LSI Industries Inc. (NASDAQ:LYTS) Q4 2024 Earnings Call Transcript

LSI Industries Inc. (NASDAQ:LYTS) Q4 2024 Earnings Call Transcript August 15, 2024

Operator: Greetings and welcome to LSI Industries’ Fiscal 2024 Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jim Galeese, Chief Financial Officer of LSI. Thank you. You may begin.

James Galeese: Welcome everyone and thank you for joining today’s call. We issued a press release before the market opened this morning detailing our fiscal 2024 fourth quarter and full year 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. A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10-K. 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 fourth quarter and full year 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.

James Clark: Thank you, Jim and good morning all. Thank you for joining us this morning and happy New Year to LSI. As you know, our fiscal year runs from July 1st through June 30th, so we are now into our new fiscal year 2025 at LSI and we’ll be discussing our fourth quarter and full year 2024 results on today’s call. I’m pleased with the results of Q4 and overall, I’m pleased with the results of our full year 2024. We end the fourth quarter up 4% in sales compared to our prior year, we added a new business segment with the purchase of EMI Industries in April, and we continue to expand LSI’s value to our customers by expanding our product and solutions offering in our core vertical markets. For the full year 2024, we will continue to improve margins and year end adjusted EBITDA was up 11%, up 60 basis points versus last year, while free cash flow for the year exceeded $38 million.

LSI’s growth in most of our vertical markets continue to outperform in 2024, while we did experience some steady market headwinds in our grocery store vertical throughout the year. Our execution as a company and as a management team remains high and I’m proud of the company’s ability to adapt to various market challenges and to keep and focus our responsibility to deliver results to both our customers and our shareholders. We often talk internally about our say-do ratio. It simply means we are doing what we say we are going to do. This commitment to be a high-performance say-do ratio extends to our customers, our shareholders, but it also extends to our coworkers, our suppliers, our agents, and so many others. This culture around a high say-do ratio is chiefly responsible for our continued progress and it underscores our ability to adapt and to continue to seek out growth opportunities and execution excellence.

In 2024, we accomplished a lot. We introduced a slew of new products in excess of 25. We opened a new refrigeration manufacturing facility in Bangor, Maine, offering an entirely new type of refrigeration solution that uses environmentally-friendly refrigerants, R290, a naturally occurring gas that causes no harmful effects to our environment. We expanded our capabilities in our Electronics Manufacturing segment and our capabilities in our on-site project management through our ADAPT services group. We created a Center-of-Excellence around our print graphics business that will ensure our ability to provide robust print graphic solutions, while at the same time being able to be more efficient and more profitable in this segment. Internally, we added to our management team, including additional focus on our operations and procurement functions, while continuing to strengthen our sales, marketing, and engineering capabilities.

We promoted from within and created opportunities for people to advance in positions of increasing responsibility, while helping to cement and expand the culture we have created at the company. We spent a lot of time this year with our customers and our partners. We hosted a record number of training sessions, new product introduction, business strategy discussions, and customer acquisition planning. The markets we play in are big and they hold a lot of opportunities. Great partnerships make access to those markets easier and more efficient. And I believe the time and effort we put into the development of close working relationships with our partners pays off exponentially for LSI, our agents, and most importantly, our customer. From a business segment prospective, we continue to outpace our competitors in the Lighting segment.

Despite a small drop in Lighting sales in 2024, we feel we’re outperforming the general market and we continue to believe there is sufficient market share opportunities to support our Fast Forward plan. Our margins and our pricing discipline remains strong and the combination of our agent network, vertical market focus continues to create growth opportunities for us in the broader Lighting segment. LSI continues to innovate in the Lighting segment. And in 2025, we’ll introduce an entirely new Lighting product line called Velocity. This will expand our ability to serve our customers while offering those customers the very best in performance and price. In our Display Solutions Group, we entered 2025 with a strong backlog and momentum that we have gained throughout 2024.

Fourth quarter sales were up 22% versus prior year including the partial quarter impact of EMI. Sales in our Print and Digital graphics business were up 9% in the quarter, and our display case orders were up over the prior year. We anticipate a recovery in our grocery vertical as customers in this segment move forward with in-store refresh programs. And we offer some new innovative stand-alone case solutions that expand into the salad dressing and condiment sections of the grocery store and C-market space. 2025 looks to be another year of growth for LSI and the vertical segments we are focused on. Our partnerships with our agents, channel partners, and end users continues to create opportunities for both LSI and our customers. The LSI team continues to execute well, and we look forward to sustained profitable growth.

