LSI Industries Inc.

Greetings and welcome to the LSI Industries Fiscal First Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Galeese, Chief Financial Officer. Thank you, sir. You may begin.

Good morning, everyone. We issued a press release before the market opened this morning detailing our fiscal first quarter results. In conjunction with the release, we also posted a conference call presentation in the investor relations portion of our corporate website at www.lsi-industries.com. Information contained in this presentation will be referenced throughout today's conference calls. I would like to remind you that management's commentary and the 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 first 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 Jim Clark.

Jim, thank you. Good morning, everyone. This week marks my one-year anniversary with LSI. As I look back, I can see the effects of the changes we've made throughout the last year, and I'm encouraged that there is a cultural shift occurring and steady progress is being made. This quarter demonstrates to our employees, our agents, our partners and customers, and investors that LSI's best days are ahead of us. Looking at results for Q1 fiscal year 2020, we reported sales of $88.7 million. This represents an increase of 4% over our prior year, but more importantly, these results are a strong indicator that the changes we are making in our sales process and sales organization hold great potential for the future. Continuing with comments on our commercial effort, I'm happy to say we have now filled all our regional sales positions and we are one step closer to filling our head of sales position. As I mentioned in previous calls, we've been working hard to build out our sales team and increase our customer contact over the last year. Simply put, the work around our sales team is bearing fruit. However, we are aware we still have a ways to go. In October, LSI attended the Petroleum Equipment Institute, PEI, and the National Association of Convenience Stores, NACS, annual trade show in Atlanta, Georgia. This is their industry's largest trade show in North America, and the pace of activity is high. I had the opportunity to meet and talk with a number of our petroleum-oriented lighting and graphics customers. We had very constructive and positive conversations, and all indications are that we should continue to see growth in this segment. You may have seen a press release from us last month as we celebrated our 500th petro-oriented install in Mexico. We have good momentum in this segment, and we expect more. While on the road, I also had the opportunity to visit with several of our independent niche-oriented agents. These are folks that are on the front lines of our vertical sales effort, and they openly shared their frustrations, their open projects, and suggestions on what we can do better. There is opportunity here, and we'll be meeting with them again over the next few months to increase the strength of our connection. They present a strong competitive advantage, and we will continue to work closely with them. Also, go back to October, I had the opportunity to visit with one of our larger grocery farmer customers. We have been working with this customer for decades. The project had slowed over the last few years, and work that was available was being split between multiple suppliers. They shared that they're planning some big updates over the next year, and if things stay consistent with the direction of our conversations, we should see a market increase in this segment in calendar year 2020. Actions always speak louder than words, but I felt encouraged coming out of our meeting. Lastly, regarding our commercial effort, I want to mention that we had very positive momentum in our outdoor lighting segment last quarter. We remain and will stay committed to bringing a full lighting solution to our customers including our complete suite of indoor products. But outdoor sales do give us a competitive advantage and differentiate us as a manufacturer. Let me switch and comment on product development and engineering. Last month, we held an off-site meeting focused around innovation. It included members from engineering, marketing, product management, and sales team and was focused on our short, mid, and long-term plans. The goal was to think inside the box. embracing a constrained look at where our greatest opportunities may lie right now. I'm pleased to say it was a very productive meeting, and we added another tool and process to our list of possibilities. The team took a different angle of attack, thinking about everything from performance-based product improvements to skew rationalization, cost-out initiatives, and new products. I'll have more to say about this in the future, but I'm happy to report that were on the front end of a steady stream of innovation, incremental product improvements, and broader solutions, which are tied into specific vertical markets. On the operations front, our team has several continuing initiatives focused on quality, lean processes, and on-time delivery. One of the projects I'm most excited by is a full view study they've been conducting over the last two months, looking at the life cycle of an order from initial quote to order entry scheduling and commitment, parts availability, manufacturing, shipping, and final installation by the customer. This full view is being documented and shared so that it can be studied end-to-end with the goal of increasing and understanding what happens when, who's involved, and how problems can be avoided. We've already discovered a lot, and we are confident that there are several areas of improvement, all within our grasp, and with the goal of providing better customer service, reduced errors and lower costs. A couple of other notes. The closing of the New Windsor location was completed in August and the proceeds were received. I'm happy to say this project, along with good cash flow and balance sheet management, has reduced outstanding net debt by almost 50% in the last year to $21.6 million and our net debt to adjusted EBITDA ratio stands at 1.7%. This is important because it gives us plenty of dry powder and financial flexibility to be opportunistic, and as our overall operation and organizational maturity continues to improve, the scope of what's possible continues to expand. We are continuing our evaluations and of options related to our North Canton facility, but our goal is a footprint reduction of 70% or more. This is an effect of changes in technology and project work produced in North Canton. We simply do not need the space we currently have, and this is a great opportunity to improve our overall operations while reducing costs. I'll have more to share next quarter. Looking forward, the lighting market remains volatile, and I expect those conditions will continue through our fiscal second quarter. I also believe that during this period of transition, LSI remains a proven, stable source for innovation High Performance Lighting and Graphics Solutions with Export, Support, and Service. We still have work to do, but our first quarter results prove that with the right focus, planning, and execution, we can profitably grow our business. With that, I'll turn it back over to Jim Galeese for a deeper look at our financials.