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Greetings. Welcome to the LSI Industries Fiscal 2024 Third Quarter Results Conference Call. [Operator Instructions]. I will now turn the conference over to your host, Jim Galeese, Chief Financial Officer. You may begin.

Welcome, everyone, and thank you for joining. We issued a press release before the market opened this morning detailing our fiscal '24 third quarter 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. Our 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 third quarter results. At the conclusion of these prepared remarks, we will open the line for question. With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark.

Thank you, Jim, and good morning, all. Thank you for joining us on today's call. It's truly hard to believe, but we're closing out our third quarter of fiscal year 2024 and well into our fourth quarter as we speak today. We are just over two months away from the end of our fiscal year 2024, and we've just begun developing our operating plans for 2025. Things have been busy, and the LSI team continues to execute well. Working through the second half of the year, we are still facing some ongoing headwinds related to the current pause in our grocery vertical. Despite these challenges, total sales for the third quarter were down only 8%, while adjusted net income was up 14% on a year-over-year basis. These results demonstrate and underline the resiliency of the management team to operate the company with a continued focus on execution and earnings while being fully prepared to capitalize on developing opportunities. As you all are well aware, LSI has developed and published our strategic plan to grow the company and its earnings $800 million in sales and 12.5% in EBITDA in 2028. This plan, which is known as our Fast Forward Plan, provides insight for our investors, employees, and customers alike to understand our goals in the path we intend to take to reach that $800 million milestone. Late last week, LSI announced the acquisition of EMI Industries. EMI is based out at Tampa, Florida, and they have a long-established history as a fixture display and food equipment manufacturer in the grocery, convenience store, and restaurant industries. EMI has been in business for more than 40 years and they serve a well-established customer base ranging in size from regional brands with several hundred site locations, the national and international brands operating thousands of sites. This acquisition fits well into our Fast Forward Plan, and we see a number of opportunities from additional goods and services that we can offer to our customers. A key component of our strategy is identifying and developing a solution set for higher value verticals where our customers recognize the value of our products and services. This approach has served us well over the last several years, and we've advanced our position in multiple verticals. The acquisition of EMI further expands and accelerates this strategy. I mentioned in previous calls, published information regarding the significant multiyear planned investment by C-stores, QSR, and grocery industry participants as a target in store sales growth as a means to increase profitability. An improved image and brand enhances the consumer shopping experience. The acquisition of EMI positions LSI to exploit further growth opportunities in this multiyear investment cycle. As we've discussed before, company culture and commercial synergies are always important element to LSI when looking at any type of transaction. Our work with EMI over the last few months has shown a highly experienced management team that plans to stay onboard with EMI and LSI well into the future. In terms of commercial synergies, we see a customer basis about a third, a third, and a third. In other words, while one-third of the combined company customers are new to EMI, about one-third of the combined customers are new to LSI and JSI, and about one-third of the customers are shared. As a result, we've identified substantial cross-selling opportunities across our expanded customer base. In fact, in regards to common customers, we had one customer, a large quick-serve chicken restaurant chain, reach out to us already, letting us know they do business with both LSI and EMI, and they look forward to working with us as a combined entity. In his own words, he thought this was a great combination. Aside from these commercial opportunities, we see a number of operational and integration opportunities. It will help EMI lower costs, improve production capabilities and product quality, while improving customer service and profits. We see combined technology capabilities and benefits we can offer our customers. We won't get all of these opportunities overnight, but working with the team at EMI, we are confident of our ability to work together, share capabilities, and learn from each other. EMI and JSI today provide adjacent products to our combined customer base, And in fact, they make a perfect combination, whereas EMI and LSI help JSI in metal fabrication and design and JSI will help EMI in refrigeration and cold fixture business. EMI and JSI both work in the millwork and refrigeration space, and we believe the capabilities and purchasing power will complement each other. Over the next few quarters, we'll explore these opportunities, including having JSI work with EMI in the introduction of an R290 solution, allowing EMI to offer an environmentally friendly refrigerated solution for those customers who value this offering. In the full calendar year 2023, EMI reported total revenues of $87 million and EBITDA performance of $5.5 million. EMI will be immediately accretive to LSI on an adjusted earnings per share basis. LSI has been working with EMI over the last few months as we underwent our full due diligence of the company. Our purchase price of $50 million was fully funded from our existing revolver, leaving our net debt at approximately 1.3 times. We will add about 300 employees to LSI and five additional manufacturing locations located in Florida, Georgia, New Jersey, Rhode Island, and Dallas, Texas. This acquisition helps make a meaningful step towards our $800 million goal and provides an expanded set of products, services, and solution in our targeted vertical markets. We have more work to do. Organic growth is an important piece of our plan, and we continue our efforts in securing new customers and experimenting with new vertical markets. New product development and new product introductions remain on a healthy pace at LSI. Our outreach with our agents and partners remains a high priority, and in fact, next month, we will have our agent meeting here in Cincinnati, is currently slated to be one of our largest detention agent meetings ever. We have a lot of work to do and a lot of opportunities in front of us. We remain committed to reaching our $800 million goal. We're excited about what the future offers. With that, I'll turn the call back over to Jim Galeese for a closer look at our financials. Jim?

