LSI Industries Q1 Sales Rise 44% on Royston Deal

LSI Industries (NASDAQ: LYTS) reported a 44% increase in fiscal first-quarter sales, driven primarily by the Royston Group acquisition, while organic revenue declined 2% as continued weakness in non-residential lighting offset modest growth in the company’s legacy Display Solutions business.

Net sales for the quarter ended September 30, 2026, rose to $225.9 million from $157.2 million a year earlier. Royston, acquired in March 2026, contributed $72.4 million. Excluding the acquisition, total organic sales were $153.4 million.

Reported operating income increased to $14.2 million from $11.0 million, while adjusted operating income rose to $19.4 million from $14.0 million. Adjusted EBITDA reached $22.2 million, up from $15.7 million, although the adjusted EBITDA margin narrowed to 9.8% from 10.0%.

Reported net income was $7.1 million, compared with $7.3 million in the prior-year quarter. Adjusted net income increased to $11.6 million from $9.7 million. Net interest expense rose to $3.9 million from $0.7 million following the increase in debt associated with the Royston transaction.

LSI said lower Lighting segment sales, a less favorable revenue mix and the completion of lower-margin backlog affected profitability. Consolidated adjusted gross margin declined to 23.2% from 25.6%, and adjusted operating margin fell to 8.6% from 8.9%.

Display Solutions expands with Royston

Display Solutions sales increased 83% to $161.0 million. On a comparable basis excluding Royston, segment sales rose 1% to $88.6 million.

Segment adjusted EBITDA increased to $18.5 million from $10.6 million, while its margin declined to 11.5% from 12.0%. Adjusted operating income rose to $16.5 million from $9.8 million, with the adjusted operating margin decreasing to 10.2% from 11.1%.

Royston’s sales grew 8% sequentially from the fourth quarter of fiscal 2026, and its adjusted EBITDA margin expanded by 100 basis points. LSI attributed the performance to early progress on pricing, procurement, cross-selling, process improvements and cost initiatives.

Demand varied across end markets. Refueling and convenience-store sales increased 5%, supported by new and existing projects with large customers, while grocery sales grew at a mid-single-digit rate. Quick-service restaurant sales declined by double digits as major chains responded to lower consumer traffic associated with inflation.

Pro forma Display Solutions orders and backlog each increased 4% from the prior-year period. LSI said a previously announced refresh covering 2,500 refueling and convenience-store locations remained on schedule, with activity expected to ramp through fiscal 2027 and fiscal 2028. A large quick-service restaurant customer also approved a 3,000-store interior renovation program and selected LSI as a key solutions provider. That project is scheduled to begin late in the third quarter of fiscal 2027 and continue through fiscal 2029.

The company plans to close its leased Collingwood, Ontario, facility and consolidate production into its Toronto operations by the end of fiscal 2027. Management expects the move to generate more than $1 million in annual cost savings.

Lighting demand remains soft

Lighting segment sales declined 6% to $64.8 million amid broad weakness in commercial and industrial markets. LSI said quote-to-order conversion periods lengthened for both large and small projects, although quote activity remained stable sequentially and year over year.

Orders increased 1% from the prior-year quarter, and the segment’s book-to-bill ratio was above 1.0 as of September 30. Adjusted gross margin improved slightly to 33.7% from 33.6% as the company aligned project pricing with raw-material costs.

Lighting adjusted EBITDA declined to $8.9 million from $9.9 million, with the margin falling to 13.7% from 14.4%. Adjusted operating income decreased to $8.2 million from $9.3 million. LSI said operating expenses were roughly unchanged as it continued investing in new products and customer initiatives.

Cash flow supports debt reduction

LSI generated $13.8 million of free cash flow, defined as operating cash flow less capital expenditures, compared with a $0.3 million outflow a year earlier. Free cash flow represented 62% of adjusted EBITDA, while trailing-12-month free cash flow reached $53.1 million.

Net debt declined by more than $14 million sequentially to $227.4 million. Pro forma net leverage fell to 2.6 times trailing-12-month adjusted EBITDA from 2.7 times at the end of fiscal 2026. The company expects continued free cash flow generation to support further debt reduction and is targeting net leverage below 2.0 times at or before the end of fiscal 2028. Cash and available capacity under its $350 million credit facility totaled more than $122 million.

Working capital remained within 61 to 65 days, or about 18% of trailing-12-month sales. Inventory declined sequentially to $143.5 million, though LSI said project scheduling changes continued to cause some fluctuations.

The company described the operating environment as challenging, citing cost inflation, rising interest rates and softer non-residential lighting demand. Other disclosed uncertainties include changes in customer demand and project timing, raw-material and transportation costs, reliance on suppliers and major customer relationships, competitive and pricing pressure, and the execution and integration risks associated with acquisitions.