The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
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 September 30, 2022, the results of its operations for the three-month periods ended September 30, 2022, and 2021, and its cash flows for the three-month periods ended September 30, 2022, and 2021. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2022 Annual Report on Form 10-K. Financial information as of June 30, 2022, 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 2022 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 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 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.
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)
|
|
September 30, 2022
|
|
|
September 30, 2021
|
|
|
|
Lighting
Segment
|
|
|
Display
Solutions
Segment
|
|
|
Lighting
Segment
|
|
|
Display
Solutions
Segment
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
|
$ |
58,077 |
|
|
$ |
47,489 |
|
|
$ |
44,582 |
|
|
$ |
37,431 |
|
Products and services transferred over time
|
|
|
9,456 |
|
|
|
12,047 |
|
|
|
6,678 |
|
|
|
17,706 |
|
|
|
$ |
67,533 |
|
|
$ |
59,536 |
|
|
$ |
51,260 |
|
|
$ |
55,137 |
|
|
|
Three Months Ended
|
|
|
|
September 30, 2022
|
|
|
September 30, 2021
|
|
|
|
Lighting
Segment
|
|
|
Display
Solutions
Segment
|
|
|
Lighting
Segment
|
|
|
Display
Solutions
Segment
|
|
Type of Product and Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LED lighting, digital signage solutions, electronic circuit boards
|
|
$ |
55,535 |
|
|
$ |
7,175 |
|
|
$ |
41,879 |
|
|
$ |
12,428 |
|
Poles, other display solution elements
|
|
|
11,129 |
|
|
|
41,471 |
|
|
|
8,966 |
|
|
|
33,302 |
|
Project management, installation services, shipping and handling
|
|
|
869 |
|
|
|
10,890 |
|
|
|
415 |
|
|
|
9,407 |
|
|
|
$ |
67,533 |
|
|
$ |
59,536 |
|
|
$ |
51,260 |
|
|
$ |
55,137 |
|
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 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. The Company is evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)." This guidance removes certain exceptions to the general principles in ASC 740 such as recognizing deferred taxes for equity investments, the incremental approach to performing intra-period tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under U.S. GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted ASC 2019-12 effective July 1, 2021, which did not have a material impact on its consolidated financial statements or disclosures.
NOTE 3 - 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 (formerly known as the Graphics Segment), 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 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 offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. 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, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including 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 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 months ended September 30, 2022. One customer program in the Display Solutions Segment represents $12.3 million or 12% of the Company’s net sales in the three months ended September 30, 2021. One customer in the Display Solutions represents $8.5 million or 11% of accounts receivable at September 30, 2022. There was no concentration of accounts receivable at September 30, 2021.
Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of September 30, 2022, and September 30, 2021:
|
|
Three Months Ended
|
|
(In thousands)
|
|
September 30
|
|
|
|
2022
|
|
|
2021
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$ |
67,533 |
|
|
$ |
51,260 |
|
Display Solutions Segment
|
|
|
59,536 |
|
|
|
55,137 |
|
|
|
$ |
127,069 |
|
|
$ |
106,397 |
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$ |
9,158 |
|
|
$ |
4,339 |
|
Display Solutions Segment
|
|
|
6,496 |
|
|
|
3,749 |
|
Corporate and Eliminations
|
|
|
(5,633 |
) |
|
|
(3,644 |
) |
|
|
$ |
10,021 |
|
|
$ |
4,444 |
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$ |
249 |
|
|
$ |
180 |
|
Display Solutions Segment
|
|
|
162 |
|
|
|
221 |
|
Corporate and Eliminations
|
|
|
23 |
|
|
|
(104 |
) |
|
|
$ |
434 |
|
|
$ |
297 |
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$ |
1,387 |
|
|
$ |
1,461 |
|
Display Solutions Segment
|
|
|
974 |
|
|
|
1,031 |
|
Corporate and Eliminations
|
|
|
60 |
|
|
|
71 |
|
|
|
$ |
2,421 |
|
|
$ |
2,563 |
|
|
|
September 30,
2022
|
|
|
June 30,
2022
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Lighting Segment
|
|
$ |
151,856 |
|
|
$ |
152,431 |
|
Display Solutions Segment
|
|
|
160,099 |
|
|
|
152,302 |
|
Corporate and Eliminations
|
|
|
7,546 |
|
|
|
6,347 |
|
|
|
$ |
319,501 |
|
|
$ |
311,080 |
|
The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. 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:
|
|
Three Months Ended
|
|
(In thousands)
|
|
September 30
|
|
|
|
2022
|
|
|
2021
|
|
Lighting Segment inter-segment net sales
|
|
$ |
6,143 |
|
|
$ |
10,457 |
|
|
|
|
|
|
|
|
|
|
Display Solutions Segment inter-segment net sales
|
|
$ |
66 |
|
|
$ |
163 |
|
The Company’s operations are located solely within North America. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within North America.
