PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

 

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 

 

LSI INDUSTRIES INC.

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2025, the results of its operations for the three and six-month periods ended December 31, 2025, and 2024, and its cash flows for the six-month periods ended December 31, 2025, and 2024. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2025 Annual Report on Form 10-K. Financial information as of June 30, 2025, has been derived from the Company’s audited consolidated financial statements.

  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation:

 

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2025 Annual Report on Form 10-K.

 

Revenue Recognition:

 

The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at the time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.

 

Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.

 

A number of the Company's display solutions and select lighting products are customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore recognizes revenue over time. The customized product types are as follows:

 

●

Customer specific metal and millwork branded products and branded print graphics

●

Electrical components based on customer specifications

●

Digital signage and related media content

 

The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided through the installation process.

 

For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the performance obligation.

 

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On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.

 

Disaggregation of Revenue

 

The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:

 

		Three Months Ended
(In thousands)		December 31, 2025								December 31, 2024
		Lighting Segment				Display Solutions Segment				Lighting Segment				Display Solutions Segment
Timing of revenue recognition
Products and services transferred at a point in time		$	55,724			$	67,543			$	48,366			$	68,046
Products and services transferred over time			10,949				12,786				9,844				21,478
		$	66,673			$	80,329			$	58,210			$	89,524

 

		Three Months Ended
		December 31, 2025								December 31, 2024
		Lighting Segment				Display Solutions Segment				Lighting Segment				Display Solutions Segment
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards		$	54,554			$	4,739			$	47,580			$	9,310
Poles, other display solution elements			11,510				61,719				9,945				60,726
Project management, installation services, shipping and handling			609				13,871				685				19,488
		$	66,673			$	80,329			$	58,210			$	89,524

 

		Six Months Ended
		December 31, 2025								December 31, 2024
		Lighting Segment				Display Solutions Segment				Lighting Segment				Display Solutions Segment
Timing of revenue recognition
Products and services transferred at a point in time		$	113,034			$	145,206			$	96,577			$	130,140
Products and services transferred over time			22,692				23,319				20,069				39,043
		$	135,726			$	168,525			$	116,646			$	169,183

 

		Six Months Ended
		December 31, 2025								December 31, 2024
		Lighting Segment				Display Solutions Segment				Lighting Segment				Display Solutions Segment
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards		$	110,301			$	8,089			$	95,009			$	17,746
Poles, other display solution elements			24,244				132,079				20,338				116,429
Project management, installation services, shipping and handling			1,181				28,357				1,299				35,008
		$	135,726			$	168,525			$	116,646			$	169,183

 

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Practical Expedients and Exemptions

 

●

The Company’s contracts with customers have an expected duration of one year or less, as such, the Company applies the practical expedient to expense sales commissions as incurred and has omitted disclosures on the amount of remaining performance obligations.

●

Shipping costs that are not material in context of the delivery of products are expensed as incurred.

●

The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing; therefore, payments do not contain significant financing components.

●

The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations.

 

New Accounting Pronouncements:

 

In  October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative. This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but it does not anticipate that the adoption of the new guidance will have a material impact on the Company’s consolidated financial statements and related disclosures. The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.

 

In  December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires additional disclosures of various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components. The standard also requires information pertaining to taxes paid to be disaggregated for federal, state and foreign taxes, and contains other disclosure requirements. This ASU is effective for fiscal years beginning after  December 15, 2024, and interim periods within fiscal years beginning after  December 15, 2025, with early adoption permitted. The Company is currently evaluating the effect of this new guidance on its consolidated financial statements and related disclosures.

  

NOTE 3 — ACQUISITION OF CANADA’S BEST HOLDINGS

 

On March 11, 2025, the Company acquired Canada’s Best Holdings (CBH), an Ontario Canada-based leading provider of retail fixtures and custom store design solutions for grocery, quick service restaurant, c-store, banking, and specialty retail environments, for $25.9 million, subject to a working capital adjustment and future potential earnout payments up to $7.0 million. As of the acquisition date, total purchase consideration of $28.8 million includes the current fair value of the contingent consideration related to future earnout payments of $3.4 million. The future earnout payments include revenue and EBITDA goals for the fiscal years ending June 30,2026 and June 30, 2027. The Company incurred acquisition-related costs totaling $1.0 million which are included in the selling and administrative expense line of the consolidated statements of operations. The Company funded the initial purchase consideration totaling $25.9 million with a combination of cash on hand and from the $75 million revolving line of credit.

 

The Company accounted for this transaction as a business combination. The Company has preliminarily allocated the purchase price of $28.8 million, which includes an estimate of customary post-closing purchase price adjustments to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values is recorded as goodwill. This preliminary allocation is subject to the final determination of the purchase price which will be finalized in fiscal 2026, as well as potential revision resulting from the finalization of pre-acquisition tax filings and earnout payment calculations. The Company has finalized the third-party valuations of certain assets including fixed assets and intangible assets. The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of March 11, 2025, is as follows:

 

(In thousands)		March 11, 2025 as initially reported				Measurement period adjustments				March 11, 2025 as adjusted
Cash and cash equivalents		$	4,592			$	-			$	4,592
Accounts receivable			3,907				(55	)			3,852
Inventory			4,287				(104	)			4,183
Property, plant and equipment			640				1,422				2,062
Operating lease right-of-use assets			5,211				(386	)			4,825
Other assets			204				1,790				1,994
Intangible assets			9,955				(353	)			9,602
Accounts payable			(29	)			2				(27	)
Accrued expenses			(472	)			(639	)			(1,111	)
Operating lease liabilities			(2,954	)			-				(2,954	)
Other long-term liabilities			-				(1,515	)			(1,515	)
Deferred tax liability			(3,700	)			573				(3,127	)
Identifiable Assets			21,641				735				22,376
Goodwill			5,748				709				6,457
Net Purchase Consideration		$	27,389			$	1,444			$	28,833

 

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The gross amount of accounts receivable is $4.3 million.

