Executive Summary / Key Takeaways

• LSI Industries has strategically transformed into a leading provider of integrated non-residential lighting and retail display solutions, leveraging a vertical market approach and a significant shift to 70% domestic sourcing by fiscal year 2025.
• The company delivered robust financial performance in fiscal 2025, with net sales increasing 22% to $573.40 million and adjusted EBITDA reaching $55.07 million, driven by strong organic growth in Display Solutions and successful acquisitions.
• Key technological differentiators, including the V-LOCITY outdoor lighting platform and the R290 environmentally friendly refrigeration system, are enhancing LSI's competitive moat and driving new market opportunities.
• LSI maintains a healthy balance sheet with a net debt to adjusted EBITDA ratio of 0.82x and consistent free cash flow generation, providing ample flexibility for continued strategic investments and potential future acquisitions.
• Despite market choppiness and competitive pressures, LSI's "solution cell" approach and proactive management of operational efficiencies and tariff impacts position it for sustained growth, particularly in recovering grocery and robust refueling/c-store verticals.

A Unified Vision for Retail Environments

LSI Industries Inc. ($LYTS) has carved out a distinctive niche as a comprehensive provider of non-residential lighting and retail display solutions, strategically positioning itself as a single-source partner for customers across North America. This approach allows LSI to manage regional and national programs, offering a compelling value proposition by reducing project complexity and costs for its diverse client base. The company's overarching "Fast Forward strategic plan" underscores a commitment to profitable growth, operational excellence, and continuous innovation.

A pivotal strategic shift began in 2019, when LSI initiated a significant onshore and re-shore program for its manufacturing and sourcing. This initiative dramatically reduced its foreign-sourced components from approximately 80% to 30% by fiscal year 2025, with 70% of its products and components now domestically sourced. This proactive move is designed to mitigate the impact of trade wars and tariffs, providing LSI with a notable competitive advantage against rivals heavily reliant on foreign supply chains. Management believes this domestic focus will allow LSI to be "least affected in our sectors and best prepared to manage through whatever those look like" in a volatile global trade environment.

Technological Edge: Innovation Illuminates the Path

LSI's commitment to technological differentiation is a cornerstone of its competitive strategy, driving both product performance and operational efficiency. The company consistently invests in research and development, launching over 25 new products in fiscal 2025 alone.

A prime example is the V-LOCITY outdoor lighting product, introduced in fiscal 2025. This next-generation platform has been a "resounding success," building on the momentum of LSI's popular Mirada series without cannibalizing existing sales. V-LOCITY offers a "total update to our core outdoor lighting offering, from its performance to its aesthetics to its modular construction and build options." It leverages prior investments in adaptability, customization, and ready mount technology, delivering "next generation performance along with reduced installation time and weight production." For investors, V-LOCITY's success signifies LSI's ability to innovate within its core lighting segment, expanding its addressable market and reinforcing its brand leadership in outdoor applications.

In its Display Solutions segment, LSI has also made a critical technological transition by fully adopting the R290 environmentally friendly refrigerant for its refrigerated display cases. This move, driven by EPA rulings around synthetic refrigerants, is considered a "smart move for LSI" and a "product of choice and a competitive advantage." Pilot programs for the R290 cases have yielded "stellar" results, with strong customer feedback and well-managed manufacturing processes. LSI has strategically designated its JSI acquisition as the "center of excellence for refrigeration in terms of the technology, the design," while EMI focuses on the "construction of the displays, of the cases." This integrated expertise allows LSI to manufacture and customize both open and closed-door refrigerated cases, providing a versatile solution for grocery and convenience store markets. The "so what" for investors is clear: this technological leadership positions LSI at the forefront of sustainable refrigeration, aligning with evolving regulatory landscapes and consumer preferences, and opening new avenues for growth in "grab and grow centers" within convenience stores.

Competitive Landscape and Strategic Positioning

LSI operates in highly competitive markets, facing both national and international rivals that vary across its Lighting and Display Solutions segments. Key publicly traded direct competitors include Acuity Brands (AYI), Hubbell (HUBB), and Eaton (ETN). While some of these competitors possess greater financial resources and broader market reach, LSI differentiates itself through its unique "solution cell" approach, contrasting with competitors who often offer a "component sale." This means LSI provides integrated lighting and display packages, project management, and installation services, fostering deeper customer relationships and reducing project complexity.

LSI's specialized expertise in customized retail applications, particularly in grocery, refueling/c-store, and automotive dealerships, allows it to compete effectively in niche segments. For instance, LSI's focus on custom display elements can offer greater efficiency in project execution compared to Acuity Brands' broader smart systems focus. Similarly, LSI's flexibility in custom designs for indoor retail displays may reduce implementation times, differentiating it from Hubbell's emphasis on industrial-grade products. Against Eaton's broader power management portfolio, LSI's integrated services for visual displays could offer faster innovation cycles in merchandising solutions.