NOTE 4 - 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 (in thousands, except per share data):
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,262 |
|
|
$ |
3,133 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding during the period, net of treasury shares
|
|
|
26,730 |
|
|
|
26,553 |
|
Weighted average vested restricted stock units outstanding
|
|
|
46 |
|
|
|
17 |
|
Weighted average shares outstanding in the Deferred Compensation Plan during the period
|
|
|
865 |
|
|
|
426 |
|
Weighted average shares outstanding
|
|
|
27,641 |
|
|
|
26,996 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$ |
0.23 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,262 |
|
|
$ |
3,133 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,641 |
|
|
|
26,996 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities (a):
|
|
|
|
|
|
|
|
|
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any
|
|
|
1,023 |
|
|
|
747 |
|
Weighted average shares outstanding
|
|
|
28,664 |
|
|
|
27,743 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$ |
0.22 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities (b)
|
|
|
213 |
|
|
|
989 |
|
|
(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 months ended September 30, 2022, and September 30, 2021, 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.
|
NOTE 5 – INVENTORIES, NET
The following information is provided as of the dates indicated:
|
|
September 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2022
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
53,962 |
|
|
$ |
51,637 |
|
Work-in-progress
|
|
|
6,156 |
|
|
|
3,029 |
|
Finished goods
|
|
|
20,339 |
|
|
|
19,755 |
|
Total Inventories
|
|
$ |
80,457 |
|
|
$ |
74,421 |
|
NOTE 6 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
|
|
September 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2022
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses: |
|
|
|
|
|
|
|
|
Customer prepayments
|
|
$ |
6,204 |
|
|
$ |
6,416 |
|
Compensation and benefits
|
|
|
8,752 |
|
|
|
9,611 |
|
Accrued warranty
|
|
|
4,319 |
|
|
|
4,491 |
|
Operating lease liabilities
|
|
|
1,187 |
|
|
|
1,274 |
|
Accrued sales commissions
|
|
|
2,506 |
|
|
|
4,783 |
|
Accrued Freight
|
|
|
4,139 |
|
|
|
3,680 |
|
Accrued FICA
|
|
|
1,161 |
|
|
|
1,122 |
|
Finance lease liabilities
|
|
|
280 |
|
|
|
275 |
|
Accrued income tax
|
|
|
1,835 |
|
|
|
109 |
|
Other accrued expenses
|
|
|
4,848 |
|
|
|
4,503 |
|
Total Accrued Expenses
|
|
$ |
35,231 |
|
|
$ |
36,264 |
|
NOTE 7 - 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 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 three reporting units that contain goodwill. One reporting unit is within the Lighting Segment and two 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
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Display
|
|
|
|
|
|
|
|
Lighting
|
|
|
Solutions
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
Balance as of September 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
70,971 |
|
|
$ |
63,347 |
|
|
$ |
134,318 |
|
Accumulated impairment losses
|
|
|
(61,763 |
) |
|
|
(27,525 |
) |
|
|
(89,288 |
) |
Goodwill, net as of September 30, 2022
|
|
$ |
9,208 |
|
|
$ |
35,822 |
|
|
$ |
45,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
70,971 |
|
|
$ |
63,347 |
|
|
$ |
134,318 |
|
Accumulated impairment losses
|
|
|
(61,763 |
) |
|
|
(27,525 |
) |
|
|
(89,288 |
) |
Goodwill, net as of June 30, 2022
|
|
$ |
9,208 |
|
|
$ |
35,822 |
|
|
$ |
45,030 |
|
The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:
Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022
|
|
(In thousands)
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
62,083 |
|
|
$ |
15,254 |
|
|
$ |
46,829 |
|
Patents
|
|
|
268 |
|
|
|
268 |
|
|
|
- |
|
LED technology firmware, software
|
|
|
20,966 |
|
|
|
14,895 |
|
|
|
6,071 |
|
Trade name
|
|
|
2,658 |
|
|
|
1,075 |
|
|
|
1,583 |
|
Non-compete
|
|
|
260 |
|
|
|
71 |
|
|
|
189 |
|
Total Amortized Intangible Assets
|
|
|
86,235 |
|
|
|
31,563 |
|
|
|
54,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
12,102 |
|
|
|
- |
|
|
|
12,102 |
|
Total indefinite-lived Intangible Assets
|
|
|
12,102 |
|
|
|
- |
|
|
|
12,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$ |
98,337 |
|
|
$ |
31,563 |
|
|
$ |
66,774 |
|
Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022
|
|
(In thousands)
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
62,083 |
|
|
$ |
14,400 |
|
|
$ |
47,683 |
|
Patents
|
|
|
268 |
|
|
|
268 |
|
|
|
- |
|
LED technology firmware, software
|
|
|
20,966 |
|
|
|
14,598 |
|
|
|
6,368 |
|
Trade name
|
|
|
2,658 |
|
|
|
1,049 |
|
|
|
1,609 |
|
Non-compete
|
|
|
260 |
|
|
|
58 |
|
|
|
202 |
|
Total Amortized Intangible Assets
|
|
|
86,235 |
|
|
|
30,373 |
|
|
|
55,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
12,102 |
|
|
|
- |
|
|
|
12,102 |
|
