Greetings, and welcome to LSI Industries' Fiscal Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jim Galeese, Chief Financial Officer. Thank you, sir. Please go ahead.

Good morning, everyone and thank you for joining. We issued a press release before the market opened this morning, detailing our fiscal fourth quarter and full fiscal year 2021 results. In conjunction with this release, we also posted a conference call presentation in the Investor Relations portion 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 fourth quarter GAAP and non-GAAP results is contained in our press release and 10-K. Please note that management's commentary and responses to today's questions on the 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 fourth 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 thank you for joining us on today's call. As you know, LSI's fiscal year runs from July 1 through June 30th, and as such, we'll be discussing fourth quarter and full year 2021 results on today's call. I'm proud to say that we finished the year with a strong fourth quarter and full year-over-year growth in a challenging environment. Our fourth quarter net sales increased 53% versus the prior year, 22% sequentially from Q3, and 39% organically. Margins continue to improve and adjusted EPS rose to $0.12 versus $0.07 in the prior year. Jim Galeese will provide additional color on financial results in a minute. In fiscal year 2021, we turned the COVID challenge into an opportunity, introducing more than 40 new or reengineered products across the business. We introduced two new lighting lines, Opulence in LSI and Origin at Atlas; both product lines represent new thinking and performance in design, and they allow our representatives, agents, and employees to be more competitive and differentiated, while allowing our customers to benefit from the latest generation of sustainable and energy-efficient lighting solutions. In connection with our ongoing improvements in lighting fixtures, LSI continues to innovate in our lighting controls area. LSI developed an affordable entry-level control solution just over a year ago. Along with other third-party partner solutions, they allow us to provide multiple configurations to meet various customer requirements, greatly improving the overall functionality and energy efficiency of our solutions. We estimate that almost 40% of our projects now include some type of system control, and that number will continue to grow. On the Graphic side, now referred to as Displayed Solutions, our continued engineering development has introduced a new category of QSR visual display solutions, allowing for a single system on a chip approach that can be used across most of our projects in addition to our external graphics driver's products, which we have traditionally used. This system on a chip approach vastly simplifies the manufacturing process and reduces onsite serviceable components while creating a more modern, flexible, and energy-efficient design. Along with the Display Solutions group is our latest acquisition, JSI. JSI provides display solutions in various markets with their particular strength in the grocery vertical. They design, manufacture, and deliver a variety of products from simple tabletop displays and cases to refrigerated solutions. The refrigerated solutions use a highly efficient modular design, allowing for simple onsite service and energy-efficient operation. JSI is also leading the way in the development and use of next-generation refrigerants that will help to create environmentally sustainable systems for our customers. Lastly, I'd like to comment on our Adapt business unit. Adapt is our field services group, and they represent the deployment management team for our local and national customers. They serve both large and small projects, including our petroleum, convenience store vertical, automotive, grocery, and QSR customers, among others. This group continues to be an important asset to LSI, our representatives, agents, and end-use customers. They allow us to provide a single point of contact for a fully deployed system. They manage and arrange onsite services, including everything from site surveys, design work, permitting, and onsite contracting services, creating a single point of customer contact. In fact, this group, along with our Houston operations, deployed a contactless payment system last fall for one of our largest petroleum customers. They were responsible for coordinating the manufacture and design of the system graphics, along with the installation and enrollment of each individual pump at more than 11,800 locations. I'm proud to say that this project was completed safely at the height of the pandemic and deployed across the country in less than 100 days. These stories and activities reflect customer confidence in LSI. They demonstrate our commitment and progress against an ongoing strategy that we developed two years ago. Our commitment is to provide world-class service with highly efficient sustainable products and solutions. We provide these solutions to the broad market, but we focus on key vertical markets, allowing us to differentiate ourselves from commodity products while expanding the value of the solutions we provide. In fiscal year 2021, the LSI management team, along with an energized and committed workforce, achieved year-over-year growth across both the Lighting and Display Solutions groups. Our prior work in manufacturing efficiency, supply chain resiliency, engineering, and sales allowed us to meet our order commitments and capture new business in a challenging environment. I'm proud of the way our team and our company adapted to serve our customers. I want to take a moment to say thank you to the entire team for their efforts and, more importantly, their contributions to our results. In fiscal year 2022, we are setting our sights even higher. We have used the last year to make continued progress against our strategic priorities, and we enter 2022 with momentum. Our backlog entering the New Year is strong, and our orders are up. Our quote activity is the highest it's been since I joined the organization. We are continuing our focus on higher margin opportunities, concentrated on our key verticals. Our commercial and marketing efforts continue to improve, and we have strong price discipline in a highly dynamic market. We are engaged in a number of new, exciting projects, including a rebranding effort for a large Southwest grocery chain, multiple automotive projects, our ongoing work in the petroleum convenience store market, and the new design and installation of a solar-assisted gas station and convenience store in Texas. Our acquisition of JSI is off to a very strong start, and I'm happy to say they're having the highest billing amounts in the history of the company. Our commercial team has already begun the process of mapping out cross-selling and joint customer opportunities. Our operations team has implemented a cross-factory LSI/JSI manufacturing program to assist with a project for one of the world's largest e-retailers and expanding grocer. This is just the beginning, and collectively the teams believe there are a number of areas we can work collaboratively to improve the effectiveness and efficiency of the operation. We are all excited by the opportunity ahead. In summary, I'm pleased with the progress we have made in 2021, and I'm excited about 2022. We have delivered on our commitments to our employees, our partners, our customers, and our investors. We have a high say-do ratio underpinned by a solid strategy. I'm confident in the position of our business moving forward, and I'm looking forward to the journey ahead. With that, I'll turn the call back over to Jim Galeese for comments on our financial performance.

