LSI工业 (LYTS) 2026财年第四季度业绩电话会议：销售额增长51%，Royston利润率成为焦点

核心要点

• 2026财年第四季度销售额同比增长51%，其中包括8%的有机增长。调整后EBITDA增长50%至2500万美元以上，利润率为10.9%，调整后稀释每股收益（EPS）达0.38美元。
• 全年净销售额创历史新高，达到6.89亿美元，同比增长20%。调整后稀释每股收益从1.04美元增至1.25美元，调整后EBITDA增长28%至近7000万美元。
• 显示解决方案部门（Display Solutions）季度销售额达1.64亿美元，几乎是上年同期的两倍，有机增长率为18%。其调整后EBITDA利润率提升180个基点至12.4%。
• 照明部门（Lighting）第四季度销售额同比下降3%，但环比增长17%。全年照明销售额增长7%，第四季度订单量增长5%，订单出货比（book-to-bill）保持在1倍以上。
• Royston旗下利润率较低的Sign Resources项目预计将在未来一到两个季度内造成50至100个基点的利润率逆风。管理层预计受影响的积压订单将在2027财年第二季度末前清理完毕。
• LSI赢得了一项多年期项目，将为一家新的大型石油零售客户改造约2500个站点。管理层目前预计执行期约为18个月，不过具体发布时间表仍取决于客户。

核心财务数据

业务与运营表现

显示解决方案部门

显示解决方案部门是主要的增长引擎。在杂货店和加油站/便利店需求的推动下，有机销售额增长了18%。

随着客户继续投资于冷藏和非冷藏展示柜、门店装饰以及购物体验，杂货店领域的销售额同比增长21%。管理层预计进入2027财年后需求将维持在高位。

加油站和便利店领域的销售额增长了16%，其中户外印刷图文和EMI门店内部产品均实现两位数增长。新的2500个站点石油零售商项目涵盖外观品牌塑造，并存在增加内部装饰工作的潜在机会。

受客户结构变化以及LSI向更高价值产品和项目转型的影响，Royston按备考（pro forma）计算的销售额略有下降。管理层表示，Royston的几家主要客户正在开启多年期中标和建设周期，预计将在2027财年期间逐步放量。

在运营方面，Southern CaseArts的准时交付率从70%左右提升至90%以上。LSI还在评估采购、制造和布局效率，预计在未来24个月内将迎来成本节约机遇。

照明部门

第四季度照明部门销售额同比下降3%，反映出汽车和快餐店（QSR）项目活动有所放缓，但环比增长17%。在全国性大客户渗透率提升和户外区域照明需求增强的推动下，全年销售额增长了7%。

Velocity户外区域照明系列产品继续获得良好市场反响。新的Velocity泛光灯系列的首批规格预计将于下季度推出。

第四季度照明部门订单同比增长5%，订单出货比适度高于1倍。管理层表示，由于项目定价和产品组合的优化，第四季度及全年的毛利率均有所改善。

管理层业绩指引

• 显示解决方案部门第四季度的订单量与出货量基本持平，进入2027财年时的积压订单略高于上年同期水平。
• 管理层预计杂货店以及加油站/便利店的需求将维持在高位。随着Royston最大的两个客户的业务活动在2027财年期间有所改善，其需求预计将同比适度增长。
• 利润率较低的Sign Resources积压订单预计将影响2027财年上半年，但影响会随着时间推移逐渐减弱。管理层预计未来一到两个季度将面临50至100个基点的逆风，且第一财季较第四财季将增加约30个基点的额外压力。
• 由于上年同期基数较高，预计第一财季照明部门销售额将比上年同期低几个百分点，但毛利率表现预计将维持稳定。
• LSI重申了在“Fast Forward”战略下实现12.5%调整后EBITDA利润率的目标，同时提醒称改善过程不会是线性的。
• 这2500个站点的项目目前预计将运行约18个月。管理层表示，由于项目发布时间表仍在敲定中，因此该中标项目未包含在所讨论的部分数据中。

风险与关注事项

• Royston的Sign Resources积压订单中的产品定价未能跟上石油基聚合物和塑料成本上涨的步伐。LSI已修订报价流程，但现有承诺仍须履行完毕。
• 尽管报价活动开始改善，但由于通胀压制了消费者信心和支出，快餐店需求依然疲软。
• 汽车、快餐店（QSR）及其他垂直行业的项目节点可能会不均衡。对于这2500个站点的项目，实际执行进度将在很大程度上取决于客户下发及处理站点的进度。
• Royston最大的两家加油站和便利店客户目前在改造和新店建设活动方面落后于整个行业水平。
• 并购整合、交叉销售、采购改进以及布局优化均需要时间，并可能带来暂时的扰动。

分析师问答环节亮点

Royston利润率复苏：管理层表示，低利润率标牌积压订单既反映了落后的投入成本假设，也反映了收购过程中定价纪律的放松。LSI已实施其标准项目定价控制，且预计重新定价举措不会中断业务量。

底层利润率杠杆：LSI将交叉销售、采购、制造效率、产能利用率以及项目定价视为主要切入点。管理层坚持认为，Royston最终应当能提升综合利润率。

显示解决方案部门增长质量：管理层表示，第四季度18%的有机增长并非由项目提前拉动所致。杂货店以及加油站/便利店被列为最强劲的贡献领域，而汽车领域在该季度表现不佳，但仍是LSI具备吸引力的垂直领域。

2500个站点项目：该项目预计将持续约18个月，不过管理层强调了获得中标与接收具体项目下发之间的区别。LSI表示，其具备足够的产能来执行该项目，而不会对现有业务造成干扰。

交叉销售潜力：管理层认为，在无需新增客户的前提下，Sign Resources仅靠深化现有客户关系就能实现业务规模翻倍或翻三倍。公司还看到了为加油站和便利店客户整合外部和内部解决方案的机会。

业绩电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

Operator

Greetings and welcome to LSI Industries Fiscal 2026 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jim Galeese, Chief Financial Officer. Thank you. You may begin.

