November 7, 2024
LSI Industries’ Lighting Segment Sales Drop 14%
Quarterly dip driven by fewer large projects and construction delays
LSI Industries Inc. (Nasdaq: LYTS), a Cincinnati-based manufacturer of lighting and display solutions, released its fiscal 2025 first-quarter earnings report today with mixed results. The company posted a 12% increase in net sales, reaching $138.1 million, bolstered by recent acquisitions.
Despite this growth, net income dropped to $6.7 million from $8.0 million in the same quarter last year, marking a 17% decline. The lighting segment, traditionally a core revenue source, reported a 14% decrease in sales, diverging sharply from the 43% growth seen in the Display Solutions segment.
Display Solutions' revenue received a boost from the recent acquisition of EMI Industries, which joined the business segment in April. LSI plans to continue integrating EMI to support cross-segment synergies.
Lighting Segment Decline Amid Broader Revenue Gains
The lighting segment recorded $58.4 million in sales, down from $67.6 million in Q1 of fiscal 2024. This represents approximately 42.3% of total company sales. The revenue decline is primarily attributed to reduced large project activity, especially in the warehouse and construction sectors, where demand has softened. In contrast, smaller lighting projects in refueling and sports applications remained stable, showcasing demand in select verticals.
Above: LSI's quarterly lighting revenues hits lowest level in ten quarters
CEO Jim Clark noted that the timing of customer orders and a lengthening order-to-conversion cycle impacted the lighting segment’s performance. Clark added, “While smaller project activity remains healthy, supported by a stable quote-to-order conversion period, we’ve seen a lengthening in the conversion period for large projects, particularly within the warehouse vertical.” The Display Solutions segment’s growth partially offset these losses, spurred by demand in the grocery vertical and increased activity in c-stores and quick-service restaurants.
Economic Pressures on Project Execution
LSI Industries’ fiscal 2025 Q1 report reveals how economic factors, including construction delays and restrained large project rollouts, are challenging the lighting sector. Warehouse construction starts have slowed, causing LSI’s lighting orders to face prolonged conversion periods. As a result, projects previously anticipated to drive segment growth in the first quarter have been delayed, affecting the company’s revenue distribution.
The report also noted that LSI’s grocery vertical experienced a 90% uptick in order rates, signaling a potential rebound. This vertical recovery is significant, as it shows resilience in areas less dependent on large construction projects. However, overall demand in the lighting sector remains inconsistent, reflecting market pressures and shifting customer priorities.
New Product Launches and Strategic Developments
Despite the lighting segment's softer performance, LSI remains committed to innovation. The company recently launched the V-LOCITY™ series, a new line of area lights aimed at enhancing operational efficiency through modular and customizable designs. This launch represents LSI's largest lighting product introduction in seven years, focusing on installation ease, reduced weight, and a versatile mounting system.
Clark emphasized the strategic importance of the new line, saying it addresses industry needs for streamlined installation and energy efficiency. “The V-LOCITY™ series fixtures offer a sleek, streamlined aesthetic design…with a lighter weight fixture [that] is expected to generate a 45% reduction in installation time, representing a significant savings to the contractor and end-user,” he said. This product aims to strengthen LSI’s market position within the outdoor lighting segment and is expected to support the company’s rebound in the coming quarters as larger projects resume.
Financial Health and Cash Flow Improvements
While net income saw a 17% decrease, LSI demonstrated sound fiscal management with a 21% increase in free cash flow, totaling $11.1 million for the quarter. Adjusted EBITDA stood at $13.4 million, down 11% from the prior year.
LSI's adjusted EBITDA as a percentage of sales also fell to 9.7%, reflecting squeezed margins amid higher costs and moderated revenue from the lighting segment. The company's net debt to adjusted EBITDA ratio remained favorable at 0.8x, with $7.0 million in cash and total available liquidity of approximately $49.0 million, along with stable long-term debt levels.
In its earnings statements, management emphasized LSI’s operational resilience and maintained a balanced approach to growth.
Outlook for the Lighting Segment and Broader Strategy
Looking forward, LSI’s management anticipates improved performance in the lighting segment during the second quarter of fiscal 2025, as delayed projects are expected to resume. Management has highlighted a favorable project pipeline and expects that the broader economic conditions influencing the warehouse and construction sectors may stabilize. Clark stated, “We anticipate that our Lighting Segment performance will improve in the second quarter, when compared to the year-ago period, and larger known projects, many of which are on hold pending final approval, are released to move forward in the first half of calendar year 2025.”
LSI’s approach remains conservative, with a focus on disciplined balance sheet management and targeted product innovation. The company's continued expansion into display solutions and smaller lighting projects in refueling and sports applications may provide alternative growth avenues should larger lighting projects remain delayed.
