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Operator
Greetings and welcome to LSI Industries' fiscal second quarter 2024 results conference call. At this time, all participants are on 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. I would now like to turn the conference over to your host, Jim Gilles. Thank you. You may begin.
Jim Gilles
Good morning, everyone, and thank you for joining. We issued a press release before the market opened this morning detailing our fiscal 24 second quarter results. In addition to this release, we 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. A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10Q. 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 up the line for questions. With that, I'll turn the call over to LSI President and Chief Executive Officer Jim Clark.
Jim Clark
Thank you, Jim, and good morning, all. Thank you for joining us on today's call. As noted in our press release issued earlier today, LSI continues to perform well and in line with our expectations despite some temporary headwinds in our grocery vertical. In our lighting segment, sales were down 3% for the quarter on prior year sales while gross margin improved meaningfully to 35%. This performance both in sales and margin reflects our continued ability to manage the business and take share, even while we are in a challenging year-over-year comparison and general business environment. Our quote and order activity remains high, up almost 10% from last year, while our conversion rate from quote to sales remains extended but stable. While the broader lighting market and many of our competitors have struggled to maintain top-line momentum, LSI has been successful in finding and creating opportunities for growth, and we remain focused on profitable sales. In our display solution segment, the headwinds in the grocery vertical have had broader impact as they have challenged momentum in our graphics, standalone displays, and refrigerated products. This impact is more apparent when compared to our lighting segment. As we noted a few months back, we were recently awarded a significant win in our display solutions group in the refueling space, with 1,325 sites set to span three years and another award that will include more than 7,000 locations, averaging 700 to 1,000 sites per year. This project will span considerably longer. Our normal flow of business in this space and the overall refueling vertical feels very robust right now. In addition to these recent project wins, we are currently engaged with two major C-Store customers who are multi-site testing our refrigerated product in a number of locations. In fact, a recent article published in last month's Wall Street Journal underlines our thesis of continued growth in this segment, and the solutions approach offered by LSI fits very well. The article is titled, Gas with a Side of Pizza, and it goes to underline the opportunity, the investment, and the higher margin sales that accompany a traditional gas station by engaging in-store sales. We are very experienced and recognized in this space as a high-quality solution provider, and we're confident we will have continued notable wins. Addressing the slowdown in the grocery vertical specifically, I would like to note that two of the largest grocery chains in the US are currently engaged in a proposed merger. This merger has been under an extended federal regulatory review process and has caused a temporary slowdown across the entire grocery vertical as companies within the sector await the results of the review and the possible changes to the competitive landscape. Although it's impossible to see what the future will hold in this space and the timing associated with the approval process, we anticipate that there will be continued growth and pent-up demand as the merger process moves forward. While we are disappointed with the time this process is taking, We believe that whether the merger occurs or fails to move forward, it will likely generate significant opportunity for additional business as the landscape continues to evolve and change. These changes that help our customers engage and retain customers fit very well with the products and services LSI offers, and we will be prepared to serve this market now and into the future. On the new products front, LSI continues to set the bar in new product introductions and innovation. Staying on pace with our 20 plus new product introductions or product revisions each of the last five years, I'm proud to say that our new R290 environmentally sustainable refrigerated product was DOE or Department of Energy certified and UL approved earlier this month and our first article has already shipped to one of our customers. Interest in this product is very high and we anticipate continued growth with these solutions as customers test the effectiveness of R290 in their own store environment. Turning to our lighting segment, we recently introduced two completely new lighting products, including our Linear Outdoor Lighting product and our new Peak Series High Bay Light, which is a modular product that includes a rotatable light engine and lens that can be rotated 180 degrees in fixed 30 degree increments. These products not only expand our broad solution set, but allow our customers and agents to access unique lighting solutions that showcase their properties and their business. Next week, LSI will be hosting our National Sales Conference. This annual meeting provides an elevated forum for our sales, marketing, engineering, and product development teams to meet, discuss, debate, and create opportunities. This is a real learning experience for our team and our company, and we always gain momentum coming off of this conference. I'm proud of the work the team is doing, and I feel we have a lot of opportunities in front of us. There is no question the impact across the entirety of our grocery vertical is causing some headwinds, but I feel the team has pivoted quite effectively to offset a majority of those headwinds, and we're enthusiastic about the possible tailwinds we could experience as this process works its way to conclusion. We have the capabilities and the capacity to respond, and we're excited about the ongoing improvements to our business and the possibilities that lie ahead. With that, I'll turn the call back over to Jim Gilles for a deeper look at our overall financial performance.