Thank you, Jim. I'll start by highlighting key financial statistics for the fourth quarter and full year fiscal 2021, then provide additional comments on segment performance. Net sales were $97 million for the quarter, a growth of 53% over the prior year. Excluding the five weeks from the JSI acquisition, organic growth was 39%, with both reportable segments generating significant growth. Sequential organic growth from Q3 generated a stair-step increase of 22%. Q4 net income, which included pre-tax acquisition-related expenses of $2.9 million, was $200,000, while non-GAAP or adjusted net income was $3.3 million for the quarter, an increase of 82% from $1.8 million last year. Earnings per diluted share were $0.01, including the impact of acquisition-related expenses, and non-GAAP earnings per diluted share were $0.12 compared to $0.07 per share last year. Adjusted EBITDA increased to $6.8 million from $4.6 million last year. For fiscal year 2021, adjusted net income and adjusted earnings per share more than doubled the prior year. Adjusted net income was $9.8 million compared to $4.1 million in fiscal 2020, and adjusted earnings per share were $0.36 versus $0.15 for the prior year. Performance improved steadily throughout the year as fiscal 2021 sales finished 3% above the prior year after starting with Q1 down 21% because of the continued COVID impact on our markets. The company generated $2.7 million of free cash flow in Q4, impacted by increased inventory levels and $2.9 million of acquisition-related charges. We purposely increased inventory to support accelerating sales, as well as manage ongoing lengthening of supplier lead times on key components and other supply chain disruptions. During the fourth quarter, the company deployed $90 million toward the JSI acquisition, including $24 million of existing cash, with the remainder financed through the existing $100 million credit facility. At the end of Q4, the company had $68 million in long-term debt, resulting in a ratio of net debt to pro forma trailing 12-month adjusted EBITDA of approximately 2.5 times. LSI had availability of $32 million on its credit facility at quarter-end. A regular cash dividend of $0.05 per share was declared payable September 7th for shareholders of record on August 30th. Shifting to segment performance, both segments achieved substantial improvements in sales and operating income, both sequentially from Q3 and to the prior year. Sales for the Lighting segment increased 30% year-over-year in the quarter, a result of the increased quote and order activity we've experienced over the last several months. Sales increased both across project business as well as sales through distributor stock. Distributor stock sales increased more than 50% compared to the prior year, driven by increased current demand and improved distributor confidence to begin increasing stock levels after decreasing inventory levels throughout the last 15 months. Construction indicators remain very favorable. Our quote levels remain strong, and we enter fiscal 2022 with a considerably higher backlog. We continue to align selling prices to changes in commodity input costs, successfully maintaining margins. Our proactive approach to managing the supply chain has minimized disruption, and combined with our U.S.-based manufacturing, allowed us to hold our lead times and maintain customer service levels. For fiscal year 2021, the Lighting gross margin rate improved by 250 basis points, generating increased operating income despite COVID-related lower sales. As outlined in the press release, we have renamed the Graphic segment to Display Solutions to more accurately describe the comprehensive offering the business combination provides. Fourth quarter sales for our Display Solutions segment increased 93% versus the prior year, with organic growth of 54%. Growth was led by our digital signage portfolio and the continuing benefit from our large QSR program that remains in process. The program was approximately 40% complete at the end of June and will continue throughout fiscal 2022 and into fiscal 2023. We were successful in the quarter in winning additional store orders for a fast-growing grocery chain in the Southwest, where we provide a broad range of display products. In addition, development activity on potential new programs remained strong, working with over 10 customers across multiple verticals. Initial cross-selling opportunities with JSI have been prioritized, and we're confident this will lead to additional program activity later in fiscal 2022 and in future years. For the full year fiscal 2021, Display Solution sales increased 27%, with adjusted operating income increasing 69% to $10 million. I will now turn the call back to the moderator.

