LSI Industries Inc (NASDAQ:LYTS). reported stronger-than-expected earnings for the first quarter of fiscal year 2025, with an adjusted EPS of $0.26, surpassing the forecasted $0.21. The company also exceeded revenue expectations, reporting $147.7 million against a forecast of $129.2 million. Following these results, LSI Industries' stock rose 5.81% in pre-market trading, reflecting investor optimism.
Key Takeaways
- LSI Industries beat EPS and revenue forecasts for Q1 FY2025.
- Stock price increased by 5.81% in pre-market trading.
- Strong performance in the C-store and grocery markets.
- Successful integration of the EMI acquisition.
Company Performance
LSI Industries showcased robust performance in Q1 FY2025, with sales reaching $138 million, marking a 12% year-over-year increase. The company benefited from strong market activity in the convenience store (C-store) and grocery sectors. The successful integration of EMI has bolstered its capabilities in refrigeration and display solutions.
Financial Highlights
- Revenue: $147.7 million, up from $129.2 million forecasted.
- Earnings per share: $0.26, exceeding the $0.21 forecast.
- Adjusted EBITDA: Over $13 million.
- Net debt: $42 million, with a leverage ratio of 0.8x TTM.
Earnings vs. Forecast
LSI Industries' Q1 FY2025 results outperformed expectations, with a 23.8% EPS surprise and a 14.3% revenue beat. This marks a significant improvement compared to previous quarters, indicating strong operational execution and market demand.
Market Reaction
Following the earnings announcement, LSI Industries' stock rose by 5.81% in pre-market trading, reaching $20.93. This movement reflects positive investor sentiment, especially as the stock approaches its 52-week high of $21.19. The stock's performance contrasts with broader market trends, indicating strong company-specific factors driving the increase.
Outlook & Guidance
Looking ahead, LSI Industries anticipates double-digit growth in its Display Solutions segment and continued recovery in the grocery market. The company is exploring additional bolt-on acquisitions and remains optimistic about the potential of its R290 refrigerant technology.
Executive Commentary
CEO Jim Clark stated, "We continue to build a stronger, more capable business with a durable platform equipped to deliver profitable growth." He emphasized the company's focus on vertical market orientation, which he described as "very attractive."
Q&A
During the earnings call, analysts focused on the progress of the C-store rollout and the integration of EMI. Questions also addressed the company's refrigerant technology pilots and potential future acquisitions, highlighting investor interest in strategic growth initiatives.
Risks and Challenges
- Supply chain disruptions could impact production and delivery schedules.
- Market saturation in key segments may limit growth opportunities.
- Macroeconomic pressures, such as inflation, could affect cost structures.
- Project timing challenges in the lighting market may impact revenue recognition.
- Competition in refrigeration and display solutions remains intense.
LSI Industries' strong Q1 FY2025 performance and positive market reaction underscore its effective strategy and operational execution. However, the company must navigate potential risks to sustain its growth trajectory.
Full transcript - LSI Industries Inc (LYTS) Q1 2025:
Conference Moderator: Good day, and welcome to the LSI Industries Fiscal First Quarter 2025 Results Conference Call. Today, all participants will be in a listen only mode. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Jim Galiste, CFO.
Please go ahead, sir.
Jim Galiste, CFO, LSI Industries: Welcome, everyone, and thank you for joining today's call. We issued a press release before the market opened this morning detailing our fiscal 2025 Q1 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 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 Q1 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.
Jim Clark, President and CEO, LSI Industries: Thank you, Jim, and good morning all. Thank you for joining us this morning. Today, we'll be discussing our Q1 2025 earnings results. As you have likely noted from our earnings release, sales are up 12% year over year, thanks to very robust project activity in our refueling C store space, increased activity in our grocery market in our Display Solutions segment, along with strong sales from EMI, which we acquired back in April of 2024. EBITDA for the quarter was in excess of $13,000,000 with free cash flow over $11,000,000 Net debt is under 1 times at 0.8.