With that, I’ll turn the call back over to Jim Galeese for a closer look at our financials. Jim?

James Galeese: Thank you, Jim. A strong focus on execution and quality of earnings highlights our operating results in fiscal Q4 and together with the strategic acquisition of EMI Industries, created an active quarter for our company, concluding a prosperous fiscal 2024. Sales for Q4 increased 4% to $129 million, including the partial quarter impact of EMI, which was acquired April 18th of this calendar year. Comparable sales were below prior year as the proposed merger in the grocery vertical continues to disrupt demand. Adjusted earnings per share were $0.24 for the quarter and adjusted EBITDA of $14 million or 10.9% of sales, consistent with our full year margin rate of 11%. Multiple factors contributed to our EBITDA performance, led by a higher value mix of customers and applications, as well as stable pricing, and effective cost management.

Q4 generated solid free cash flow of $10 million, allowing the business to exit fiscal 2024 with a strong balance sheet. Net debt was reduced to $50 million with a net debt to TTM adjusted EBITDA ratio of 1 times. For the fiscal year, sales finished at $470 million with adjusted earnings per share of $0.95 compared to $0.99 for fiscal 2023. Adjusted EBITDA was $51.4 million, approximately equal to our record fiscal 2023 performance. The full year adjusted EBITDA margin rate increased 60 basis points to 11%. Free cash flow for fiscal 2024 was $38 million, again, supporting reinvestment in key new product and commercial growth initiatives. Capital investment for fiscal 2024 was more than double our annual spend the last several years. While we enter fiscal 2025 with macroeconomic uncertainty, the underlying fundamentals of our key vertical markets remain sound.

While demand may fluctuate somewhat during this period, industry plans support secular growth over the next several years. For example, our Display Solutions’ backlog for the refueling C-store vertical is strong entering fiscal 2025, reflecting the large customer programs won in fiscal 2024. Our Project Services business, part of our end-to-end solutions model, is forecast to grow over 30% in fiscal 2025. An increasing number of refueling C-store programs are utilizing our current project management capabilities ranging from planning to installation and after install support. There are encouraging signs for the grocery vertical as display case orders for Q4 increased over prior year for the first time in five quarters. Favorable activity has continued in July and August to date with grocery having a book-to-bill ratio well over 1.

This suggests the industry is beginning to resume planned store refurbishments as well as committing to the new refrigerant technology. QSR restaurant activity remains healthy with EMI having a solid book of business with multiple key customers. The integration of EMI is going very well and Alan Harvill and team are on pace to deliver a solid first quarter. Multiple PMI work streams are busy identifying both sales growth and cost saving synergies. For Lighting, fiscal 2024 was a solid year with operating income increasing 5%, driven by a 200 basis point improvement in gross margin rate, achieved on 4% lower sales. LSI outperformed the broader industry, reflecting continued active project levels in our key verticals as well as share gains. Recent market trends in Lighting are expected to continue into the first quarter with demand fluctuating by vertical market.

Overall, quote levels remain steady and pricing is expected to remain stable. The quote-to-order conversion period remains lengthened, however, particularly for large-size projects. Margin management will continue to be a priority in fiscal 2025 with material input costs expected to be flat to slightly favorable, new and enhanced products providing improved value, and, in many cases, reducing costs. And our multiple price point offering provides Lighting customers the choices to meet specific project budgets. The manufacturing workforce environment is expected to remain stable and generate additional productivity improvements in fiscal 2025. In summary, it was a solid quarter and fiscal year for LSI. We enter fiscal 2025 well-positioned with an expanded solution set to meet our customers’ requirements.

We’ll support our commercial efforts with continued strong operational execution and effective margin management. I will now turn the call back to the moderator for the question-and-answer session.

Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Aaron Spychalla with Craig Hallum Capital Group. Please proceed with your question.