Thank you. Our first question is coming from Craig Irwin of ROTH Capital. Please go ahead.

Hi. Good morning, gentlemen. Congratulations on really strong revenue this quarter. When I look back at history, it looks like if we strip off the benefit of your acquisition, this is quite clearly significantly above your highest fourth quarter in history. So, congratulations.

Yeah. Thank you, Craig.

First question, really what's driving that? I mean, is this really the dam breaking, everybody that had things that were going slower than they wanted during COVID? Is this a new product portfolio? I mean, can you help us understand why revenue's doing so very well at this point?

Craig, thanks. This is Jim Clark, and thank you for calling in and for the comments. It's not one thing; it's a combination of a number of things. Certainly, us being more competitive on the product side and the solution side, being able to help in deployment, and all those factors have significantly accelerated our sales. The second thing is that there is—there was, and is, pent-up demand. A lot of projects—if you think about Lighting in particular—Lighting is towards the latter stages of the development of a building and the installation phase and all of that. So many of those projects that we have deployed over the last quarter were projects that were simply delayed because of COVID, but they were further along in their development cycle. As we look at AIA, we see that the architectural index is way up, up almost 60 on a relative scale of 50. Below 50 is negative and above 50 is positive; we're up around 60, which is a historical high and signifies a lot of activity and planning. I was just looking at a Dodge report yesterday that also indicates that the delays in construction because of material inflation and all of that are starting to become spotty. So, LSI, like—unlike— I mean, just like every other company out there, we're battling through these fits and starts of COVID. But I think we were very well-planned and ready to execute, and I think that we picked up a lot of customer interest because of our supply chain buy-ahead, and having materials and having the workforce to be able to deploy it. This was all part of our plan to be ready for this last quarter and the next quarter. I think we really benefited from it.

That's really good to hear. So, your acquisition also seems to be starting off particularly strong, right? Just south of $9 million in the five weeks, or roughly five weeks, that you owned it. It seems like there is potential for execution above the numbers that we previously talked about. Can you tell us, with this maybe—just the post-acquisition sort of spurt of delivery sometimes that we see in M&A transactions, or is the business philosophy there reflecting the same really strong fundamentals?

I would certainly highlight that it's the latter, right? It is strong fundamentals. We see continued secular growth in the grocery store market. I know that there were some comments occasionally that as COVID eased a lot of people would go back to restaurant dining and things like that. What we've seen is that grocery stores really took an opportunity—it made it an opportunity, not just on the tactical side but on the strategic side to improve their service offerings, prepared meals, higher caliber of selections available, the display portion of that, the graphics, and the refrigerated cases—all of those become very important because it's a whole shopping experience they're going for. We think that we're really going to benefit from JSI, which has a relatively long tail relative to a project and being quoted on a project and getting a product out. One of the things we definitely benefited from was that the world's largest e-retailer in emerging grocer had a large order in. We were actually able to kind of accelerate a bunch of that by using some of JSI’s manufacturing—LSI’s manufacturing resources to support JSI. So, that really worked out well. And I think there's a piece of that—in that accelerated number that we got in that stub period that was due to that collaboration. As we look at the business, first of all, fundamentally, it's a very strong business run by a great management team up there. They're energized and committed to being here. They're excited to be part of LSI as opposed to being under another financial ownership or something like that. That, number one, is probably the most important thing. But number two, I think that LSI has demonstrated in the last couple of years from operational improvements and things that we've been able to do there; we feel like there's a lot of opportunity at JSI as well. And so does the JSI team. So, getting the teams together, which we've worked on over the last few weeks or a couple of months, if you will, has already started to line up projects where we think we can help. One of those was—I'll just circle back around to it; one of those was the assembly of some of these products for the world's largest e-retailer, and it really worked out well. So, we're very happy with this acquisition. We think that it fit in exceptionally well in our strategic plan for grocers and the evolution or expansion in the convenience store environment with JSI. It was part of our investment thesis, and it's worked out very well so far. We're just excited about it, and they've done an exceptional job. So, we are very happy with their performance in those five weeks.