 

Goodwill recorded from the acquisition of CBH is attributable to the impact of the positive cash flow from CBH in addition to expected synergies from the business combination. The intangible assets include amounts recognized for the fair value of the trade name, non-compete agreements and customer relationships. The fair value of the intangible assets was determined based upon the income (discounted cash flow) approach. The following table presents the details of the intangible assets acquired at the date of acquisition:

 

(in thousands)		Estimated Fair Value				Estimated Useful Life (Years)
Tradename		$	991				10
Technology assets			180			3	-	5
Customer relationships			8,431				20
		$	9,602

 

CBH’s post-acquisition results of operations for the period from July 1, 2025, through December 31, 2025, are included in the Company’s Condensed Consolidated Statements of Operations. Since the acquisition date, net sales of CBH for the period from July 1, 2025, through December 31, 2025, were $15.2 million and operating income was $1.7 million, and net sales of CBH for the period from October 1, 2025, through December 31, 2025, were $6.3 million and operating income was $0.4 million. The operating results of CBH are included in the Display Solutions Segment.

 

Pro Forma Impact of the Acquisition of CBH (Unaudited)

 

The following table represents unaudited pro forma results of operations and gives effect to the acquisition of CBH as if the transaction had occurred on July 1, 2023. The unaudited pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or the results that may occur in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies or operating efficiencies resulting from the acquisition of CBH.

 

The unaudited pro forma financial information for the three and six months ended December 31, 2024, is prepared using the acquisition method of accounting and has been adjusted to reflect the pro forma events that are: (1) directly attributable to the acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the combined results. The unaudited pro-form operating income for the three months ended December 31, 2024 of $10.3 million excludes acquisition-related expenses of $0.1 million. The unaudited pro-form operating income for the six months ended December 31, 2024 of $23.4 million excludes acquisition-related expenses of $0.2 million.

 

(in thousands; unaudited)		Three Months Ended December 31, 2024				Six Months Ended December 31, 2024
Sales		$	155,070			$	313,156
Gross Profit		$	37,810			$	78,324
Operating Income		$	10,330			$	23,410

 

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NOTE 4 - SEGMENT REPORTING INFORMATION

 

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s two operating segments are Lighting and Display Solutions, with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.

 

The Company’s method for measuring profitability on a reportable segment basis and used by the CODM to assess performance is adjusted operating income and adjusted earnings before interest, tax, depreciation, amortization, along with other non-GAAP adjustments (adjusted EBITDA). These measurements are used to monitor performance compared to prior periods and forecasted results.

 

The Lighting Segment includes non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. In addition to the manufacture and sale of lighting fixtures, the Company offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Lighting Segment also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.

 

The Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, millwork display fixtures, refrigerated displays, food equipment, countertops, and other custom display elements. These products are used in visual image programs in several markets including the refueling and convenience store markets, quick-service and casual restaurant market, retail and grocery store, and other retail markets. The Company accesses its customers primarily through a direct sale model utilizing its own sales force. Sales through distribution represent a small portion of Display Solutions sales. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage.

 

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing, and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes. 

 

There were no customers or customer programs representing a concentration of 10% or more of the Company’s consolidated net sales in the three and six months ended December 31, 2025, or 2024. There was no concentration of accounts receivable at December 31, 2025, or 2024.

 

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Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2025, and December 31, 2024:

 

(In thousands)		Three Months Ended
		December 31, 2025
										Corporate
		Lighting				Display				& Elims				Total
Net sales		$	66,673			$	80,329			$	-			$	147,002
Operating income			7,547				6,076				(4,758	)			8,865
Long-term performance based compensation			81				259				662				1,002
Severance costs and restructuring costs			(1	)			2				(1	)			-
Amortization expense of acquired intangible assets			603				955				-				1,558
Acquisition costs			-				-				200				200
Expense on step-up basis of acquired assets			-				68				-				68
Adjusted operating income			8,230				7,360				(3,897	)			11,693
Depreciation Expense			658				896				115				1,669
Adjusted EBITDA		$	8,888			$	8,256			$	(3,782	)		$	13,362

 

(In thousands)		Six Months Ended
		December 31, 2025
										Corporate
		Lighting				Display				& Elims				Total
Net sales			135,726				168,525				-			$	304,251
Operating income			16,096				14,667				(10,926	)			19,837
Long-term performance based compensation			190				474				1,620				2,284
Severance costs and restructuring costs			17				(88	)			-				(71	)
Amortization expense of acquired intangible assets			1,206				1,906				-				3,112
Acquisition costs			-				-				420				420
Expense on step-up basis of acquired assets			-				136				-				136
Adjusted operating income			17,509				17,095				(8,886	)			25,718
Depreciation Expense			1,331				1,784				200				3,315
Adjusted EBITDA		$	18,840			$	18,879			$	(8,686	)		$	29,033

 

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(In thousands)		Three Months Ended
		December 31, 2024
										Corporate
		Lighting				Display				& Elims				Total
Net sales		$	58,210			$	89,524			$	-			$	147,734
Operating income			5,971				8,125				(5,637	)			8,459
Long-term performance based compensation			141				358				1,170				1,669
Consulting expense: commercial growth initiatives			-				-				81				81
Amortization expense of acquired intangible assets			603				805				-				1,408
Expense on step-up basis of acquired assets			-				69				-				69
Adjusted operating income			6,715				9,357				(4,386	)			11,686
Depreciation Expense			642				835				133				1,610
Adjusted EBITDA		$	7,357			$	10,192			$	(4,253	)		$	13,296

 

		Six Months Ended
		December 31, 2024
(In thousands)										Corporate
		Lighting				Display				& Elims				Total
Net sales			116,646				169,183				-			$	285,829
Operating income			11,730				15,833				(9,973	)			17,590
Long-term performance based compensation			210				643				2,000				2,853
Consulting expense: commercial growth initiatives			-				-				81				81
Severance costs and restructuring costs			60				-				-				60
Amortization expense of acquired intangible assets			1,206				1,610				-				2,816
Acquisition costs			-				-				48				48
Expense on step-up basis of acquired assets			-				136				-				136
Adjusted operating income			13,206				18,222				(7,844	)			23,584
Depreciation Expense			1,286				1,682				174				3,142
Adjusted EBITDA		$	14,492			$	19,904			$	(7,670	)		$	26,726

 

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		Three Months Ended								Six Months Ended
(In thousands)		December 31								December 31
		2025				2024				2025				2024
Capital Expenditures:
Lighting Segment		$	449			$	509			$	738			$	1,221
Display Solutions Segment			1,200				529				1,811				576
Corporate and Eliminations			35				28				102				28
		$	1,684			$	1,066			$	2,651			$	1,825
Depreciation and Amortization:
Lighting Segment		$	1,275			$	1,281			$	2,537			$	2,493
Display Solutions Segment			1,849				1,656				3,690				3,291
Corporate and Eliminations			103				81				200				174
		$	3,227			$	3,018			$	6,427			$	5,958

 

		December 31, 2025				June 30, 2025
Total Assets:
Lighting Segment		$	130,671			$	132,960
Display Solutions Segment			255,739				253,299
Corporate and Eliminations			9,896				10,103
		$	396,306			$	396,362

 

The segment net sales reported above represent sales to external customers. Identifiable assets are those assets used by each segment in its operations.

