LSI Industries : Q1 2024 LSI Industries Inc Earnings

Fiscal First Quarter

2024 Results

Conference Call

November 2, 2023

DISCLAIMER

This presentation contains "forward-lookingstatements"-that is, statements related to future events within the meaning of the Private Securities Litigation Reform Act of 1995. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In this context, forward-looking statements often address our expected future business, financial performance, financial condition and results of operations, often contain words such as "estimates," "targets," "anticipates," "hopes," "projects," "plans," "expects," "intends," "believes," "seeks," "may," "will," "see," "should" and similar expressions and the negative versions of those words, and may be identified by the context in which they are used.

Such statements, whether expressed or implied, are based upon current expectations of LSI and speak only as of the date made. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied. Forward-looking statements include statements that address activities, events or developments that LSI expects, believes or anticipates will or may occur in the future, such as earnings estimates (including projections and guidance) and other predictions of financial performance. Forward-looking statements are based on LSI's experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond LSI's control.

These risks and uncertainties include, but are not limited to the following: the impact of competitive products and services; product and pricing demands, and market acceptance risks; LSI's reliance on third-party manufacturers and suppliers; substantial changes to the refueling and convenience store and grocery markets; LSI's stock price volatility; potential costs associated with litigation, other proceedings and regulatory compliance; LSI's ability to develop, produce and market quality products that meet customers' needs; LSI's ability to adequately protect intellectual property; information technology security threats and computer crime; reliance on customers and partner relationships; financial difficulties experienced by customers; the cyclical and seasonal nature of our business; the adequacy of reserves and allowances for doubtful accounts; the failure of investments, acquisitions or acquired companies to achieve their plans or objectives generally; unexpected difficulties in integrating acquired businesses; the inability to effectively execute our business strategies; the ability to retain key employees, including key employees of acquired businesses; labor shortages or an increase in labor costs; changes in shift in product mix; unfavorable economic, political, and market conditions, including interest rate fluctuations; changes in U.S. trade policy; the results of asset impairment assessments; risks related to disruptions or reductions in business operations or prospects due to international conflicts and wars, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus disease COVID-19; price increases of materials; significant shortages of materials; shortages in transportation; increases in fuel prices; sudden or unexpected changes in customer creditworthiness; not recognizing all revenue or not receiving all customer payments; write-offs or impairment of capitalized costs or intangible assets in the future or restructuring costs; anti-takeover provisions in LSI's organizational documents and in Ohio law; and the other risk factors LSI describes from time to time in SEC filings. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business.

You are cautioned to not place undue reliance on these forward-looking statements. LSI does not guarantee any forward-looking statement, and actual results may differ materially from those projected. LSI undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, circumstances or otherwise. Additional descriptions of risks, uncertainties and other matters can be found in our annual reports on Form 10-K and quarterly reports on Form 10-Q that we file with the SEC and are incorporated herein by reference. Our public communications and other reports may contain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.

©2023 LSI INDUSTRIES

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KEY MESSAGES

Strong F1Q24 results highlighted by sustained y/y growth in margin realization, net income and Adjusted EBITDA

Stable demand, consistent price discipline and improved sales mix supported ~170 basis points of y/y Adjusted EBITDA margin expansion

Another consecutive quarter of strong free cash generation, supporting nearly $49 million in LTM debt reduction, resulting in net leverage of 0.5x as of 9/30/23

Delivered 23% y/y growth in Adjusted Net Income of $8.7 million, or $0.29/share

©2023 LSI INDUSTRIES

Focused Strategy Execution

F1Q24 sales 3% below PY due to Display Solutions project timing; adjusted EBITDA +13%; adjusted net income +23% y/y; supported by favorable demand conditions, disciplined pricing, improved sales mix, strong operational execution

Sustained Margin Rate Expansion

Gross margin rate +230 bps y/y to 29.6%; Adj. EBITDA margin rate +170 bps y/y to 12.2%; net margin +158 bps y/y to 6.5%