Thank you for that. So, the one thing that maybe didn't move in your direction this quarter was the gross margins. I understand when you consolidate a new business, there's always increased costs and positioning of materials, adjustments made to manufacturing. Can you talk us through the sequential gross margin progression? Was this a temporary blip here as you completed the acquisition and dealt with some of these large orders coming through? Or is this similar to what we should expect going forward?

Yeah. I mean, I think there were three things that accounted for that. Number one, like you said, during the acquisition, we haven't recognized any of the benefits, and we took resources and time and everything to go through the acquisition. And it's not just the day we close and the days after, but it was the lead-up to it. So that's number one. Number two was just general mix, right? We had this pent-up demand and things like that, but our mix wasn't optimal, but it was strong. Our mix accounted for a little bit of that. And number three, I'll just be candid. We've been very, very careful about watching price inflation, but we made a strategic decision along the lines to protect our agents and protect the projects that they had. We took some margin erosion purposely as opposed to potentially disrupting some of the projects we had and some of the quotes we had out there. We couldn't offset the accelerating input costs, but we didn't pass all of it overnight onto our dealer base and onto our customer base. So, we did that purposely and strategically, and all three of those combined put a little pressure on margins, but it's temporary. Craig, as you know, you've been following us for some time, we've been laser-focused on margins and we still believe we have room to—well, we do know we have room to grow to continue this advancement and progress. This was just temporary. Jim, I don't know if you want to add anything to that.

Hi, Craig. Jim Galeese here. Yeah. I would just add, if you look at it by our two segments, Lighting, sequentially, the margin rate was down modestly by less than a point quarter-on-quarter. That reflects then all the actions taken to offset these higher input costs, the price increases, and so forth. You'll always lag slightly. So, that less than a point degradation reflects that. Going forward, we're confident that we're going to be able to sustain our margin rates given the share price actions and input costs. If you look at the Display Solutions segment where the decline sequentially was a little larger, to Jim's point, it was strictly a function of mix. There are three components to that we look at internally to that segment, and that is our petroleum segment. The margin was actually up sequentially a bit. Our grocery segment margin was actually up a bit, and then of course our digital menu board products, digital signage, which was actually flat, but it was down in aggregate because digital signage represented such a larger section of the overall Display Solutions for the quarter. Remember, we've talked about that that's an integrator model. It's going to have a lower than average gross margin rate, but low asset utilization still very, very high. So really, Display Solutions was strictly in summary, a function of the mix.

Thank you for that. Another very important question is supply chain. You guys were obviously unscathed by the challenges out there, while others in the Lighting and Display markets could not always be so lucky, right? I think a number of companies have been impacted. Can you talk a little bit about what you're doing right? How you may be prepositioned yourselves and whether or not you expect this similar execution to carry forward over the next couple of quarters?

Yeah. Well, I appreciate the words 'unscathed.' I don't know—it was a rough and tumble. I mean, we were really duking it out, and we continue to do it. The thing that helped us the most on that was what we did two years back, which was diversify our supply chain. We had a lot of concentration. We had a lot of foreign concentration. We brought a lot of our—we tried to develop domestic supply chain partners under that 'built in the USA, made in the USA' ethos. So that was number one. We did diversify, so we're not solely concentrated on the Far East. We do have some South American supply partners and others. If you'll notice our inventory, we did build a little inventory, and we've been doing that over the last three or four quarters, but we knew that. We took that approach purposely to help create some safety margin, if you will, in the gaps and potentially incoming supplies. We have struggled with some of that; probably the most acute has been Graphics, with some of our—like many people, some of the chip solutions we have where we have everything ready to go minus literally one chip. The benefit to that, though, was we had a number of customers that were very committed to a certain product design, and we've advanced the design of some of our solutions—basically in-house. Here, we call it system on a chip, which integrated some of the display drivers solutions into our menu board. We had some customers that had mixed feelings about it. They weren't sure if they wanted to make that jump because they had uniformity and consistency in some of their current solutions. I would tell you that the timing couldn't have worked out better. I mean, I would certainly trade the system on a chip for no pandemic, but because of some of the pressure on the chip supply, we were able to offer a different—a different chip, but a different design offering to these customers. It's really advanced us in that. So, we feel pretty positive about that too. We're not immune to supply chain disruption. I think that our team has done a very good job of the buy-ahead. I think they've got very aggressive plans and have been working at going forward. I think any disruption, if we experience anything, will be minimal at least for the time being. We will continue to work to stay ahead of that.