 

The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

 

Inter-segment sales		Three Months Ended								Six Months Ended
(In thousands)		December 31								December 31
		2025				2024				2025				2024
Lighting Segment inter-segment net sales		$	3,249			$	6,053			$	6,494			$	12,037
Display Solutions Segment inter-segment net sales		$	429			$	133			$	543			$	304

 

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NOTE 5 - EARNINGS PER COMMON SHARE

 

The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding:

 

		Three Months Ended								Six Months Ended
		December 31								December 31
		2025				2024				2025				2024
BASIC EARNINGS PER SHARE
Net income		$	6,348			$	5,647			$	13,612			$	12,329
Weighted average shares outstanding during the period, net of treasury shares			30,019				28,848				29,682				28,681
Weighted average vested restricted stock units outstanding			61				72				52				81
Weighted average shares outstanding in the Deferred Compensation Plan during the period			1,077				1,010				1,069				999
Weighted average shares outstanding			31,157				29,930				30,803				29,761
Basic earnings per common share		$	0.20			$	0.19			$	0.44			$	0.41
DILUTED EARNINGS PER SHARE
Net income		$	6,348			$	5,647			$	13,612			$	12,329
Weighted average shares outstanding:
Basic			31,157				29,930				30,803				29,761
Effect of dilutive securities (a):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any			847				946				882				948
Weighted average shares outstanding			32,004				30,876				31,685				30,709
Diluted earnings per common share		$	0.20			$	0.18			$	0.43			$	0.40
Anti-dilutive securities (b)			4				265				2				265

 

(a)

Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.

 

(b)

Anti-dilutive securities were excluded from the computation of diluted net income per share for the three and six months ended December 31, 2025, and December 31, 2024, because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.

 

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NOTE 6 – INVENTORIES, NET

 

The following information is provided as of the dates indicated:

 

		December 31,				June 30,
(In thousands)		2025				2025
Inventories:
Raw materials		$	61,329			$	60,726
Work-in-progress			5,803				7,942
Finished goods			14,891				11,150
Total Inventories		$	82,023			$	79,818

  

NOTE 7 - ACCRUED EXPENSES

 

The following information is provided as of the dates indicated:

 

		December 31,				June 30,
(In thousands)		2025				2025
Accrued Expenses:
Customer prepayments		$	3,976			$	4,070
Compensation and benefits			10,212				12,471
Accrued warranty			7,874				7,505
Operating lease liabilities			7,650				6,037
Accrued sales commissions			3,943				3,956
Accrued freight			2,279				1,978
Income taxes			-				1,848
Other accrued expenses			7,907				7,387
Total Accrued Expenses		$	43,841			$	45,252

  

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

 

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of the reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired. 

 

The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of five reporting units that contain goodwill. One reporting unit is within the Lighting Segment and four reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows, and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

 

---

 

The following table presents information about the Company's goodwill on the dates or for the periods indicated:

 

Goodwill						Display
(In thousands)		Lighting				Solutions
		Segment				Segment				Total
Balance as of December 31, 2025
Goodwill		$	70,971			$	82,865			$	153,836
Goodwill acquired, net of adjustements			-				(262	)			(262	)
Foreign currency translation			-				(197	)			(197	)
Accumulated impairment losses			(61,763	)			(27,525	)			(89,288	)
Goodwill, net as of December 31, 2025		$	9,208			$	54,881			$	64,089
Balance as of June 30, 2025
Goodwill		$	70,971			$	75,714			$	146,685
Goodwill acquired, net of adjustements			-				6,769				6,769
Foreign currency translation			-				382				382
Accumulated impairment losses			(61,763	)			(27,525	)			(89,288	)
Goodwill, net as of June 30, 2025		$	9,208			$	55,340			$	64,548

 

The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:

 

Other Intangible Assets		December 31, 2025
(In thousands)		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Amount
Amortized Intangible Assets
Customer relationships		$	78,441			$	27,360			$	51,081
Patents			268				268				-
LED technology firmware, software			24,126				19,512				4,614
Trade name			3,700				1,508				2,192
Non-compete			590				353				237
Total Amortized Intangible Assets			107,125				49,001				58,124
Indefinite-lived Intangible Assets
Trademarks and trade names			16,982				-				16,982
Total indefinite-lived Intangible Assets			16,982				-				16,982
Total Other Intangible Assets		$	124,107			$	49,001			$	75,106

 

Other Intangible Assets		June 30, 2025
(In thousands)		Gross
		Carrying				Accumulated				Net
		Amount				Amortization				Amount
Amortized Intangible Assets
Customer relationships		$	78,485			$	25,251			$	53,234
Patents			268				268				-
LED technology firmware, software			24,126				18,694				5,432
Trade name			3,704				1,404				2,300
Non-compete			590				280				310
Total Amortized Intangible Assets			107,173				45,897				61,276
Indefinite-lived Intangible Assets
Trademarks and trade names			16,982				-				16,982
Total indefinite-lived Intangible Assets			16,982				-				16,982
Total Other Intangible Assets		$	124,155			$	45,897			$	78,258

 

---

 

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Amortization Expense of Other Intangible Assets		$	1,558			$	1,408			$	3,112			$	2,816

 

The Company expects to record annual amortization expense as follows:

 