Improved Balance Sheet Optionality

Reduced total net debt outstanding by $43 million on an LTM basis; as of 9/30/23, Net leverage of 0.5x; total cash and credit availability of $64.4 million as of 9/30/23

Lighting Segment Update	$0.25/
Share

Lighting Segment sales steady to prior year, reflecting healthy activity level in key verticals; delivered 140 bps of Gross Margin rate expansion, driven by consistent volume, favorable pricing/mix and cost management

Display Solutions Segment Update

Display Solutions segment declined 6% y/y, as industry events in the Grocery vertical disrupting demand; favorable program pricing and prudent cost management supported 320 bps of y/y Adjusted EBITDA margin expansion

Significant New Business Wins

MarginMarginRateRate

Awarded image refresh on 7,000 c-store network for

30.226%.1%

major oil company, with activity planned beginning F2024 through F2029; Separately, secured significant c-store renovation opportunities at 1,400 Central American oil major locations

Progressive, Sustained Growth in Free Cash Flow Generation

Generated $45 million in LTM free cash flow through the end of F1Q24; LTM FCF conversion was 85% of LTM Adjusted EBITDA

Executing on FAST FORWARD Value Creation Initiative

Over the next five years, LSI intends to deliver more than 60% net sales growth; more than 100% Adjusted EBITDA growth; and at least 250 basis points of Adjusted EBITDA margin expansion

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CONSOLIDATED FINANCIAL RESULTS

Strong focus on quality of earnings, led by operating and EBITDA margin expansion

+23% y/y growth in adjusted net income

+13% y/y growth in adjusted

EBITDA

Total Net Sales ($M)

	$127.1	$123.4

F1Q23F1Q24

Operating Income ($M)

		10.3%
	8.6%
		$12.7
$10.0	$10.9	$11.0

	F1Q23		F1Q24
	Reported Operating Income		Adjusted Operating Income	% Sales

Strong focus on price discipline, procurement efficiencies and working capital efficiency

Within Lighting, demand conditions remains stable, while in Display Solutions, timing of project activity impacted revenue in F1Q24

Strong multi-year backlog of projects, but expect near-term softening in Display Solutions activity, given sector-specific events

Net Income ($M)

						$0.29
			$0.25
				$8.0	$8.7
			$7.1	Adj.	.EPS
$6.3	Adj. EPS
							per
			F1Q23		F1Q24
		Reported Net Income		Adjusted Net Income		Adj. EPS

Non-GAAP Adjusted EBITDA ($M)

12.2%

10.5%

$15.1

$13.3

Margin Rate

9.6%

F1Q23

F1Q24

% Sales

©2023 LSI INDUSTRIES

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LIGHTING SEGMENT UPDATE

Lighting demand driven by outdoor applications, specifically parking and automotive

Sales driven by continued healthy activity in key verticals and market share gains

Phase 1 of lighting installation for EV battery plant nearing completion; awarded order for second facility of similar size and lighting requirements

Project quotation levels are steady entering F2Q24, while pricing remains stable

Lighting Segment Sales ($M)				Lighting Segment Adj. Gross Margin ($M)
$67.5		$67.6
							33.0%	34.4%
							$22.3	$23.3
											Margin Rate
											30.4%
		F1Q23	F1Q24			F1Q23		F1Q24
												% Sales
Lighting Segment Adj. Operating Income ($M)	Lighting Segment Adjusted EBITDA ($M)
							15.7%	15.0%
13.6%		13.1%
$9.2					$10.6	$10.2
	$8.8
				$0.25/
			per		per

F1Q23F1Q24

% Sales

F1Q23F1Q24

% Sales

©2023 LSI INDUSTRIES

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DISPLAY SOLUTIONS SEGMENT UPDATE

Display Solutions delivered improved profitability and margin expansion on modest sales decline