Aaron Spychalla: Yes, good morning Jim and Jim. Thanks for taking the questions. First on C-store refueling, you talked about the strong backlog, and we’ve heard how activity levels in that market have been highest in decades. Can you just give an update on a couple of the larger projects you have there, where are we at in those deployments? What’s the time line to get those completed? And I know a lot of that market is kind of normal course of business for you, but how does the pipeline look there?

James Clark: Hi Aaron, good morning. Jim Clark here. Thanks for the questions. Thanks for calling in. Well, we’re very strong on the C-store side. We had been awarded a number of awards through the last half of 2024. And I think that we’ve talked about this before, these are all multiyear projects. These are thousands of locations. And like we’ve talked about, the content we deliver to these — this section of customers that we have, it’s typically hundreds, if not thousands of sites. It is a refresh cycle that we see historically had been seven to 10 years now much more compressed down around the five-year and even three to five in some of the smaller markets. So, to answer your question, we are — I mean these markets — these projects will go on for well into 2026. And we have two large projects that are making up awards that we had come out of 2024 with. So, backlog looks very healthy in that regard.

Aaron Spychalla: All right. Thanks for the color there. And then second, on the R290, you noted Initial shipments started in the fourth quarter, several large customers have stated their intent to fully convert. Can you just talk about what this business could look like for you as that happens? And maybe just talk a little bit about the competitive landscape and your value proposition there.

James Clark: Yes. So, first of all, from a competitive standpoint, we think we’re ahead of the curve from a lot of our competitors, particularly in the format of the units that we’re delivering. We have been in discussion with our customers about this for perhaps a year relative to our engineering, our approvals, our — opening of our factory, our ability to deliver. And that manifested itself in orders in Q3 and then actual deliveries in Q4. I think that generally in the marketplace, there have been a number of press releases of different companies stating their intent to use R290 as part of an environmental program and opportunity to offset harmful fluorocarbons that are emitted from more traditional. We think that this will continue to pick up.

We believe that it will exceed our normal pace of our standard refrigeration unit. And it’s just a matter of can we overcome the drag and the slowdown in grocery in general to see that benefit in the R290. Either way, I’ll just mention it now because I’m sure it’s likely to come up in a question. The grocery market potential merger between two large players remains kind of an open item right now. Our latest intel indicates that it’s likely to go to trial here at the end of August into the beginning of September and likely, at least in this first stage, have some resolution as we come through September — towards the end of September. When that does get resolved, we do anticipate a pickup in general store remodels across the entire segment in grocery, not just the two that are involved in the merger.

So, with the combination of the R290, the desire to move to that plus some pickup in general grocery store orders, we anticipate it could be a very robust year in that category.

James Galeese: All right. Thanks for that. And then maybe last for me. I know we’re only a few months into it. But on EMI, can you just talk about how that integration is going? What are some of the early things you’ve learned about that business? And then just how are you feeling about progressing towards the EBITDA margin goals that you’ve put out there?

James Clark: Yes. So, we — as you know, we closed EMI in April. So they’ve been on board with us for a few months now. The integration is going very well. Culturally, they’re a great fit. Alan Harvill, who is over there running that business along with a couple of other folks are — have been a pleasure to work with, have integrated well with us. As you know, the margins are a little bit — from a percentage standpoint, the margins are a little bit under our performance. And we knew that going into that. We see that as a great opportunity for us to bring our operational discipline and the procurement and a number of other things that we can offer to them. Summary is, I think it’s been going very well. We have strong backlog, looking through the partial stub we had with them in Q4 and what is developing here in Q1.

So, we’re very happy. We’re happy with the progress and we’re being as aggressive as we can in terms of moving things forward and they’ve been very receptive to our input. So, I’m very pleased with it. I do want to just hit one other thing as I’m thinking about it. And I know we’ve talked about it, and we talked about it when we acquired EMI. From a percentage standpoint, they do lag LSI. From a dollar standpoint, obviously be accretive. But from a percentage standpoint, we’ve got what we see is opportunity there. We’re going to use the disciplines in the things that we’ve done to improve LSI’s performance and JSI’s performance, and we’re going to apply those to EMI. So, we will move that up and we’re excited about that. But there is a drag created in an absolute percentage type of analysis, if you will.