Total indefinite-lived Intangible Assets
|
|
|
12,102 |
|
|
|
- |
|
|
|
12,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Intangible Assets
|
|
$ |
98,337 |
|
|
$ |
30,373 |
|
|
$ |
67,964 |
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
(In thousands)
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense of Other Intangible Assets
|
|
$ |
1,190 |
|
|
$ |
1,215 |
|
The Company expects to record annual amortization expense as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
2023
|
|
$ |
3,618 |
|
2024
|
|
|
4,760 |
|
2025
|
|
|
4,760 |
|
2026
|
|
|
4,760 |
|
2027
|
|
|
4,754 |
|
After 2027
|
|
|
32,020 |
|
NOTE 8 - DEBT
The Company’s long-term debt as of September 30, 2022, and June 30, 2022, consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2022
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
Secured line of credit
|
|
$ |
56,144 |
|
|
$ |
57,275 |
|
Term loan, net of debt issuance costs of $26 and $30, respectively
|
|
|
21,402 |
|
|
|
22,321 |
|
Total debt
|
|
|
77,546 |
|
|
|
79,596 |
|
Less: amounts due within one year
|
|
|
3,571 |
|
|
|
3,571 |
|
Total amounts due after one year, net
|
|
$ |
73,975 |
|
|
$ |
76,025 |
|
In September 2021, the Company amended its existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid annually in the amount of $3.6 million over a five-year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the LIBOR rate or a base rate, at the Company’s option. The base rate is calculated as the highest of (a) the Prime rate, (b) the sum of the Overnight Funding Rate plus 50 basis points and (c) the sum of the Daily LIBOR Rate plus 100 basis points as long as a Daily LIBOR rate is offered, ascertainable and not unlawful. The increment over the LIBOR borrowing rate fluctuates between 100 and 225 basis points, and the increment over the Base Rate fluctuates between 0 and 125 basis points, both 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 September 30, 2022, the Company’s borrowing rate against its revolving line of credit was 4.8%. The increment over LIBOR borrowing rate will be 175 basis points for the second quarter of fiscal 2023. The fee on the unused balance of the $75 million committed line of credit fluctuates between 15 and 25 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge ratio. As of September 30, 2022, there was $18.9 million available for borrowing under the $75 million line of credit.
The Company is in compliance with all of its loan covenants as of September 30, 2022.
NOTE 9 - CASH DIVIDENDS
The Company paid cash dividends of $1.4 million and $1.3 million in both the three months ended September 30, 2022, and September 30, 2021, respectively. Dividends on restricted stock units in the amount of $0.2 million and $0.1 million were accrued as of both September 30, 2022, and 2021, respectively. These dividends will be paid upon the vesting of the restricted stock and performance stock units when shares are issued to the award recipients. In November 2022, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 22, 2022, to shareholders of record as of November 14, 2022. The indicated annual cash dividend rate is $0.20 per share.
NOTE 10 – EQUITY COMPENSATION
In November 2022, the Company’s shareholders approved an amendment to 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 to remove the Plan’s fungible share counting feature. The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan prior to the amendment of the Plan equates to 1,253,908 as of September 30, 2022. 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 stock-based awards.
In the three months ended September 30, 2022, the Company granted 164,348 PSU’s and 196,522 RSU’s, both with a weighted average market value of $6.90. Stock compensation expense was $0.6 million for both the three months ended September 30, 2022, and 2021.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Three Months Ended
|
|
(In thousands)
|
|
September 30
|
|
|
|
2022
|
|
|
2021
|
|
Cash Payments:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
679 |
|
|
$ |
203 |
|
Income taxes
|
|
$ |
664 |
|
|
$ |
1,183 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Issuance of common shares as compensation
|
|
$ |
75 |
|
|
$ |
75 |
|
Issuance of common shares to fund deferred compensation plan
|
|
$ |
539 |
|
|
$ |
2,042 |
|
NOTE 12 - 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 may occasionally issue a standby letter of credit in favor of third parties. As of September 30, 2022, there were no such standby letters of credit issued.
NOTE 13 - 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. The Company also acquired buildings, machinery, and forklift leases with the acquisition of JSI, as well as one sublease. 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. For the three months ended September 30, 2022, and 2021, the rent expense for these leases is immaterial.
