Greetings. Welcome to the LSI Industries Fiscal Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded..

I will now turn the conference over to your host, Jim Galeese, CFO. You may begin. .

Good morning, everyone, and thank you for joining. We issued a press release before the market opened this morning, detailing our fiscal second quarter results. In conjunction with this release, we also posted a conference call presentation in the Investor Relations portion of our corporate website at www.lsicorp.com..

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. A complete reconciliation of second quarter 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 as well as our most recent 10-K and 10-Q..

Today's call will begin with remarks summarizing our fiscal second quarter results. At the conclusion of these prepared remarks, we will open the line for questions..

With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark. .

Thank you, Jim. Good morning all and Happy New Year. I'm proud to say that folks at LSI are starting the year off right. Halfway through our fiscal year, we have achieved 2 consecutive quarters of growth and revenues above $100 million, each of the last 2 quarters..

Total sales for Q2 are $111 million, up 45% year-over-year. Organic sales are up almost 20%. Lighting sales are up 27%. Display Solutions with JSI are up 72% year-over-year. And adjusted net income and adjusted EBITDA are up over 65% year-over-year. Simply put, we're coming off a strong second quarter and a great first half..

So what's driving this performance? It's more than a pandemic recovery bump. It's momentum and a fundamental shift in the way we do business. I've mentioned before that LSI had to build a better business before we could build the bigger business.

I'm happy to say that we've done just that and then you can start to see the progress we're making on building that bigger business..

As a reminder, we sat down 3 years ago and started this transformation. The first thing we did was change the way we manufactured our products, designed our products and sourced our components.

We recognize that we had a number of inefficiencies in our manufacturing process, and we implemented lean programs and operational improvements, looking for ways to streamline our manufacturing process, while we are improving our on-time delivery, quality, customer satisfaction and overall margin profile..

From a design perspective, we've introduced 20-plus new or reengineered products each year over the last 3 years. We have looked to lead our market in innovation, product performance and cost profiles.

LSI's engineering team across our Lighting and Display Solutions group, along with our product marketing group, have laid the groundwork for growth not only through technical improvements, but also in the way we design our products for manufacturing and the way which we design them for installation.

Finding ways to simplify and reduce on-site installation costs pays dividends for our customers and creates loyalties with the folks that install our products..

Lastly, we reengineered our sourcing program. We reduced our concentration and exposure to the Far East. We developed backup sourcing partners as well as backup components that were prequalified and ready to go if we experienced supply chain disruption.

We concentrated on reshoring our sources, reducing our exposure to ocean freight and time in transit. The best part of all, we did this all before COVID hit. We were ready when we needed it, and we have benefited greatly because of it..

The next thing we focused on was our sales and marketing efforts. As most of you know, we have multiple channels to market from agents and reps to distribution and direct.

Our focus over the last few years has been to narrow the markets we serve and offer solutions that best fit our capabilities and thereby giving us the greatest chance of differentiating ourselves and winning high-value opportunities.

We put a lot of time and effort into identifying and increasing our visibility in key vertical markets we serve and enhance that differentiation..

The JSI acquisition is an example of that vertical market strategy, where we expand our offering in the grocery vertical, and now we have a solution that offers a bigger basket of products and services for our grocery customers.

This vertical market expertise reduces our cost of sales, reduces the cost of installation and improves our differentiation, making it harder for competitors to compete. Simply put, we create continuity in our solution that benefits our customers and our company..

Speaking of JSI, we just recently announced an 800-store 2,500-unit refrigerated project with one of the country's largest grocery store chains. I'm happy to say that JSI has performed above plan since the close of the acquisition back in May, and we anticipate that sales will be double digit for both the fiscal and calendar year of 2022..

Later this week, we'll be holding our first in-person sales meeting in 2 years. We are taking extensive precautions to ensure a safe working environment and feel confident that we can manage this meeting safely and effectively.

Our focus is around increasing sales in the key vertical markets we serve, the stand-alone value of each of our solutions and the added value of combining multiple products and services from LSI to compete on an entirely different level..