And Craig, I'll just add, we started with the premise. We were not going to extend customer lead times. Starting with that premise led to a series of activities, increasing inventories, and other elements to combat that, and they've proven successful thus far. We're committed to maintaining customer lead times. We're not at 100%, but just in case any customers are listening, they want to call us out. I realize we're not at 100%, but I do think that we're beating much of the market.

Great. That's really good to hear. Congratulations on this really strong execution. We look forward to continued progress.

Yeah. Thank you, Craig. I appreciate it.

Thank you. Our next question is coming from Amit Dayal of H.C. Wainwright. Please go ahead.

Thank you. Good morning, everyone. Most of my questions have been addressed. In terms of the product you are now planning to work on, what kind of new products should we sort of expect from you in a post-JSI environment?

Well, I think that first of all, JSI has a pretty robust product development pipeline. They have a good engineering team. There are some thoughts, probably one of the most interesting ones, and I think one of the ones that will be very well received and will continue to be well received, is the use of alternative refrigerants, more environmentally friendly systems. If you look back to our advancements made since that time regarding ozone depletion and related concerns, the industry has been disciplined about seeking alternative solutions in refrigerants. So, from a design standpoint—strictly engineering and product standpoint—they have a good pipeline. As far as us combining—us combining what we want where we can get some joint development opportunities, obviously we make lights and graphics; a big piece of their solutions lies around the look and feel of their product. We believe that from a graphic standpoint—and these are graphics; I don't mean posters and things like that. I mean the wood-faced elements, the metal, industrial looks, highly engineered, highly customized products—we think that we already believe that the graphics group can help them quite a bit in terms of what they can offer to their customer base. Obviously, there's a lighting aspect, interior lighting to help feature the products in the cases in a better way. And then outside of engineering, the commercial opportunities that we have—that's something that as part of our original investment thesis. We look at how we can share a similar customer base, identify overlaps, and expand into different markets. That will take some time; that's not going to happen overnight. It may take a better part of a year or two to really realize that momentum. However, we have already started that process of identifying those opportunities, and we're very excited about it.

Understood. Thank you for that. And then you mentioned backlog has been growing nicely. From a percentage perspective, if not absolute numbers, could you share what kind of improvements you're seeing on the backlog side?

I'm going to let Jim Galeese comment on that. But before he does, I'm going to say that—in general, and I don’t know if it actually is I'm saying—I don't know if Jim will have anything to add to it. In general, our backlog coming into the beginning of 2022 was strong. I can't say that backlog itself has made any significant changes, but I will say that quote rate has gone up significantly. Some of that is because customers are staying current on inflationary pricing in the materials. The other half of it—even if we subtract that—there's just a lot more project interest. I don't know if it's because there were projects that were put on delay or hold in the past, or because people are digging in and looking at the infrastructure side and new projects that may be partially funded by the current administration and infrastructure projects and things like that. But our quote activity has been very high. Jim, I don't know if you want to add anything in terms of the backlog.

Yeah. One comment I'll make is we monitor our book-to-bill ratio very closely. Throughout the fourth quarter, every month we added a positive book-to-bill ratio over one, and that's continuing as we saw through July. Given that, that also contributes to increasing our backlog. So, our backlog has, as we exited Q4, and actually as we exited July, increased both sequentially as well as to the prior year.

Understood. Thank you for that. That’s all I have, guys. Appreciate it.

I appreciate that. Thank you for the questions and thank you for the participation.

Thank you. At this time, I'd like to turn the floor back over to Mr. Clark for closing comments.

Well, this is Jim. I would just say again, thank you for taking the time, thank you for the questions and the comments. We're not unlike any other business. We have employees and people that work here that are navigating the current challenges that we have environmentally. I think that we've seen the energy and capability of the team, and I'm very proud of the folks that have been here and found ways to help us navigate through supply chain challenges and labor challenges and found ways to operate safely in the environment that we're in. I would say that our say-do ratio is very important to our employees, our customers, and our investors. I think that we've been able to maintain a high say-do ratio, and we will continue to focus on that moving forward. That's our number one focus; we want to stay committed to the things we say we're going to do so that we maintain our high say-do ratio. With that said, it's an environment that's in constant change. We've got good people to help us adjust to that, and we look forward to the normalization of the environment and the continued growth of LSI for everybody. That's part of LSI, whether you're a customer, employee, or supplier. I just want to say thank you and thank you for the time on the call today.

Ladies and gentlemen, thank you for your participation and interest in LSI Industries. You may log off the webcast or disconnect your phone lines at this time and have a wonderful day.