(In thousands)
2026		$	6,226
2027		$	6,008
2028		$	5,568
2029		$	4,927
2030		$	4,921
After 2030		$	33,626

  

NOTE 9 - DEBT

 

The Company’s long-term debt as of December 31, 2025, and June 30, 2025, consisted of the following:

 

		December 31,				June 30,
(In thousands)		2025				2025
Secured line of credit		$	27,939			$	36,956
Term loan, net of debt issuance costs of $0 and $14, respectively			-				11,601
Total debt		$	27,939			$	48,557
Less: amounts due within one year			-				3,571
Total amounts due after one year, net		$	27,939			$	44,986

 

In September 2025, the Company amended its existing $100 million credit facility which consisted of a $25 million term loan and a $75 million revolving credit line to a $125 million revolving credit line. The $125 million credit facility will expire in the first quarter of fiscal 2031. Interest on the revolving line of credit is charged based upon an increment over the Secured Overnight Financing Rate (SOFR). The increment over the SOFR borrowing rate fluctuates between 100 and 225 basis points of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the line of credit agreement. As of December 31, 2025, the Company’s borrowing rate against its revolving line of credit was 5.5%. The increment over the SOFR borrowing rate will be 100 basis points for the third quarter of fiscal 2026. The fee on the unused balance of the $125 million committed line of credit fluctuates between 15 and 25 basis points. Under the terms of the credit agreement, the Company is required to comply with a financial covenant that limits the ratio of indebtedness to EBITDA. The Company is also required to maintain an interest coverage ratio equal to or above the minimum set forth in the agreement. Under the amended credit facility, there was $104.6 available for borrowing under the $125 million line of credit.

 

The Company is in compliance with all of its loan covenants as of December 31, 2025.

  

NOTE 10 - CASH DIVIDENDS

 

The Company paid cash dividends of $3.1 million and $3.0 million for the six months ended December 31, 2025, and December 31, 2024, respectively. Dividends on restricted stock units in the amount of $0.2 million and $0.2 million were accrued as of both December 31, 2025, and 2024, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In January 2026, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 10, 2026, to shareholders of record as February 2, 2026. The indicated annual cash dividend rate is $0.20 per share.

 

---

  

NOTE 11 – EQUITY COMPENSATION

 

In November 2022, the Company's shareholders approved the amendment and restatement of the 2019 Omnibus Award Plan ("2019 Omnibus Plan") which increased the number of shares authorized for issuance under the plan by 2,350,000 and removed the Plan's fungible share counting feature. The purpose of the 2019 Omnibus Plan is to provide a means to attract and retain key personnel and to align the interests of the directors, officers, and employees with the Company's shareholders. The plan also provides a vehicle whereby directors and officers may acquire shares in order to meet the ownership requirements under the Company's Stock Ownership Policy. The 2019 Omnibus Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units RSUs, performance stock units ("PSUs") and other awards. Except for Restricted Stock Unit ("RSU") grants which are time-based, participants in the Company's Long-Term Equity Compensation Plans are awarded the opportunity to acquire shares over a three-year performance measurement period tied to specific company performance metrics. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan is 1,012,769 as of December 31, 2025.

 

In the six months ended December 31, 2025, the Company granted 121,440 PSUs and 85,958 RSUs, both with a weighted average market value of $19.54. Stock compensation expense was $1.0 million and $1.1 million for the three months ended December 31, 2025, and 2024, respectively, and $2.1 million and $2.2 million in the six months ended December 31, 2025, and 2024, respectively.

 

In November of 2021, our board of directors approved the LSI Employee Stock Purchase Plan (“ESPP”). A total of 270,000 shares of common stock were provided for issuance under the ESPP. Employees may participate at their discretion and are able to purchase, through payroll deduction, common stock at a 10% discount on a quarterly basis. Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with the company. During fiscal year 2026, employees purchased 9,000 shares. At December 31, 2025, 216,000 shares remained available for purchase under the ESPP.

  

NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION

 

		Six Months Ended
(In thousands)		December 31
		2025				2024
Cash Payments:
Interest		$	1,226			$	1,460
Income taxes		$	5,113			$	2,321
Non-cash investing and financing activities
Issuance of common shares as compensation		$	270			$	225
Issuance of common shares to fund deferred compensation plan		$	935			$	994
Issuance of common shares to fund ESPP plan		$	149			$	110

  

NOTE 13 - COMMITMENTS AND CONTINGENCIES

 

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

 

The Company recorded a $3.4 million contingent liability related to the future earnout payments as part of the acquisition of Canada’s Best Holding (CBH). (Refer to Footnote 3.) The $3.4 million represents the value of the earnout converted from its functional currency to USD as of December 31, 2025, and June 30, 2025.

  

NOTE 14 - LEASES

 

The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items, and various items of office equipment. All but two of the Company’s leases are operating leases. Leases have a remaining term of one to seven years some of which have an option to renew. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments.

 

The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The Company elected not to record these leases on the balance sheet. The rent expense for these leases was immaterial for December 31, 2025, and 2024.

 

---

 

The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component.

 

Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments.

 

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Operating lease cost		$	2,222			$	1,610			$	4,097			$	3,231
Financing lease cost:
Amortization of right of use assets			-				73				-				145
Interest on lease liabilities			-				10				-				22
Variable lease cost			-				-				-				7
Sublease income			-				-				-				(39	)
Total lease cost		$	2,222			$	1,693			$	4,097			$	3,366

 

Supplemental Cash Flow Information:		Six Months Ended
		December 31
(In thousands)		2025				2024
Cash flows from operating leases
Fixed payments - operating cash flows		$	3,900			$	3,298
Liability reduction - operating cash flows		$	3,405			$	2,813
Assets obtained in exchange for operating lease obligations		$	18,568			$	2,441
Cash flows from finance leases
Interest - operating cash flows		$	-			$	21
Repayments of principal portion - financing cash flows		$	-			$	168

 

Operating Leases:		December 31,				June 30,
		2025				2025
Total operating right-of-use assets		$	30,080			$	17,187
Accrued expenses (Current liabilities)		$	7,650			$	6,037
Long-term operating lease liability			23,247				12,047
Total operating lease liabilities		$	30,897			$	18,084
Weighted Average remaining Lease Term (in years)			6.07				3.49
Weighted Average Discount Rate			5.58	%			5.70	%