We have designed a training program that is a culmination of months of homework and seminars around new business development and prospecting.

We want to continue to add value to our agents and partners, our direct business and our national accounts group and improve our overall sales effectiveness with actionable opportunities while increasing our contact with end use customers..

In addition to our sales training, we'll have a number of breakout sessions covering technical training, solution selling along with price and margin management. This is a well-designed program. We put a lot of time into it, and we're excited to see months of training reach a real inflection point..

In late February, we'll host our second virtual sales conference specifically oriented to our agents and our partners. This program was noted as one of our most successful programs in our space last year.

The feedback we heard from our partners and our customers underlying the format, the sessions and the training we provided were well received, created real value and far above those programs in our space -- those other programs in our space.

We've taken the feedback from the first program, and we're truly excited about the next evolution of this type of conference..

All of these efforts have put LSI in a great spot to compete now and into the future. We are confident we are taking share in our space, both Lighting and Display Solutions, because our customers are telling us. Delays, missed shipments, excessive lead times from other suppliers has created a real opportunity for LSI.

We've capitalized on it and we plan to hold on to that advantage..

Last Friday, we had our single biggest order volume day in Lighting in more than 4 years. Although I love big program orders, these were actually a collection of regular project orders, kind of our day-to-day flow that added up to almost 3x our normal daily order rate on top of an already strong week and a strong month..

In the end, this successive momentum is all about culture and a desire to serve our customers with the best possible customer service, products and solutions we can deliver. We're making real progress, and I think we have a long ways to go with a lot of opportunity ahead of us..

With that said, I'll turn the call back over to Jim Galeese for a deeper look at our financials.

Jim?.

Thank you, Jim. I'll start with a few comments on the operating environment. We entered fiscal Q2 with improving momentum, a positive Q1 book-to-bill ratio, increased backlog and positive leading indicators for the nonresidential construction market. This provided the conditions for a potential solid second quarter..

But successful execution required managing through several ongoing obstacles, one being reoccurring supply chain challenges. We continued to take proactive actions in Q2 to ensure ongoing product availability, including the investment in additional component and select finished product inventory..

Various disruptions continued to impact construction installation in Q2, causing site schedule changes and, as a result, fluctuating demand requirements from our customers. Our countermeasures provided the flexibility to quickly respond to these requirements and capitalize on short lead time market opportunities throughout the quarter.

In summary, our inventory build and U.S.-based manufacturing was an important factor in achieving sales of $111 million for the quarter..

A second obstacle was the widening impact of inflation. We continued to adjust selling price throughout the quarter, aligning with ongoing increases to input costs and services such as freight. In Lighting, depending on the product group, we've had 5 to 6 price increases since March 2021..

Moving to key financial statistics for the second quarter. Sales increased 45% over prior year, including the incremental impact of the JSI acquisition. Excluding the JSI acquisition, comparable growth was 19%, with both reportable segments generating sales growth..

Net income was $3.1 million for the quarter. And adjusted net income was $4.2 million, an increase of 67% from last year. Earnings per diluted share were $0.11. And adjusted earnings per share were $0.15 compared to adjusted EPS of $0.09 last year.

Adjusted EBITDA increased to $8.4 million from $5.1 million last year, with the adjusted EBITDA margin expanding 90 basis points to 7.6%..

Shifting to segment performance, the Lighting segment produced a strong quarter, with sales increasing 27% above prior year, generating operating income, which more than doubled last year.

Sales growth was again widespread across multiple market verticals, including petroleum, as today's press release highlighted the short lead time challenge presented by one of our petrol customers on a large order..

Our component availability and U.S. manufacturing allowed us to successfully fulfill that order as well as other time-sensitive opportunities. Both our project business and sales to distributor stock increased over 25%, reflecting the level of market activity and impact of our commercial initiatives..

Lighting gross margin rate finished just below 30% for the quarter, reflecting the success and aligning selling prices with cost. Price realization for the quarter averaged approximately 11% and differed across product groups. Lighting exits Q2 with positive momentum.

