LSI Industries (NASDAQ:LYTS) executives told investors the company delivered a “solid” fiscal 2026 second quarter, holding revenue essentially flat year over year while improving profitability and generating strong free cash flow that was used to pay down debt. Management also emphasized improving order trends exiting the quarter and said it expects growth in the second half of fiscal 2026, supported by backlog and activity across key vertical markets.
Quarter results: flat revenue, improved profitability and cash generation
President and CEO Jim Clark said second-quarter revenue was essentially flat year over year at $147 million, which he characterized as solid execution given difficult comparisons in Display Solutions. CFO Jim Galeese said adjusted net income and adjusted EBITDA were “modestly above” the prior year and “double-digit” above the same quarter of fiscal 2024.
Cash generation was a notable focus. Galeese said free cash flow was over $23 million in the quarter, which he described as higher than expected following a “timing-related softer first quarter.” The company used the cash flow to reduce total debt by $22.7 million, ending the quarter with a net leverage ratio of 0.4. Galeese added that, under the company’s amended financing facility, LSI has cash and availability of approximately $100 million.
Lighting segment: third straight quarter of double-digit growth
Management pointed to continued momentum in the Lighting segment. Clark said Lighting posted 15% sales growth year over year with “meaningful margin expansion,” following 18% growth in the first quarter. Galeese said the segment delivered its third consecutive quarter of double-digit year-over-year growth and continued to outperform what the company is seeing in broader non-residential construction indicators.
Galeese reported Lighting adjusted operating income increased 29%, and the adjusted gross margin rate improved 190 basis points versus last year, attributing the improvement to volume and margin management.
Clark outlined factors supporting Lighting performance, including:
- adding aluminum poles to the steel pole product line,
- an increase in large project shipments,
- momentum in the national account strategy, and
- traction from recent product introductions and “product vitality” efforts.
Both Clark and Galeese said Lighting orders were up about 10% year over year in the quarter, producing a book-to-bill ratio above one and an improved backlog. Galeese said the company expects favorable Lighting momentum to continue into the second half of fiscal 2026.
Display Solutions: normalization in grocery, steady activity in refueling and new opportunity areas
In Display Solutions, executives framed the year-over-year comparison as being distorted by unusually strong grocery demand in the prior-year quarter. Clark said the second quarter of last year benefited from “event-driven” demand following the resolution of a failed merger between two large grocery chains, which led to exceptional growth of 100% in the segment in that period. With demand returning to more normalized levels, Display Solutions revenue declined slightly year over year in fiscal 2026’s second quarter, but Clark said execution remained strong and order trends improved.
Galeese said second-quarter grocery sales reflected a return to “normal seasonal demand,” which he noted allows more predictable planning and execution. He added that Display Solutions adjusted gross margin improved 30 basis points despite lower production volume, citing productivity benefits from more stable scheduling. Galeese also said grocery orders increased double digits year over year, with a book-to-bill ratio of 1.2 versus under one last year, building backlog. He said the company expects sales growth in grocery in the second half of fiscal 2026.
Executives also discussed activity in the refueling and convenience store (C-store) vertical, which Clark called healthy and “steady.” He said LSI is executing against several large customer programs while onboarding additional smaller projects that provide a pathway into fiscal and calendar 2027. Galeese added that the company recently added multiple mid-sized projects spanning new and existing customers, including some non-domestic entities.
Galeese pointed to cross-selling enabled by service work, describing one refueling C-store customer where LSI provides service at more than 140 sites. He said the relationship helped drive adoption of the company’s Archer Perimeter Lighting System, expanding revenue per site.
On quick-service restaurants (QSR), Galeese described the vertical as “sluggish,” citing inflation, leadership changes, and shifting consumer habits. However, he said teams remain active with customers on programs in concept and development phases, though timing of broader releases is unclear. Clark also noted that while Q3 is typically the company’s toughest quarter seasonally, he expects LSI to outperform the prior-year third quarter, even if the timing of activity shifts between Q3 and Q4.
Clark highlighted a developing opportunity set in “casual dining” and “premium food services,” where he said programs often involve fewer locations than QSR but can carry significantly higher value per site—often $250,000 to $1 million per location. In response to analyst questions, Clark said LSI has long participated in these markets but is seeing improving indications and believes its one-stop-shop capabilities—spanning areas such as refrigeration, countertops, steel, lighting, graphics, and millwork—fit customers’ needs. He said the company expects to have more visibility to discuss the opportunity after a few more quarters.
Integration, pricing discipline, and M&A posture
Clark said the company’s focus for 2026 and into 2027 remains its people and deeper integration of acquired businesses JSI and EMI under the LSI umbrella, with an emphasis on breaking down silos and enabling cross-selling. He noted the company recently added a senior sales leader in Display Solutions to improve visibility into sales activities and pipeline conversion, and said LSI plans to host a national sales meeting in Cincinnati bringing together nearly 120 sales and marketing employees.
On the EMI integration, Clark said EMI has delivered more than 200 basis points of margin improvement and that reaching “10 and a half and better” likely still requires about a year of progress.
Clark also provided an update on Canada’s Best, describing the acquisition as a strong cultural fit and saying the company is integrating Canada’s Best operations with JSI’s Canadian facility to create a stronger Canadian operation under one umbrella. He said LSI has begun discussions with U.S. retail bank environments but has not yet had “meaningful wins,” noting that large multi-site programs can take 12 to 24 months of lead time.
On pricing, Clark said the company is “very disciplined” and tends to make “price adjustments” rather than blanket increases, aiming to remain competitive while protecting margins. Galeese added that the company’s project-based model allows regular review of pricing versus input costs, and management said it generally retains the right to revisit pricing even on multi-year projects.
Regarding M&A, Clark said LSI is generally comfortable with leverage below three times EBITDA and “sleep[s] even better” below two times, noting the company’s current leverage is 0.4. He said higher interest rates have had a “leveling effect” on acquisition multiples and made deal discussions more realistic, which he views as favorable for strategic acquirers, though he emphasized LSI’s selectivity—particularly around cultural fit. Galeese said the company’s cash flow supports flexibility, noting LSI is on pace for a fourth consecutive year of free cash flow exceeding $30 million.
About LSI Industries (NASDAQ:LYTS)
LSI Industries, Inc (NASDAQ: LYTS) is a diversified manufacturer and distributor of lighting, graphics and building technology products. Headquartered in Cincinnati, Ohio, the company develops energy-efficient LED lighting systems, branded and digital graphic displays, and integrated building technology solutions. Serving customers in the retail, quick-service and convenience store, industrial, hospitality and transportation markets, LSI combines design, engineering and manufacturing capabilities to address both aesthetic and functional needs.
In its lighting segment, LSI offers interior and exterior LED fixtures, canopy lights, high-bay and low-bay systems, and specialized horticultural grow lights.