Jim Gilles
Jim? Thank you, Jim. Our fiscal second quarter results reflect ongoing strong execution in key vertical markets. while managing the expected temporary demand disruption in the grocery vertical. We maintained a steadfast focus on quality of earnings, including successfully managing selling price and product cost. These efforts generated a year-over-year 240 basis point improvement in gross margin and an adjusted EBITDA margin of 10.1% equal to prior year on lower sales. This resulted in adjusted earnings per share of 21 cents for the second quarter, and for the first half of the fiscal year, earnings per share were 50 cents equal to the prior year first half. The business again generated over $7 million of free cash flow in the quarter, further reducing debt, now under $19 million, and lowered the TTM ratio of adjusted EBITDA to net debt to 0.4 times. Our cash flow and debt position support our capital allocation priorities and provides the balance sheet optionality for future investments. One of those priorities includes investing in profitable organic growth. Investment in critical capital programs was over $3 million for the first half of the fiscal year. Investments were spread across both lighting and display solutions and included key machinery and tooling to support new products, increased operating capacity, throughput, and productivity. In addition, we remain committed to a balanced approach for driving shareholder value, announcing a quarterly cash dividend of $0.05 per share to be paid on February 13th for shareholders of record February 5th. Now, a few comments on segment performance. Momentum continues in our lighting segment. Operating income increased 28% year-over-year on sales at 65 million, or 3% below last year. We continue to outperform the broader market, further improving our share position. The lighting gross margin rate improves significantly, increasing 440 basis points to 35%, with multiple items contributing to the rate expansion. Items include a higher value mix, stable pricing, moderately lower material input costs, value engineering, and manufacturing productivity. Lighting orders for the quarter were 10% above prior year, increasing the backlog as we enter fiscal Q3. Quote activity remains favorable as our key verticals continue to generate higher activity rates than the broader non-resi construction market. Our team has done an effective job managing the timing variability in the quote-to-order conversion cycle. constructing our supply chain and production planning to allow for fluctuating demand patterns. We expect lighting momentum to continue in the second half of the fiscal year. Moving to display solution, second quarter performance reflects the disruption in project activity throughout the grocery vertical. We continue to work closely with our customers on project timing with several large projects in turnkey position waiting on release. We use this disruption period to prepare for the return to normal demand activity. Relocation and startup of our new refrigeration production facility is complete and operational. And as Jim mentioned, we received final UL approval on the new environmentally friendly R290 display case. The first customer unit shipped last week. Our backlog in the refueling C-Store vertical has increased significantly the last several quarters. In fiscal Q2, a large oil company awarded LSI the brand refresh program for over 1,300 locations. The program is structured for LSI to be the turnkey provider responsible for site planning through installation. We're seeing an increasing trend in programs requesting or requiring turnkey solutions. as customers recognize the value of our comprehensive solution capabilities. Looking forward, we expect Q3 display solution sales to increase modestly from Q2 levels. Performance will vary by vertical, with refueling graphics increasing as site release activity begins on several major programs. Refueling activity is projected to remain strong throughout calendar year 24 and 25. As project release activity begins to occur, grocery sales will increase somewhat sequentially in Q3 from Q2, but remain below prior year. Grocery project activity is expected to accelerate in the fourth quarter and into fiscal 25. Our focus and priorities for Q3 remain the same, advancing our strategic growth initiatives, exhibit smart, disciplined business execution, and effectively managing cash debt and capital allocation. The underlying trends for our target markets remain positive, and we're confident in our plans moving forward. I'll now return the call back to the moderator for the question and answer session.