The book-to-bill ratio was again above 1 in a period where historical seasonality has orders trending measurably below shipment levels. New products continue to gain market acceptance, and the Lighting backlog is approximately 30% above prior year..

Second quarter sales for our Display Solutions segment increased 72% versus prior year, with comparable growth of 7%. Operating income for Display Solutions increased to $4 million or 7.4% of sales, building on a strong prior year quarter. The JSI acquisition continues to achieve expectations.

Sales were $21 million for the quarter, above internal projections, given grocery chains typically pause renovation activity for the heavy holiday shopping season. The book-to-bill rate was significantly above 1, including the significant order referenced in our press release last week..

The JSI team also navigated supply chain challenges. A supplier of critical fabricated parts for display cases more than tripled their lead time.

As a countermeasure, manufacturing team members from JSI and LSI Lighting collaborated and accelerated an acquisition synergy, transferring production of these display case parts in-house to the lighting fabrication center. This enabled JSI to hold customer lead times when some competitors are significantly expanding promise dates to customers.

JSI enters Q3 with a record backlog..

Petroleum graphics sales increased sequentially from Q1, but finished below a very strong prior year quarter. Our petroleum customers continued to incur site scheduling complications, driven by non-LSI supply challenges.

Pricing for all major Display Solution programs have all been fully implemented as we exit the second quarter, positioning the business for margin expansion moving forward. New program proposal activity remains very active in all major Display Solution market verticals..

Moving to capital allocation. Our regular cash dividend of $0.05 per share was declared payable February 15 for shareholders of record on February 7. Working capital increased in fiscal Q2, driven by the investment in additional inventory and continued sales growth, resulting in a $9 million use of cash in the quarter.

We continue to prioritize near-term actions required to support our growth strategy, including temporary supplemental investments, which ensure product availability..

I will now turn the call back to the moderator. .

[Operator Instructions] Our first question comes from the line of Craig Irwin with ROTH Capital Partners. .

First, I should say congratulations. This is a very strong quarter and continued momentum on the turnaround. You guys have done a really good job. I wanted to start off by asking about your $17 million order that you included in the press release.

Can you maybe give us a little bit more color on what kind of customer this is? What are the specific products that they're taking? And how this fertilizers activity sort of across the JSI and LSI teams? Is there a greater mix on one side or the other? And is there a potential opportunity to pull additional orders over the next series of quarters?.

Jim Clark here. Thank you for getting on the call, and thanks for the comments. We are really excited about the quarter. We just came off of, and particularly when we combine it with the first quarter, these are the first quarters in the company's history of over $100 million in revenue in a quarter, and it's pretty exciting stuff..

As I mentioned, earlier this week, we had one of our highest order rates in Lighting that we've had since I've been here. And it was a combination of a lot of smaller orders. But the order you were referencing to was a $17 million order, 800 store locations, 2,500 units. And it's for one of the top 3 grocery chains in the United States.

And I wish we could reference them, but we can't. But it's for one of the top 3. And this is a customer that we have done business with, and we continue to do business with on a regular basis..

They had this order out in front of one of the giants in the refrigerated freezer display case industry. And they simply were not able to deliver this order. In fact, their lead times were in excess of 46 weeks. This order came to us and it was a lot of hard work on the part of our team to get this type of volume order.

I think that the original hesitation around this customer's position was around our ability to deliver this kind of quantity..

We've already started shipping some of this. We will -- this order will be completely shipped and [ billed ] in the second half year, in our second half, with the majority of it going out in Q3. A really exciting win. Technically, we were the lead guys.

I think that this customer has a connection with their suppliers where they choose a supplier and they don't deviate a lot unless there's a significant circumstance. And this created an opportunity for us.

We won and we are hopeful that this is the groundwork for what will become a position for us to be a primary and first choice supplier going forward because this only represents a small piece of what we could do overall. .

And Craig, I think this investment by this customer reflects the ongoing investment in the grocery market vertical overall. It's been strong the last 18 months or so, but our large grocery customer continue to see opportunities to invest in their in-store merchandising displays, and we plan on being a big part of that. .

