LSI Industries Inc. Q2 FY2026 earnings call

• Flat consolidated sales with improved margin despite challenging prior-year comps in Display Solutions. • Lighting had 15% sales growth, third consecutive quarter of double-digit growth, with margin expansion driven by volume and effective margin management. • Display Solutions maintained execution on large multiyear customer programs, with evolving opportunities in casual dining and premium food services. • Focus on people and talent management through role design, succession planning, and cross-team integration. • Strong cash flow of $23 million, reducing debt to a net leverage ratio of 0.4, providing capital allocation flexibility. • Integration of JSI and EMI under the LSI umbrella, with progress in margin improvement for EMI.

LSI Industries Inc. has two reportable segments: Lighting and Display Solutions. Lighting had sales growth of 15% year over year, with adjusted operating income increasing 29% and adjusted gross margin rate improving 190 basis points. Display Solutions saw revenue decline slightly year over year due to prior year comparisons, but orders improved sequentially and were up year over year. In the grocery vertical, sales returned to normal seasonal demand with Q2 adjusted gross margin improving 30 basis points despite lower production volume. The refueling c-store vertical had high activity with mid-sized projects, and the QSR vertical was sluggish but teams were working on programs. Lighting contributed to growth with 15% sales increase, while Display Solutions had evolving opportunities in casual dining and premium food services.

• Expect continued progress supported by improving order trends and backlog. • Confidence in secular growth outlook across key vertical markets. • Lighting orders up 10% year over year with a book-to-bill above one. • Expect sales growth in grocery in fiscal 2026, with activity remaining high in refueling c-store vertical.

Q: On refueling in C store, can you frame the opportunity and initiatives?

A: Jim Clark said there are numerous smaller projects geographically spread, steady in content and pace; Jim Galeese added it shows health of the vertical with new and non-domestic customers.

Q: On Mexico, market drivers for elevated demand into FY '27?

A: Jim Clark said market has normalized, with competitive forces in c-store and grocery driving remodel and new construction; Jim Galeese added deregulation and partnership with oil companies is positive.

Q: On EMI integration, margins and operational initiatives?

A: Jim Clark said EMI has had over 200 bps margin improvement, progress made with still a year left in journey to reach 10.5% and better margins.

Q: On premium food services, details?

A: Jim Clark said it includes casual dining with larger investment per site, campus meal plans and hospitality with inroads being made, and LSI's one-stop-shop capabilities are a fit.

Q: On M&A leverage ratio range for deals?

A: Jim Clark said below three is comfortable, below two is better, currently at 0.4, and they look for incremental or exponential deals within comfortable leverage.

Q: On Canada Best acquisition integration and banking vertical?

A: Jim Clark said Canada's Best integration is going well, working on integrating facilities, and they are investing time in retail banking vertical with teams collaborating.

Q: On price increases and raw material costs?

A: Jim Clark said Display Solutions minimally impacted by tariffs, Lighting more affected, with price adjustments instead of blanket changes; Jim Galeese said project-based business allows regular pricing reviews aligned with cost structure.

Q: On above-market growth conviction and competitive environment?

A: Jim Clark said they focus on markets with disruption for long-term growth, new entrants in convenience store and grocery markets aligning with their offerings, giving conviction to grow faster than competition.

Q: On M&A opportunities with higher rates?

A: Jim Clark said higher rates have leveled multiples, making conversations more business-oriented, better for strategic acquirers like LSI, but selective in culture alignment.