Thank you, Jim. In fiscal Q3. we continued our strong focus on execution and quality of earnings. For the quarter, LSI generated increased net income and earnings per share, margin rate expansion, and strong cash flow, all while continuing to invest in the business, with increased capital expenditures and other growth initiatives. Our adjusted gross margin rate improved 160 basis points versus last year, contributing to our improved net income and margin expansion. Adjusted EBITDA margin increased 80 basis points to 10.4%, while adjusted earnings per share increased $0.02 to $0.21 a share. Multiple factors drove the improvement with favorable mix, stable pricing, moderating material input costs, and factory productivity, all contributed. Results were achieved in a divergent market environment with vertical performance ranging from robust activity levels to the continued pause in grocery. In refueling C-store, for example, our recent large program wins for display solutions generated significant growth in the third quarter, as site release activity for these programs were initiated. Our site work ranged from product only to being the single-source provider of comprehensive products and services. Many of these sites specify our unique forward throw technology and Archer perimeter lighting system. This differentiation creates increased revenue per site and strengthens our importance to customers. The adoption rate continues to increase as customers recognize the value these systems provide. The refueling C-store outlook for the fiscal fourth quarter and entering fiscal '25 is strong, with high levels of site release activity for multiple programs expected to continue. Conversely, refueling C-store growth was offset by continued disruption in the grocery demand levels caused by the slow progress in the proposed merger of two large industry participants. We maintain ongoing contact with our grocery customers and plans for interior refresh programs remain, but with schedules deferred, pending more clarity on the merger. The underlying fundamentals of the grocery vertical remains solid and support multi-year investment in store refresh programs. For lighting, market performance has varied across verticals as well as project size. Overall, lighting project quote activity for fiscal Q3 was above prior year levels. However, we're also experiencing the quote to order conversion period continuing to lengthen, particularly for larger projects. Small project activity remained stable across multiple verticals, and we expect this trend to continue in the fourth quarter. Despite the lengthening quote to order conversion period, the Q3 book-to-bill ratio was above one. Lighting adjusted operating income increased 11% for the quarter on 3% lower sales. The lighting gross margin rate was 280 basis points above the prior year period, reflecting in part the healthy level of small project activity, as well as stable pricing, moderating material input costs, and factory products. Next, a few comments on cash and capital allocation. Free cash flow was $11 million in the quarter with our TTM cash flow over $43 million. Solid cash flow generation reduce net debt to $9 million and lowered our ratio of adjusted EBITDA to net debt 0.2 times as of March 31. We have been successful the last several years with our earn to invest model, generating increased earnings and cash flow, significantly reducing debt, and positioning the business to execute on both organic and inorganic growth initiatives, as identified in our Fast Forward Strategic Plan. Last week, we announced the acquisition of EMI Industries as part of that inorganic growth plan. We expect the combined cash flows of two entities to significantly reduce outstanding debt over the next two years, supporting the cycle of investment to achieve our 2028 target. On a reporting basis, EMI will become part of LSI's display solutions segment, beginning with a partial impact beginning in fiscal Q4. As part of our capital allocation and total return to shareholders, the company declared a regular cash dividend of $0.05 per share payable on May 14 to shareholders of record of May 6. In summary, our third quarter performance reflects the diversity and durability of our business model. The last two quarters demonstrates LSI can achieve solid results while overcoming of that driven interruptions to key markets. The addition of EMI will further strengthen our diversity of markets and customers and durability of performance. I'll now turn the call back to the moderator for the question-and-answer session.

