currently in listen-only mode, and a question-and-answer session will follow the formal presentation. This conference is being recorded. I will now hand it over to Mr. Jim Galeese, Chief Financial Officer of LSI. Thank you. You may begin.
Welcome everyone and thank you for joining today's call. We issued a press release before the market opened this morning detailing our fiscal 2024 fourth quarter and full year results. In addition to this release, we also 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-K. 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 fourth quarter and full year 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.
Thank you, Jim, and good morning all. Thank you for joining us this morning and happy New Year to LSI. As you know, our fiscal year runs from July 1st through June 30th, so we are now into our new fiscal year 2025 at LSI and we'll be discussing our fourth quarter and full year 2024 results on today's call. I'm pleased with the results of Q4 and overall, I'm pleased with the results of our full year 2024. We end the fourth quarter up 4% in sales compared to our prior year. We added a new business segment with the purchase of EMI Industries in April, and we continue to expand LSI's value to our customers by expanding our product and solutions offering in our core vertical markets. For the full year 2024, we will continue to improve margins and year end adjusted EBITDA was up 11%, up 60 basis points versus last year, while free cash flow for the year exceeded $38 million. LSI's growth in most of our vertical markets continues to outperform in 2024, while we did experience some steady market headwinds in our grocery store vertical throughout the year.
Our execution as a company and as a management team remains high, and I'm proud of the company's ability to adapt to various market challenges and to keep focus on our responsibility to deliver results to both our customers and our shareholders. We often talk internally about our say-do ratio. It simply means we are doing what we say we are going to do. This commitment to be a high-performance say-do ratio extends to our customers, our shareholders, but it also extends to our coworkers, our suppliers, our agents, and so many others. This culture around a high say-do ratio is chiefly responsible for our continued progress and it underscores our ability to adapt and to continue to seek out growth opportunities and execution excellence. In 2024, we accomplished a lot. We introduced a slew of new products in excess of 25. We opened a new refrigeration manufacturing facility in Bangor, Maine, offering an entirely new type of refrigeration solution that uses environmentally-friendly refrigerants, R290, a naturally occurring gas that causes no harmful effects to our environment.
We expanded our capabilities in our Electronics Manufacturing segment and our capabilities in our on-site project management through our ADAPT services group. We created a Center-of-Excellence around our print graphics business that will ensure our ability to provide robust print graphic solutions while at the same time being able to be more efficient and more profitable in this segment. Internally, we added to our management team, including additional focus on our operations and procurement functions, while continuing to strengthen our sales, marketing, and engineering capabilities. We promoted from within and created opportunities for people to advance in positions of increasing responsibility while helping to cement and expand the culture we have created at the company. We spent a lot of time this year with our customers and our partners. We hosted a record number of training sessions, new product introductions, business strategy discussions, and customer acquisition planning.
The markets we play in are big and they hold a lot of opportunities. Great partnerships make access to those markets easier and more efficient. And I believe the time and effort we put into the development of close working relationships with our partners pays off exponentially for LSI, our agents, and most importantly, our customers. From a business segment perspective, we continue to outpace our competitors in the Lighting segment. Despite a small drop in Lighting sales in 2024, we feel we're outperforming the general market and we continue to believe there are sufficient market share opportunities to support our Fast Forward plan. Our margins and pricing discipline remain strong and the combination of our agent network and vertical market focus continues to create growth opportunities for us in the broader Lighting segment. LSI continues to innovate in the Lighting segment. And in 2025, we'll introduce an entirely new Lighting product line called Velocity.