James Galeese

Welcome, everyone, and thank you for joining today's call. We issued a press release before the market opened this morning detailing our fiscal '26 fourth quarter and full year results. In addition to this release, we also posted a conference call presentation in the Investor Relations section of our corporate website. Information contained in this presentation will be referenced throughout today's conference call and included are certain non-GAAP measures for improved transparency of our operating results. A complete reconciliation of GAAP and non-GAAP results is contained in our press release and 10-K.

Please note that management's commentary and responses to questions on today's conference call may include forward-looking statements about our business outlook. Such statements involve risks and opportunities, and actual results could differ materially. I refer you to our Safe Harbor statement, which appears in this morning's press release, for more details.

Today's call will begin with remarks summarizing our fiscal fourth quarter and full year results. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to LSI President and Chief Executive Officer, Jim Clark.

James Clark

Thank you and good morning, everyone. Thank you for joining us today. Fiscal 2026 was a transformational year for LSI. We delivered record sales and profitability in our core business, but we also completed the largest acquisition in our company's history with the purchase of the Royston Group. I'm proud of what our team accomplished this year, and I'm well aware of the work ahead of us. Today, I'll walk us through the results, give an update where we're headed, and then turn the call back over to Jim Galeese for a detailed look at the financials.

Full-year net sales reached a record $689 million, up 20% versus the prior year. Adjusted earnings per diluted share grew to $1.25 compared to $1.04 in fiscal 2025. We generated almost $70 million of adjusted EBITDA for the year, up 28% versus fiscal 2025, at a margin rate of 10.1%. We produced $39 million of free cash flow for the year, representing a conversion of more than 50% of adjusted EBITDA.

Turning to the segment results, in our Lighting segment, fourth quarter sales increased 17% sequentially versus the fiscal third quarter, but declined 3% versus the fiscal fourth quarter of last year. That decline reflects a soft quarter in our automotive and QSR verticals, where project timing can be uneven. For the full year, Lighting sales grew 7%, driven by increased penetration of national accounts and improved demand for outdoor area lighting. Our Velocity family of outdoor area lighting continues to gain traction in the market, and customers are responding to its performance and specifications.

We are in the final stages of developing our new Velocity floodlight fixture line. Initial sizes launching next quarter. Lighting orders in the fourth quarter were 5% above last year with a book-to-bill above 1x. And we're focused on continuing to deliver above market growth as our national accounts and new product introductions build momentum. Our Lighting segment has consistently outperformed the broader market, and we think we have a lot of runway in front of us.

Within Display Solutions, fourth quarter sales nearly doubled versus the prior year period, including organic growth of 18%. Segment adjusted EBITDA margin rate increased to 12.4% for the highest level we've reached in nearly three years and an increase of 180 basis points versus a year ago period. That growth was broad-based. Organic growth in our grocery vertical refrigerated and non-refrigerated display case sales increased 21% year-over-year as grocery customers continue to invest in in-store decor and the overall shopping experience. This vertical is steady, strengthened over the past two years following the industry-wide pause in 2024, and we expect that demand to remain elevated as we enter into fiscal 2027.

We experienced strong organic growth in our refueling and convenience store verticals, with fourth quarter sales increasing 16% versus the prior year quarter, and double-digit growth in both outdoor print graphics and EMI store interior products. Project activity across our multi-brand customer base remains healthy, spanning both new store construction and renovation programs. During the quarter, we were awarded a multiyear program with a large oil retailer to renovate approximately 2,500 sites. This program covers all exterior branding elements with anticipated interior opportunities. I want to highlight that this is a new customer for LSI.

We displaced a long-standing incumbent supplier because of the breadth of our integrated One LSI solution set. This is exactly the kind of win our platform strategy was built to generate. It did not require us to add a single new customer relationship in order to see the benefit of what an integrated offering could do. Before I go further into the results, I want to address something directly. The fourth quarter adjusted EBITDA margin came in at 10.9%. That is below where we expected margin to land for the quarter. The primary driver is lower margin backlog at Sign Resources within Royston.

This backlog reflects pricing that did not keep pace with higher raw material input costs, and those decisions were made prior to our ownership. As you may know, these signs have a great deal of petroleum-based polymers and plastics that have been significantly impacted by crude oil prices. We're working through this impact, and we expect it to take approximately two quarters to fully clear. It may run through the first half of fiscal 2027. We expect this to create a bit of a margin headwind in this group for the first half of the year, followed by a benefit as we move into the back half of fiscal 2027, and this backlog is fully behind us.