 

---

 

Maturities of Lease Liability:		Operating Lease Liabilities				Finance Lease Liabilities				Operating Subleases				Net Lease Commitments
2026		$	7,650			$	-			$	-			$	7,650
2027			8,296				-				-				8,296
2028			4,479				-				-				4,479
2029			3,888				-				-				3,888
2030			2,751				-				-				2,751
Thereafter			9,635				-				-				9,635
Total lease payments		$	36,699			$	-			$	-			$	36,699
Less: Interest			(5,802	)			-								(5,802	)
Present Value of Lease Liabilities		$	30,897			$	-							$	30,897

  

NOTE 15 – INCOME TAXES

 

The Company's effective income tax rate is based on expected income, statutory rates, and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

 

		Three Months Ended								Six Months Ended
		December 31								December 31
		2025				2024				2025				2024
Reconciliation of effective tax rate:
Provision for income taxes at the anticipated annual tax rate			24.9	%			26.7	%			24.8	%			26.2	%
Uncertain tax positions			(0.5	)			(1.5	)			0.5				(0.2	)
Deferred income tax adjustment			-				-				-				1.1
Share-based compensation			-				(2.0	)			(0.5	)			(5.8	)
Effective tax rate			24.4	%			23.2	%			24.8	%			21.3	%

  

NOTE 16 – SUBSEQUENT EVENTS

 

A limited liability company owned and controlled by LSI's Chief Executive Officer, James A. Clark, owns an aircraft that is dry leased to an unrelated third party. Pursuant to a separate arrangement, the third-party dry leases the aircraft to LSI for NEO business travel. Payments made by LSI depends on actual usage. For the period from July 2025 through January 2026, the LLC received aggregate payments of $102,000 in connection with this arrangement.

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Note About Forward-Looking Statements

 

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “focus,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2025, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

 

 

Our condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Summary of Consolidated Results

 

 

Net Sales by Business Segment		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Lighting Segment		$	66,673			$	58,210			$	135,726			$	116,646
Display Solutions Segment			80,329				89,524				168,525				169,183
		$	147,002			$	147,734			$	304,251			$	285,829

 

Operating Income (Loss) by Business Segment		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Lighting Segment		$	7,547			$	5,972			$	16,096			$	11,731
Display Solutions Segment			6,076				8,127				14,667				15,834
Corporate and Eliminations			(4,758	)			(5,640	)			(10,926	)			(9,975	)
		$	8,865			$	8,459			$	19,837			$	17,590

 

Net sales of $147.0 million for the three months ended December 31, 2025, decreased less than 1% as compared to net sales of $147.7 million for the three months ended December 31, 2024. Lighting Segment net sales of $66.7 million increased 15% and Display Solutions Segment net sales of $80.3 million decreased 10% from last year’s second quarter net sales. The 15% second quarter sales growth of Lighting Segment sales follows 18% growth in the first quarter, with several factors contributing to the improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year. Within the Display Solutions segment, we continue to maintain a high level of project execution across large, multi-year customer programs in the refueling/c-store and QSR verticals. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

 

Net sales of $304.3 million for the six months ended December 31, 2025, increased 6% as compared to net sales of $285.8 million for the six months ended December 31, 2024. Lighting Segment net sales of $135.7 million increased 16% and Display Solutions Segment net sales of $168.5 million decreased less than 1 percent from last year’s net sales As stated in the overview of second quarter sales, the momentum in the Lighting Segment from the first quarter carried over to the second quarter with strong lighting net sales driven by the increased number of large project shipments and by the introduction of several new products and the Company’s ability to convert multiple competitor accounts to LSI. Within the Display Solutions segment we continue to experience a steady demand in the refueling/c-store and grocery markets as customers continue to recognize the value of our broad service capabilities.

 

Operating income of $8.9 million for the three months ended December 31, 2025, represents a 5% increase in operating income from $8.5 million in the three months ended December 31, 2024. Adjusted operating income, a Non-GAAP measure, was $11.7 million in the three months ended December 31, 2025, compared to $11.7 million in the three months ended December 31, 2024. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. While net sales were relatively flat compared to the same time in the prior year, operating income improved. Margin management remains a priority for us, with a strong focus on project pricing, productivity, and cost discipline.

 

Operating income of $19.8 million for the six months ended December 31, 2025, represents a 13% increase from operating income of $17.6 million in the six months ended December 31, 2024. Adjusted operating income, a Non-GAAP financial measure, was $25.7 million in the six months ended December 31, 2025, compared to adjusted operating income of $23.6 million in the six months ended December 31, 2024. The increase in net sales coupled with focused margin management contributed to the period over period improvement in operating income. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures.

 

 

Non-GAAP Financial Measures

 

This report includes adjustments to GAAP operating income, net income, and earnings per share for the three months ended December 31, 2025, and 2024.  Operating income, net income, and earnings per share, which exclude the impact of long-term performance-based compensation expense, the amortization expense of acquired intangible assets, commercial growth opportunity expense, acquisition costs, the lease expense on the step-up basis of acquired leases, and restructuring and severance costs, are non-GAAP financial measures.  We further note that while the amortization expense of acquired intangible assets is excluded from the non-GAAP financial measures, the revenue of the acquired companies is included in the measures, and the acquired assets contribute to the generation of revenue. We believe these non-GAAP measures will provide increased transparency to our core operating performance of the business. Also included in this report are non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Net Debt to Adjusted EBITDA, and Free Cash Flow.  We believe that these are useful as supplemental measures in assessing the operating performance of our business.  These measures are used by our management, including our chief operating decision maker, to evaluate business results, and are frequently referenced by those who follow the Company.  These non-GAAP measures may be different from non-GAAP measures used by other companies.  In addition, the non-GAAP measures are not based on any comprehensive set of accounting rules or principles.  Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP.  Therefore, these measures should be used only to evaluate our results in conjunction with corresponding GAAP measures.  Below is a reconciliation of these non-GAAP measures to net income and earnings per share reported for the periods indicated along with the calculation of EBITDA, Adjusted EBITDA, Free Cash Flow, Net Debt to Adjusted EBITDA, and organic sales growth.