This will expand our ability to serve our customers while offering those customers the very best in performance and price. In our Display Solutions Group, we entered 2025 with a strong backlog and momentum that we have gained throughout 2024. Fourth quarter sales were up 22% versus the prior year including the partial quarter impact of EMI. Sales in our Print and Digital graphics business were up 9% in the quarter, and our display case orders were up over the prior year. We anticipate a recovery in our grocery vertical as customers in this segment move forward with in-store refresh programs. And we offer some new innovative stand-alone case solutions that expand into the salad dressing and condiment sections of the grocery store and C-market space. 2025 looks to be another year of growth for LSI and the vertical segments we are focused on. Our partnerships with our agents, channel partners, and end users continue to create opportunities for both LSI and our customers. The LSI team continues to execute well, and we look forward to sustained profitable growth. With that, I'll turn the call back over to Jim Galeese for a closer look at our financials.
Thank you, Jim. A strong focus on execution and quality of earnings highlights our operating results in fiscal Q4 and together with the strategic acquisition of EMI Industries, created an active quarter for our company, concluding a prosperous fiscal 2024. Sales for Q4 increased 4% to $129 million, including the partial quarter impact of EMI, which was acquired April 18th of this calendar year. Comparable sales were below prior year as the proposed merger in the grocery vertical continues to disrupt demand. Adjusted earnings per share were $0.24 for the quarter and adjusted EBITDA of $14 million or 10.9% of sales, consistent with our full year margin rate of 11%. Multiple factors contributed to our EBITDA performance, led by a higher value mix of customers and applications, as well as stable pricing and effective cost management. Q4 generated solid free cash flow of $10 million, allowing the business to exit fiscal 2024 with a strong balance sheet.
Net debt was reduced to $50 million with a net debt to TTM adjusted EBITDA ratio of 1 times. For the fiscal year, sales finished at $470 million with adjusted earnings per share of $0.95 compared to $0.99 for fiscal 2023. Adjusted EBITDA was $51.4 million, approximately equal to our record fiscal 2023 performance. The full year adjusted EBITDA margin rate increased 60 basis points to 11%. Free cash flow for fiscal 2024 was $38 million, again supporting reinvestment in key new product and commercial growth initiatives. Capital investment for fiscal 2024 was more than double our annual spend over the last several years. While we enter fiscal 2025 with macroeconomic uncertainty, the underlying fundamentals of our key vertical markets remain sound. While demand may fluctuate somewhat during this period, industry plans support secular growth over the next several years. For example, our Display Solutions' backlog for the refueling C-store vertical is strong entering fiscal 2025, reflecting the large customer programs won in fiscal 2024.
Our Project Services business, part of our end-to-end solutions model, is forecast to grow over 30% in fiscal 2025. An increasing number of refueling C-store programs are utilizing our current project management capabilities ranging from planning to installation and after-install support. There are encouraging signs for the grocery vertical as display case orders for Q4 increased over the prior year for the first time in five quarters. Favorable activity has continued in July and August to date with grocery having a book-to-bill ratio well over 1. This suggests the industry is beginning to resume planned store refurbishments as well as committing to the new refrigerant technology. QSR restaurant activity remains healthy with EMI having a solid book of business with multiple key customers. The integration of EMI is going very well and Alan Harvill and team are on pace to deliver a solid first quarter.
Multiple PMI work streams are busy identifying both sales growth and cost-saving synergies. For Lighting, fiscal 2024 was a solid year with operating income increasing 5%, driven by a 200 basis point improvement in gross margin rate, achieved on 4% lower sales. LSI outperformed the broader industry, reflecting continued active project levels in our key verticals as well as share gains. Recent market trends in Lighting are expected to continue into the first quarter with demand fluctuating by vertical market. Overall, quote levels remain steady and pricing is expected to remain stable. The quote-to-order conversion period remains lengthened, however, particularly for large-size projects. Margin management will continue to be a priority in fiscal 2025 with material input costs expected to be flat to slightly favorable, new and enhanced products providing improved value, and in many cases, reducing costs.
Our multiple price point offering provides Lighting customers the choices to meet specific project budgets. The manufacturing workforce environment is expected to remain stable and generate additional productivity improvements in fiscal 2025. In summary, it was a solid quarter and fiscal year for LSI. We enter fiscal 2025 well-positioned with an expanded solution set to meet our customers' requirements. We'll support our commercial efforts with continued strong operational execution and effective margin management.