I want to be clear about how we think about this. This is a one-time isolated situation. It's the kind of issue we look for early on into an integration. And then we take corrective action. It does not change our conviction in the underlying margin thesis behind the Royston acquisition. It does not change our commitment to the 12.5% adjusted EBITDA margin target we've communicated as part of our Fast Forward strategy. It does mean the path there will not be perfectly linear. And I'd rather tell you that right up front than assume otherwise.

The Royston integration within Display Solutions continues to move at a good pace as we align on a single customer-facing value proposition and go-to-market model. Royston's fourth quarter sales declined modestly year-over-year, consistent with our expectations, as we intentionally narrow our focus towards higher value products and project mix. Several of Royston's largest customers are in the early stages of multi-year awards and new construction cycles, with project activity expected to ramp beginning in fiscal '27 and continue over the next several years. We're excited by that.

I personally visited all but one warehouse at the Royston location since the close, and I visited most of these locations multiple times. I've led town halls, walked the floor, and spent time directly with the people doing the work every day. Our senior and mid-tier leaders across LSI are actively engaged with the Royston organization, the business and building relationships. I've met personally with a number of Royston's top customers, and the reception has been universally and outstandingly positive. On the commercial side, we see substantial cross-selling opportunities. At Sign Resources alone, we believe we could double or triple the size of that business without adding a single new customer simply by deepening our relationships within the customers we already have on our roster.

This is the kind of organic upside that makes this acquisition so compelling. On the operational side, we are seeing many encouraging progress points. At Southern CaseArts, we have made measurable improvements in on-time delivery performance, moving from the 70-something percent range to on-time delivery in excess of 90%. This is a direct result of applying the same operational discipline across Royston that we've applied across the rest of LSI. We are also identifying cost-saving opportunities that we expect to realize over the next 24 months, and we're approaching that work carefully. We don't want to do anything that could destabilize the business, and we'll share more detail of these plans as they mature.

Know we're applying the same integration playbook that has served us well across prior acquisitions, with dedicated teams focused on procurement, cross-selling, and cost synergies. Value creation from an acquisition of this size is never perfectly linear, but I'm excited by the progress and I'm confident in the direction we're headed. Order rates within Display Solutions remain strong, with a book-to-bill of approximately 1x on a strong sales basis. That figure does not include the new program award I just described.

I also want to share an important update on our organizational structure and our leadership team. And I want to spend a bit more time on it than a single headline because I want you to understand just how purposeful this plan is. As part of this broader transformation, the leadership team and I spent the second week of July in a working session planning the go-forward plans of our company and the tactical activities we'll seek to execute over the next 12 to 24 months. I say tactical because this was not a strategic discussion. This was a get down to work discussion.

We also introduced a shared values framework this year called DRIVE. DRIVE stands for Detail, Respect, Intention, Velocity, and Execution. It's not a marketing campaign or a slogan. It doesn't change who we are as a company. But instead, it builds on our current values, and it gives every person across every facility, regardless of history or legacy, a shared language and a program of how we collaborate, how we make decisions, and how we hold ourselves accountable as One LSI. It's the cultural foundation that underpins our Fast Forward strategy. We're already seeing it show up in how our teams are working together across the combined organization.

Finally, I want to share an important update on our leadership team. As announced in a separate press release earlier today, our Chief Financial Officer, Jim Galeese, has announced that he will retire next year at the end of October 2027 after nearly a decade of service to LSI. I want to be very clear about what this means. Jim Galeese is not going anywhere soon. It's not a change in strategy, guidance, or capital allocation priorities. Jim is with us today. He'll be with us this time next year, and he'll stay with us through an orderly transition that he himself will help lead. We are telling you about this move more than a year in advance for a reason.

We believe that giving ourselves and the market this much runway is exactly what creates the best opportunity to get the right person in this seat. This is a deliberate, well-governed succession plan, one we prepared for. It's funny, but I'd like to mention that when Jim and I first met in 2018, he said that he was only staying for two years. That was eight years ago. So I'm thrilled that we've had this time to work together. Thank you.

Ahead of Jim's retirement, we've initiated a formal search process for his successor. That search will be led by me with our executive team, along with the executive committee of our board of directors, in consultation with a global executive search firm. The search will consider both internal and external candidates, and once a successor is named, Jim is committed to supporting that transition for as long as it takes to get it right, including remaining longer than August 2027, if that's what it takes. We're planning for continuity, not a gap, and I want you to leave this call confident that we've thought this through carefully and thoroughly.

On behalf of our employees, customers, partners, and shareholders, I want to thank Jim. He has led with integrity, strategic insight, and disciplined financial stewardship for ten years, and his commercially-minded approach and partnership has been instrumental in building the company we are today. During fiscal 2026, we built on a strong foundation for profitable growth. We meaningfully expanded our capabilities, increased our share of key verticals, and continue to deliver a value proposition that is unique to our market and one that we believe has redefined the retail branding solutions category.

With the addition of Royston, we are focused on realizing the benefits of scale while applying a proven playbook that prioritizes disciplined, on-time, and on-plan execution. Our longstanding customer relationships and the trust our customers place in our combined LSI and Royston brands allow us to become an even more valuable strategic partner and to capture a greater share of wallet over time. We're confident in the outlook for our business, and we look forward to continuing to create value for our customers, our employees, and our shareholders in the years ahead. With that, I'll turn the call over to Jim Galeese to walk through our financial results in more detail.