We look at it as a great opportunity for good cross-selling. The customer base is we kind of fall into this thing. We talked about it before, a third, a third, and a third, a third, our new customers to EMI, a third that are new customers to LSI, and a third that are current customers. And we’ve already had a number of those meetings and I got to tell you, EMI has done an outstanding job of introducing LSI to their customers. I’m now holding a bar under the LSI people to be as good as the introductions that EMI has made. So, we’re very encouraged by it.

Aaron Spychalla: Yes. It’s good to hear. And I thought the almost 11% EBITDA margin was particularly impressive considering the partial quarter of EMI. So, thanks for the questions. I’ll turn it over.

Operator: Our next question is from Amit Dayal with H.C. Wainwright. Please proceed with your question.

Amit Dayal: Thank you. Good morning everyone. So, Jim, just following up on your comments about margin improvements and sort of the time it might take you, like what should be sort of the expectation you can set around timeline? Is it like another year before you can sort of pass-through some of these margin improvement efforts to EMI or maybe even faster than that?

James Clark: Yes, I mean we’re certainly trying to press it at the speed. We’re [cognately] (ph) aware of any dilution that it happens from a percentage standpoint. Like I said, from an absolute dollar standpoint, it will be accretive, but it will be dilutive from our percentage — our past performance. We think that we can get this all accomplished in 18 months and now the goal is how — what do we do — how quickly can we work to make this happen within a year. So, that’s kind of our internal operating that’s operating rhythm. That’s what we laid down as goals both internally LSI and EMI. And it’s just a matter of getting its culture, right? It’s all about culture. We’ve talked about it before, particularly here at LSI. We don’t want to do it in such a way that it becomes a burden to the folks at EMI.

We want them to embrace it and feel it and move with it because they see the value. At the same token, where likely we want to move it along much faster than they’re probably prepared for. So, it’s always going to be some type of compromise. But I think that at this point, to be at the level that we’re performing, which is 11% and knowing that we’re going to 12.5%, it’s going to take 18 months is what we’re thinking right now.

Amit Dayal: Okay. Thank you for that. Also your SG&A costs, at least sequentially, I don’t think increased too much. Any sort of sense about how this might change over the next year as you maybe look at more resources to the sales side of things? Just curious to see if there is more operating leverage from existing resources or will you be adding some costs on the SG&A side?

James Clark: Yes, I mean I would say that in total, if you were to kind of look at it, if we were looking at it, it is a year from now. I would say you would see minimal impact in terms of SG&A, but there could be some lumpiness as we move through different things, and we want to accelerate things. I’ve talked about this before that it’s always — to me, the investment is always like an accelerator, it’s like a gas pedal. We’re going to use more gas, but we’re going to get there a little bit faster. So, it’s always that trade-off. I think right now, as we look at it a year down the road, we don’t see any — we’re not looking at any big swings or anything like that, but you may see quarter-to-quarter us making an investment or making a change that we absorb the cost before we get the benefit.

Amit Dayal: Understood. On the Lighting side, the margin improvements, are these primarily coming from higher prices you may have implemented?

James Clark: Yes, I mean we’ve always been — we’re priced zealots from a management perspective. We want to make sure we get paid for what we’re doing and we want to make sure that we are able to provide that value to the customer that they see the extra on an absolute dollar standpoint was worth the investment. I wouldn’t say that we’ve been moving prices around much over the last a quarter or two, but we continue to look for ways of manufacturing efficiencies, operational efficiencies, those type of things that continue to allow us to manage margin and EBITDA performance. And the question has been asked before and I’ll just say how far are we through that journey? We’re still — in our minds, we’re still in the second, maybe third inning of that.

We’ve still got things we can do, and we don’t see us exhausting those things anytime soon. Our discipline around cash remain very high to us. We — our leverage ratio is 1x right now, 1.1x, 1x. All the fundamentals of how we run our business remain in focus for our team. And like I said, the EMI team has been fantastic. They understand their priorities. They understand the difference between operating in a public company environment and a private company environment. And all the choices we make are all trade-offs about that speed in which we’re able to realize and improve their margin performance and how quickly we’re able to get in front of customers. And it’s very — it’s often very tempting to make press harder on the gas pedal. And I think we are going to do some of that, but the payoff is going to be there and I don’t think that there’s anything disruptive in our future.

Amit Dayal: Understood Jim. Congrats on the strong results and that’s all I have. Thank you.

James Clark: Thank you, Amit.

