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LSI Industries Inc.

11/06/2026 | Press release | Distributed by Public on 11/06/2026 15:05

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "focus," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in our Annual Report on Form 10-K in the following sections: "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures about Market Risk," and "Risk Factors." All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2026, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Our condensed consolidated financial statements, accompanying notes and the "Safe Harbor" Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Summary of Consolidated Results

Net Sales by Business Segment	Three Months Ended
	September 30,
(In thousands)	2026		2025

Display Solutions Segment	$	161,032	$	88,196
Lighting Segment		64,823		69,053
Total Net Sales	$	225,855	$	157,249

Operating Income (Loss) by Business Segment	Three Months Ended
	September 30,
(In thousands)	2026			2025

Display Solutions Segment	$	12,996		$	8,592
Lighting Segment		7,548			8,549
Corporate and Eliminations		(6,383	)		(6,169	)
Total Operating Income	$	14,161		$	10,972

Net sales of $225.9 million for the three months ended September 30, 2026, increased 44% as compared to net sales of $157.2 million for the three months ended September 30, 2025. Lighting segment net sales of $64.8 million decreased 6% compared to prior year quarter net sales of $69.1 million. The 6% decline in net sales reflects soft demand across the broader commercial and industrial markets. Net sales in the Display Solutions segment of $161.0 million increased 83% compared to the same quarter last year sales of $88.2 million. The Company's acquisition of Royston contributed most of the increase in Display Solutions segment sales. Excluding Royston sales, net sales increased 1%. Quarter-over-quarter sales to the refueling/c-store and grocery verticals increased and were partially offset by softness in the quick service restaurant ("QSR") vertical.

Page 26

Operating income of $14.2 million for the three months ended September 30, 2026, represents a 29% increase in operating income from $11.0 million in the three months ended September 30, 2025. Adjusted operating income, a Non-GAAP measure, was $19.4 million in the three months ended September 30, 2026, represents a 38% increase compared to $14.0 million in the three months ended September 30, 2025. Refer to "Non-GAAP Financial Measures" below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. The increase in operating income is primarily the result of an increase in net sales in the Display solutions segment driven mostly by the impact of the Royston acquisition.

Non-GAAP Financial Measures

This report includes adjustments to GAAP operating income, net income, and earnings per share for the three months ended September 30, 2026, and 2025. Operating income, net income, and earnings per share, which exclude the impact of long-term performance-based compensation expense, the amortization expense of acquired intangible assets, commercial growth opportunity expense, acquisition costs, the lease expense on the step-up basis of acquired leases, restructuring and severance costs, and organic sales growth are non-GAAP financial measures. We further note that while the amortization expense of acquired intangible assets is excluded from the non-GAAP financial measures, the revenue of the acquired companies is included in the measures, and the acquired assets contribute to the generation of revenue. We believe these non-GAAP measures will provide increased transparency to our core operating performance of the business. Also included in this report are non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Net Debt to Adjusted EBITDA, and Free Cash Flow. We believe that these are useful as supplemental measures in assessing the operating performance of our business. These measures are used by our management, including our chief operating decision maker, to evaluate business results, and are frequently referenced by those who follow the Company. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, the non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our results in conjunction with corresponding GAAP measures.

	Three Months Ended
Reconciliation of operating income to adjusted operating income:	September 30,
	2026		2025
(In thousands)
Operating income as reported	$	14,161	$	10,972

Long-term performance based compensation		1,049		1,282

Amortization expense of acquired intangible assets		3,779		1,554

Restructuring/severance costs		13		(71	)

Acquisition costs		252		220

Lease expense on the step-up basis of acquired leases		152		68

Adjusted operating income	$	19,406	$	14,025

Page 27

Reconciliation of net income to adjusted net income	Three Months Ended
	September 30,
(In thousands, except per share data)	2026					2025
				Diluted EPS						Diluted EPS

Net income as reported	$	7,127		$	0.19	$	7,264			$	0.23

Long-term performance based compensation		787	(1)		0.03		954		(6)		0.03

Amortization expense of acquired intangible assets		2,853	(2)		0.08		1,117		(7)		0.04

Restructuring/severance costs		10	(3)		-		(53	)	(8)		-

Acquisition costs		189	(4)		-		165		(9)		-

Lease expense on the step-up basis of acquired leases		114	(5)		-		51		(10)		-

Foreign Currency transaction loss on intercompany loan		14			-		326				0.01

Tax rate difference between reported and adjusted net income		508			0.01		(93	)			-

Net income adjusted	$	11,602		$	0.31	$	9,731			$	0.31

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):

⁽¹⁾ $262

⁽²⁾ $926

⁽³⁾ $3

⁽⁴⁾ $63

⁽⁵⁾ $38

⁽⁶⁾ $328

⁽⁷⁾ $437

⁽⁸⁾ ($18)