Now, last thing I'll say on that, just to finish your question, Craig. First of all, Jim mentioned it in his comments earlier, we were able to get there by using some of our metal fabrication facility in-house.

So when we look at the operational back-of-house synergies, everything from our electronics manufacturing, wire harnesses and such from our electronics manufacturing group over to our displays, over to our metal fab, and then additionally, our Display Solutions group, which can help with the aesthetics, the signage, the graphics that are on the projects, it's really a good fit.

JSI has really proved to be a good fit for us in the back end..

On the front end, on the commercial side, the introductions have started. We anticipate these are, typically the things that we would talk about that are meaningful, are large project runs. They're not a single store. Those aren't really the things that we highlight on our calls or our press releases.

So we anticipate coming off of a win like this and what we're very confident will deliver to the customers' expectations or better..

This creates a lot of groundwork for us. And we've already started having discussions with a number of customers about cross-selling opportunities. But we fully anticipate that these larger projects, they have a development cycle that's measured in 6, 9, 1 periods, not in 4-, 6-week period. So we're very excited about that.

Work that has started, too, in the seat at the table that we've gotten for a number of different potential opportunities, and we're confident that they will develop well, but they're further down the road for us. .

Understood. So as a follow-up to that answer, can you maybe comment about whether or not you have product already installed at the other 2 of the top 3 grocers nationally? And then you said 36 weeks for the competitor. I assume you're a tiny fraction of that, but can you give us an approximate lead time.

I'm guessing it's less than 10 weeks, given that you already started shipping. .

Yes. So it was 46 weeks, 4-6. .

That's awful. .

And so -- and I think the risk for the customer was that -- first of all, this order is not going out all at once. We're not shipping 2,500, units 1 day. So our delivery time -- as I said, our delivery time, we will complete this project far before the competitor would have delivered their first unit.

We anticipate that more than half of this order will ship out in the last week of January here. Through February and March, we'll be slightly over halfway in terms of what we deliver and will be fully delivered well before the end of our fiscal year in June 30..

I think that the big thing for the customer was the risk of going 46 weeks and seeing that push even further and the lost revenue opportunity and their program opportunity associated with this.

Now, the competitor is -- their focus is really on the big freezer case, the larger type projects, the larger type components in the store, which is an area we don't compete and we don't have any plans to get into..

Ours is a display, refrigerator and stand-alone displays that are typically found in the front of the store, in the produce, vegetable, fruit, in those type of areas. And we have products that extend into the center of the store, too. But we think that our competitor walked away from that because it's just not a priority to them.

It's not their day-to-day business. And although they came up with something that is a product that suits the customers' needs, our product is just that much better. We're that much more differentiated. And I think it bodes well to us for a long time..

And in terms of the other grocery stores, the answer is yes to -- not to this one. We've had very little impact in this one. We've had small orders over years, mostly infill. When a competitor -- when another supplier wasn't able to fully fulfill the order, but we never really gotten traction that we're anticipating now..

And as far as the other 2 large grocers, the answer is yes. We've done business with them. In one particular case, we're the lead, meaning the Lighting group and the Graphics group is the lead, and JSI is playing a little bit of -- it will be an opportunity for them.

And then in the other, JSI is in the lead and it will be a bigger opportunity for our Graphics and Lighting group. And we're talking about the top 3, by the way. That list extends 15 deep. .

That's really good to hear. That's really good to hear. So my next question is about core LSI. So it's crystal clear. Things are going exceptionally well with your acquisition of JSI. The organic growth of 7% was really nice. That's kind of to the high end of the range over the last number of years.

Can you talk a little bit about what's working in there? Is there a specific product group or customer set? I assume some of that's sort of quick serve and petroleum.

But were there maybe other areas that were contributing to the strength?.

Yes. I mean our organic growth for the quarter was around 19%, and it was chiefly driven by Lighting in this particular quarter. We have sat down a long time ago with our sales team. I want to back up a year ago.

We took the opportunity with our sales team when there was downtime, where they were not able to get in front of their customers and there was a big cone of uncertainty about what to do and a lot of our customers and a lot of -- every industry was kind of at home..