Operator: Our next question comes from George Gianarikas with Canaccord Genuity. Please proceed with your question.

George Gianarikas: Hi, good morning. I’d like to ask a little bit about the comments you made on book-to-bill, improving in your grocery vertical. Any additional details you could share there would be appreciated. Thank you.

James Clark: Yes, I mean I think the comment specifically was our orders rate increased for the first time in five quarters in our refrigerated products and some of our display solutions sales, and it’s specifically around grocery. As we’ve talked about over the last year, the grocery market has been impacted broadly for us, and it’s mostly around — our thesis is it’s mostly around competitors seeing what the evolving market is going to look like and who they need to compete against. But we’ve also said that we thought that, that was — there was a kind of a terminal proposition to being able to stand on the sidelines. And what we’ve seen is a pickup in the willingness of a number of our customers to start investing and we hope it’s early sign of a cascading period — sequence of events that just kind of opens up that market again.

We don’t feel as though the market is any — under any pressure relative to a change or a shift into more conservative investments or anything. We just think we’ve used a word pause and we think that that’s kind of what it has represented. And the word that I’d start using now is maybe that purchasing is starting to resume. So, it — first quarter and five quarters, and we’re very happy about that.

James Galeese: And George, I think we mentioned that, that has a positive activity has continued through July and August to-date as well.

George Gianarikas: Great. Thank you.

Operator: Our next question comes from Rick Fearon with Accretive Capital Partners. Please proceed with your question.

Rick Fearon: Good morning Jim and Jim and congrats on another solid quarter. And Happy LSI New Year.

James Clark: Thank you, Rick. Thanks for calling in.

Rick Fearon: Absolutely. Just a couple of questions. You talked about 25-plus new products and I was wondering if the pace of new product introductions such as the velocity line has accelerated? And if so, if it’s fair to say there’s a new normal emphasizing product growth and innovation?

James Clark: Yes, for anybody that’s — I know you have following us for quite some time, our benchmark has been at 20-plus new products a year. And it’s — those new products can be new technology and new performance requirements, they can be cost-out initiatives, they can be performance improvements, and it’s a combination of those. The truth of the matter is the number is actually on every year over the last five years, it’s actually been higher than our stated rate, but it’s really about how we’re able to roll them into the market and what the adoption and the pickup is and like any new product that comes into the market, there is a learning curve. So, that’s what we always look at is how quickly can that pick up occur. We know what we do from a technology standpoint.

We know what we do from a speeds and feeds standpoint. It’s just how that value is translated to the customer. So, we always look at it as what we call vitality rate. What — how much of the — how much of our sales are in that new product? And I have to tell you that introducing — having 20-plus new products, 25-plus new products a year has given us a 30%-plus vitality rate in new product introductions, and it’s been key to our growth and it’s something that we’re going to continue to move forward.

Rick Fearon: And Jim, do you anticipate that also sort of having a longer-term impact on gross margins. And with these new product introductions, do you see pickup — I appreciate the fact that the new products relative to the existing suite of products is still a nominal amount. But over the long run, does that help improve gross margin?

James Clark: Absolutely. And I think that the difference is the thinking now versus maybe five years ago is the full cycle of that introduction of a new product. And it’s more than just the technology that’s in the product. It’s the manufacturability of it. It’s the standardization of parts. It’s performance-related items outside of speeds that are things like operational lifecycle and things like that. So, all of that has become a mindset within our product management group, our engineering group, our sales group. And the overall value of these products is just as much higher than maybe what we would have looked at 10 years ago, six years ago, something like that. So, we do think that there is a lot of room. I just brought it up a few minutes ago that operationally, we believe there’s still room in margin expansion opportunity.

And we think that these new products create a higher value that we’re able to continually work with pricing, and I mentioned it where the customer can see the value far beyond just the acquisition cost. So, it moves from product to a solution. And that’s what — that’s the conversation we have with our customers, and that’s how we differentiate ourselves from our competitors where it’s a catalog sale versus a solution and sale. And what we hope is at some point, our customers, our sales people, our partners are all able to see it as kind of an integrated solution as opposed to individual components — end-to-end here, yes.