 

		Three Months Ended
Reconciliation of operating income to adjusted operating income:		December 31
		2025				2024
(In thousands)
Operating income as reported		$	8,865			$	8,459
Long-term performance based compensation			1,002				1,669
Amortization expense of acquired intangible assets			1,558				1,408
Lease expense on the step-up basis of acquired leases			68				69
Acquisition costs			200				-
Consulting expense: commercial growth opportunities			-				81
Adjusted operating income		$	11,693			$	11,686

 

Reconciliation of net income to adjusted net income		Three Months Ended
		December 31
(In thousands, except per share data)		2025									2024
							Diluted EPS									Diluted EPS
Net income as reported		$	6,348				$	0.20			$	5,647				$	0.18
Long-term performance based compensation			713		(1)			0.02				1,294		(6)			0.04
Amortization expense of acquired intangible assets			1,159		(2)			0.04				1,090		(7)			0.04
Lease expense on the step-up basis of acquired leases			48		(3)			-				53		(8)			-
Acquisition costs			142		(4)			-				-					-
Consulting expense: commercial growth opportunities			-					-				62		(9)			-
Foreign currency transaction loss on intercompany loan			28		(5)			-				-					-
Tax rate difference between reported and adjusted net income			-					-				(150	)				-
Net income adjusted		$	8,438				$	0.26			$	7,996				$	0.26

 

 

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):

 

(1) $289

(2) $399

(3) $20

(4) $58

(5) ($28)

(6) $375

(7) $318

(8) $16

(9) $19

 

		Six Months Ended
Reconciliation of operating income to adjusted operating income:		December 31
		2025				2024
(In thousands)
Operating income as reported		$	19,837			$	17,590
Acquisition costs			420				48
Long-term performance based compensation			2,284				2,853
Amortization expense of acquired intangible assets			3,112				2,816
Lease expense on the step-up basis of acquired leases			136				136
Restructuring/severance costs			(71	)			60
Consulting expense: commercial growth opportunities			-				81
Adjusted operating income		$	25,718			$	23,584

 

 

Reconciliation of net income to adjusted net income		Six Months Ended
		December 31
(In thousands, except per share data)		2025									2024
							Diluted EPS									Diluted EPS
Net income as reported		$	13,612				$	0.43			$	12,329				$	0.40
Long-term performance based compensation			1,667		(1)			0.05				2,161		(6)			0.07
Amortization expense of acquired intangible assets			2,276		(2)			0.07				2,132		(7)			0.07
Restructuring/severance costs			(53	)	(3)			-				45		(8)			-
Acquisition costs			307		(4)			0.01				50		(9)			-
Lease expense on the step-up basis of acquired leases			99		(5)			-				103		(10)			0.01
Consulting expense: commercial growth opportunities			-					-				62		(11)			-
Foreign currency transaction loss on intercompany loan			354					0.01
Tax rate difference between reported and adjusted net income			(93	)				-				(905	)				(0.03	)
Net income adjusted		$	18,169				$	0.57			$	15,977				$	0.52

 

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):

 

(1) $617

(2) $836

(3) ($18)

(4) $113

(5) $37

(6) $692

(7) $684

(8) $15

 

 

(9) ($2)

(10) $33

(11) $19

 

Reconciliation of Net Income to Adjusted EBITDA		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Net Income - Reported		$	6,348			$	5,647			$	13,612			$	12,329
Income Tax			2,047				1,702				4,478				3,336
Interest Expense, Net			573				728				1,320				1,603
Other (Income) Expense			(103	)			382				427				322
Operating Income as reported		$	8,865			$	8,459			$	19,837			$	17,590
Depreciation and Amortization			3,227				3,018				6,427				5,958
EBITDA		$	12,092			$	11,477			$	26,264			$	23,548
Long-term performance based compensation			1,002				1,669				2,284				2,853
Restructuring/severance costs			-				-				(71	)			60
Lease expense on the step-up basis of acquired leases			68				69				136				136
Consulting expense: commercial growth opportunities			-				81				-				81
Acquisition costs			200				-				420				48
Adjusted EBITDA		$	13,362			$	13,296			$	29,033			$	26,726

 

 

Reconciliation of cash flow from operations to free cash flow		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2025				2024				2025				2024
Cash Flow from Operations		$	24,984			$	9,891			$	25,659			$	21,737
Capital expenditures			(1,684	)			(1,066	)			(2,651	)			(1,825	)
										`
Free Cash Flow		$	23,300			$	8,825			$	23,008			$	19,912

 

Net Debt to Adjusted EBITDA		December 31				December 31
(In thousands)		2025				2024
Current portion and long-term debt as reported		$	-			$	3,571
Long-Term Debt			27,939				34,615
Total Debt			27,939				38,186
Less: Cash and cash equivalents			(6,407	)			(4,712	)
Net Debt		$	21,532			$	33,474
Adjusted EBITDA - Trailing 12 Months		$	57,286			$	52,006
Net Debt to Adjusted EBITDA			0.4				0.6

 

 

		Three Months Ended														Six Months Ended
Organic compared to Inorganic Sales		Dec 2025					Dec 2024				% Variance					Dec 2025					Dec 2024				% Variance
Lighting Segment		$	66,673		#		$	58,210				15	%			$	135,726		#		$	116,646				16	%
Display Solutions Segment
- Comparable Display Solutions Sales			74,001					89,524				-17	%				153,278					169,183				-9	%
- Canada's Best			6,328					-									15,247					-
Total Diplay Solutions Sales			80,329					89,524				-10	%				168,525					169,183				0	%
Total net sales			147,002					147,734				0	%				304,251					285,829				6	%
Less:
Canada's Best			6,328					-						`			15,247					-
Total organic net sales		$	140,674				$	147,734				-5	%			$	289,004				$	285,829				1	%

 

Results of Operations

 

THREE MONTHS ENDED DECEMBER 31, 2025, COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2024

 

Display Solutions Segment		Three Months Ended
		December 31
(In thousands)		2025				2024
Net Sales		$	80,329			$	89,524
Gross Profit		$	14,402			$	15,820
Operating Income		$	6,076			$	8,125

 

Display Solutions net sales of $80.3 million decreased from same period in fiscal 2024. Within the Display Solutions segment, we continue to maintain a high level of project execution across large, multi-year customer programs in the refueling/c-store and QSR verticals. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

 

Gross profit of $14.4 million in the three months ended December 31, 2025, decreased from the same period of fiscal 2025 driven by lower sales. Gross profit as a percentage of net sales remained at 18% despite lower sales as we continue to maintain favorable program pricing and prudent cost management.