分析師問答
Thank you. We will now move on to the question-and-answer session. Our first question comes from Aaron Spychalla with Craig Hallum Capital Group. Please go ahead with your question.
Yes, good morning Jim and Jim. Thanks for taking the questions. First on C-store refueling, you talked about the strong backlog, and we've heard how activity levels in that market have been highest in decades. Can you just give an update on a couple of the larger projects you have there, where are we at in those deployments? What's the timeline to get those completed? And I know a lot of that market is kind of normal course of business for you, but how does the pipeline look there?
Hi Aaron, good morning. Jim Clark here. Thanks for the questions. We're very strong on the C-store side. We received numerous awards during the last half of 2024. As we've discussed before, these are long-term projects involving thousands of locations. The content we provide to this group of customers typically covers hundreds, if not thousands, of sites. Historically, the refresh cycle has been seven to 10 years, but it's now compressed to about five years, and even three to five in some smaller markets. To answer your question, these projects will continue well into 2026. We have two major projects that contributed to the awards we received in 2024, so the backlog appears very healthy in that regard.
All right. Thanks for the color there. And then second, on the R290, you noted initial shipments started in the fourth quarter, several large customers have stated their intent to fully convert. Can you just talk about what this business could look like for you as that happens? And maybe just talk a little bit about the competitive landscape and your value proposition there.
Yes. From a competitive perspective, we believe we are ahead of many competitors, especially concerning the unit formats we are providing. We have been discussing this with our customers for about a year, focusing on our engineering, approvals, factory opening, and delivery capabilities. This has led to orders in the third quarter and actual deliveries in the fourth quarter. Generally, there have been several announcements from various companies expressing their intention to utilize R290 as part of their environmental initiatives to reduce harmful fluorocarbon emissions from traditional solutions. We expect this trend to grow and believe it will surpass our usual rate of standard refrigeration unit sales. The challenge lies in overcoming the slowdown in the grocery sector to realize the potential benefits of R290. Additionally, I would like to highlight that there is currently an ongoing potential merger in the grocery market between two significant players. Our latest information suggests it may go to trial at the end of August and early September, with some resolution expected by the end of September. Once this is resolved, we anticipate an increase in store remodels across the grocery segment, not just for the companies involved in the merger. With the combination of the R290 demand and an uptick in grocery store orders, we foresee a very strong year in that sector.
All right. Thanks for that. And then maybe last for me. I know we're only a few months into it. But on EMI, can you just talk about how that integration is going? What are some of the early things you've learned about that business? And then just how are you feeling about progressing towards the EBITDA margin goals that you've put out there?
Yes, we closed EMI in April, and they have been part of our team for a few months now. The integration is progressing well, and culturally they fit in nicely. Alan Harvill, who leads that business along with a few others, has been a pleasure to work with and has integrated well with us. The margins are slightly below our typical performance, which we anticipated. We see this as a great opportunity to apply our operational discipline and procurement practices, among other resources we can offer. Overall, I believe things are moving positively. We have a strong backlog from the partial period we had with them in Q4 and ongoing developments in Q1. We are satisfied with the progress and are pushing forward aggressively, with EMI being very responsive to our suggestions. Additionally, I want to mention that while they may lag behind LSI in percentage terms, they are contributing positively in dollar terms.
We view this as a chance to enhance performance through the strategies that worked for LSI and JSI, and we intend to apply those to EMI. Although there is a drag in percentage analysis, we see it as an excellent opportunity for cross-selling. Our customer base is roughly split into thirds: one-third are new to EMI, one-third are new to LSI, and one-third are current customers. We've already had multiple meetings, and I must say EMI has done a remarkable job introducing LSI to their customers. I'm encouraging our LSI team to meet the standard of EMI's introductions, and we are very optimistic about the future.