Operator
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. All right, first question comes from Aaron Spihala with Craig Hallam Capital Group. Please proceed with your question.
Aaron Spihala
Yeah, good morning, Jim and Jim. Thanks for taking the questions. You know, first for me on C-Stores, good commentary on the move to fresh food that's happening there and initial progress on the cross-selling. Can you just talk about, you know, maybe how big that opportunity can be with those initial customers and over time as we look out a couple years?
Jim
Are the speakers muted? If you're muted, unmute yourself at this time.
Jim Gilles
I believe the speakers were disconnected, and I think they're dialing back in now.
Operator
Okay.
Jim
Okay, bear with us, and we'll get the conference back, get them back on. Hold on. Are the speakers back on? One sec. I believe our speakers are live. Please proceed. Apologies, everyone. Okay, Aaron, you can continue. Yeah. Hi, Jim and Jim. Good morning.
Aaron Spihala
I appreciate the commentary on the move to fresh foods in that industry and initial progress on the cross-selling. Can you just talk about how big that opportunity could be for you as we look out a couple years? And then Just separately on the 7500 site award, I saw mention of that being three and a half years instead of four and a half years before. Can you just kind of talk about shortening refresh cycles there and if that project has started yet and just maybe some more details there?
Jim Clark
Yeah, absolutely. Thank you for joining. Thanks for the call and apologies to everyone on the line for the technical issue. You know, we see the opportunity in terms of the expansion in cross-selling, particularly in grocery, C-store environment, and a few others, quick-serve retail, with the combination of our graphics, lighting, display, and refrigerated display solutions as being very big. I mean, I don't know how to quantify it or qualify it bigger than that, but we're talking about markets that are annually in the billions of dollars. And, you know, by every measure, we're still on aggregate a small player. Not that there's necessarily a larger player than us with the aggregated solution that we offer. It's just that the market opportunity is very big. I don't know how to quantify it over that except to say again that it's in the billions of dollars. In terms of the cycle time in the projects we've won, there are two projects. I'll just take a second to mention them specifically. There is the 1,300 location project, which is a refresh, and that is scheduled, and we have a firm commitment on a three-year span. There is a second project, which is over 7,000 locations, and the goal is to get it done in three and a half years, but factoring in some of the material challenges and some of the customer zone challenges, and realistically kind of trying to set a guidepost, goalpost for that, we think it's going to be, you know, in excess of, you know, it will likely be 700 to 1,000 sites a year. And, you know, so it puts us in excess of five to seven years to get that done. But as we're in the project, I think we'll have more updates, you know, maybe annually or in a couple quarters we'll get a better feel for the customer's ability to move forward. We think we can easily double the current number within our existing footprint and within our existing system. But again, it may, it requires the cooperation of the customer and the sites to be available and all those type of things. So it's good news. I think that we'll find out more in terms of the timing as we move forward.
Aaron Spihala
Right, okay. Thanks for the color there. And then, and then just on grocery, you know, your commentary on the increase slight in the third quarter, but accelerating into 4Q in 2025. Can you talk a little bit about how much of this is coming from, you know, the new R290 offering versus just overall activity, you know, starting to recover. And then just maybe, you know, thoughts on how big the two large customers are as a part of this recovery.