Jim Gleese will give more specifics in a few minutes. We continue to have a very strong project and quote activity level across all vertical segments, but order timing remains a bit choppy as large project activity continues to push from a timing perspective and grocery remains mired in court hearings, which we expect will resolve by the end of this calendar year. Our thesis around vertical market orientation remains very attractive to us and the durability of our model continues to gain strength as we work to offer more and more goods and services to the markets and customers we focus on. Within our Display Solutions segment, we continue to execute on an elevated backlog and project activity in the refueling C store space from awards we achieved in fiscal 2024. We anticipate that that project activity will remain elevated through 2025, but thanks to investments made in prior years, we have the capacity to handle our current demand and more.
Although our grocery segment continues to remain under a partial cloud of uncertainty, there has been a market increase in activity with order rates up over 90% year over year and remaining strong early into the Q2. You may have noticed in our press release, I commented that our book to bill ratio is 1.3 times in the Q1 based on the success in demand of our R290 cases along with significantly increased activity in our non refrigerated display cases. We're excited about this building activity level in grocery and expect the momentum will continue to build as the fiscal year progresses. Activity at EMI, which we acquired back in April, reached record performance levels in its Q1 as part of LSI. We've been working closely with the entire team at EMI to create and leverage opportunities spanning from commercial to operational, procurement to manufacturing.
And we anticipate that we'll have a couple of years' worth of synergies to harvest and grow. The team at EMI has been outstanding to work with. They've been thoughtful, engaged, energetic and the integration is going exceedingly well. On our Lighting segment, Lighting activity in large projects has experienced some headwinds over the last few months, mostly in regards to timing. We've not lost any of the large projects that we've been working on to the best of my knowledge, but things have remained cloudy and protracted from a timing perspective.
There's not one common theme to these timing delays, but it does underline the project timing volatility we've been commenting on over the last few quarters. Staying within lighting, I'm happy to say that we recently released our next generation of our outdoor lighting product called Velocity. Velocity offers a unique approach to outdoor lighting from its performance to aesthetics to its modular construction and build options. In the design of this new fixture, we built on top of our prior investments in adaptability and customization and our ready mount technology providing a product that offers next generation performance along with reduced installation time and weight reduction. This is a significant investment for LSI and Velocity builds on our very popular Murata series of outdoor products.
LSI has always had a very robust indoor product lighting portfolio, but the strength of our brand has always been associated with outdoor lighting and velocity should pay dividends for years to come. Last month in early October, LSI along with JSI and EMI attended NACS, the National Association of Convenience Stores and PEI, the Petroleum Equipment Institute show. These shows are combined into 1 and coexist alongside of each other. This is the world's largest trade show associated with convenience stores and attracts large group of attendees from refueling through grocery. LSI had a record turnout at our event that we hosted through the week and the customer engagement was the strongest I can remember.
The combination of LSI, JSI and EMI created connections that span from entirely new customers to existing customers working in different departments across a wide customer base. We're encouraged by the engagement levels and we look forward to leveraging the contacts we made at this event. We accomplished a lot through this quarter. We continue to build a stronger, more capable business with a durable platform equipped to deliver profitable growth consistent with our growth objectives outlined in our Fast Forward Plan. We are using experiences of our management team to effectively integrate EMI and optimize other parts of our operations.
We believe that we have significant growth opportunities in front of us and we remain committed to growing our business while balancing the needs of our customers, shareholders and employees alike. With that, I'll turn the call over to Jim Gillece for a closer look at our financials.
Jim Galiste, CFO, LSI Industries: Jim? Thank you, Jim. Q1 was a solid start to the 2025 fiscal year with sales of 138,000,000 dollars adjusted EBITDA over $13,000,000 strong cash flow and increased order rate and EMI integration progressing at an accelerated pace. Sales increased 12% in Q1 including the 1st full quarter performance. Comparable sales which exclude EMI reflect continued growth in multiple verticals including refueling C store, QSR and parking offset by ongoing soft sales in the grocery vertical and less large project activity in lighting.
