LSI Industries Inc (LYTS) 2008 Q1 法說會逐字稿

Good afternoon, everyone and welcome to the LSI Industries first quarter 2007 conference. Today's host will be Mr. Steve Brunker, the Chief Information Officer of LSI Industries. During the discussion, all participants' lines will be muted. As a reminder, today's conference call is being recorded. Now without further delay, I would like to turn the conference call over to Mr. Brunker.

Good afternoon, everyone, and welcome to LSI Industries' first quarter investor conference call. As in past quarters, you may have logged into our online website to observe materials. Today we will not be presenting online materials during the conference call. However, after the conference is finished, you will be able to find those materials online at our Investor Relations website that you can find at www.LSI-Industries.com. Now it's my pleasure to introduce Mr. Bob Ready, the Chairman and Chief Executive Officer at LSI Industries.

Thanks, Steve. Good afternoon, everybody. Before we get into the heart of the meeting, I would like to apologize for having this conference call on Friday. As you probably know, in past conferences, we normally have them on Thursday. I know Friday's not the best day. But I want to tell you that in the last day and a half, we have had probably one of the most successful sales meetings in the 31-history of LSI. We've had all of our agents in from the petroleum industry, and today we announced and have introduced to them the very first real affordable LED white light product for canopy lighting called the Crossover.

Scott will talk about that a little bit later, but I felt it was so important to be part of that group meeting, because I wanted to have a pulse of what was going on and how the sales folks were going to feel about this product. And I can tell you, after a day and a half, I'm as pumped up as I've ever been based on the overall attitude of our reps. I'm going to introduce now, and Ron is going to make a couple of statements and then our format will be it'll come back to me. I'll make a few comments about the quarter and forward-looking and then we'll get right into the Q&A. Ron?

Thank you, Bob. Steve already mentioned that our normal data and information and materials will be on the website. I think you'll find it's the same material that we normally cover and normally post. So if you have any additional information needs beyond that, give me a call. I do have to indicate that from a -- refer you to our Safe Harbor Statement filed in our 10-Q and 10-K, and that today we will not have any material nonpublic information to talk about. Thank you, Bob.

Thanks, Ron. I would like to start off the meeting by really covering some issues that I'm sure are very much on everybody's mind. First of all, I am very, very pleased with the first quarter. Our sales were up, it was a record quarter, and there's no question about our net income, up 26.5% and our earnings per share were up 28%. There are a lot of things that certainly contributed to that, but it is also setting the platform for things yet to come. The disappointment, I think, was from some of the timing issues. And I want to address those.

First, let's start with Wal-Mart. As most of you are aware of the fact, LSI has been basically selected to be their primary outdoor supplier. We're going through that transition from the indoor to the outdoor, which we're very, very pleased with. And Wal-Mart has indicated that they're pushing back some of their store development projects. And that's why in our press release, we wanted you to be aware of that fact. Now, they're not giving us any indication that those stores are being canceled. They're giving us an indication that those stores are going to be pushed out into the future. And Scott can certainly address that when you have some questions. The next item is, of course, the understanding that the Dairy Queen and the Wal-Mart -- excuse me, and the 7-Eleven program is near completion. Actually, 7-Eleven should be completed by the end of December, and as we look into January, I think it's fair to say and David will address some of this, that the Dairy Queen will actually go into the third quarter.

The third area I would like to address is the billboard part of our business, or as we are now calling it, the digital advertising. The disappointment is is that we're a little bit behind on our real schedule for when we were going to get really active. We had somewhat of a setback on those five boards that went into the Tennessee market. We've been monitoring those boards to be sure that everything was going properly. We discovered during our period of time of monitoring them that the red LED was not working at an efficient level. Clear Channel wasn't even aware of it. We were aware of it through our monitoring process, and we took it upon ourselves to share that information with Clear Channel, which they were very appreciative of. And we also took it as this an opportunity to move into the upgrade of what the future boards will be like, not the construction of the actual board itself, but the visual panels that are in those boards, and we have now started the process of changing out those with a red LED that we know will not fail.

We also understand that this is not an exception to LSI. This is something that has periodically happened in our industry. I relate it to basically a light bulb or a light source and through the 31 years we've been in business over the years, we've experienced failures or lower-efficient light sources coming from the manufacturer and that goes with more or less the territory of being in the lighting business. It's something that we weren't happy with, but something that we now understand and certainly taking the very aggressive and the very positive approach, I think Clear Channel -- and Fred can address that in more detail -- was very, very appreciative of the fact that we took it upon ourselves to take the initiative in order to get these boards to the level that we know they can be -- that they can be operated at. They lost no advertising capital. It was just the fact that the red LED did not perform at its efficiency level and therefore we took the appropriate measures to change that.