Jim Clark
Yeah, so number one, let me just talk on the headwinds we're facing, the temporary slowdown in the grocery vertical, if you will. It isn't specifically related to one or two customers. It's really broad across the market that we serve. And I believe the reason being that, you know, should this FTC-related review and et cetera continue to drag on, the uncertainty about who – from a competitor standpoint, who are you competing against? Are you competing against one of the newly merged stores? Are you competing against your known competitor? Are you possibly buying a location that they're exiting? Are you competing against a location where they will exit completely? So I think the impact, or we believe the impact, is much broader than just one or two customers. It's across a segment as the entire segment looks to see Who will my competition be and how will I have to compete against them? And where will I have to invest to compete against this new entity or the momentum that they're likely to drive in this sector? So, you know, right now for us, the delays are strictly regulatory related. And, you know, and the progress on that is, you know, we just don't have a crystal ball to see where that ends up happening. With that said, though, Whether things move forward or whether they don't, we believe that there is pent-up demand and there is pent-up opportunity. We have, you know, we're hopeful that regardless of the progress on this, that things will continue to shake loose in the third quarter here, which we're already in, but certainly into the fourth quarter. Any of the timing on those things could be disrupted. In terms of R290 versus our traditional R290, solutions. Right now, everything is based on the traditional solution. Any change over to R290 are conversations that are going on now. And we anticipate that we've shipped these products, there's high interest in them, but we expect that the adoption rate could take, you know, certainly could take the better part of a year. I think most of our customers will look to experiment with the product, make sure that it performs to the expectations that that we're marketing it will perform to, we're very confident it will. But I think that in a solid process, they'll take and they'll slowly put this out into the field and see how it performs, provide feedback, and then continue to move forward to that. So I wouldn't suspect that over the next year, this year, this calendar year, 2024, In any of our calls, we're going to be talking about a big momentum shift, but we will be supplying more and more of that product as we move forward.
Jim Gilles
Understood. Thanks for taking the questions. I'll turn it over.
Operator
Our next question comes from Amit Dayal with HC Wainwright. Please proceed with your question.
Jim
Thank you. Good morning, everyone.
Jim
With respect to this, you know, C-store investments and upgrades you are anticipating, Jim, do we have, you know, the products and offerings in place already to meet this type of demand, or is that something you will be working on? And any, you know, insight on, you know, what kind of investments will be required, you know, to, you know, meet this potential cycle of upgrades?
Jim Clark
Yeah. Yeah. Absolutely. Amit, thank you for joining. Thanks for the question. We certainly have the capacity, the skill, and the experience to do it. As we've talked about on other calls, this is our normal kind of course of business. We typically get involved, we're putting anywhere from 9 to 18 to 24 months of pre-planning, of test systems back and forth, of changes to you know, what the actual products are going to be delivered and what they're going to look like. When a contract award is given, it's not uncommon for us to be looking at, you know, anywhere from 18 to 36 to 60 months or longer of project, depending on the number of sites. We feel very confident that, you know, we have not only these two opportunities and they'll fit very well into our current production schedule, but that we also have additional capabilities and plans to scale up as we move forward. So within our current infrastructure, we have the plans, we have the capacity to handle this plus more to provide in our normal customers or another opportunity. And we have the plans which are not excessively capital intensive to scale up beyond that. The only change that we've made to accommodate for these two large projects is we are in a facility right now that allows us some expansion. And we took on another, what was it, 12,000, 15,000 square feet, Jim? Yes. Yeah, 15,000 square feet, just to give us a little bit more running room. But we could have done it within the space that we had.
Jim
And are you already seeing some of this in your other, you know, segments like QSRs, et cetera? I mean, it looks like, you know, you are, benefiting from these types of investments by your customers already, right? Or maybe you will in the future?
Jim Clark
Yeah, we're absolutely benefiting from the changes that are going on in the market, these competitive forces. As we've talked about often, we believe the sectors we're in, grocery being a very strong sector, the C-store sector. I talked about it a little bit in my comments earlier about a great Wall Street Journal article published last month. December 16th, it's called Gas with a Side of Pizza. It just talks about that in-store transaction and how well we're set up to deliver on those requirements. And it spans across the entire offering that we have, lighting, graphics, standalone displays, refrigerated displays, digital graphics, These are all key elements to that expansion and one that are really driving margin improvement for our customers, not just in the petroleum space, but in the grocery space, in the QSR space. So although, you know, grocery is temporarily disrupted right now, we still feel all of our original thesis is sound and, you know, and it's not going to, it's a temporary pause. It's not anything structural to this market. and we believe it could really be a boom to us going forward. And I want to underline, we have the capacity to be able to respond to it, and we have the plans to be able to respond with additional capabilities if we need to. Right.