[Operator Instructions]. And our first question comes from the line of Aaron Spychalla with Craig-Hallam.

Yeah, good morning, Jim and Jim. Thanks for taking the questions. First for me, good to see the lighting book-to-bill above one and activity on the quotation front that you talked about. Is that pretty broad-based or any verticals leading that? And then, you also mentioned the order conversion period continued to lengthen. Can you just give a little bit more detail behind that on gating factors that you're seeing there?

Yeah, Aaron. Thanks for calling in, and thanks for the question. Yeah, the lighting -- our whole lighting segment remains very broad based across all the segments that we serve. Interestingly enough, we're only down a few points in terms of lighting. And remember, even lighting is impacted by the slowdown in grocery so I think it goes to underline some of the -- underlying growth opportunities there had we not had this gap created by grocery. And in terms of -- what was the second question? I'm sorry.

Lengthening of the --

Oh, the lengthening of the --

Yeah, just kind of the order conversion period. Just gating factors or what's going on there?

Yeah, I mean, I think that we've been pointing it out for the better part of the year. We have a trend analysis that we do relative to incoming quotes from the time it takes from initial quote activity to order, and we track that, and that gives us our cycle, how long that quote or order conversion ratio takes. And we just noted that if it continues to stay at an extended length and over certain periods of time, particularly in the beginning here of this year, we noticed it and even added a couple more days to it. It doesn't indicate anything, as though we're losing business or anything just that the time from initial inquiry to the time to close continues to lengthen. And I would say that it's only days and then it's normalized now coming back to that extended period that we've had for the last couple quarters, but it's just another observation that it's lumpy.

Right. Okay, thanks. And then, also good to see mention of the recent program awards in C-store and QSR. Any newer large awards to note there, and I know you've had some pilots for refrigerated and C-stores and broader pilots in QSR. Can you just give an update on how those have been going and if those are turning to program awards here in the near term?

Yeah. So from last quarter, we did have a couple of notable wins that we mentioned last quarter in those -- those are projects that are going to take us years to kind of work through. So big project wins there. I can't say that there was anything notable in this quarter, although I will say much as you just pointed out, we have a number of test locations. We have a number of test products. Everything from our R290 and refrigerated products right through some of our graphics and lighting products. So we have a number of systems out there that are in test and reconfiguration, but no notable big wins this quarter that I can underline.

Our next question comes from the line of Sameer Joshi with H.C. Wainwright.

Hey. Good morning, Jim. and Jim. Thanks for taking my questions. On the EMI integration, you might have a lower EBITDA margin, so should we look at this and improving because of leverage and just higher sales? Or do you expect to incorporate any like cost synergies, resources, element -- common resources eliminations?

Hi. Sameer. Thanks for calling and thanks for the question. I think the answer is all of the above. We -- you have the -- most of the folks on this call have been following us long enough to know that we're fairly disciplined operators and we see a lot of opportunity to go in there, not just on the cost synergy sides, not just on the operational improvement side, not just on the commercial side, but a combination of all of those aspects we believe are going to create opportunities for us. They are, as they sit right now, a lower margin performing business. But we anticipate, within 12 to 24 months, we'll have made significant improvement on the working collaboratively with them to find ways and making them more efficient, everything from purchasing synergies to just operational and back-of-house synergies and then obviously, commercial momentum that we hope to create. And I would underline that would saying that anything that we deal with from a commercial product standpoint, it doesn't happen in weeks or months. It usually takes a quarter, sometimes a year, sometimes a year and a half on these large project wins. So I'm sure that we'll have some individual wins of the EMI/LSI combination, but I would expect the big wins to kick in 6, 9, 12, 18 months down the road.

Understood. And just a quick follow-up on that. Are there possible technological synergies? I think you mentioned the EMI/JSI cooperation on R290 solution. Are there more such technological synergies possible?

Absolutely. And I'll just touch on that one you just mentioned just a little bit more. Both EMI and JSI offer refrigerated. They're not the same. They don't compete against each other necessarily, but the technology, the underlying technology, compressor technology, that type of thing, refrigerant that they choose. All of those are common. We believe that EMI will benefit significantly from LSI's -- from JSI's infrastructure in terms of testing and development. And we are definitely looking forward to exploiting that. They do not -- EMI does not currently have an R290 solutions. So we'll be looking to work to introduce that. Again, it could take it's three, six, nine months for us to get to a product that has that in there. But all opportunities we see in front of us.