Total (EPA:TTEF) first quarter comparable orders increased 6% over prior year led by the grocery vertical where orders rebounded in a strong way. Our total comparable backlog exiting Q1 increased over 10% compared to the prior year period. A higher earnings conversion to cash generated strong cash flow of $11,000,000 in the quarter. Our balance sheet remains healthy as the high level of cash flow reduced net debt to $42,000,000 a TTM leverage ratio of 0.8 times. Adjusted net income of $8,000,000 resulted in adjusted earnings per share of $0.26 for the quarter.
Please note that at the beginning of the fiscal 2025 Q1, we are including amortization expense related to the acquired intangible assets as an add back to our non GAAP reconciliation. With our increased level of acquisition activity in recent years and inorganic growth being integral part of our strategic growth plan, this change will provide increased transparency to our core operating performance. Next (LON:NXT), a few comments on each of our 2 reportable segments. It was a very active quarter for Display Solutions as total sales increased 43% including the 1st full quarter of EMI. Comparable sales for Q1 increased 17% sequentially from the June ending quarter while finishing several points below prior year.
The refueling C store vertical had a robust quarter with comparable sales increasing 16% demonstrating the high level of new store and store renovation market activity combined with LSI's recent large program wins. EMI contributed additional sales increasing the overall growth rate for this vertical. We're encouraged by the resumption of order activity in the grocery vertical. We previously commented on our ongoing engagement with grocery customers on planned programs and program release activity is finally beginning to occur. Order activity was broad based from both a customer and product perspective.
New DOE refrigerant standards are effective January 1, 2025 and grocery companies are beginning to transition to the environmentally friendly R290 refrigerant. We exit Q1 with a significantly increased backlog in grocery and expect favorable order levels to continue. We're currently ramping up production capabilities at both our refrigeration and millwork display facilities to support anticipated demand. QSR sales also increased substantially in Q1 led by incremental impact of EMI. Project quote activity is steady and the backlog in QSR also increased.
Operating margin for Display Solutions was 10.1% reflecting the mix of market vertical and product sales as well as the addition of EMI. In summary for Display Solutions, comparable orders increased 22% in Q1 versus last year, exiting Q1 with a measurably increased backlog. We expect double digit organic sales growth in Q2 versus the prior year. Operating margins will improve with the expected increase in volume and more favorable mix. For lighting, we're seeing market performance fluctuate across verticals and project size.
Q1 sales increased double digits in refueling C store and parking applications also increased. This was offset by fewer large projects specifically in the warehouse and automotive verticals. The number of large projects termed hold for release by contractors has increased over the last quarter. This is known committed business, but part of the lengthened quote to order conversion process. Smaller project activity remains very healthy and overall quote levels remain at a consistent rate.
Looking forward, we expect large project activity releases to begin in Q2, improving the sales outlook for the second half of fiscal twenty twenty five. Operating margin was 10.1% in Q1 with selling prices and material input costs remaining stable, supporting margin development as sales volume improves. For both segments, one of our capital allocation priorities is continued investment in commercial growth initiatives. Both capital for new products as well as working with our channel partners and customers on accelerating the adoption rate of new products and expanding and realizing our substantial cross selling opportunities. I'll now turn the call back to the moderator for the question and answer session.
Conference Moderator: Thank you. We will now begin the question and answer session. And today's first question comes from Aaron Spychalla with Craig Hallum. Please proceed.
Aaron Spychalla, Analyst, Craig Hallum: Yes. Good morning, Jim and Jim. Thanks for taking the questions. Maybe first on C Store, obviously commentary on the strong backlog there. Can you just give an update on where you're at with the rollouts of a couple of those larger programs?
And just how does that pipeline look overall given industry dynamics like the move to fresh food and some of the M and A that we've been seeing there?
Jim Clark, President and CEO, LSI Industries: Yes. Well, good morning, Aaron, and thanks for being on the call. Yes, C store, I think that we've talked about it the last two quarters. The order volume that we got in 2024 is going to carry us out even back then is 12 to 18 months and we've added a number of projects on top of that. So I mean in the simplest terms, the backlog we have is going to carry us through 2025 fiscal 2025.
