LSI Industries Inc. (NASDAQ:LYTS) Q4 2023 Earnings Call Transcript

Jim Clark: Well, you know that we’re pretty good about planning. And I think our Fast Forward plan up on the web is a good indication of how we like to set our goals and objectives. We have a number of things we feel we can still do operationally from a procurement standpoint, from a manufacturing standpoint. But a lot of those things are gated by the ongoing kind of variations, input commodity pricing, some things are moving down. Some things are moving up. Labor is still a bit unsteady. I mean we’ve been doing very good with it, and we feel very good, but it’s still just a bit unsteady. And it’s not really within our company as much as externally. And so some of the programs that we want to initiate implement and continue to refine and implement are – it’s the timing is just not right because you’re trying to do things while it’s raining outside.

So it’s just better to – for some of those things to wait when things become more stable, but we have the plans to implement that. And when I say that we have more runway. We have the plans to do those things. And I think you can see from our margin performance and stuff, we’re incrementally implementing those. But if the environment was a little bit more stable and again, I’m not just talking about internal, I’m talking about external partners and things like that, installation teams, permitting issues, things like that. We think there’s another couple of turns of the wheel we can implement that just allow us to become more efficient and they’ll be reflected in margin.

Jim Galeese: Aaron, one of the things we’re very encouraged about our margin expansion has been – it’s been very balanced, not driven by one particular element. So volume certainly over the last year has been a contributor, higher quality applications, so higher quality mix certainly playing into that. Our ability to really – and we spend a lot of time on this getting pricing right by program, representing the value of the solutions we’re providing and the customer recognizing that. So we spend a lot of time on pricing. And then we’re always keeping a sharp eye on costs, our material input costs, design savings, etcetera. So all those serve to contributing to the margin expansion we’ve driven now over the last couple of years.

Aaron Spychalla: Right, right. Thanks for that. And then just maybe last, really nice free cash flow generation and continuing to pay down the debt over the last 1.5 years. Can you just maybe give an update on kind of capital allocation priorities? You saw the mention of organic and inorganic. But just maybe some more color there.

Jim Clark: Yes. I don’t think you’re going to see any material changes in our capital models that we’ve used in the past. I think you have to give some way for inflation and the general from a total dollar standpoint, just the inflated cost of things that are going to be with us for some time. But beyond that, we don’t see any radical changes to our past performance.

Jim Galeese: Our priority items. We see in the short intermediate term remaining the same. Correct.

Aaron Spychalla: Okay. And then anything I mean, anything new on the M&A outlook as we kind of think about that opportunity with kind of the balance sheet you much improved?

Jim Clark: Yes. I mean it’s always a tricky subject to talk about. I’ll just – I’ll say what I’ve said in the past. We always have our oars in the water looking for opportunities. We think that – we think the environment is a bit better right now. I mean I know there’s a lot of thoughts on this, but we think the environment is a bit better right now. I think there’s a lot of owners faced with our smaller businesses are faced with ongoing struggles or stabilization of their business and how much they want to continue to put in. I think that the change in cost of capital and such as slowed down some of these stratospheric multiples. And I like the tone of the conversations a lot better today than I did a year ago, and our activity level is strong.