⁽⁹⁾ $55

⁽¹⁰⁾ $17

Page 28

	Three Months Ended
Reconciliation of net income to EBITDA and adjusted EBITDA	September 30,
	2026		2025
(In thousands)
Net income - reported	$	7,127	$	7,264
Income tax		3,059		2,431
Interest expense, net		3,860		747
Other expense		115		530
Operating income as reported	$	14,161	$	10,972

Depreciation and amortization		6,540		3,200

EBITDA	$	20,701	$	14,172

Acquisition costs		252		220

Long-term performance based compensation		1,049		1,282

Restructuring/severance costs		13		(71	)

Lease expense on the step-up basis of acquired leases		152		68

Adjusted EBITDA	$	22,167	$	15,671

	Three Months Ended
Reconciliation of cash flow from operations to free cash flow	September 30,
	2026			2025
(In thousands)
Cash flow from operations	$	15,231		$	676

Capital expenditures		(1,444	)		(967	)

Free cash flow	$	13,787		$	(291	)

Page 29

Net debt to adjusted EBITDA	September 30,
(In thousands)	2026			2025

Current portion and long-term debt as reported	$	10,000		$	3,571
Long-Term Debt		230,195			47,105
Debt as reported	$	240,195		$	50,676
Less:
Cash and cash equivalents as reported		(12,805	)		(7,143	)

Net debt	$	227,390		$	43,533

Adjusted EBITDA - Trailing 12 Months	$	87,640		$	57,308

Net debt to adjusted EBITDA		2.6			0.8

Adjusted EBITDA for the trailing twelve months ended September 30, 2026, includes proforma results for the Royston acquisition.

Organic compared to inorganic sales	September 30,
(In thousands)	2026		2025		% Variance

Lighting segment	$	64,823	$	69,053		-6	%
Display solutions segment
- Comparable display solutions sales		88,620		88,196		1	%
- Royston		72,412		-	n/m
Total display solutions sales	$	161,032	$	88,196		83	%

Total net sales	$	225,855	$	157,249		44	%

Less:
- Royston		72,412		-	n/m

Total organic net sales	$	153,443	$	157,249		-2	%

Results of Operations

THREE MONTHS ENDED September 30, 2026, COMPARED TO THREE MONTHS ENDED September 30, 2025

Display Solutions Segment	Three Months Ended
	September 30,
(In thousands)	2026		2025

Net Sales	$	161,032	$	88,196
Gross Profit	$	30,374	$	17,095
Operating Income	$	12,996	$	8,592

Display Solutions Segment net sales of $161.0 million in the three months ended September 30, 2026, increased 83% from net sales of $88.2 million in the same period in fiscal 2026. The Company's acquisition of Royston contributed to most of the increase in Display Solutions segment sales. Excluding Royston sales, net sales increased 1%. Quarter-over-quarter sales to the refueling/c-store and grocery verticals increased and were partially offset by softness in the QSR vertical.

Gross profit of $30.4 million in the three months ended September 30, 2026, increased 78% from the same period of fiscal 2026. Gross profit as a percentage of net sales in the three months ended September 30, 2026, decreased to 18.9% from 19.4% in the same period of fiscal 2026. The decrease in gross profit as a percentage of sales was the result of increased material input costs in several product lines, and customer mix. The Company continues to maintain favorable program pricing and prudent cost management.

Operating expenses of $17.4 million in the three months ended September 30, 2026, increased from $8.5 million from the same period of fiscal 2026, primarily driven by the acquisition of Royston and by continued investment in commercial initiatives to drive growth.

Display Solutions Segment operating income of $13.0 million in the three months ended September 30, 2026, increased 51% from the same period of fiscal 2026. The increase in operating income was driven by the increase in net sales and favorable program pricing and prudent cost management.

Lighting Segment	Three Months Ended
	September 30,
(In thousands)	2026		2025

Net Sales	$	64,823	$	69,053
Gross Profit	$	21,855	$	23,182
Operating Income	$	7,548	$	8,549

Page 30

Lighting Segment net sales of $64.8 million in the three months ended September 30, 2026, decreased 6% compared to net sales of $69.1 million in the same period in fiscal 2026. The 6% decline in net sales reflects soft demand across the broader commercial and industrial markets. Sales to the refueling/c-store, banking, and sports vertical increased from the same quarter last fiscal year and were offset by a decline in sales in other verticals. The Company maintains a favorable position in the parking, small retail, warehouse, and automotive verticals.

Gross profit of $21.9 million in the three months ended September 30, 2026, decreased 6% from the same period of fiscal 2026. While sales declined, gross profit margin was maintained as a result of aligning selling price with material input costs inflation.

Operating expenses of $14.3 million in the three months ended September 30, 2026, decreased 2% from the same period of fiscal 2026, driven mostly by a decrease in agent commission expense resulting from lower sales.

Lighting Segment operating income of $7.5 million for the three months ended September 30, 2026, decreased 12% from operating income of $8.5 million in the same period of fiscal 2026 primarily driven by decreased net sales.