And as I mentioned in my comments just a few minutes ago, thanks to some planning we did over the last 2 prior years, we have the capacity to handle more. But we have pretty full slate for 12 to 18 months at this point.
Aaron Spychalla, Analyst, Craig Hallum: All right. Understood. And then maybe can you just give us an update on some of the pilots that you've had, refrigerated and C stores and some of the other broader pilots in QSR? An update there, how those have been going and if you're seeing or expect any of those to kind turn into larger projects moving forward?
Jim Clark, President and CEO, LSI Industries: Yes. So as you've probably seen and I think you just mentioned there's a lot of activity in the C store space and there's a lot of pent up demand in the grocery space. I think that with the administrative change the administration changing in Washington on a go forward basis, we're hopeful that the headwinds that we've had with grocery will resolve itself here by
Conference Moderator: the end of the year. But in
Jim Clark, President and CEO, LSI Industries: terms of pilots, our big pilot here by the end of the year. But in terms of pilots, our big pilot programs have been in place now for better than 6 months. They're all based around the transition from our 4 48 and 4 49 solution over to our R290 environmentally friendly refrigerated solution. And everything on those testing and on those projects has gone stellar. We're into a normal what I call a normalized kind of distribution curve now using R290 and 448.
We will abandon the use of the hydrocarbon refrigerants here at the end of December. And we'll be going on a go forward basis with R290 starting January 1 on a go forward basis. But the feedback we've received, the manufacturing process, our workforce, our availability in terms of components and parts, our testing have all gone very well and we're very excited about being able to offer this product and having a very competitive position to compete against traditional refrigerants, some of the central rack stuff. We feel very strong about our opportunities going into calendar year 2025.
Jim Galiste, CFO, LSI Industries: Aaron, Jim Gee here. Just to add to what Jim said, we are now in multiple different C store chains with our refrigerated and non refrigerated displays. The customer acceptance of that has gone very well. They're very pleased with the sell through that that's generating and we're very optimistic about the continued growth and penetration in the C store chains utilizing mobile display units.
Aaron Spychalla, Analyst, Craig Hallum: Great. Thanks for the color there. And then just maybe last for me on EMI, strong performance, good start there. Can you just kind of give some maybe early examples of some of the commercial synergies and just how you're thinking about those and then also cost synergies with some of the margin expansion targets you've laid out there?
Jim Clark, President and CEO, LSI Industries: Well, we've always been excited about our thesis is really about that kind of multiple arrows, one target being centered around vertical markets and being able to solve a lot of the customers' problems with kind of one belly button to push on. And I will say that we walked into JSI very excited about that and we were able to aggregate together our dimensional signage in grocery, our lighting in grocery and then our refrigerated and non refrigerated products in grocery. We learned a lot through the acquisition and the integration of JSI. And I think going into EMI, we were much earlier, much more directful in terms of the type of relationships and the way we wanted the introductions to happen. And I will give EMI credit.
Their relationships with the customer were probably at a little bit of a higher strategic level. And that from a commercial standpoint, I couldn't it couldn't have gone better. Now I brought this up many times in the past. We're a project based business. We certainly have a third of our business is kind of 1 off, 2 offs, that type of thing.
But the bigger part of our business are these multi site, 100, if not 1,000 of site projects. These things take 12 to 18 months to kind of develop, digest and execute. It doesn't mean that we won't pick up a dozen locations here or 2 dozen there or anything like that. But to get into the very large project business, I do want to just say everybody should have some patience. It will take some time.
And we saw that play out with JSI. It took probably closer to 2 years for us to really get traction where the customers understood our relationship and the compatibility and the ability to kind of come out of the factory with signage already pre installed with lighting products that are associated with that to get the uniformity we talk about in terms of the look and feel of the projects of the products that are in there. So I'm very encouraged commercially on the introductions. I mentioned in my call, NACS. I will tell you that we had all the brands in there, EMI, JSI, LSI, and we had all of our customers coming, but it was almost like a family reunion a little bit where we had a customer coming from a particular company and then their coworkers coming and meeting across the trade show booth, so to speak.
