LSI Flat on Revenue, Surging in Margins and Confidence

Date of Call: Jan 22, 2026

Financials Results

• Revenue: $147 million, essentially flat year-over-year
• EPS: $0.26 per share (adjusted)
• Gross Margin: Not explicitly stated; Lighting adjusted gross margin improved 190 bps YOY; Display Solutions adjusted gross margin improved 30 bps YOY
• Operating Margin: Not explicitly stated; Lighting adjusted operating income increased 29% YOY

Guidance:

• Expect continued progress in second half of fiscal 2026, supported by improving order trends and backlog.
• Remain confident in secular growth outlook across key vertical markets and ability to grow above market.
• Expect sales growth in grocery in second half of fiscal 2026.
• Expect favorable momentum to continue in Lighting into second half.
• Activity expected to remain elevated in Mexico and international markets into fiscal and calendar year 2027.
• Expect to generate growth in Q3 and second half of fiscal year.

Business Commentary:

Revenue and Profitability Trends:

• LSI Industries reported revenue of $147 million for Q2 fiscal 2026, which was flat year-over-year. Adjusted EBITDA increased to $13.4 million, and free cash flow was strong at $23 million.
• The flat revenue was influenced by a return to normal demand patterns following a previous surge, while improved profitability was driven by disciplined project pricing, productivity improvements, and effective cost management.

Lighting Segment Growth:

• The Lighting segment achieved 15% year-over-year sales growth in Q2, marking the third consecutive quarter of double-digit growth.
• This growth was fueled by the addition of new product lines, increased large project shipments, momentum in National Accounts strategy, and strong traction from recent product introductions.

Display Solutions Segment and Market Dynamics:

• Display Solutions experienced a decline in revenue due to prior year comparisons, particularly in the grocery vertical, which returned to normalized demand levels.
• Despite the decline, orders improved sequentially and year-over-year, supported by healthy customer engagement and active planning discussions, indicating a solid foundation for future growth.

Order Trends and Book-to-Bill Ratios:

• Lighting orders were up approximately 10% year-over-year, resulting in a book-to-bill ratio above 1, indicating strong future demand.
• In the grocery vertical, orders increased double digits year-over-year, generating a strong book-to-bill ratio of 1.2, which supports expectations for sales growth in the second half of fiscal 2026.

EMI Integration and Cultural Synergy:

• The integration of EMI has shown positive results, with improvements in operational efficiency and sales synergies.
• The successful integration was largely due to a strong cultural fit and a focus on aligning teams around shared goals, which has enhanced collaboration and cross-selling opportunities.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated, 'We delivered a solid second quarter with results that were in line with our expectations... I'm pleased how this quarter performed and how our teams executed.' Also noted 'healthy customer engagement, active planning discussions and increasing order trends as we exit the quarter' and 'we remain confident in the secular growth outlook across our key vertical markets and in our ability to grow above market.'

Q&A:

• Question from Aaron Spychalla (Craig-Hallum): Help frame the opportunity for refueling and c-store given the onboarding of multiple midsized projects.
  Response: Management described a pipeline of smaller, similar projects geographically spread, providing a pathway through remainder of 2026 into 2027, indicating healthy business.

• Question from Aaron Spychalla (Craig-Hallum): Talk about market drivers in Mexico and elevated demand into FY27.
  Response: Management sees competitive forces accelerating refresh of locations, with remodel activity trending 5-year cycles, and believes this supports long-term growth; Mexico activity is in early stages.

• Question from Aaron Spychalla (Craig-Hallum): Discuss EMI integration margins and operational initiatives.
  Response: Management emphasized cultural fit was key; EMI has made >200 bps margin improvement since integration, with potential for full year to reach 10.5%+.

• Question from Chris Figlin (Oppenheim & Company): Clarify what premium food services entails and if it includes campus meal plans or hotel buffets.
  Response: Premium food services includes casual dining (e.g., waiter-service restaurants) and hospitality like colleges/campuses; these projects are fewer locations but much larger in scale and value, representing a growing market for LSI.

• Question from Chris Figlin (Oppenheim & Company): How do you think about appropriate leverage ratio ranges for potential M&A deals?
  Response: Management is comfortable below 3x leverage, prefers below 2x; has history of using debt revolver for acquisitions and bringing leverage down quickly due to strong cash flow.

• Question from Alexander Rygiel (Texas Capital): Update on Canada's Best acquisition integration and traction in U.S. banking vertical.
  Response: Integration is going well culturally; activity in U.S. retail banking has begun with investments, aiming to make it a top market within next 12 months.

• Question from Alexander Rygiel (Texas Capital): Talk about recent price increases or need for them given tariffs/cost inflation.
  Response: Management makes price adjustments as needed but avoids blanket changes; focuses on discipline and market competitiveness, with project-based pricing allowing for current cost alignment.

• Question from Alexander Rygiel (Texas Capital): Are there notable CapEx needs associated with operational improvements over next 12 months?
  Response: No notable CapEx; focus is on investments in talent, facilities footprint, and product development, not disruptive capital spending.

• Question from George Gianarikas (Canaccord Genuity): What gives conviction for above-market growth given competitive environment?
  Response: Management sees market disruptions (e.g., convenience store new entrants, grocery investment) driving long-term growth, and LSI's differentiated solutions and one-stop-shop capability position it to accelerate win rates.