Our sales leadership team pivoted really quickly and decided to use that time as sales training. And we sat down -- we got our guys together because they were remote. They were -- they had time on their hands, and we put it into sales training. And there were a couple of things that we set out to do.

One was increase value to our agents and partners by creating more actionable opportunities for them..

Two was getting closer to the real market demand. What was a lost project or a gap in the product portfolio versus what's really in front of us and what's a good -- what areas do we really want to target and introduce new products to.

And then lastly, how do we want to combine those 2 so that we make sure we're getting good feedback from the market, we're prioritizing everything, but we're also adding value to the market by being out in front of there..

So that information that came back helped us really drive our prioritization on our product development. And it wasn't really just one product, so to speak. We've reengineered a number of products. We expanded some product lines.

We actually reduced our investment in some, knowing that this was -- these were higher demand, this was where the market was going. And those decisions really kind of are bearing fruit now for us..

The other thing that we said is we anticipated that in the state we're in right now today in January, it was going to be more about availability than about price.

And you saw, over the last few quarters, we've talked extensively -- our -- money is cheap for us right now, but parts and inventory are hard to come by, unsteady supply chains, missed orders from our suppliers, things like that..

So we started building inventory to be able to respond to that customer demand. We started communicating to our customers that, "Hey, look, we have the products available and they're in the sectors. They're current. They're the areas where the biggest demand is.

And give us a call." And all that work that we've done has really started to pay off dividends over these last 2 quarters..

And again, I mean, I don't know how to express it, but I honestly couldn't be happier. I mean we're really thrilled, and we've got big smiles on our face, and we're ready to go out and win again and again and again. .

Last question, if I may. Another area that I was positively surprised, right, was the gross margins. Last quarter, you were pretty clear about putting through pricing actions, but meeting your commitments you had already made to customers, given that most of these are long-term customers. And you're committed to the success of all parties..

Can you maybe talk a little bit about what went right on the margin side and how you feel about margin expansion sequentially? You did express optimism, but can you maybe give us a little bit more color on anything other than pricing actions that help you into the March and June quarters?.

Yes. So I'll stay away from the pricing action because like you said, we put together the programs early on and we did execute against them. But I would like to comment that we had a lot of support from our partners.

We communicated that the whole concept of rising input material costs are -- it's not a matter of what we want to do or what we wish we could do. Listen, if raw materials go up 45%, we can't absorb that cost.

So be ready for it to understand that we're not being predatory on pricing or anything, but we can work best together as partners by being ready..

Then what our shift was, was about availability and our say-do ratio on saying, hey, listen, if we commit to the order, we're going to commit to the price and we're going to commit to the delivery. And we're going to be looking ahead and working with you to talk about things that could potentially impact your order.

So shipping, as an example, is a huge variable for us..

And if we sit there and we get the product out the door on time, you have to understand that there's a risk in shipping going out to you.

Do we want to work together early on to find ways of working around that? Or are you comfortable with any of the variability in that? Or do you want to order early? And all those conversations took place, and I think it really reflected well.

It matured our position with a number of our suppliers -- I mean a number of our customers, knowing that we're thinking about that, not from just the order standpoint, but all the way until it gets to them..

The new products that we talked about were very well accepted. And these are things that have a lot of runway in front of them. Our warehouse product line has an entry point and a performance point, depending on what you want to do, what the customer wants to do. We have our recommendations, but we also have what we feel some people may want.

And then our new Opulence product line has really outpaced our expectations. That has been very good..

Now I want to flip for a minute to our Display Solutions group. JSI, we just talked about. They were really exposed by a supplier who tripled their lead time on a key component. It wouldn't have put us in a 46-week lead time, but it would have put us out maybe half of the current delivery time that we have right now.

In other words, it would have been twice as long. That was really an opportunity for us and that one pivoted..

On our petroleum graphics and such, a real upside is Mexico has really turned back on for us. But the U.S. has been really battling kind of everything from permitting issues to on-site labor. And interestingly enough, there's a supply -- there's a couple of key elements in the supply chain made by a Fortune 100 company right here based in the U.S.

that's just really having a hard time with an aluminum-based component that we use. And as you guys know, steel and aluminum were kind of on a tear there for quite some time, both allocation in terms of availability and just massive price swings..