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
|
|
|
|
September 30
|
|
(In thousands)
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$ |
863 |
|
|
$ |
879 |
|
Financing lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right of use assets
|
|
|
74 |
|
|
|
74 |
|
Interest on lease liabilities
|
|
|
18 |
|
|
|
21 |
|
Variable lease cost
|
|
|
22 |
|
|
|
22 |
|
Sublease income
|
|
|
(116 |
) |
|
|
(94 |
) |
Total lease cost
|
|
$ |
861 |
|
|
$ |
902 |
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
(In thousands)
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating leases
|
|
|
|
|
|
|
|
|
Fixed payments - operating cash flows
|
|
$ |
885 |
|
|
$ |
887 |
|
Liability reduction - operating cash flows
|
|
$ |
779 |
|
|
$ |
744 |
|
|
|
|
|
|
|
|
|
|
Cash flows from finance leases
|
|
|
|
|
|
|
|
|
Interest - operating cash flows
|
|
$ |
18 |
|
|
$ |
21 |
|
Repayments of principal portion - financing cash flows
|
|
$ |
66 |
|
|
$ |
64 |
|
Operating Leases:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2022
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
Total operating right-of-use assets
|
|
$ |
7,826 |
|
|
$ |
8,664 |
|
|
|
|
|
|
|
|
|
|
Accrued expenses (Current liabilities)
|
|
$ |
1,187 |
|
|
$ |
1,274 |
|
Long-term operating lease liability
|
|
|
7,381 |
|
|
|
8,240 |
|
Total operating lease liabilities
|
|
$ |
8,568 |
|
|
$ |
9,514 |
|
|
|
|
|
|
|
|
|
|
Weighted Average remaining Lease Term (in years)
|
|
|
2.83 |
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
4.82 |
% |
|
|
4.81 |
% |
Finance Leases:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2022
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
Buildings under finance leases
|
|
$ |
2,033 |
|
|
$ |
2,033 |
|
Equipment under finance leases
|
|
|
30 |
|
|
|
30 |
|
Accumulated depreciation
|
|
|
(719 |
) |
|
|
(634 |
) |
Total finance lease assets, net
|
|
$ |
1,344 |
|
|
$ |
1,429 |
|
|
|
|
|
|
|
|
|
|
Accrued expenses (Current liabilities)
|
|
$ |
280 |
|
|
$ |
275 |
|
Long-term finance lease liability
|
|
|
1,174 |
|
|
|
1,246 |
|
Total finance lease liabilities
|
|
$ |
1,454 |
|
|
$ |
1,521 |
|
|
|
|
|
|
|
|
|
|
Weighted Average remaining Lease Term (in years)
|
|
|
4.54 |
|
|
|
4.80 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
4.86 |
% |
|
|
4.86 |
% |
Maturities of Lease Liability:
|
|
Operating
Lease
Liabilities
|
|
|
Finance Lease
Liabilities
|
|
|
Operating
Subleases
|
|
|
Net Lease
Commitments
|
|
2023
|
|
$ |
2,792 |
|
|
$ |
275 |
|
|
$ |
377 |
|
|
$ |
3,444 |
|
2024
|
|
|
3,285 |
|
|
|
337 |
|
|
|
377 |
|
|
|
3,999 |
|
2025
|
|
|
2,136 |
|
|
|
362 |
|
|
|
31 |
|
|
|
2,529 |
|
2026
|
|
|
835 |
|
|
|
362 |
|
|
|
- |
|
|
|
1,197 |
|
2027
|
|
|
215 |
|
|
|
303 |
|
|
|
- |
|
|
|
518 |
|
Thereafter
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
Total lease payments
|
|
$ |
9,267 |
|
|
$ |
1,639 |
|
|
$ |
785 |
|
|
$ |
11,691 |
|
Less: Interest
|
|
|
(699 |
) |
|
|
(185 |
) |
|
|
|
|
|
|
(884 |
) |
Present Value of Lease Liabilities
|
|
$ |
8,568 |
|
|
$ |
1,454 |
|
|
|
|
|
|
$ |
10,807 |
|
NOTE 16 – 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
|
|
|
|
September 30
|
|
|
|
2022
|
|
|
2021
|
|
Reconciliation of effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at the anticipated annual tax rate
|
|
|
26.20 |
%
|
|
|
24.2 |
%
|
Uncertain tax positions
|
|
|
1.0 |
|
|
|
0.8 |
|
Deferred Income Tax Adjustment
|
|
|
1.6 |
|
|
|
- |
|
Share-based compensation
|
|
|
1.8 |
|
|
|
(0.8 |
) |
Effective tax rate
|
|
|
30.6 |
%
|
|
|
24.2 |
%
|