James Galeese

Thank you, Jim. I'll start by summarizing our Q4 performance. LSI delivered a solid Q4 with sales growth of 51%, including organic sales growth of 8%, generated adjusted EBITDA of over $25 million, an increase of 50% versus prior year, with an adjusted EBITDA margin of 10.9%, and adjusted EPS increased to $0.38 per diluted share. The business generated Q4 free cash flow of just under $10 million, serving to reduce debt by $9 million in the quarter.

Next, I'll recap the Q4 performance of our two reportable segments. Our overall 8% organic sales growth in Q4 was driven by continued healthy activity in several of our key vertical markets, most notably grocery and refueling C-store. This resulted in a strong organic growth rate of 18% in our Display Solutions segment. This heightened demand challenged our supply chain and manufacturing teams, and they responded and met customer requirements. This demonstrates LSI's proven capability to domestically fulfill projects with diverse levels of customer specifications and customization, a key differentiator for our company.

In total, fourth quarter sales for Display Solutions doubled compared to the prior year to $164 million, representing 70% of LSI sales in a quarter. My following comments on market verticals will reference LSI organic performance, followed by separate comments on Royston. I mentioned activity for Display Solutions in the refueling C-store vertical remains strong, with fourth quarter organic sales increasing 16% in the quarter. It's important to note that double-digit growth was realized in both the exterior of the store as well as the interior of the store. Now, many of the projects and sites remain either exterior only or interior only, but we're beginning to see more opportunities involving both. This is consistent with our solution selling strategy and confirms the significant synergy opportunity to improve customer and per site revenue as we move forward.

The grocery vertical also experienced double-digit organic growth as grocery chains continue to realize the return on investment in the consumer experience. Grocery sales continue to be more balanced across a broader customer base than in previous years, an encouraging sign for both the breadth of market activity and our sales penetration efforts for both national and regional chains. The overall QSR vertical remains soft, as inflation unfavorably impacts consumer sentiment and spending. The QSR is a large vertical, and strategic adjustments by industry participants will result in increased opportunities for LSI. Project inquiry levels are steady and we're beginning to realize improvement in quote activity.

Next, a few comments on Royston. Royston sales on a pro forma basis were down slightly year-over-year, driven by account mix. Royston's largest vertical is refueling C-store. While I mentioned the overall vertical remains strong, the top two chains, which are sizable Royston customers, currently lag the industry in renovation and new store construction. The substantial investment plans for both chains over the next five-plus years are well documented, and we maintain our strong relationship with both, working on concept and pilot projects. Activity in the balance of the customer base remains healthy.

The Display Solutions segment also delivered strong fourth quarter earnings, generating over $20 million of adjusted EBITDA compared to $8.7 million in the prior year quarter. Earnings were particularly favorable in the organic LSI business as we continue to effectively manage project margins. As Jim outlined, Royston pro forma EBITDA margin was down due to lower margin projects in signage. Looking forward for Display Solutions, we expect demand to remain at elevated levels for the refueling C-store and grocery verticals.

Bookings matched billings in Q4 on strong sales, and we enter fiscal '27 with a backlog slightly above prior year. For organic LSI, we expect to sustain solid margin performance. For Royston, we expect demand to increase modestly year-over-year, with the top two accounts projected to realize improved demand levels as the year progresses. First quarter display margins will be impacted somewhat as we flush through lower margin backlog on certain Royston signage projects. We've identified the flaw in their project quotation process and have implemented the disciplined approach other LSI businesses utilize to effectively manage this area. As you know, quality of earnings is a high priority for us.

Shifting to the Lighting segment, fourth quarter sales were down modestly as projected. While the market is active, performance fluctuates considerably by vertical. For example, our larger automotive project activity increased for the fiscal year but was down for the quarter, while sports applications were down by a quarter. Application projects increased substantially. We continue our emphasis on national account growth with Q4 again generating year-over-year sales growth. Despite the year, Lighting generated sales growth of 7% in fiscal '26, outperforming the market. Lighting Q4 gross margin rate increased in the quarter and for the full year, driven by project pricing and product. Lighting book-to-bill was moderately above 1x for the quarter.

In assessing scheduling of our project backlog, we expect first quarter sales to be several points below a strong prior year comp while maintaining gross margin performance. In summary, Q4 and fiscal '26 were a solid quarter and year for LSI. Our top markets remain active, and we're well positioned to capitalize on market opportunities. Lastly, Jim, thank you for the kind words. I highly value your leadership and the productive partnership we have. LSI has built a very accomplished leadership team and have talented employees throughout the organization, people who are passionate about what they do, all contributing to the value of LSI. I look forward to a successful fiscal 2027. I will now turn the call back to the moderator for the question and answer session.

Operator

At this time we'll be conducting a question and answer session. [Operator Instructions] Our first question comes from Aaron Spychalla with Craig-Hallum. Your line is now live.

分析师问答

Aaron Spychalla

Yes, good morning, Jim and Jim. Congrats, Jim, on the retirement, but good to hear you'll be around for a little bit longer.

James Clark

Well, appreciate that, Aaron. Thank you.

Aaron Spychalla

You bet. First question for us, just thinking about EBITDA margins and operational initiatives, can you just talk about some of the goals operationally and integration of M&A? And then it just sounds like these lower margin projects at Sign Resources, you feel like you have a good handle on those, a couple more quarters to kind of work through some of the issues there.