Jim
Just one last question from me. The quality of earnings, you know, improvement on that front, Is this here to stay, or do you expect some variance from these levels going forward, depending on how the marketing sales and other overhead needs develop for you as you scale your businesses?
Jim Clark
Yeah, I mean, you folks have been following us for a while. A lot of the people on this call have been following us for a while. We have plans to continue to get incremental improvements out of the business. I would define it as saying we still have a lot of runway left in front of us. We've talked about this on prior calls, that there's still just environmentally out of our control, but general environmentally opportunities. You know, supply chain is, we've always been able to manage the supply chain very well. And, you know, we've had a lot of advantages that we've been able to extract from that and will continue to. But as that continues to improve outside of our control, that's going to benefit us. Stable labor and workforce, that has continued to benefit us. Customer projects that have been on hold or deferred, those will continue to benefit us. We think we have a lot of runway left for continual improvement on the margins. And like I said in last quarter's call, Remember, our EBITDA was 12.2% for the quarter, and we do have some efficiencies that we're able to gain through our peak seasons versus our slower seasons. Q2 and Q3 are slower seasons. It's seasonally affected, cold weather, weather in general, that type of thing. Construction slows down, remodels slow down. So our efficiency and our ability to manage margin is a little bit more impacted than But you can see that even in our slower quarters here, Q2, Q3, you know, we're into Q3 now, but Q2, we're still able to extract those opportunities and extract improvements. I think there's still a lot of runway left in front of us.
Jim Gilles
Yeah, Amit, Jim Gilles here. You know, just to build on what Jim said, what gives us confidence is, you know, the improvements not being driven by, you know, one certain item, but there's multiple factors contributing here. both from the commercial lever as well as the operational lever. Commercially, starting with where we play, and then our ability to effectively price manage our projects. And then secondly, operationally, sourcing from supply chain dimension with material input costs, the impact of new products, design savings, labor productivity. So we track all of those very closely. And there's a lot of green, so it gives us confidence that our improvements, which now have been improving quarter on quarter for quite some time, we're confident in our ability to sustain that and build on that because of the multiple levers contributing to the improvement.
Jim Gilles
Thank you, guys. Appreciate all the answers. Thank you.
Operator
Our next question is from Leanne Hayden with Canaccord Genuity. Please proceed with your question.
Canaccord Genuity
Hi, everyone. This is Leanne Hayden on for George DeAnarikis. Just a couple questions for me. Can you just discuss any bottlenecks you might see in the supply chain? For example, permitting or equipment like transformers or any potential bottlenecks you might be seeing?
Jim Clark
Yeah, Leanne, thanks for calling and tell George we missed him. You know, I will say that, you know, supply chain has become very predictable for us now or much more predictable, I should say. Issues like permits and, you know, other suppliers are still variable and still exist out there. I'm sure there's nobody on this call that doesn't follow the industrial markets that understand the challenges around switchgear and things like that. None of those cancel projects, so to speak. They just disrupt the timing of them. And I think where we are right now is we're just comfortably in that uncomfortable spot. Although those disruptions still occur, I would say they're much more stable, and they're more reflective of the pace of the business we have now. So I don't want to say that there isn't any impact from them, and I don't want to say that somebody couldn't give us a surprise. But I would like to say that within that environment, we're very comfortable now. It's just a protracted and longer environment. But it doesn't result in, you know, massive disruption to project schedules as it had in the past. And it doesn't disrupt the customer's commitment to moving forward.