Sales growth evident within refueling/c-store, QSR and digital signage offset a modest decline grocery (JSI)

Favorable program pricing and prudent cost management supporting improved operating

Display Solutions Segment Sales ($M)

$59.5	$55.8

F1Q23F1Q24

Display Solutions Segment Adj. Gross Margin ($M)

24.5%

20.9%

$13.7

$12.5Margin Rate

30.6%

F1Q23	F1Q24	% Sales

leverage

Successfully secured several new multi-year programs, including 7,000 c-stores with an oil major; program underway with an initial 150 locations

Display Solutions Segment Adj. Op. Income ($M)

14.1%

11.1%

$7.9

$6.6

Display Solutions Segment Adjusted EBITDA ($M)

15.9%

12.7%

$8.9

$7.6

Margin Rate

13.3%

Site permitting, customer installation scheduling, pending merger of grocery chains impacting near-term activity levels; however, LT demand outlook remains strong

F1Q23	F1Q24	F1Q23	F1Q24
	% Sales		% Sales

©2023 LSI INDUSTRIES

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DISCIPLINED WORKING CAPITAL MANAGEMENT

Working capital declined 13% vs. PY, driven by Y/Y and sequential decline in product inventories

DIO reduced 9 days versus PY

Project inventory should remain at current levels in F2Q24 in support of new project wins

Remain highly focused on maintain working capital efficiency, consistent with focus on stable free cash generation

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54

Total Working Capital ($M)

$88.0$87.4

$82.3

$76.2

$73.3MarginMarginRateRate

30.226%.1%

F1Q23

F2Q23

F3Q23

F4Q23

F1Q24

Total Inventory ($M)

$80.5

$73.2

$67.7

$63.7$63.1

$0.

Margin Rate

14.4%

F1Q23

F2Q23

F3Q23

F4Q23

F1Q24

©2023 LSI INDUSTRIES

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CAPITAL ALLOCATION PRIORITIES

During last 12 months, free cash flow generation of ~$45 million, representing 85% free cash flow conversion (as % of TTM Adjusted EBITDA)

During last 12 months, Reduced net debt outstanding by $43 million; net leverage declined from 1.7x to 0.5x

Remain focused on further debt reduction, return of capital initiatives and opportunistic growth investments

3

54

Free Cash Flow ($M)(1)

					$15.6
$10.1		$11.7
$8.9			$9.2
						MarginMarginRateRate
						30.226%.1%
		F1Q23	F2Q23	F3Q23	F4Q23	F1Q24
Net Debt Outstanding ($M)(2)
$68.5
			$60.1	$48.2
		Net Leverage	Net Leverage	$0.	$33.4	Margin Rate
		1.7x
		Net Leverage		14.4%
			1.3x
				$25.1
				1.0x	Net Leverage
					0.6x	NetLeverage
						0 5x
						1.0x
		F1Q23	F2Q23	F3Q23	F4Q23	F1Q24

1. Free cash flow (FCF) defined as cash flow from operating activities less capital expenditures
2. Net leverage defined at net debt divided by trailing 12-month Adjusted EBITDA

©2023 LSI INDUSTRIES

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APPENDIX

STATEMENT ON NON-GAAP FINANCIAL MEASURES

This presentation includes adjustments to GAAP operating income, net income, and earnings per share for the three months ended September 30, 2023, and 2022. Gross Margin, operating income, net income, and earnings per share, which exclude the impact of long-termperformance-based compensation, severance costs, restructuring costs, and consulting expenses supporting commercial growth initiatives, are non-GAAP financial measures. We exclude these non-recurring items because we believe they are not representative of the ongoing results of operations of our business. Also included in this presentation are non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow, and Net Debt. 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. Below is a reconciliation of these non-GAAP measures to the net income and earnings per share reported for the periods indicated, along with the calculation of EBITDA, Adjusted EBITDA, Free Cash Flow, and Net Debt.

©2023 LSI INDUSTRIES

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