James Clark

Jim Clark, and thanks for the question. Yes, just going backwards, yes, we do think we have a good handle on it. I mean, as I look at it, I think that, you know, Royston was making sure, working to make sure that their pipeline and their forecast was full and, you know, and maybe a little of the discipline around margin slipped a little bit. You know, that's what we execute, do a very good job on is, you know, managing that pricing. We're price zealots. We look for that margin. We make sure that it's equitable for us and for the customer. And so we'll bring that culture and that discipline in.

But, you know, with the backlog we have right now and the commitments we have to the projects, it's just going to be a lot of work. It's going to take us a quarter or so, a quarter maybe two to work through that backlog we have there at a little bit lower margin than we want. In terms of overall EBITDA margin, our goals remain the same, 12.5%. I think that it's clear we can get there. We've demonstrated in the past that we can get up north of 11.5, and with the accretive nature of Royston, it certainly makes it even easier for us to get there. I say easy as a qualified word because we have work to do. We just acquired a $300-something million company.

We're working through the integration, the cross-selling, all of that type of thing. We're rationalizing the footprints we have, the resources we have, the people we have, and we're working to optimize that. But that process takes time and it takes effort. And you see a little disruption during those times, but we know what the outcome is going to look like and we're excited about it.

Aaron Spychalla

All right, thanks for the color there. And then second on QSR, sounds like some indications of, you know, green shoots of a recovery there. Can you just give a little bit more detail and is it similar to some of your other markets where there's good cross-selling potential with that with Royston and the rest of your business?

James Clark

Yes, I mean, we, listen, just because QSR is facing a little bit of headwinds right now, we still love the market. We love the investment that customer base is making. You know, if you look at some of the projects we've had over the last few years and the results of those investments by those companies, you know, they're doing well. And it goes to show that that investment in the store interior, you know, the location interior, the drive-through menu boards, the, you know, the parking lot refreshing, all the things that LSI does has paid off for them. And I'm specifically talking about one of our customers that's in the lead position right now after struggling for a few years. So I think that's a good thing. I think it's a good indicator to the market overall and anybody that's sitting on the sidelines in that sector that those investments have direct ROI and it's, you know, customer flow and profitability.

So we, you know, we still remain very excited about that, you know, primarily because of our offering. You know, it's so well organized for that market as it is for grocery, as it is for, you know, petroleum, C-store, you know, automotive, so many other of these vertical markets that we're in. I just think it's a reflection of some of their decisions to invest and the project timing. But I don't think it's a statement about the future potential or the momentum that we're going to continue to get off of that.

Aaron Spychalla

Understood. I'll turn it over.

James Clark

Yes, and please, by the way, the operator said, limited to one question, you know, please, you know, ask the questions everybody has on their minds and, you know, we'll jump in if it gets to be too many.

Operator

Our next question comes from Brent Thielman with Oppenheimer. Your line is now live.

Brent Thielman

Good morning. Congrats as well, Jim, on the retirement. I guess just first question in and around Royston and the lower margin Sign Resources projects you're working through. Is it possible to size that backlog and kind of the margin headwind that caused you or is causing you as you wind those down? And Jim, I think you mentioned you've taken some actions to protect the margins going forward, kind of walking through what you're doing differently there.

James Clark

Yes, Brent, thanks for the questions. I mean, we don't usually dive too deep into, you know, project activity because it's mixed, right? It's never just one customer or anything like that. And I think it's easy to understand, you know, maybe some of the decisions that were made as we're coming to a close and things like that. You know, I think the most important thing I said it in my comments there is we identify it. We know where it is. They've certainly performed at a higher level before, and so we don't see a lot of headwind getting back to the discipline that they've demonstrated in the past, nor the discipline that LSI has as a bigger company. But, you know, I mean, I think the impact is between 50 and 100 basis points over the next quarter or two, and I think it diminishes as time goes by.

Brent Thielman

Got it. Maybe just on the other side of that. any margin tailwinds under the hood that you could speak through. I know there's been a lot of focus on procurement execution. I don't know if mixed event markets could make a difference here in the near term. Just be curious what you see kind of behind this headwind that is an underlying tailwind to the business for margins.

James Clark

Yes, I mean, I think that's a great question and one that we're, you know, deeply focused on. And it's part of our overall thesis here, you know, and there's a number of levers. But, you know, it starts with just our cost of sales, right? I mean, when we look at, you know, coming in as a sign company, a lighting company, or refrigeration company, whatever it is, that's one arrow, one shot. When we walk in as LSI, we have 10 arrows, 10 shots, and we don't necessarily have to go through every arrow to get a win. So the whole idea of making it easy for our customers and being able to service them, multiple levers of their requests and their needs, that's probably the biggest tailwind we have and we see that continuing to build momentum.

But we also have the opportunity, in the background of all the things we've done in the past, LSI executes very well, procurement, manufacturing efficiencies, you know, all of those things are levers we're working on right now. You know, they don't happen overnight and they're not linear, but what we have is a very receptive team in the Royston group. You know, the engagement level by the team over at Royston and by the team at LSI has been outstanding. I think it says a lot of the professionalism of Royston. It's a well-run company. And LSI is a well-run company. And I think we raise each other, by the way. Our investments, our meetings with them, and I talked about our tactical focus, I think are all tailwinds we're creating, and I hope to benefit from them sooner rather than later.