Rick Fearon: Yes, that makes a lot of sense. And I imagine there’s that sort of less quantifiable, more sort of subjective strengthening of the customer relationship that occurs when you’re starting to expose them to things they haven’t seen before, stickier relationships?

James Clark: Yes, we’ve always operated under this philosophy that people essentially buy from people. They buy from people they trust. When you’re introducing new products, there isn’t a history behind it. There isn’t — the operational application isn’t completely understood. So, there’s a certain amount of trust that a customer and aging a partner will have in us as a supplier, as a solutions provider and say, okay, well, we don’t have a long history with this product, but based on our relationship over the last few decades, years, whatever it is, we trust you, let’s move forward with that. And that’s the position we’re always trying to put ourselves in. More than just a supplier or a partner, we’re able to help them with the business decisions they’re making — and we’re trying to engineer products.

This is the whole thesis around that vertical market that adds value to their business. And so it’s not just a required buy, a compliance buy or something like that. It’s something that they see that adds value and makes their customers see higher value in purchasing from our customers. So, we — that’s always been our thesis.

Rick Fearon: That makes a lot of sense. It’s family, you’re helping and family. So, are there other areas — I was going to ask you, regarding margin improvements, the areas where you see some excess capacity and I imagine that’s clearly on the grocery side. But areas whereas growth resumes, especially in the grocery vertical, where you see margin improvement just by picking up unused capacity?

James Clark: Well, absolutely. As a manufacturer here and particularly as a U.S. manufacturer, I mean — and as operators, we always look at our utilization rate. And if we’re able to — and this is discussions internally all the time, if we’re able to perform to this level and our utilization rates aren’t where we want them to be, meaning there — we have — we can go higher, just imagine the returns that come from that. Remember, we have a long-range goal as part of our Fast Forward plan to be at 12.5%. We finished at 11% right now. I’ve always said there will be some variation to that. I don’t want anybody to get stuck like if we move from 11.3% to 11.1% that the bottom’s fallen out or something. It’s all about that acceleration, it’s about utilization, it’s about investment, it’s about experimenting with ways that we can manufacture more efficiently that we can buy more efficiently.

And within that, we know the long-range goals that we’re after and I think that historically, we’re proving our ability to kind of continue to make that vertical progress to move things up and really get a return on our net assets and keep that as a very important element. And the other thing that I’ll say is in our management meetings, there are people, there are commercial experts. There are people that are operations and engineering experts. But what we do is we’ve taken the time over years to make them functionally — functional experts in terms of finance and what their decisions mean and how they impact the finances, so that they understand they’re never lost as to why things are moving up or moving down or moving left or moving right, they understand their decisions and how they impact our returns, our investment criteria, our profitability, all of those type of things.

So, it’s just a — it’s kind of an operational management cadence and we bring everybody along.

Rick Fearon: That’s really helpful. Thanks. And I happen to fall into the camp of envisioning some floodgates opening as the grocery merger gets resolved one way or the other, whether it goes forward or not. I just — personally, our belief is that there will be a flood of business and so you obviously have to be prepared for that. I know that you — because the grocery vertical has been for the past four quarters, not the strongest, it’s coming back despite the kind of looming resolution of this merger. But do you see like any bottle — potential bottlenecks or do you feel that you’ve got the capacity if the floodgates as I think may happen, in fact, the flood gates do open?

James Clark: Yes. No, I mean — and I think I mentioned it in my opening comments here that from a fixture standpoint, from a technology standpoint, specifically in refrigeration, we opened a new facility and we’re not opening it to meet current demand, we’re opening it to meet our — that’s why our Fast Forward plan and our management team and our people understanding where we’re going is so important because we’re designing around that, right, so that we have that capacity, and we have the ability. I also mentioned investment in our Electronics Manufacturing. That is something when — if I look back six years ago, we had excess capacity. Today, we need more capacity. And so we made that investment, and that investment is not to meet current demand, that investments made to meet that future demand in those long-range targets we have.

And then the last comment I’d make about that is, again, if I look back six years ago, we had excess capacity that we trimmed, but we didn’t trim it to meet that current demand, we trimmed it with that expansion and that ability to grow. And so we’ve always held that capacity, that capability in hand, knowing that, again, where our 2028 plan is. So, it’s always that balance of not having more than we need, but certainly never having less than our goals are and our targets are. And I feel very confident that we could — frankly, I feel like we could meet almost all of our requirements for 2028 today through the efficiencies we continue to gather. And I was just walking the shop floor yesterday here in Cincinnati with the operations team and I was asking them to kind of picture where we are today versus same facility, same layout, same square footage, and the operational efficiency that we’ve been able to gain.