 

Operating expenses of $8.3 million in the three months ended December 31, 2025, increased 8% from the same period of fiscal 2025, primarily driven by the acquisition of Canada’s Best Holdings and by continued investment in commercial initiatives to drive growth.

 

Display Solutions Segment operating income of $6.1 million in the three months ended December 31, 2025, decreased from the same period of fiscal 2025. The decrease in operating income driven by the net effect of a decrease in net sales partially offset by the gross margin impact of product mix and by favorable program pricing and prudent cost management.

 

Lighting Segment		Three Months Ended
		December 31
(In thousands)		2025				2024
Net Sales		$	66,673			$	58,210
Gross Profit		$	23,037			$	19,034
Operating Income		$	7,547			$	5,971

 

Lighting Segment net sales of $66.7 million in the three months ended December 31, 2025, increased 15% compared to net sales of $58.2 million in the same period in fiscal 2025. The 15% second quarter sales growth follows 18% growth in the first quarter, with several factors contributing to our improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year.

 

 

Gross profit of $23.0 million in the three months ended December 31, 2025, increased 21% from the same period of fiscal 2025. Gross profit as a percentage of sales improved from 32.7% to 34.6%. The increase in net sales coupled with focused margin management contributed to the period over period improvement in gross profit.

 

Operating expenses of $15.5 million in the three months ended December 31, 2025, increased from the same period of fiscal 2025, driven mostly by higher agent commission expense from higher net sales.

 

Lighting Segment operating income of $7.5 million for the three months ended December 31, 2025, increased 26% from operating income of $6.0 million in the same period of fiscal 2025 primarily driven by improved sales and focused margin management.

 

Corporate and Eliminations		Three Months Ended
		December 31
(In thousands)		2025				2024
Gross Profit		$	(5	)		$	7
Operating (Loss)		$	(4,758	)		$	(5,637	)

 

The gross profit relates to the change in the intercompany profit in inventory elimination.

 

Operating expenses of $4.8 million in the three months ended December 31, 2025, decreased 16% from the same period of fiscal 2025. The decrease in expense is primarily the result of effective cost management of the Company’s corporate operating expenses.

 

Consolidated Results

 

The Company reported $0.6 million and $0.7 million of net interest expense in the three months ended December 31, 2025, and December 31, 2024, respectively. The decrease in interest expense is driven by profitability and by sustained working capital management as the Company lowered its outstanding debt. The Company also recorded other income of ($0.1) million compared to other expense of $0.4 in the three months ended December 31, 2025, and December 31, 2024, respectively, of which is related to net foreign exchange currency transaction gains and losses through the Company’s Mexican and Canadian subsidiaries.

 

The $2.0 million of income tax expense in the three months ended December 31, 2025, represents a consolidated effective tax rate of 24.4%. The $1.7 million of income tax expense in the three months ended December 31, 2024, represents a consolidated effective tax rate of 23.2%. Impacting the effective tax rate of both reported periods was the favorable tax treatment of the Company’s long-term performance-based compensation.

 

The Company reported net income of $6.3 million in the three months ended December 31, 2025, compared to net income of $5.6 million in the three months ended December 31, 2024. Non-GAAP adjusted net income was $8.4 million for the three months ended December 31, 2025, compared to adjusted net income of $8.0 million for the three months ended December 31, 2024 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of a strong focus on project pricing, productivity, and cost disciplines, on relatively flat sales. Diluted adjusted earnings per share of $0.20 were reported in the three months ended December 31, 2025, compared to $0.18 diluted adjusted earnings per share in the same period of fiscal 2025. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended December 31, 2025, were 32,004,000 shares compared to 30,876,000 shares in the same period last year.

 

SIX MONTHS ENDED DECEMBER 31, 2025, COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2024

 

Display Solutions Segment		Six Months Ended
		December 31
(In thousands)		2025				2024
Net Sales		$	168,525			$	169,182
Gross Profit		$	31,497			$	30,851
Operating Income		$	14,667			$	15,833

 

 

Display Solutions Segment net sales of $168.5 million decreased less than 1 percent from last year’s net sales. We continue to experience a continued steady demand in the refueling/c-store and grocery markets as customers continue to recognize the value of our broad service capabilities. In addition, our grocery vertical continues to stabilize, with demand patterns returning to seasonal levels after two years of significant disruption.

 

Gross profit of $31.5 million in the six months ended December 31, 2025, increased 2% from the same period of fiscal 2025 despite slightly lower sales. Gross profit as a percentage of net sales in the six months ended December 31, 2025, increased slightly to 18.7% from 18.2% in the same period of fiscal 2025 impacted by favorable program pricing and prudent cost management.

 

Operating expenses of $16.8 million in the six months ended December 31, 2025, increased 12% from the same period of fiscal 2025, primarily driven by the acquisition of Canada’s Best Holdings and by continued investment in commercial initiatives to drive growth.

 

Operating income of $14.7 million in the six months ended December 31, 2025, decreased from the same period of fiscal 2025. The decrease in operating income was driven by the net effect of an increase in gross offset by an increase in operating expenses.

 

Lighting Segment		Six Months Ended
		December 31
(In thousands)		2025				2024
Net Sales		$	135,726			$	116,646
Gross Profit		$	46,219			$	37,658
Operating Income		$	16,096			$	11,730

 

Lighting Segment net sales of $135.7 million in the six months ended December 31, 2025, increased 16% compared to net sales of $116.7 million in the same period in fiscal 2025. The 15% second quarter sales growth follows 18% growth in the first quarter, with several factors contributing to our improving momentum, including the increased number of large project shipments, which doubled from the second quarter last year. Also contributing to the period over period growth of sales was the introduction of several new products and the Company’s ability to convert multiple competitor accounts to LSI.