It was really pretty exciting to see and lay that groundwork about that we're one company, you're buying from one source, the senior management teams here, the divisional people are here, you have access. So it was very exciting. On the operational side, EMI is a very well run company. We're very proud and happy to have the management team stayed there. Alan and Dave Mueller, Alan Harvill and Dave Mueller are staying with the company.
They've run the company very well. But as a larger company and particularly one that's brought in all this operational discipline, we're able to share a lot of those learnings and a lot of those activities and a lot of those programs with them. And the receptivity on EMI side has been outstanding. I was down in the factory 2 weeks ago. I had an opportunity to walk the floor and talk to a lot of people on the floor.
And I will tell you consistently the one comment was the first comment was, wow, your guys coming from JSI are really good guys. We really like them. They didn't come in here and start barking out orders or anything. They came in here. They're a good partnership.
And then the second comment was universally really excited about the continued improvements we can make. And I will tell you that some of the improvements we've made already just in terms of layout and product flow and material on the floor and small things like that have already yielded improvements. And the bigger things, the procurement, the kind of consolidated purchasing, those type of things, those will continue to go. Like I said in my comments, I think we have years of synergy here that we're going to be able to harvest and we'll harvest it at the right pace so that we don't exhaust anybody or create friction. But we're really excited about it and they've done an outstanding job.
Very proud of the whole team there.
Aaron Spychalla, Analyst, Craig Hallum: And that's good to hear. Great color. Thank you both. I'll turn it over.
Conference Moderator: And our next question comes from George Giannakoulis with Canaccord. Please proceed.
George Giannakoulis, Analyst, Canaccord: Hi, good morning, guys, and thank you so much for taking my questions. I'm just curious as to you mentioned that there are fluctuating demand levels within some of your vertical markets. You did provided some detail around that. But is there to the extent you can tell a common thread between the markets that have strength and those that don't? Is
Conference Moderator: it just
George Giannakoulis, Analyst, Canaccord: maybe size related? Or are there can you kind of unpack a little bit what particular verticals are showing varying trends? Thank you.
Jim Clark, President and CEO, LSI Industries: Yes. George, thanks for attending. Thanks for the question. I mean, there's always fluctuations that we see within all these verticals. I would say if I was going to call any out and I did make a comment earlier, I was saying that there doesn't seem to be any kind of common thread between these projects.
Although I will say from a project standpoint, our larger projects seem to be moving at a slower pace. Regardless of vertical market or one off kind of large project activity, they just seem to be more choppy than I've ever seen or I've seen in the last 10 years certainly. Specific to verticals, there are a couple that are definitely feeling I think have a little bit more headwind. Warehousing is definitely down. There's some other markets that have picked up.
QSR is up. C store is up spectacularly. I mean I couldn't overstate the activity in C store. Grocery is recovering nicely. You saw the numbers here in this quarter and early indicators coming into the Q2 say they'll continue to do very well.
Automotive is flat, maybe slightly downish. And automotive, I think I've talked about it since the pandemic. Automotive has resisted every comment made about it, every press release made about it, every all the forecasts around automotive, at least from our perspective, have been absolutely 180 degrees out to the story that was written. It's been very strong. But it is a little flat right now over the last two quarters we've seen that.
No other market no other vertical market stands out to me. I'd say that the majority of the impact in Lighting are the large projects. We had some really large projects last year, consistently last year. And those just seem to be none of them, I don't feel like we've lost any of them, but they've consistently been pushing out. Quote activity has still remained at that very elevated level.
It hasn't dropped at all. It's not it hasn't grown right now, but it hasn't dropped and it's a very elevated level. Requoting has slowed down a little bit. We're constantly to keep consistent with our pricing and inventory supply chain, whether it benefits, whether we have reductions or we have increases, we requote. Our quotes have an expiration to them.