And then just switching just a little bit to the grocery merger that is in the works. I think there was recently submitted a big, updated divestiture plan, which calls for around 600 stores to be sold from this combined company, if it happens. Does that present you with additional upside from just like restarting the process? And then new branding and new signage for these 600 stores?

Yeah. Well, I mean, we believe that those almost 600 stores will need to be rebranded completely, entirely, because they'll be coming from their legacy brand to an entirely new brand. So those would be new store opportunities. And we do believe that the other stores, depending on how the merger plays out and what the plans are from the principles, that all of those stores will still offer opportunities in terms of co-branding, re-branding, reformats, that type of thing with the two brands melded together. So you've got a completely new store opportunity, which would be 600 -- around 600 stores minimum. You've got the combined re-branding between the combination of the other two principles, and then you've got just kind of general updates to the stores that have been a little lagging as they've been working their way through this. And then lastly, the last component I would add to this is the other competitors are sitting on the sidelines determining -- trying to figure out who they're going to be competing against. Are they going to be competing against a store that's going to be that's going to maintain its existing brand. Is it going to be rebranded as a part of one of the two stores or is it going to be sold off. And we think that that piece of business is going to be a boom too and a significant benefit to us. So we are looking at three bites -- potentially three bites of the apple, depending on how things shake out.

And our next question comes from the line of Leanne Hayden with Canaccord Genuity.

Morning, everyone. Thanks so much for taking my question and congrats on the progress this quarter. Just to start, are you continuing to see supply and permitting constraints in the marketplace, whether this is from transformers or permits? Or has there been an improvement? Or is this kind of part of a new reality we should come to terms with?

Hi, Leanne. Thanks for joining and thanks for the question. Yeah, I mean, I -- we've been talking about it now for an extended period of time, years about disruptions in supply chain in certain industries. Definitely being at the top of that list, switch gear and electrical supplies still remain unsteady, but I would definitely categorize it as the new reality in the new state of business. I can't say that anything that's impacted our businesses directly because of that, but it does help to explain some of that longer conversion cycle we talked about as customers go to launch a new project and they go and check on the realities of equipment and product delivery and that type of thing. I do think it helps to explain why we have that lengthening quote to conversion ratio. It's just to accommodate all of these extended lead times and some of these products. But I would also underline that I just think it's our new reality, at least for the time being. And I think that over the next few quarters or maybe over the next few years, that will just continue to come down as we work our way to pre-2020 reality or normality in terms of delivery and that type of thing.

Got it. Okay, that makes sense. And then just a second one for me. You have a lot of your own manufacturing facilities and you've acquired several manufacturing facilities. Can you please talk about any sort of wage inflation that could impact your financials going forward?

I don't -- there isn't anything of note to speak of in terms of wage inflation. We have always been an employee first type company. We try to make sure that our starting wages and the wages we offer to our manufacturing employees in particular are competitive and are compelling enough for those folks to stay with us. I think that we have been on that path even prior to the inflationary period in wages that happened post COVID. So for us, I don't think there's any significant threat or any significant changes that we think we're going to have to accommodate. We've always tried to work it towards -- like I said, kind of employee friendly. And you know, the labor is not an exceedingly large part of our product cost. It's a component of it, but it's not the overwhelming component.

Thank you. And we have reached the end of the question-and-answer session. I'll now turn the call back over to President and CEO, Jim Clark, for closing remarks.

Hi. I just wanted to say thank you again for taking the time to dial in and continue to learn a little bit more about LSI. We're very excited about the addition of EMI onto the team, we're just beginning that process. We do have our normal integration team working to bring EMI into the fold. I don't think that you can expect to see anything happen overnight in terms of the synergies, we think that we have there, but we do believe we have a good path forward and a lot to capture. We believe both companies will benefit significantly. And more importantly, our customers will benefit. We are have circled around the idea of a one-stop shop in specializing in certain verticals, and EMI allows us to continue to expand that value to our customers and we look forward to the benefit we're able to offer to our shareholders and our customers alike. So with that, I'll just say thank you for calling in, and I'll look forward to speaking to you on our next call. Take care.