Yes, it's good to hear. And I thought the almost 11% EBITDA margin was particularly impressive considering the partial quarter of EMI. So, thanks for the questions. I'll turn it over.
Our next question is from Amit Dayal with H.C. Wainwright. Please proceed with your question.
Thank you. Good morning everyone. So, Jim, just following up on your comments about margin improvements and sort of the time it might take you, like what should be sort of the expectation you can set around timeline? Is it like another year before you can sort of pass-through some of these margin improvement efforts to EMI or maybe even faster than that?
Yes, we are definitely focused on moving quickly. We are aware of any dilution from a percentage perspective. While it will be accretive in absolute dollar terms, it will be dilutive compared to our past performance. We anticipate accomplishing this within 18 months, and our objective now is to determine how swiftly we can achieve this within a year. This is our internal operating rhythm and the goals we have set for both LSI and EMI. It's essential to foster the right culture. We want the team at EMI to embrace this change and recognize its value, rather than feeling burdened by it. However, we also want to progress faster than they might be ready for, which will require some compromises. Given our current performance at 11% and our target of 12.5%, we believe achieving this will take approximately 18 months.
Okay. Thank you for that. Also your SG&A costs, at least sequentially, I don't think increased too much. Any sort of sense about how this might change over the next year as you maybe look at more resources to the sales side of things? Just curious to see if there is more operating leverage from existing resources or will you be adding some costs on the SG&A side?
I would say that if we look ahead a year from now, the impact on SG&A will be minimal, although we might experience some fluctuations as we pursue various initiatives. I've mentioned before that investment acts like an accelerator; it allows us to progress more quickly, so there's a trade-off involved. As we consider the next year, we don't anticipate any significant changes, but there might be times when we invest or adjust, which could lead to costs before we realize the benefits.
Understood. On the Lighting side, the margin improvements, are these primarily coming from higher prices you may have implemented?
Yes, we have always prioritized pricing from a management perspective. We want to ensure that we receive appropriate compensation for our efforts, while also delivering value to our customers so that they perceive the extra cost as worthwhile. I wouldn't say that we've significantly adjusted prices in the past couple of quarters, but we are continuously seeking ways to enhance manufacturing and operational efficiencies to help manage our margin and EBITDA performance. Regarding our progress, we believe we are still in the early stages of this journey and have more opportunities to explore, which we don’t anticipate exhausting anytime soon. Our focus on cash discipline remains strong, with our current leverage ratio at 1x. All fundamental aspects of our business operations are still a priority for our team. The EMI team has been exceptional in understanding their priorities and recognizing the distinctions between operating in public and private company settings. Every decision we make involves trade-offs between the speed of realizing improved margins and our ability to engage with customers. While it can be tempting to accelerate our efforts, we plan to push forward in a balanced manner, and we don't foresee any significant disruptions ahead.
Understood Jim. Congrats on the strong results, and that’s all I have. Thank you.
Thank you, Amit.
Our next question comes from George Gianarikas with Canaccord Genuity. Please proceed with your question.
Hi, good morning. I'd like to ask a little bit about the comments you made on book-to-bill, improving in your grocery vertical. Any additional details you could share there would be appreciated. Thank you.
Yes, the comment specifically mentioned that our order rate for refrigerated products and some of our display solutions increased for the first time in five quarters, particularly in grocery. As we've mentioned over the past year, the grocery market has affected us significantly, mainly due to competitors assessing the evolving market landscape and their competition. We believe there has been a point where standing on the sidelines has become unsustainable. Recently, we have observed an increase in the willingness of several customers to invest, which we hope indicates the beginning of a series of events that will reopen that market. We don't view the market as being under pressure from a shift toward more conservative investments; rather, we see it as a pause, and we think that purchasing may now be starting to resume. So, after five quarters, we are very pleased with this development.
And George, I think we mentioned that, that has a positive activity has continued through July and August to date as well.
Our next question comes from Rick Fearon with Accretive Capital Partners. Please proceed with your question.