We have alternative products that we can use. There are some trade-offs in terms of durability and sometimes the -- it really turns out to be longevity, the inks and those type of things don't tend to stick to them as well. There's a trade-off. And for our customers to pivot to those other materials sometimes takes time.

And so we battled through some of that in our Display Solutions group with some of our traditional graphics materials. But beyond that, I mean, I think it was just execution on all those other things we talked about that really put us in this position to win. .

Great. Well, congratulations on this really strong performance. I'll go ahead and hop back in the queue. .

Next question comes from the line of Jed Dorsheimer with Canaccord. .

Congrats on the quarter. I guess, first, you've touched on it in the previous answers or responses to Craig's questions. But first off, congratulations on setting up the supply chains to be able to deliver. I mean it sounds trivial to many, but it's -- I know how hard that is and how important.

And so I guess my question is then, as you look at the growth this quarter, in the Lighting business in particular, how much of that do you feel was share gain by being able to meet the delivery times and meet the needs of your customers versus secular growth in the different segments?.

Yes. That's a great question, Jed. Thank you for getting on the call. I'm going to share my opinion. I don't -- unfortunately, I don't have the data to kind of underline it or back it up, but I'll say a couple of things. The comment about we know we're taking share, and we know that because our customers are telling us.

We just got an order from one of the top 2 freight companies. It came in yesterday, and it came in with a March delivery. And it's interesting to me because the primary on that is not able to make a delivery within that time frame..

And when the sales team was interfacing with the operations team, we were fully prepared for them to ask for February 15 or something. When they said March 25, I think, was the date they needed it, we were shocked. So I think it says a lot to a couple of things. One, a few years ago, we narrowed our scope on our products.

We purposely set out and said, listen, here's the vertical markets we serve best. We do not have a catalog that's 2 inches thick, 4 inches thick. We have a catalog that's very specific. We play very well outdoors. We do very well in area lighting, parking lighting, all that type of stuff. We do very well in warehousing. We do very well here..

And because of that, we have a product set that aligns with those vertical markets.

And I think that what we're benefiting the most from is when we have a customer that has got another supplier or whatever and they're not able to deliver within that category and they recognize that LSI is, they're making a connection between the vertical markets we said we were committed to and a possibility of us having inventory..

And those are the orders that we've seen the most of. And we -- and by the way, I'll tell you right up front, we will not put a primary customer in front of a new customer. In other words, our commitment is to our agents and partners that have been with us for a long time, and we've been able to add those orders on top of that.

I think from a market perspective, I think the market is generally flattish to up high single digits. I don't think that the market in Lighting has really taken off. I think it's steady..

Our growth outside of that steady growth, let's say, 8%, 9%, I'm sure there'll be people that argue that it's maybe 10% or 12% or whatever it is. I think that our growth is a lot of these programs we put in place before.

It's a good customer service being able to respond quickly and having the tools that allow our partners to understand the inventory we've got and the options that they have..

I think it's that focus on the vertical markets, which is so key to us. We're not trying to be everything to everybody. We're trying to be really great at the things we do. And then really it's that market share that we've been able to take. And I think we're going to be able to hold on to a lot of it.

I do not look at this as just a temporary or a pandemic bump. .

Yes. So true. I mean my experience with -- certainly in the agency is I knew of an agent that missed a major project in the city, I won't say which one. And they never ordered from that company again. So being able to deliver -- that's why I said, it sounds trivial, but it really has a huge lasting impact. So it sounds like you've done a nice job there..

Maybe just as a follow-up, could you touch on health of the channel in terms of inventory levels? It sounds, from your commentary, that they might be pretty lean. But I'm just curious if you could give an update there. .

Yes. I think, again, this is generally an opinion. But I think that the supply of available supply is okay. It's being able to respond in the lead times that when a supplier doesn't step up, who can step up. And that's where I think you're seeing some continued weakness.