And that has been pretty steady. It hasn't that activity, that requote activity hasn't come back a lot. And that's usually an indicator to us that the commitment is there, the timing is not right. And so I would just say most of the headwinds we had in Lighting have been large project activity or small project and our big our multi site project activity has remained pretty steady, but large project has been off.
George Giannakoulis, Analyst, Canaccord: Thank you for that. And as a follow-up, obviously, inorganic growth is a big part of your strategy. You define net leverage as of the 1st fiscal quarter at less than 1 percent less than one turn. To what extent does a certain amount of time need to pass for you to consider additional bolt on acquisitions? Or should we just assume that given that EMI appears to have gone well that you'll consider that those in the near term?
Thank you.
Jim Clark, President and CEO, LSI Industries: Yes. I'm actually glad you brought up the question. I think that we've touched on it in the past. We want to be very fiscally responsible and we also want to look at our resources within the company, our ability to integrate, our ability to make sure that we have a plan and we're executing against it. Certainly with a project like EMI, it shortens that window that we would normally kind of look at.
They're very receptive to the changes. We have a lot of opportunity. We have our time horizon that gives us time. So the best thing I could say is that we're consistently looking. We have a funnel of opportunities we've been working.
I don't see anything that would stop us from moving forward if the right opportunity came in front of us. If we could execute at it with the same type of strategies that we had with JSI and EMI, I would say that it's very likely we're doing something in calendar year 2025.
Amit Dayal, Analyst, H.C. Wainwright: Thank you.
Conference Moderator: The next question comes from Amit Dayal with H. C. Wainwright. Please proceed.
Amit Dayal, Analyst, H.C. Wainwright: Thank you. Good morning, everyone. Nice to see the execution continue to come through despite some challenges in some of your end markets. So Jim, on the gross margins this quarter, it seemed it was a little bit lower than the prior quarter. Any particular reason for that?
Or is it just the product mix that you saw this quarter?
Jim Clark, President and CEO, LSI Industries: Yes. So I mean, I think we've talked about this before. When you look at the 2 segments, the gross margin performance, lighting versus display solutions are significantly different. But when you look at operating side, when you look down on EBITDA, they kind of balance out, right? And a lot of that is because of the our channel in Lighting versus our channel in Display Solutions, where direct in Display Solutions, where we have some direct in partnerships in lighting.
The models are just different. Also in display solutions, you saw the recovery occur in our grocery side. It was a good piece of it was refrigeration, but an equal piece was non refrigerated and their margins are generally lower in that non refrigerated millwork type display side. Also, I would say that we took corrective actions last year when things began to slow down in grocery. As quickly as they slowed down, you can see from the numbers, they picked up almost equally in Q1 90% improvement.
We had to ramp back up and there were costs associated with that and there's inefficiencies associated with that. So I think that that I think it's important to realize that the two segments had very different margin profiles on gross margin. But when you look down at the bottom line, they all come together. So I would encourage you to make sure you're looking at the 2 components. And then in terms of any of the weakness in gross margin, I think it's temporary as we work through that ramp up and as we get a better balance between refrigerated, non refrigerated and some of our dimensional graphic sales.
So given the ramp up we had to do, I'm pretty happy with it.
Amit Dayal, Analyst, H.C. Wainwright: Understood. Thank you for that color. And then you commented earlier that you're expecting sort of double digit growth year over year for 2Q fiscal. With EMI now going sort of full fledged, should we expect sort of that type of performance sort of year over year improvement compared to last year's quarters through this fiscal year?
Jim Clark, President and CEO, LSI Industries: All right. Well, I'm going to have to hit the rewind button because I don't remember saying double digit growth. I want double digit growth for display. For display, yes. Yes.