Good morning Jim and Jim and congrats on another solid quarter. And Happy LSI New Year.
Thank you, Rick. Thanks for calling in.
Absolutely. Just a couple of questions. You talked about 25-plus new products, and I was wondering if the pace of new product introductions such as the velocity line has accelerated? And if so, if it's fair to say there's a new normal emphasizing product growth and innovation?
Yes, for those of you who have been following us closely, our target has been to launch over 20 new products each year. These new products may involve new technology and enhanced performance requirements, cost-saving initiatives, or performance improvements, often combining these elements. In reality, over the last five years, we have consistently exceeded this target. The key focus is how effectively we introduce these products to the market and how quickly they are adopted. As with any new product, there tends to be a learning curve. Therefore, we examine how quickly that adoption happens. We are aware of our technology capabilities and performance metrics; what truly matters is how we convey that value to customers. We assess this through what we refer to as the vitality rate, which indicates the percentage of our sales attributed to new products. I must mention that introducing 20 or more new products each year has resulted in over a 30% vitality rate from new product launches, which has been crucial to our growth and will remain a priority moving forward.
Jim, do you expect this to have a long-term effect on gross margins? With the introduction of these new products, do you see a potential improvement? I understand that the new products currently make up a small portion of the overall product line, but do you believe they will enhance gross margin in the long run?
Absolutely. The difference in thinking now compared to five years ago revolves around the complete cycle of introducing a new product. It involves more than just the technology; it encompasses manufacturability, standardization of parts, and performance factors like operational lifecycle. This mindset has become ingrained in our product management, engineering, and sales teams. The overall value of these products has significantly increased compared to what we would have considered a decade or six years ago. We believe there is still room for margin expansion operationally. These new products offer higher value, allowing us to work on pricing so that customers recognize value beyond the initial acquisition cost. This shifts the perception from a straightforward product sale to providing a solution. This is the conversation we have with our customers, differentiating ourselves from competitors who focus on catalog sales rather than integrated solutions. We hope that eventually, our customers, salespeople, and partners will view it as a comprehensive solution rather than separate components.
Yes, that makes a lot of sense. And I imagine there's that sort of less quantifiable, more sort of subjective strengthening of the customer relationship that occurs when you're starting to expose them to things they haven't seen before, stickier relationships?
Yes, we've always believed that people primarily purchase from others they trust. When launching new products, there isn't an established history or complete understanding of the operational application. Therefore, a customer and an agent partner need to place a certain level of trust in us as a supplier and solutions provider. They might think, while we don't have an extensive history with this product, our relationship over the years has built enough trust to proceed. That's the position we aim for. Beyond simply being a supplier or partner, we assist them in their business decisions and design products that enhance their operations. This is the central idea behind the vertical market that adds value to their business. It's not merely a mandated purchase or a compliance-driven buy; it's something that demonstrates value and makes their customers see greater worth in buying from our clients. That has always been our guiding principle.
That makes a lot of sense. It's family, you're helping family. So, are there other areas I was going to ask you about regarding margin improvements? Where do you see some excess capacity, especially on the grocery side? Are there areas where, as growth resumes, you see margin improvement just by utilizing unused capacity?
Absolutely. As a U.S. manufacturer and operator, we constantly evaluate our utilization rate. If we can achieve our current performance level while our utilization rates are below our targets, the potential returns could be significant. Our long-term goal as part of our Fast Forward plan is to reach 12.5%, and we are currently at 11%. I want to emphasize that there may be fluctuations; a drop from 11.3% to 11.1% doesn’t signify a major setback. It’s about accelerating operations, enhancing utilization, investing wisely, and experimenting with more efficient manufacturing and purchasing methods. We have clear long-range objectives, and we’ve historically shown our capability to make consistent progress and improve the returns on our net assets. Additionally, in our management meetings, we have various experts in commercial, operations, and engineering fields. Over the years, we’ve ensured they are also well-versed in finance, so they understand the financial implications of their decisions. This comprehensive understanding helps them see how their actions affect our returns, investment criteria, and profitability. It’s all part of our operational management approach, and we make sure to involve everyone in the process.