Whereas if we were to go back 2 years ago, there have been 3 or 4 people that may have been able to backfill an order from a shipment problem or a delivery problem. Today, I think there's only a handful that have the flex in the supply chain. I mean the inventory that's out in the field isn't going to be able to do that.

So I think it's flat, but it's at a lower level than it has traditionally been. .

Got it. I'll jump back in the queue. Congratulations. Great to see things panning out for you guys. .

[Operator Instructions] Our next question comes from the line of Amit Dayal with H.C. Wainwright. .

Congrats on the quarter, really good numbers. In terms of how we should think about margins going forward, I know you touched on it a little bit.

With the product mix now shifting almost 50-50 between Lighting and Display and the price that you have implemented, should we look for margin improvements from this point from the Lighting side a little bit more? Any color on how we should sort of be thinking about this aspect of the business from a modeling perspective?.

Yes, Amit, Jim Clark again. Thank you for joining. Good to hear you. So it's complicated. We have great -- we have goals that are above our current margin profile. And we've had those way before COVID hit or any of that. We've been in process and had programs around pricing discipline and price awareness and everything to get those margins up.

And you've seen that over the last 3 years, there's been a steady improvement. So we do have opportunity in front of us, and we do have a focus on it, and we do have the discipline to do it..

At the same time, we are not being predatory or overly opportunistic. In other words, our value, as a partner, has to extend beyond just having the product at whatever price that we want to put it out. So we are very mindful of that. And then the third component of that is our efforts around managing the supply chain have been beyond my expectations.

The team that we have here has really done a good job. And I've got to tell you, publicly, I'll just say thanks to all of them, the entire operations team. But it's a day-to-day hand-to-hand combat..

And that can -- that still has a lot of disruption to us. And we have made a commitment to our customers, when they put an order in, we -- that order is firm, and we hold that price. We have been very diligent on staying to our commitments of delivering on time..

And the variable in there is if something disrupts the supply chain beyond our ability to respond to it, we feel as though we have an obligation to do our best to meet the requirements that we -- the commitments that we had to our customers. And sometimes, that comes at our expense.

We -- if we got crazy, we would certainly go back and have a conversation. But if it's something that we can absorb to maintain our commitment and our customer service level, then we're going to do it. And that's the variability that we still work on in terms of margins. So you can still see some flux in margin that are impacted by those things..

But our long-term goal is our continued improvement in margin, and we do believe that we have the runway to get there because we're doing the right things, reducing our cost to serve, reducing our cost to manufacture, getting the commitments from the customers across the board on pricing..

So we think we have room to grow. We're sensitive to the fact that short term, meaning through the remainder of this -- of the COVID uncertainty, which for the most part we think will remain for the rest of this calendar year. There can be some things that disrupt our margin momentum. But the programs are in place to get margin. .

Understood.

The price hikes, have they all been implemented? And was this just done in the Lighting segment? Or did Display segment also see some price hikes? Take, please?.

Yes. All the -- the majority of our price increases are -- have all been passed on. In fact, there's no price increase that I'm aware of right now that's pending any acceptance or anything like that. And we put programs in place to really shorten the price adjustment cycles, if you will. Because we're -- in our supply chain, we're hit by those pricings.

Even though we've built inventory, we can be hit pretty quickly. Our suppliers have eliminated a lot of price notice periods and things like that..

So I think our customers and our suppliers and their -- and our customers' customers understand that. So our ability to affect price when we -- it's impacted is much shorter than it was..

Now I would like to point out one thing. Our smaller projects, our singular projects or small group or small project projects, if you will, we are able to manage price pretty much real time. There's some notice period and things like that.

Our longer projects, when we talk about a display project with a major petroleum manufacturer, those are typically talked about in terms of 2- and 3-year project cycles..

And so when materials go up, we really need to sit down with the customer and say, okay, look if material pricing has gone up quite a bit. And we need to talk with that customer. We've had some customers that have decided, look, we're going to absorb the material pricing increase, but we're going to reduce the number of stores we roll this out at.