Yes, I mean, I think that if you I mean, you have to add in there's a recovery going on. We feel certainly based on Q1 and the early indicators in Q2, we feel like grocery, just as we've discussed for the better part of a year, there was going to be a tipping point at some point where the grocery market in general was going to have to start to reinvest and not be able to stay on the sidelines. We've also commented that we fully believe that there wasn't going to be any decisions prior to the election. And I think given the incoming administration, it probably favors that that project moves forward or at least the obstacle mountain isn't as big as it was maybe a week ago. But with all of that said, we're starting to see that cork come out of the barrel with just maintenance and required investments and strategic execution by a broad base of our customers in that display solution side.
So we do think that coupled with EMI, we are going to have that kind of growth in display solution. And I never like to give too much guidance or forecasting looking out, but we feel pretty strong about almost certainly Q2 and into Q3 and likely through the year. But I don't want to put myself on a hook on that. You guys have been following us long enough. Our say due ratio is very important to us.
We would rather always over deliver and under commit than do the other way around. There's a lot of variables. There's lot of things that could happen, but we feel pretty strongly about what's going on in Display Solutions.
Amit Dayal, Analyst, H.C. Wainwright: Yes, makes sense. Thank you for that, Jamie. Just last one for me. For this new refrigerant product, I'm wondering if there are other markets you could potentially enter outside of the core grocery segment you're targeting initially for this?
Jim Clark, President and CEO, LSI Industries: There absolutely is. And remember, part of our thesis is that these displays become a grab and grow center for the convenience store market which continues to expand the goods and services they're offering in their engagement with their customer. And we've already had a number of customers that have that we're in pilots with or that have just assumed regular purchase rhythm with putting these refrigerated R290 displays in their facilities. So we think that there is a long term opportunity there that could match and be on par with grocery. It's just what the speed of that looks like because this is kind of a transformational change for them and something that they're adding.
I will say that coming off of Nacks, it was a common and consistent topic of discussion. And I don't want to get too far ahead of myself, but we're taking the technology that we have right now, particularly combining it with what EMI has done and I brought this up when we acquired EMI. Remember, our specialty is open door, I mean open air, open case refrigeration. EMI does a lot of closed door refrigeration. I will give you some insight.
JSI will be the center of excellence for refrigeration in terms of the technology, the design and all of that. EMI will continue to be the center of excellence in the construction of the displays, of the cases. Our ability to manufacture and customize these cases now with both open and closed door cases is something that will evolve over the next couple of years and we will definitely leverage it.
Amit Dayal, Analyst, H.C. Wainwright: Got it. Thank you for all that color, Jim. I'll get back in queue.
Conference Moderator: The next question is from Rick Fearon with Accretive Capital Partners (WA:CPAP). Please proceed.
Rick Fearon, Analyst, Accretive Capital Partners: Good morning, Jim and Jim and congrats on another solid quarter. So the 90% increase in order rates on the grocery side sounds incredibly promising. And you mentioned the stronger margins from refrigerated displays. Just wondered if you had any additional color you could share on the nature of incoming orders sort of refrigerated versus non refrigerated and the backlog you're working through now as compared to Q1?
Jim Clark, President and CEO, LSI Industries: It's a complicated question, right, because it's what we see before an order is the quote, the pilot, the project design, those discussions. What we're always kind of blind to and it accelerated a little bit through this Albertsons (NYSE:ACI) Kroger (NYSE:KR) merger is the timing. I would say I can comfortably say that the activity level in terms of those conversations, test systems, evaluation have all been going very strong. The non refrigerated displays, they've been that accounts for a big piece of that uptick we had in Q1. And we can see out into Q2 and a little bit into Q3.
We expect that demand to remain very solid going out into Q2 into Q3. What's still a little bit murky is the speed at which the refrigerated displays come. And it doesn't surprise me because we're going into what we call a quiet period, right? As we come into November, December, January, a lot of our grocery market, they're not doing a lot of work in the stores. They are really focused on holiday activity from Halloween right through Thanksgiving, Christmas into New Year's and in some cases all the way in through February March with Easter and that type of thing.