James Galeese

Yes, Brent, Jim Galeese here, just to support what Jim's saying. We commented that the organic LSI margins were pretty solid, and that's a result of a very disciplined process to align this rather volatile environment of material input costs with our project pricing. We are a project-based business, right? And what we saw in signage there was they had a gap in referring to current material input costs, so there was some misalignment there. We're fixing that, we know how to do that, so we're very bold and upbeat about our margin improvement process and capabilities as we move forward. And again, being a project-based business, every day we're quoting projects. So every day we can be alert and respond to changes going on in the marketplace. I was very encouraged, though, with the demand levels in our key verticals remain very strong, very high.

James Clark

Very healthy. So true in the excitement level. I talked about it a little bit. I wish there was a way I could visualize it, but we've had the opportunity to meet with customers of Royston and customers of LSI about what this new company looks like. And it's genuine excitement. It's there. And by the way, if there was any subtlety in my message, particularly around some of the pricing margin issues. Look at the signs are primarily plastics and polymers and you know they're directly impacted by crude oil pricing and controlling yes and the swing on that was faster than any you know than I think that anybody could react to. And so I'm proud of the work that the team did, even without LSI's involvement, and I think that it will get even better as a collaborative team.

Brent Thielman

Appreciate all that. I'll take you up on the one extra one, which is on, again, on Display Solutions. I think you were assuming something around mid-single digits to high single digits organic. You came out in the high teens. I guess two-part would be is there any reason to think there's a pull forward in this quarter and I guess if not, what verticals or areas would you call out for kind of outperformance relative to expectations this quarter?

James Clark

Yes, there's no pull forward of anything. You know, we keep a steady state, you know, all the time, and that's part of our agreement with our customers, our relationship. We want to be very predictable. We want a high say-do ratio. Well, even if we wanted to, we can't. It's project-based. It's going to a site and being installed to a date they specify. So we really don't have a lot of latitude.

Our problems are usually the other way. The concrete truck didn't show up. So, no, there's no pull forward. You know, I mean, I'm pretty excited about -- really excited about the reception in the petroleum C-store space. I mean, these guys see it right away. They're getting it right away. They're like, oh, this is a great combination. I'm also very excited about grocery.

I mean, you know, we said it. We said that, you know, there was a little distraction, a little industry-wide pause back in 2024. And we said that we expect to continue to see that investment and it's been maybe one of the closest linear activities we've had and you know we don't have very many of them so the grocery market has been on a good, nice, steady trajectory. We like the angle it's on. And we listen just like a lot of other investors do to what the CEOs of those companies are saying. And we've seen consistent reference to in-store investments, environment, investment, and the payback. And that's what we provide. And so we're pretty excited about that.

And I'd also say that automotive underperformed where we wanted this quarter, but we like automotive. If you go back and listen to any of my prior calls, I remember coming out of COVID, somebody was calling the death of the showroom and the, you know, traditional auto dealer and we've never seen that and we continue to really enjoy the momentum that that market has in the investments that they make. So, and I'm not leaving anybody out here, there's still a lot of positives in the number of the other vertical markets we have, but those would be three that I would definitely highlight.

James Galeese

You know, just to, you know, add to Jim's comment, specifically, you know, in refueling, you know, C-store, Jim referenced in his comments the award received on the, you know, the 2,500 site program, you know, for large oil retailer, you know, and that retailer recognized, you know, the solution sell capabilities and allowed us then to, you know, win that not on price, but on, you know, our breadth of what we can do to make, you know, their life, you know, easier and allowed us to displace the multiple suppliers it took for them to do the same thing for them, you know, historically. So as Jim said, that's a new customer, and I think that's a really solid proof point, you know, relative to our strategy.

James Clark

Okay, thank you. I'll pass it on. And by the way, as we're waiting for the next question, I did mention it in my comments in the press release. That award is not really factored into some of the numbers that we were presenting. You know, we'll get more on project timing and that type of thing as it moves forward. You can imagine it's complex. It's got a lot of elements to it. So, you know, we're excited about it.

Operator

Our next question comes from Alex Rygiel with Texas Capital Securities. Your line is now live.

Alexander Rygiel

You kind of just maybe answered this question, but I want to kind of ask it regarding the 2,500 sites for the large oil retailer. What does that timeline look like? It sounds like you haven't really included the guidance yet, but what does that timeline look like? And it sounds like there's some upside possibly from some interior work. When might that be awarded and how should we think about quantifying that upside?

James Clark

Yes, Alex, thanks for the question. Good to hear you on the line. Remember, we've talked about this before. There's award and then there's project release, right? So awarding the project is, hey, we're going forward. This is the site scope. This is everything we're doing. Project release is what we and the customer learn through the process. Wow, we bid off, we were going to do 150 stores in you know 180 stores a month that's too much you know we're you know we're not able to process all of that or hey we're going to do 180 stores I think we can step it up to 250. Right now, our initial look, looking around 18 months for that project, the scope of that project.

Some of it will be, we'll learn as we go through here over the next, I think, couple weeks, we'll get more clarity on that. But I think the number one person that comments on this is Jim Galeese on these calls all the time. There's a difference between award and project release, and that is always the thing that we learn together. So where we are right now is the project award phase. The pick-and-shuffle work that we'll do right now is what's that release schedule look like. But right now we're anticipating it over about an 18-month time period.