Despite being a "single-digit share player in many pieces" of its markets, LSI's strategic vertical market orientation provides significant growth runway. The company's proactive onshore/re-shore strategy also provides a distinct advantage against competitors heavily reliant on foreign-sourced products, particularly in the face of potential tariffs. This domestic strength could lead to increased market share as customers seek more resilient supply chains. However, LSI's narrower market focus compared to its larger, more diversified rivals could limit scalability and revenue diversification, potentially impacting its overall profitability and innovation speed.

Fiscal 2025 Performance: Growth Amidst Dynamic Markets

LSI Industries delivered a strong fiscal year 2025, demonstrating resilience and strategic execution in a dynamic market environment. The company reported net sales of $573.40 million, a 22% increase over fiscal 2024's $470 million. This growth was largely propelled by the Display Solutions Segment. Operating income for fiscal 2025 increased 1% to $35.80 million, while adjusted operating income rose 4% to $48.40 million. Adjusted EBITDA reached $55.07 million, representing nearly 10% of sales.

The Display Solutions Segment was a primary growth engine, with net sales soaring to $325.0 million in fiscal 2025, a 57% increase year-over-year. This included 17% organic growth, driven by robust demand in grocery and refueling/c-store verticals. Acquisitions played a significant role, with EMI Industries, LLC (acquired Q4 FY24) and Canada's Best Holdings (CBH, acquired Q3 FY25) contributing an additional $85.30 million to sales. EMI, in particular, delivered "record sales and profits in 2025" and became a "key driver of cross-selling activity." The grocery segment experienced a "meaningful recovery," with Q4 sales increasing 31% as grocers resumed in-store renovations. Service revenue in the refueling/c-store vertical also saw a substantial 65% increase in fiscal 2025, reflecting growing customer recognition of LSI's project management capabilities. However, the rapid increase in demand and scheduling disruptions in Q2 and Q3 2025 led to manufacturing and logistics inefficiencies, temporarily impacting Display Solutions' gross margin, which decreased to 18% from 21% in fiscal 2024. Management estimated a 200-250 basis point recovery in gross margin as operations stabilize.

Conversely, the Lighting Segment experienced a 5% decline in net sales to $248.4 million in fiscal 2025, primarily due to the non-recurrence of several large lighting projects from fiscal 2024. Despite lower sales, the segment's gross profit margin "improved marginally" due to a higher mix of value applications and effective cost management. Small project activity continued to increase, and large project order activity showed an uptick in Q4 2025, with Q4 orders increasing 12% year-over-year and backlog approximately 20% above the prior year.

LSI's liquidity and capital resources remain robust. Working capital increased to $96.80 million at June 30, 2025. The company generated $38.10 million in cash from operating activities in fiscal 2025, marking its third consecutive year of free cash flow exceeding $30 million, with $34.65 million in free cash flow for the year. This strong cash generation, combined with strategic debt management, resulted in a healthy net debt to adjusted EBITDA ratio of 0.82x at June 30, 2025, down from 0.97x in the prior year. The company has $35.70 million available on its $75 million revolving line of credit, providing ample flexibility for future investments.

Outlook and Strategic Trajectory

LSI's management is optimistic about fiscal 2026, guided by its "Fast Forward strategic plan." The company anticipates continued favorable cash generation, which will support further investments in sales growth initiatives and operational capabilities. Internally, the focus will be on talent development, process optimization, and continuous improvement.

In the Display Solutions segment, LSI expects "elevated rates" of activity to continue through the calendar year 2025, particularly in grocery and refueling/c-store. The largest refueling/c-store program is projected to extend well into 2026, involving thousands of site locations. Management also anticipates an additional 200-plus basis points improvement in EMI's margins in fiscal 2026 as integration synergies are realized. For the Lighting segment, large project activity releases are expected to pick up in the second half of calendar year 2025, improving the sales outlook.

LSI's proactive stance on tariffs, with its 70% domestic sourcing, is expected to provide a competitive advantage, allowing the company to offset incremental costs through price adjustments and cost reduction efforts. Furthermore, the recently enacted One Big Beautiful Bill Act (OBBBA) is expected to enable LSI to monetize $3.885 million of its capitalized R&D deferred tax asset in the next fiscal year.

The company remains highly active in the M&A space, with a pipeline of both incremental and transformational opportunities. Management has indicated it is "very likely" to complete another acquisition in calendar year 2025, leveraging its proven integration capabilities to expand its solution set and market reach.

Conclusion

LSI Industries Inc. is executing a compelling growth story, transforming into a resilient and integrated provider of lighting and display solutions. Its strategic pivot to domestic sourcing, coupled with continuous technological innovation through products like V-LOCITY and R290 refrigeration, strengthens its competitive position and mitigates external risks. The company's robust financial performance in fiscal 2025, marked by significant revenue growth, healthy cash flow, and a declining debt leverage, provides a solid foundation for future expansion.

While LSI operates in competitive markets and faces inherent risks such as market concentration and integration challenges, its "solution cell" approach and deep vertical market expertise offer a differentiated value proposition. The ongoing recovery in key retail segments, combined with a disciplined M&A strategy and a clear technological roadmap, positions LSI for sustained profitable growth. Investors looking for a company with a proven track record of strategic execution, financial prudence, and a commitment to innovation in essential retail infrastructure may find LSI Industries an attractive opportunity.