Corporate and Eliminations	Three Months Ended
	September 30,
(In thousands)	2026			2025

Gross Profit	$	2		$	-
Operating (Loss)	$	(6,383	)	$	(6,169	)

The gross profit relates to the change in the intercompany profit in inventory elimination.

Operating expenses of $6.4 million in the three months ended September 30, 2026, increased 3% from $6.2 million from the same period of fiscal 2026. The increase was primarily driven by an increase in wage and benefit costs.

Consolidated Results

The Company reported $3.9 million and $0.7 million of net interest expense in the three months ended September 30, 2026, and September 30, 2025, respectively. The increase in interest expense is the result of the acquisition of Royston in the third quarter of fiscal 2026. The Company also recorded other expense of $0.1 million and $0.5 million in the three months ended September 30, 2026, and September 30, 2025, respectively, both of which is related to net foreign exchange currency transaction gains and losses through the Company's Mexican and Canadian subsidiaries.

The $3.1 million of income tax expense in the three months ended September 30, 2026, represents a consolidated effective tax rate of 30.0%. The $2.4 million of income tax expense in the three months ended September 30, 2025, represents a consolidated effective tax rate of 25.1%. Impacting the fiscal 2027 first quarter effective tax rate was the unfavorable tax treatment of executive compensation.

The Company reported net income of $7.1 million in the three months ended September 30, 2026, compared to net income of $7.3 million in the three months ended September 30, 2025. Non-GAAP adjusted net income was $11.6 million for the three months ended September 30, 2026, compared to adjusted net income of $9.7 million for the three months ended September 30, 2025 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of an increase in net sales. Diluted adjusted earnings per share of $0.19 was reported in the three months ended September 30, 2026, compared to $0.23 diluted adjusted earnings per share in the same period of fiscal 2026. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended September 30, 2026, were 37,888,000 shares compared to 31,381,000 shares in the same period last year.

Page 31

Liquidity and Capital Resources

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.

At September 30, 2026, the Company had working capital of $144.0 million compared to $146.0 million at June 30, 2026. The ratio of current assets to current liabilities was 2.0 to 1 as of September 30, 2026, and as of June 30, 2026. The decrease in working capital from June 30, 2026, to September 30, 2026, is primarily driven by a $7.7 million decrease in net accounts receivable partially offset by a $5.6 million decrease in current liabilities.

Net accounts receivable was $143.5 million and $151.2 million at September 30, 2026, and June 30, 2026, respectively. DSO decreased to 61 days at September 30, 2026, from 65 days at June 30, 2026. The decrease in net accounts receivable is the result of lower sales in the first quarter of fiscal 2027 compared to the fourth quarter of fiscal 2026.

Net inventories of $114.4 million at September 30, 2026, increased $2.1 million from $112.3 million at June 30, 2026. Lighting Segment net inventory increased $1.7 million, and net inventory in the Display Solutions Segment increased $0.4 million. The Company manages inventory levels to meet customer demands.

Cash generated from operations and borrowing capacity under the Company's line of credit is its primary source of liquidity. Our credit facility consists of a $200 million term loan and $150 million secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2031. As of September 30, 2026, $109.8 million of the credit facility was available. The Company is in compliance with all of its loan covenants as of September 30, 2026. The $350 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the next 12 months.

The Company generated $15.2 million of cash from operating activities in the three months ended September 30, 2026, compared to $0.7 million of cash generated from operating activities in the same period in fiscal 2026. The Company continues to proactively manage its working capital while generating positive cash flow from earnings.

The Company generated $0.6 million and consumed $0.7 million of cash related to investing activities in the three months ended September 30, 2026, and September 30, 2025, respectively. The $0.6 million generation of cash was the result of a $2.0 million recovery of purchase price related to the Royston acquisition. The Company invested $1.4 million and $1.0 million in capital assets as of during the period ending September 30, 2026, and September 30, 2025, respectively, most of which related to investments in equipment and tooling to support sales growth.

The Company consumed cash of $17.2 million in the three months ended September 30, 2026, compared to a generation of cash of $3.9 million in the three months ended September 30, 2025, related to financing activities. The improvement in the generation of cash flow from operations in the first quarter of fiscal 2027 allowed the Company to reduce its debt by $15.7 million. Contributing favorably to cash flow from financing activities was the generation of cash related to the proceeds from the exercise of stock options of $0.5 million and $3.0 million in the first quarters of fiscal 2027, and 2026, respectively. Cash dividends paid to shareholders increased from $1.5 million in the first quarter of fiscal 2026 compared to $1.9 million in the first quarter of fiscal 2027.

The Company has on its balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.

Page 32

Off-Balance Sheet Arrangements

The Company has no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.

Cash Dividends

In November 2026, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 24, 2026, to shareholders of record as of November 16, 2026. The indicated annual cash dividend rate for fiscal 2027 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

Critical Accounting Policies and Estimates

A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company's fiscal 2026 Annual Report on Form 10-K.

LSI Industries Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 21:06 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]