If we ever broke it down, we don’t break it down this way, but if you were to think about effectiveness per square foot, it’s easy for them to see that efficiency and that effectiveness that they’ve been able to bring in. And it’s just — it makes me smile when we walk around the factory floor and we see that. We see where we are today, but we also see where we can be tomorrow. And we’ve got plans to get there.

Rick Fearon: That’s awesome. Thanks for that description. That’s helpful. So, my few questions turned into a few more, but this is the last one, I promise. And it’s just regarding the M&A pipeline and how things still looking on that front?

James Clark: Yes, I’m going to answer that in a second because there’s one other thing I was just thinking about in terms of efficiency and I mentioned it in my comments, but our Center-of-Excellence we’ve made around some of our print solutions and some of our digital solutions has also been extraordinary and we’ve been able to do that. While we had some — we had the capacity to meet our customers’ demands, we were able to marry it up with some kind of slowdowns as we know we were talking about the grocery market kind of being slow. And instead of sitting there and saying, okay, we’re slow, we just turn that opportunity and saying, now is the time to make some of the changes that we want to make and it won’t be disruptive to our position in the market.

And I mentioned in my opening comments, the Center-of-Excellence we’ve created mostly in Houston, where we took and we reoriented some of the work we were doing in Northern Ohio and reoriented that down to Houston and the efficiency we got out of that are really remarkable, and I’m very pleased with the way we did that, and it would happen kind of seamlessly to our customers, and we’re always making sure that we can do that. So, I’ll pivot into the question about M&A. Like I said, we’re at 1 times leverage ratio right around there. Our ability to generate cash remains healthy. Our plan to kind of settle the debt that we brought on for EMI is all well thought out. And so we remain very active in the M&A space, and I’ve mentioned it before, at least from our perspective, I’m not trying to talk about the broad market, but from our perspective, the conversations with people that we’re talking to from an M&A perspective are much more grounded today.

There are much — people are much more willing to sit down and not just talk about their current performance but where they think their performance is going to be. And every SIM still comes with a massive hockey stick in terms of growth. Every personal relationship we have, we try to work very hard about self-originating our own deals. All of those conversations, I feel like there’s a real level setting that’s occurred over the last 12 to 18 months and continues right now, where people are not only willing to look historically and say, look at what we’ve done, but they’ve got a good view on where they can go prospectively in the future. And we really — we value those conversations. And as you know, we value culture. And I’m very pleased with our pipeline, and I’m very pleased with our — the conversations that are occurring in those pipelines.

And I also don’t feel like deals have to be made in a minute because I think that those deals that need to be made in a minute are we don’t discover and we don’t have the opportunity to plan and they’re not as successful long-term. I mean even though they can be successful, they just don’t have the same velocity that we’re able to create when we’re able to look and see how culture is going to fit in and how their forward planning is going to fit in. So, if I were to talk about our M&A environment right now, I think it’s the best we’ve had since I’ve been here.

Rick Fearon: That’s exciting Jim. It sounds like you’re not looking for a good seller, you’re looking for a good partner. Thanks for — thanks to you Jim and Jim and your team for the great work. Appreciate it.

James Clark: Thank you.

Operator: We have reached the end of the question-and-answer session. I’d now like to turn the call back over to Jim Clark for closing comments.

James Clark: I would say it was a very active Q&A. So, I don’t know if I have a lot of additional comments I want to leave. I will say this that I think everybody that’s on this call is very aware of market disruptions and the headwinds and all of those things. And what I’m most proud about from a team environment from an LSI as a company despite those headwinds, we were able to perform financially, we were able to perform for our customers, we were able to perform for our shareholders, and we were able to perform and keep our employees engaged and busy. And I think the future looks very bright for us. And I’m excited about this first quarter in five where our order rates picked up, and I expect much more to come. So, thank you for continuing your interest in LSI, the people that are here, our customer segment and I think that we’ve got a lot more left to deliver. With that, I’ll say good afternoon.

Operator: This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.