But what we do start to see in the beginning of the year, in the beginning of the calendar year, January, February timeframe, we start to see that planning and that activity getting ready for the seasonal vegetables, blueberries, strawberries, all those type of things which really lend themselves very well to that open air casing. So I think we're probably a quarter early in terms of having great visibility, but we're encouraged at what we see so far and we expect that we'll continue to see an uptick in the refrigerated sales side of things. Certainly, we had a lot of activity in Q1 and everything says that we'll continue to have that in Q2. But we're really excited about what we could be shipping in Q3.
Rick Fearon, Analyst, Accretive Capital Partners: That's helpful. Thanks, Jim. The evolution of the Kroger and Robertson merger will hopefully release a lot of that demand has been pent up. So you answered a question about bolt on acquisitions and inorganic growth and exciting to hear that process continues to be active and your expectation is something in the next 12 months. I was curious about with the strength of the balance sheet and your really strong free cash flow, are there other sort of organic growth opportunities that are accelerated by the additional cash generation things that otherwise you may have kind of put on hold until you felt, okay, we're on really solid footing.
I mean, EBITDA to a debt to EBITDA ratio below 1% is one times is exciting stuff.
Jim Clark, President and CEO, LSI Industries: Yes. I mean the answer is absolutely yes. When I'll use EMI just a conversation we were just having, I'll use it as an example. EMI has closed door refrigerated cases, but JSI has more of the, we'll call it, the technical capability to execute and improve those cases and understand their testing and their design side. And our lead engineer and his team up at JSI, it becomes an immediate opportunity organically for EMI.
EMI enables us to do it. EMI creates the opportunity. JSI's technology and engineering resources allow us to execute against it. So we are very well and very much invested in lot of we look at growth in 2 ways. One is creating and acquiring more of the share of wallet and the customers in the segments we're in.
And the second is expanding or adding additional vertical markets. And I think there's a segment of those vertical markets that are always in a kind of an ebb and flow. And I talked about automotive as an example. Automotive is kind of flat right now and we're there prepared. We have the products and we have the relationships and we have the relationships with the automobile manufacturers.
We have the relationship with the large auto groups. We have the relationships with the large integrators that work on auto dealerships. As that's slow, warehouse is slow, we turn our attention to different markets where we go in and experiment. Parking, as an example, after a couple of years of being slow, particularly coming out of the pandemic, parking is showing increased activity. So we look to move between some of those verticals and by having a portfolio of them, we can move with the ebbs and flows and hope that they're kind of their sine waves are kind of opposed to each other.
Well, one's down, another one's up. And so within our portfolio, we have those additional vertical markets that we look to expand on and we look to kind of put more investment, more energy into while another vertical market is down.
Rick Fearon, Analyst, Accretive Capital Partners: That's helpful, Jim. Thanks for all the wonderful color and the hard work from you and the team. Appreciate it.
Jim Clark, President and CEO, LSI Industries: Yes. Thank you.
Conference Moderator: At this time, we are showing no further questioners in the queue and this does conclude our question and answer session. I would now like to turn the conference back over to Mr. Jim Clark for any closing remarks.
Jim Clark, President and CEO, LSI Industries: I really think we covered a lot in this call. So I don't have any extensive comments here to close the call except to say, I'm sure you can all see the activity. This was before this existed last month and a few months before, but there's a lot of activity in the C store space. We're engaged in all of it. There is a lot of synergies that have been created with EMI coming on board, both commercially and operationally.
We talked about them, but I'm very excited about it. And I'm glad that we feel like we're coming to some resolution on grocery. And much that we've spoken about over the last year is kind of executing exactly in the timing that we've been kind of anticipating. We do anticipate by year's end that there'll be great clarity to this one way or the other. And regardless of which way it goes, we feel like there's an opportunity for us.
So we're very excited about the outlook where we don't feel as though lighting is under any particular pressure. It's just a timing thing. We're very excited about display solutions. I think that we have some real good opportunity in front of us and we're excited as a team to continue to execute and look for those opportunities and maximize it. And I just want to say to everybody that's on the call, thank you for your continued interest, your continued confidence and your continued support.
And with that, we'll draw the call to a close. Thank you.
Conference Moderator: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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