Canaccord Genuity
Okay. Okay. That makes sense. And then I believe this was touched on briefly in the transcript, but Could you share or update us on your thoughts around M&A and how the target pipeline is looking at? Have your accretion parameters changed at all? Any updates in that realm would be great.
Jim Clark
Yeah, I mean, it's frustrating to me that I can't, you know, I can't disclose everything that we're engaged in or talking about or that we came close to or any of that type of thing. But I would categorize it as this. We are very actively involved. We've looked at a number of projects. We want to make sure they're good fits, you know, from a business perspective, obviously, and a cultural perspective, which we highly value here in anything we're looking at in terms of an acquisition. We are in a very good position financially, as you noted, you know, as you've all probably noted, our leverage ratio now is, you know, 0.4. We're in a very good position there. We have very good financial partners and we have discussed and we have plans if we needed to do something that required beyond our current access. So all of those things are lining up. In general, I feel the market is more active right now in terms of potential opportunities. I think that a lot of the pricing, the expectations from sellers is better normalized, if you will, But the competition is still very fierce. Financial buyers are still out there. They are still willing to accelerate the multiples paid and things like that. So we find ourselves in a very competitive process, but we find that we're engaged in more opportunities now. So net on net, I would say we're very encouraged, and I'm very hopeful that we'll be able to advance something you know, certainly within the next year, if not sooner.
Canaccord Genuity
Understood. All right. Thanks so much, you guys. I'll hop back in, Jim.
Operator
Our next question is from Rick Fearon with Accretive Capital Partners. Please proceed with your question.
Rick Fearon
Hi, Jim and Jim, and congrats on another solid quarter. Yes, just a really impressive uptick in your gross margin. And I know, you know, improvement of that scale doesn't come easily. So just interested in hearing, you know, what some of the levers have been to achieve this increase, especially on the lighting side.
Jim Clark
I mean, I think that some of the things, well, first of all, Rick, thanks for joining. Thanks for the question. I think some of the things we've talked about in the past are still the levers we're able to pull. And if I were to kind of try to paint a picture, those levers that we're pulling, you know, we've pulled them you know, a quarter of the way, two-thirds of the way, we still have room in them. But chiefly, you know, it's manufacturing efficiency improvements and ongoing improvements in our manufacturing efficiency supply chain. You know, we've got a very good team relative to supply chain. And it's not just about pricing. It's about being good partners to our suppliers that supply us, being predictable, giving them the, you know, the forecast that we stay on and they're They've been reliable suppliers. When you do that, you're no longer expediting things. You're not pulling the lever for contingencies. You are not disrupting your manufacturing process that is expensive. So I want to say there's simple, well-grounded, basic kind of levers of running a good business. And our team is just good at doing that. And we think that we still have levers to pull and room within the levers we're pulling.
Rick Fearon
Nice. That's really helpful. Thanks. And as I know you're well aware, LSA's longstanding customer, Burger King, just announced the acquisition of their largest franchisee, Carol's Restaurant Group. And In the announcement, they also talked about remodeling over 1,000 franchise stores over the next five years. And so, you know, can't help but think there's some opportunity there. I was just interested in your perspective on this as well as, you know, really any other QSR activity that might be on the horizon.
Jim Clark
Yeah, I don't have – I'm aware of that transaction, and congratulations to them. I'm sure that given – the pace at which they're making changes within their system, they will benefit from it, and we will benefit from it. I will say that it's a great partnership. We really respect the way they run their business and the plans they have in mind, and their execution matches up very well with ours, and that's why I think we've become such strong partners with them. And I will say it's the exact same thing that attracts a number of the potential customers or a number of the newer customers we're dealing with. That very high say-do ratio, right? We're not super flashy, although I think some of our solutions are. We don't overcommit. We sit down and have realistic conversations with them and other partners in that space. And I think we've gotten real value out of that. The customers have gotten real value out of that because they know what to expect. We deliver and we do what we say we're going to do. And it fits very well within that structure of that environment because it's very hard to come in and make those changes without potentially disrupting their normal flow of business. And we've earned the reputation of being able to do that. And I think that our customer is responding very well to it. So I'm very excited what we'll see, what will happen there. And I would suspect that we're right there in that planning process.