James Galeese

And Alex, that award, that 18 months, from a historical perspective, the customer's being pretty aggressive there. But what that means is, and we spoke to this too, is our capabilities to be able to fulfill that. All right? This is a specific customer, specific customer specifications, certifications, certain level of complexity associated with that. But our competencies and capabilities to do that is what the customer recognizes as well and allows them to think about this 2,500 site renovation being done in this condensed period of time. We support it. Now, whether they can keep up with it.

James Clark

Right, yes, I was going to say that we're confident we have the capacity to do it without disrupting our normal course of business. This is that, to the efficiencies, this is what, you know, better utilization, second shifts, all of this flex that we've built into our system to allow us to respond to this. And we learn, along with the customer, I mentioned in the beginning of the comments, we learn as we go through these. Sometimes we press the gas, you know, the pedal a little harder. Sometimes we say, well, you know, let's step it back to 150 or let's step it back to 125. And that's done in collaboration with the customer, and it's almost wholly driven by the customer. We need them to feel comfortable. But we're excited about the project.

Alexander Rygiel

And then as it relates to the opportunities interior.

James Clark

Well, you know, that's something we're working on right now, you know, and I think that where we get our greatest strength is, you know, and this is just like every consumer of every project, of every product, you know, people are going to want to be able to do this. I fundamentally believe people buy from people. We look at specifications, we look at performance criteria, materials, we look at overall, we look at acquisition cost versus total cost, but people end up buying from people based on their say-do ratio, how they do, how they deliver on their commitments, and I think that as we continue to deliver with a new customer on a great project, we'll earn more of their business.

James Galeese

You know, Alex, I think you heard in my comments that, you know, one of the, you know, real positive highlights about the petroleum C-store Q4 was both the outdoor, you know, applications work as well as the indoor work. Our sales were up double digits in both. Now, you know, a good majority of the time, we're not going to be able to do those for still outdoor only projects or indoor, but we are beginning to see more where we're going in with both. That is the big opportunity, and this project is certainly one of those where we have the opportunity now to expand into the indoor solution set as well.

James Clark

I want to say one other thing because I think you opened up a window for me to make comment on it is that I'm not sure a lot of our people know it. I think that the coverage people that have come to our factories have walked through have noted it. I think that investors that have come and visited us have noted it. I wanted to talk about accessibility and communication and where a customer can reach in the organization and where an employee can reach. In every one of our factories, in every one of our locations, my cell phone number is posted in the factory, in the cafeterias, by the time clocks, available in HR. It's right there. It says you have a question, you have a suggestion, you see something, say something. And it just goes through kind of six steps, you know, like, hey, talk to your manager if you're not getting satisfaction.

Talk to HR if you're still not getting satisfaction. Talk to our head of operations, Don Kern, if you're still not getting satisfaction, call Jim Clark. Here's his cell phone number. And that is equal to our customer base. And when I was going through the phone calls with Royston, and this is going back, you know, five months now, you know, there were a number of comments from the customers about, you know, wow, I'm surprised the CEO of the company is on the line, you know, nice to meet you, all that type of stuff. And that cell phone number was made available to every one of those customers, too. And I think it says a lot about the culture in our company. I'm one person, it's one cell phone number, but it's that understanding, whether you're a customer or whether you're an employee, that there are no walls in communication there, you can get ahold of people pretty quick.

And I think that gives a great deal of comfort. And I think it says a lot about our organization, anywhere between me and our manufacturing operation, that people are available, accessible, and it's better to act fast than to live with something and have it get caught up in some type of procedural process. And I think we get a lot of equity from that, from our customers. We get a lot of acknowledgement and we're proud of that.

Alexander Rygiel

And one last question, your first quarter display margin directional guidance obviously suggests a headwind. Is that headwind incremental to the fiscal fourth quarter? So that margin sequentially could be down or is that more of a kind of a year-over-year kind of broader comment?

James Galeese

Jim Galeese here. Alex, it's a combination of both. We did see some of that headwind in Q4. We will see a bit of an incremental piece of that in Q1 as well, but I don't know in the 30 basis points or something like that incremental. All right. So we did see it in Q4. We'll see it a little larger in Q1. And then, as Jim mentioned, you know, it will start, you know, dropping. It gets better with time. And then, you know, it looks like we're going to flush out of it by the end of Q2.

James Clark

And I would, I'd like to mention one other thing, just in case. It's not apparent. This is about the anticipated, the targeted margin, that increase, that benefit that we were getting from Royston, that accretive effect combined with our discipline and our current margins. We're just not going to, you know, this headwind is going to hold us back a little from hitting that top, that upper end goal. But the bottom is not dropping out of anything. You know, I mean, it's not like if this was LSI on a standalone basis, it would be, you know, it'd be pretty strong. And like I said, I mean, the most important thing is, is that this is identified, fixable and it will be digested and worked through.

Alexander Rygiel

Very helpful. Thank you.

Operator

Our next question comes from Amit Dayal with H.C. Wainwright. Your line is now live.

Amit Dayal

Hey, good morning, guys. With respect to the Royston, you know, sorry to, you know, beat the horse on this one. Are the margin improvements just as simple as repricing the portfolio to adjust for higher costs? Or does the portfolio require any tweaking? Maybe in other words, will Royston margins come at the expense of lower revenue growth?