We're going to extend the project. And so where we had asked you to do 200 stores in a year, we're going to ask you to do 150 this year, and then we'll roll it forward into next year. And so that's one conversation..

Another conversation, and I brought it up a minute ago, was we have one key element that we use in a lot of our display solutions for exterior signage and graphics. It's manufactured by a top 100 company here in the U.S. It's an aluminum product, and it's really had a lot of pressure on it.

We've sat down with some customers that have said, you know what, we want to stick with that product and we'll accept whatever delays. We've had other customers who said, bring us an alternative product. And there's trade-offs..

And some of them are going forward with that. Some of them are asking us to delay. Some of them are asking us to shift dollars. It would have gone to a higher volume, just ship them into offsetting the cost increase.

So on those larger projects, where it's a daily discussion and where -- and our customer base is all over the map, how they're dealing with that..

But I will say this, we have not heard about any customer anticipating canceling any projects. They -- these image-related products -- projects usually entail starting on the -- I just use this as a metaphor, but starting on the East Coast and moving across to the West. They're not going to get halfway through it and say, you know what, we're out.

But they might say, hey, slow down because we don't have the funds this year. We'll still consume the same amount of funds, but we're going to do less stores..

Or we have some that say, use another product that keeps us on track and we're going to trade off maybe some of the longevity on that or we have others that are saying, hey, look, we'll accept the price increase, but you've got to stick to the 90-day notice period. We're through all of those things. We've reduced those things.

So we're very hopeful that we've solved that problem on that side. .

Okay. Understood.

And then the cadence for revenues for the remainder of the fiscal year, can we expect sequential improvements, given the momentum you have and your ability -- or the way you've managed your supply chain and inventory, et cetera? How should we think about the remaining 2 quarters of the year compared to sort of how you've done in the first half of the fiscal year?.

We believe we have the competitive advantage that is being noticed in the field. But historically, Q3 is always our weakest quarter.

And if you underline what I talked about in the beginning of the call, we've really created discipline in the organization to understand, both from our customers and our company itself, that we serve a certain segment of the market. And a big piece of that lighting market is outdoor lighting. We have a very robust indoor product line, by the way.

I want to put that on the table..

Because I'll tell you that every time I talk about outdoor lighting, I have more of my partners and agents call up than I do investors and say, what about indoor. We have a very robust indoor product line. That's not going anywhere, continue to invest in it. But our real lead is outdoor, warehouse, parking, area lighting, that type of thing.

And it has a seasonality to it. Amit, I'm not sure where you are right now, but it's about 6 degrees here right now. So we're not getting a lot of outdoor construction activity, and that usually happens in the third quarter..

So we expect that the demand will remain. We expect that we'll continue to have opportunities around share. But we'll also, quarter-to-quarter, understand that the third quarter is typically the one that's most impacted by seasonality. .

And we have reached the end of the question-and-answer session. And I'll now turn the call back over to management for closing remarks. .

I think we touched on a lot of things here today. I don't know if there's a lot of -- more comments I can say, except to leave you with this, that we feel very confident about our ability to grow this company, not just over the next couple of quarters, but over a long term, years. We have a good strategic plan in front of us.

We made a commitment 2 years back, we'll be a $500 million company and double-digit EBITDA in 2025..

I think everything that we've done consistently through that time indicates it will -- not only will we meet that goal, but we will very likely beat that goal handsomely. And we're already -- we've already got expectations and goals set in front of us that will bring us beyond what we have in the short term..

We mentioned in the call, but I'm very excited that we have a sales meeting that we've got our sales folks in town together. We've taken a lot of precautions. Every single person is testing on-site as they get here, and we have a lot of precautions that allow us to do this..

But we feel like we've gotten a lot of momentum out of the things we've been investing in, in the background, particularly our sales training and our commercial programs. That will pay dividends for us, and I'm really looking forward to what's ahead for us as a company. And I thank everybody on the line and everybody that takes interest in LSI.

We have a great future ahead of us, and I appreciate your contributions and your time. Take care. .

And this concludes today's conference, and you may disconnect your line at this time..