 

Gross profit of $46.2 million in the three months ended December 31, 2025, increased 23% from the same period of fiscal 2025. Gross profit as a percentage of sales improved from 32.3% to 34.1%. The increase in net sales coupled with focused margin management contributed to the period over period improvement in gross profit.

 

Operating expenses of $30.1 million in the six months ended December 31, 2025, increased 16% from the same period of fiscal 2025, driven mostly by higher agent commission expense.

 

Lighting Segment operating income of $16.1 million for the six months ended December 31, 2025, increased 37% from operating income of $11.7 million in the same period of fiscal 2025. primarily driven by improved sales and focused margin management.

 

Corporate and Eliminations		Six Months Ended
		December 31
(In thousands)		2025				2024
Gross Profit (Loss)		$	(5	)		$	(1	)
Operating (Loss)		$	(10,926	)		$	(9,973	)

 

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

 

Operating expenses of $10.9 million in the six months ended December 31, 2025, increased 10% from the same period of fiscal 2025. The increase in expense is the result of an increase in investment in commercial initiatives to support the growth of the Company.

 

 

Consolidated Results

 

The Company reported $1.3 million and $1.6 million of net interest expense in the six months ended December 31, 2025, and December 31, 2024, respectively. The decrease in interest expense is driven by profitability and by sustained working capital management as the Company lowered its outstanding debt. The Company also recorded other expense of $0.4 million and $0.3 million in the six months ended December 31, 2025, and December 31, 2024, respectively, both of which is related to net foreign exchange currency transaction gains and losses through the Company’s Mexican and Canadian subsidiaries.

 

The $4.5 million of income tax expense in the six months ended December 31, 2025, represents a consolidated effective tax rate of 24.8%. The $3.3 million of income tax expense in the six months ended December 31, 2024, represents a consolidated effective tax rate of 21.3%. Impacting the effective tax rate of both reported periods was the favorable tax treatment of the Company’s long-term performance-based compensation.

 

The Company reported net income of $13.6 million in the six months ended December 31, 2025, compared to net income of $12.3 million in the six months ended December 31, 2024. Non-GAAP adjusted net income was $18.2 million for the six months ended December 31, 2025, compared to adjusted net income of $16.0 million for the six months ended December 31, 2024 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the result of improved sales and a strong focus on project pricing, productivity, and cost disciplines. Diluted adjusted earnings per share of $0.57 was reported in the six months ended December 31, 2025, compared to $0.52 diluted adjusted earnings per share in the same period of fiscal 2025. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the six months ended December 31, 2025, were 31,685,000 shares compared to 30,709,000 shares in the same period last year.

 

Liquidity and Capital Resources

 

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and our historical levels of net cash flows from operating activities to be the most important measures.

 

At December 31, 2025, the Company had working capital of $100.1 million compared to $96.8 million at June 30, 2025. The ratio of current assets to current liabilities was 2.2 to 1 for December 31, 2025, and 2.0 for June 30, 2025. The increase in working capital from June 30, 2025, to December 31, 2025, was primarily driven a decrease in accounts payable and accrued expenses and an increase in net inventory, partially offset by a $13.7 million decrease in net accounts receivable.

 

Net accounts receivable was $90.6 million and $104.3 million at December 31, 2025, and June 30, 2025, respectively. DSO decreased to 59 days at December 31, 2025, from 66 days at June 30, 2025.

 

Net inventories of $82.0 million at December 31, 2025, increased $2.2 million from $79.8 million at June 30, 2025. Lighting Segment net inventory increased $3.6 million to support the growth in Lighting Segment sales whereas net inventory in the Display Solutions Segment decreased $1.4 million.

 

Cash generated from operations and borrowing capacity under the Company’s line of credit is its primary source of liquidity. The Company has a $125 million a secured revolving line of credit. The revolving line of credit expires in the first quarter of fiscal 2031. As of December 31, 2025, $104.6 million of the credit line was available. The Company is in compliance with all of its loan covenants. The $125 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the remainder of fiscal 2026.

 

The Company generated $25.7 million of cash from operating activities in the six months ended December 31, 2025, compared to $21.7 million of cash generated from operating activities in the same period in fiscal 2025. The Company continues to effectively manage its working capital while generating increasing cash flow from earnings in both fiscal years, resulting in strong cash flow from operations.

 

The Company invested $2.6 million and $1.8 million of cash related to investing activities in the six months ended December 31, 2025, and December 31, 2024, respectively. The Company continues to invest in equipment and tooling to support sales growth.

 

The Company had a net use of cash of $20.4 million and $19.1 million related to financing activities in the six months ended December 31, 2025, and December 31, 2024, respectively. The Company continues to generate positive cash flow from its operations in order to pay down its debt and fund its dividend payments to shareholders.

 

 

The Company has on its balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.

 

Off-Balance Sheet Arrangements

 

The Company has no financial instruments with off-balance sheet risk and have no off-balance sheet arrangements.

 

Cash Dividends

 

In January 2026, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 10, 2026, to shareholders of record as of February 2, 2026. The indicated annual cash dividend rate for fiscal 2026 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

 

Critical Accounting Policies and Estimates

 

A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2025 Annual Report on Form 10-K.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in our exposure to market risk since June 30, 2025. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 16 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

 

Changes in Internal Control

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II.  OTHER INFORMATION

ITEM 5. OTHER INFORMATION

 

None.

  

ITEM 6.  EXHIBITS

 

Exhibits:

 

10.1	Non-Employee Director Deferred Compensation Program

 

31.1	Certification of Principal Executive Officer required by Rule 13a-14(a)

 

31.2	Certification of Principal Financial Officer required by Rule 13a-14(a)

 

32.1	Section 1350 Certification of Principal Executive Officer

 

32.2	Section 1350 Certification of Principal Financial Officer

 

101.INS Inline XBRL Instance Document

 

101.SCH Inline XBRL Taxonomy Extension Schema Document

 

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

104	Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

 

* Management compensatory agreement.

++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	LSI Industries Inc.
	By:	/s/ James A. Clark
		James A. Clark
		Chief Executive Officer and President
		(Principal Executive Officer)
	By:	/s/ James E. Galeese
		James E. Galeese
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)
February 9, 2026