James Clark

First of all, good to hear your voice. No, I mean, listen, this, going back to our original thesis and our, you know, in our presentations, Royston as a group is accretive to our margins and it will remain accretive and it will get there. I think that we have two factors that were going on here and it's not hard to understand. One was Royston had the accelerator to the floor through this sales process, right? They're handling the sales process and the due diligence and they're keeping the business going and they took their eye off the ball a little bit. That's number one. Number two was there's a huge input cost that swung very quickly. It's petroleum. It doesn't take much to understand that petroleum prices have been significantly impacted over the last six months, and that's exactly the time period that these projects were exposed to. So the combination of those two make up the overwhelming majority of any headwind that we're facing.

The other thing that I've talked about, I think a lot of times in acquisitions from the outside, everybody looks at it as one plus one equals two. And I've worked really hard through our prior calls to say, there's a couple things to consider about that. One is we don't like all the business that might be in the portfolio right now, so we'll look at that business and say, can we fix this? Can it perform to the level that we want it to perform to? Is it a distraction to our core vertical market thesis, which was work in the sectors that we know well and that respect us? And can we add to this? Is it something we can build on? So some of that's going on. That's number one.

Number two, you know, when you go through an acquisition process like this, the company, you know, the acquired company, let alone the acquiring company, are running full speed. A little bit of an exhale that happens when the deal gets signed, right? And, you know, I think that exhale has happened. Everybody's focused. Everybody's going, you know, about their business, and I think there's huge potential, but that exhale happens. So, you know, everybody takes a, comes off their pace a little bit, relaxes a little bit, so we're paying a little bit of that impact.

And then the last thing, and this is the most important thing as an investor, as an employee, or as a customer, we've got purposeful programs in play right now. We've got the meetings going on. We've got tactical plans to execute against. And those things will get done and the return will be there. So, you know, we're very excited about this. I think it just, the size and scale of it makes it a little bit more visible. And, you know, as we have always in the past, we want to have a very high say-do ratio. We want to be very transparent. And so, you know, this is just us being us.

James Galeese

Amit, Jim Galeese here. I would just add to Jim's comments. I talked yesterday with the LSI leader of our print graphics and signage business combination now, and we talked about that very topic. And he says, you know, no, Jim, we are very busy on the quotes day, very busy on the order entry stage, and this new pricing, we do not expect any type of business volume interruption associated with us making the appropriate price movements and price changes. So as we talked before, you know, the market outlook for refueling C-store continues to be very, very positive.

Amit Dayal

Appreciate that color, guys. That's helpful, I think, for everyone. With respect to, I was at your facilities, Jim, not too long ago, and really got to appreciate the scale and depth at which you deliver your services. Because of the broader portfolio now that you have, you know, after these acquisitions over the last few years, are you able to pitch bigger deals to customers, and is that a trend we should potentially sort of, you know, keep in mind as we think about growth for you in the future?

James Clark

Yes. I mean, I think this is more of a customer behavioral change than a capabilities change for LSI. Remember, we're creating what is effectively a new category that's serving this market. And, you know, we go through the awareness process to the customer, hey, did you know we can do all of this? Some of our customer base is just not fully aware that we can do X, Y, and Z. Sometimes their own structure splits those roles and the people that are involved in those meetings. So I think our customer base, as well as our company, are going through an evolutionary development process together. And as we were just talking about, you know, our capacity and everything, we have the capacity to absorb. We can grow within our footprint, you know, 2x.

And so now the decisions come, what do you do to optimize that capacity? Because unutilized capacity is, you know, it can potentially be, you know, a paper cut or drain on our margins. But, you know, taking that capacity out too soon or making adjustments that don't account for that could be a shortcoming for us in the future where we get these projects that are larger in scope and you know, have more elements. I can't speak for the whole industry, but I would say these two things. Remember, number one, we're creating a new category of supplier. It didn't exist before. The breadth of what we can bring was not available before, you know, before LSI started on this path. Number two is that I believe we're already getting some of the largest project awards there are. I mean, we get in some cases, I can think of one right now where a customer gave us a third of the project and within two months came back and said, we're giving you the whole project.

They literally pulled the other two awards and gave it to us. We want more of that to happen. But I think there's just a natural awareness curve and demonstration curve that's going to go on.

Amit Dayal

Understood. That's all I have, guys. Thank you so much.

Operator

We have reached the end of the question and answer session. I'd now like to turn the call back over to Jim Clark, President and Chief Executive Officer, for closing comments.

James Clark

You know, we were looking at the comments that we made in the opening of this conversation, and we had rehearsed it, and Jim and I, Jim Galeese and myself both thought this is the longest intro, the longest call intro, prepared comments we've ever had. And I think it speaks to the growth of the business, the size of the business, and the opportunity that's in it. I think we had a great quarter. We're very excited about what's in the future. I wish that our growth was linear and it just was, you know, it was just from point A to point B to point C to point D. I don't expect it to look like an EKG, but I do expect, you know, nice growth in front of us. I think we have a lot of potential and a lot of runway.

I can speak for myself and I can speak for a number of our senior leadership team. We're very excited about what's in front of us. We're very excited about the reception the market's given us and our customers are giving us the opportunities. And I think there's just a lot of opportunity in front of us. And now it's our job to just continue to maintain that high say-do ratio, demonstrate it, show it, and continue on the path we've been on. With that, I'll say thank you very much for taking the time, and I'll look forward to hearing from each of you or some of you here in the future. Take care.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.