Rick Fearon
Yeah, it really speaks volumes to have a customer like Burger King and such strong customers like Burger King on the QSR side. And so you guys are obviously doing things right to keep them happy. So, yeah, my only other question really, you know, sort of follow up on one of the other questions relates to, you know, your strong balance sheet you've once again reproduced, you know, with the methodical debt reduction and great work on that front. And so, yeah. Yeah, here we are with, you know, some, I'm sure, exciting opportunities that are coming across the desk. And just wondered if you could provide any color on valuations. Like, it sounds like it is more of a buyer's market than it has been. But curious if, you know, that's consistent with what you're seeing.
Jim Clark
Yeah, I mean, I'm not sure I'm willing to jump on that. It's completely a buyer's market, but it has changed, right? So it has changed a bit. I still think there's great respect for the businesses that are, you know, that are currently for sale and they want to get, you know, maximum value, whether they're financially owned or independently individually or, or, or corporate owned or whatever it is. So, you know, the pricing is obviously pricing and valuations are still remain, um, a key element. I would say overall in perspective, inflation has hit the valuations also. Um, But we feel very encouraged that the conversations are much more meaningful now. You know, they're much more balanced. You know, it's kind of the best analog I can give it. It's kind of like the real estate market. You know, a couple years back, you know, properties that were up for sale, agents were saying, you know, submit your best and final, no home inspection. You know, all bids are due by 3 p.m., you know, that type of thing. And much like that in the M&A environment, we feel that the conversations are much more meaningful. They're much more future oriented. You know, they're proud of the accomplishments they've had, where the business is, or they're aware of where the business is, but they're much more willing to talk about what future opportunities and why and support their valuations. And that's what we enjoy in those conversations. And as you know, Most of the people on this call know we also highly value cultural fit, right? There are businesses we would like to be involved in, but we sit down and we realize, you know, we're just not a good fit. We see things differently. We value things differently. And although the business might, you know, fit well in our plan, if we have to go in and, you know, change course of that business, we know that the value is just not there for us. So it's a funny-shaped little door. We continue to be very disciplined in what we look at, but we are excited, and we do think that there's opportunity on the horizon for us.
Rick Fearon
That discipline on the culture side, I'm sure, saves a lot of headaches. So you proved yourself at JSI and a wonderful acquisition, and I look forward to hearing more about the next to come.
Jim Gilles
But thanks for the perspective and all your nice work. Thank you.
Operator
We've reached the end of the question and answer session. I'd now like to turn the call back over to Jim Clark for concluding remarks.
Jim Clark
I don't think there's any question. You heard our comments. You read our press release. We're certainly facing some headwinds, but I think that we have done an exceptional job of demonstrating our ability to challenge those headwinds and be ready and be prepared for what the future is going to hold. Our expectation is regardless of what happens, you know, with some of the current FTC reviews and things that are out, you know, with some of our customers, that there's a good opportunity, a great opportunity in front of us either direction. We also believe that we have a lot of runway left in just our core businesses, our platform, our investment pieces. We covered a lot today on today's call. You know, margin performance, we still believe we have, you know, room to manage that and room to grow. And even with these headwinds, we're able to demonstrate that. Q2 and Q3 historically are slower quarters. And you combine a couple of these challenges and you see it looks disproportional, but it's not. We don't see anything that is systemic or causes concern for any type of long-term trends or anything. And I'd just like to leave everybody on the call saying that we're excited about what we see in the future. We're excited about the movement forward in the market. We're excited about potential on the M&A front. We're excited about other opportunities we have in terms of the way we manage and run our business. So we come off of this quarter excited. excited for the next and the ones after that, and we appreciate the time you all take to spend a few minutes with us and learn a little bit more about the company. With that, I'll say thank you and goodbye.
Operator
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
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