• Question from George Gianarikas (Canaccord Genuity): How have higher interest rates impacted M&A pipeline and acquisition pool?
  Response: Higher rates have leveled the environment, making multiples more realistic and conversations more business-oriented, which benefits strategic acquirer like LSI despite being selective on cultural fit.

• Question from Sameer Joshi (H.C. Wainwright): How does traction in casual dining and premium food services compare with QSR in terms of visibility and profitability?
  Response: Casual dining projects are fewer in number but much larger in size and value per site; visibility is developing, and it reflects cross-selling opportunities but is still a work in progress gaining momentum.

• Question from Sameer Joshi (H.C. Wainwright): Is fiscal Q3 historically a low quarter, especially for Display segment, and any different this year?
  Response: Q3 is typically toughest, but management feels good about it and expects to outperform prior year, though moderation is possible if it bleeds into Q4.

Contradiction Point 1

Grocery / Display Solutions Growth Outlook

It involves a contradiction on the expected year-over-year growth rate for Grocery/Display Solutions in Q2, impacting financial expectations and investor confidence.

What are the market drivers and the elevated demand outlook for Mexico through FY27? - Chris Figlin / Unknown Analyst (Oppenheim & Company)

20260122-2026 Q2: Mexico's demand is expected to catch up to pre-pandemic plans, with activity likely to remain elevated into FY27. - [Jim Clark](CEO) & [Jim Galeese](CFO)

What is the growth outlook for the Lighting business for the remainder of the year, how will the transition between C-store projects in 2026 be managed, and what confidence is there in achieving Grocery growth for 2026 despite the Q2 decline? - Alex Rygiel (Texas Capital)

2026Q1: Last year's Q2 had exceptional growth (over 100% for Display Solutions) due to pent-up demand... This year, comparisons will be tougher. - [James Clark](CEO) & [James Galeese](CFO)

Contradiction Point 2

C-Store / Refueling Vertical Capacity and Scaling

It involves conflicting statements on the company's ability to handle multiple large, overlapping projects, affecting capacity and scaling expectations.

What is the opportunity from onboarding multiple mid-sized projects and implementing targeted sales initiatives in refueling and c-store? - Aaron Spychalla (Craig-Hallum)

20260122-2026 Q2: The pipeline of smaller projects, geographically spread... These new midsized projects indicate the vertical's health and provide a pathway through FY26 into FY27. - [Jim Clark](CEO) & [Jim Galeese](CFO)

What is the growth outlook for the Lighting business for the rest of the year, how will the C-store business manage transitions between large projects in 2026, and what is your confidence in achieving Grocery growth for 2026 despite the Q2 decline? - Alex Rygiel (Texas Capital)

2026Q1: The company has significant spare capacity (~20%) and can handle multiple overlapping projects. - [James Clark](CEO) & [James Galeese](CFO)

Contradiction Point 3

Growth Outlook for the C-Store/Refueling Vertical

It involves a contradiction on the presence and nature of large future projects in the vertical, impacting growth projections.

How to assess the opportunity from onboarding multiple mid-sized projects and targeted sales initiatives in refueling and c-store? - Aaron Spychalla (Craig-Hallum)

20260122-2026 Q2: The business is healthy with a pipeline of smaller projects... These new midsized projects indicate the vertical's health and provide a pathway through FY26 into FY27. - [Jim Clark](CEO) & [Jim Galeese](CFO)

How do you expect the c-store and refueling vertical to grow over the next year or two? - Aaron Michael Spychalla (Craig-Hallum Capital Group)

2025Q4: While there is no current commitment for another large project, several others are in development... - [James A. Clark](CEO)

Contradiction Point 4

Margin Trajectory for EMI

It involves a contradiction on the target and timeline for achieving specific EMI margin levels, affecting financial performance expectations.

How close are current EMI integration margins to the 2-year target, and what operational initiatives are driving this progress? - Alexander "Alex" Rygiel (Texas Capital)

20260122-2026 Q2: EMI's margins have improved (over 200 bps) and are on a journey toward LSI's target of 10.5% or better, with progress continuing. - [Jim Clark](CEO)

On EMI, how confident are you in achieving a 10% or higher level over the next year? - Aaron Michael Spychalla (Craig-Hallum Capital Group)

2025Q4: The plan for fiscal 2026 targets an additional 200 basis points or more, on a path to perform like LSI. - [James A. Clark](CEO)

Contradiction Point 5

Project Pipeline and Vertical Health

It involves conflicting statements on the primary vertical showing health and growth momentum, affecting strategic assessments.

How should we assess the opportunity of onboarding multiple mid-sized projects and targeted sales initiatives in refueling and c-store? - Aaron Spychalla (Craig-Hallum)

20260122-2026 Q2: The business is healthy with a pipeline of smaller projects... These new midsized projects indicate the vertical's health and provide a pathway... - [Jim Clark](CEO) & [Jim Galeese](CFO)

Can you provide more details on the fluctuating demand and shifting customer schedules? Which verticals were impacted, and has stability persisted since early April? - Aaron Spychalla (Craig-Hallum)

2025Q3: Fluctuations were almost exclusively in grocery... Scheduling is now much more stable and predictable... - [James Clark](CEO)