That's really helpful. Thanks. I believe that once the grocery merger is resolved, whether positively or negatively, we may see a significant increase in business. It's important to be prepared for that. The grocery sector has not been strong for the past four quarters, but it appears to be recovering despite the ongoing merger discussions. Do you see any potential bottlenecks, or are you confident in your capacity to handle a surge in business if it materializes?
Yes, I mentioned in my opening comments that, from a fixture and technology perspective, particularly in refrigeration, we have opened a new facility not to address current demand but to align with our plans for the future. Our Fast Forward plan and the understanding of our management team are crucial as we design for capacity and capability. I also referred to investments in our Electronics Manufacturing. Looking back six years, we had excess capacity, but now we require additional capacity. This investment is targeted for future demand and our long-term objectives. Previously, we trimmed excess capacity not to cater to current demand but to enable growth and expansion. We have maintained the capacity to meet our 2028 plan, balancing our needs without exceeding them. I feel confident we could meet nearly all of our 2028 requirements today through ongoing efficiencies. Yesterday, I toured the shop floor in Cincinnati and discussed our current capabilities compared to the same facility layout and square footage. The operational efficiency gains have been impressive. It’s rewarding to witness what we have achieved today and envision our potential for tomorrow. We have plans in place to reach those goals.
That's awesome. Thanks for that description. That’s helpful. So, my few questions turned into a few more, but this is the last one, I promise. And it's just regarding the M&A pipeline and how things still looking on that front?
I'm going to address that shortly. There's an important point about efficiency that I want to highlight. Our Center-of-Excellence for our print and digital solutions has been impressive. We had the capacity to meet our customers' demands, even during some slow periods, particularly in the grocery market. Instead of viewing the slowdown negatively, we took that as an opportunity to implement changes that wouldn’t disrupt our market position. I mentioned earlier our Center-of-Excellence in Houston, where we transferred some work from Northern Ohio. The efficiency gains from that transition have been remarkable, and it was executed seamlessly for our customers. Now, regarding M&A. Our leverage ratio is around 1 times, and we're generating healthy cash flow. We have a solid plan for addressing the debt incurred for EMI, and we remain very active in the M&A space. From our perspective, conversations with potential partners have become more grounded.
People are more willing to discuss not just their current performance but also their future performance expectations. Although every SIM presents promising growth potential, we focus on developing our own deals through strong personal relationships. Over the past 12 to 18 months, I sense a real leveling off in discussions, where parties are reflecting not only on historical performance but also on their prospects moving forward. We value those discussions, especially as we prioritize culture fit. I'm satisfied with our pipeline and the ongoing conversations within it. I believe that deals shouldn't be rushed; those that are made hastily often lack the planning necessary for long-term success. Even if they may succeed initially, they don't achieve the same momentum as those where we carefully consider cultural compatibility and future planning. Overall, our current M&A environment is the most promising I’ve encountered since I joined the company.
That's exciting Jim. It sounds like you're looking for a good partner rather than just a good seller. Thanks to you and your team for the great work. I appreciate it.
Thank you.
We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Jim Clark for closing comments.
I would say it was a very active Q&A. So, I don't know if I have a lot of additional comments I want to leave. I will say this that I think everybody that's on this call is very aware of market disruptions and the headwinds and all of those things. And what I'm most proud about from a team environment from an LSI as a company despite those headwinds, we were able to perform financially, we were able to perform for our customers, we were able to perform for our shareholders, and we were able to perform and keep our employees engaged and busy. And I think the future looks very bright for us. And I'm excited about this first quarter in five where our order rates picked up, and I expect much more to come. So, thank you for continuing your interest in LSI, the people that are here, our customer segment and I think that we've got a lot more left to deliver. With that, I'll say good afternoon.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.