As far as the actual process, we now do have some orders in this market. It's not a Clear Channel level, but it is now the beginning of things to come and Fred will address that as well. The bottom line of this whole direction is that as we look into the future, we are extremely positive -- we are extremely positive about the situation with the Crossover. We know we're doing the right thing on the digital advertising direction. And as far as guidance is concerned, and I know that's the disappointment that you folks have, is that sitting here and looking into the future, it was very, very difficult to really determine when some of these things are going to come into play. For example, the Crossover -- until this sales meeting, we knew we had a good product, at least we felt we had. We put 14 months of tremendous engineering and development into a product that we know will fit this market and it will fit it very, very well, and it really is a revitalization. Our hope is that this product, which will offer the industry a tremendous energy savings, which Scott will go into in detail, and a longer maintenance program, is going to be a successful opportunity. With all of those things and sitting here and trying to provide you guidance, I felt it was important that we were straightforward with you, to tell you exactly what was going on. You may be disappointed in that fact, but I'm not disappointed in the structure of the company. We're extremely proactive in some other imaging opportunities. I'll tell you at this point, without getting into specifics, we do have three targets, as related to an acquisition opportunity, and I won't go into which markets those are, but certainly we have been very active in identifying and actually having discussions with three separate opportunities that we hope that at least one of them will turn into a positive addition to the company.

With all that said, I would like to set the stage today to open this up for questions that you may have and certainly I will kind of guide those questions to their appropriate people, with Fred being onboard and David and Scott being here, we'll now, Michelle, open it up and take questions.

(OPERATOR INSTRUCTIONS) We have seven questions in the queue. The first one comes from Rick.

Bob?

Hi, Rick.

I wasn't sure if I'm the only Rick out there.

I sure know your voice, Rick, so I know it's you.

All right. A couple of questions. When you launch the Scottsdale, how quickly did that ramp back then?

I'll answer part of that and let Scott take over from there. We launched the Scottsdale in 1995 and it certainly took some time for the market to accept that product, because it was such a radical change. And it was introducing a light source that nobody knew, the 320 watt pulse start. I think it's a little bit different today. Every one of our major customers are extremely interested in what LED in solid state will bring to their market. Because of the energy and the maintenance, which is so unique to an LED and solid state package, this we feel is going to be highly acceptable, and really the way we're going to market this product, which Scott will go into greater detail. We are taking an opportunity and we have structured a marketing plan and launching that plan like something that we have never done before in our history. Scott, why don't you get into more detail?

Sure. I think, Rick, that the most instrumental difference between the two scenarios really centers around the degree of demand that already exists for the technology. When we introduced the Scottsdale, there wasn't a demand for the 320 watt --

Didn't even know about them.

The market didn't even know about them. And there wasn't a tremendous amount of prebuilt demand for a new canopy fixture. As we approach the crossover introduction and the formal introduction to the market happens in the first week of May, it's May 7 -- excuse me, November, why'd I say May? November, thank you. We're really focusing on a market that is already setting demand for white LED solid state lighting technology and providing that market with a solution, with an answer. We've done our homework, we know what the market requirements are. We know where their hot buttons are. We've addressed all of the variable factors from energy to maintenance to performance and have also adopted a significant focus on the environmentally positive aspect of this product. This product is a green product. This product has the potential of generating a lot of savings for the user, for the owner, and a tremendous amount of good public relations as well. There's a tremendous demand in not only this industry, but other industries today to be able to contribute to that effort and do so in a very affordable and positive return on their original investment. The Crossover not only provides that solution in the petroleum market, but it provides the platform with the engineering that we have done, the development work that we have done over the last 14 months, it really provides us the platform.

So you're going to see, frankly, a more of an acceleration, if you will, of product releases that occur. It took us 14 months for the first one. I guarantee you it's not going to take 14 more months for the second. The product in the petroleum industry is going to also evolve. We'll develop variations of the product. The product is very exciting from the standpoint that it has much more international applicability than the original Scottsdale did. Much of the market today is growing stronger overseas than it is in the United States. This product suitable for that today, immediately, more so than the Scottsdale was when it first came out. There are some of the differences, Rick, and I know what you're after in terms of trying to estimate how quickly this will be adopted, and that's too early to tell. We have a very, very strong marketing program. We're on the verge of announcing and implementing the step two, three, and four. We're going to be in production in the third quarter and we expect a very, very favorable response to this product.

Okay. Bob started this by saying, you got a great reception from the dealers --

Rick, these are our reps. These are our salesforce.

Yes, I'm sorry, reps. That's not necessarily the customer, though. What has been the feedback from the customer? I know the official launch isn't out there, but I think you've shown it to selective petroleum companies.

Correct. And we continue to have those scheduled. It's been very good. Without really being able to quantify it too much more than that, I can tell you that our confidence level is extremely high. These agents know the market. Now, these agents also have the ability to reach the market that frankly is influenced more by smaller dealers and jobbers and independent oil companies in addition to who we can reach on the major oil company level. So we're really attacking the challenge from all fronts and the feedback that we're getting from users as well as our sales agents is very, very positive.

I'd like to add to that, Rick, and that -- with all that positive and all of that strength that we feel, my reluctance to try to give guidance with that product, because we just don't know. It is so new and so different and it is going to be a little bit more money than the Scottsdale, but I think that the interest that we're seeing and the questions that we're being asked by our customers, not our reps, is when are you going to have an LED product that we can see? We've kept the shroud around this product because of patent-pending opportunity. We've been very careful on the companies that we selected to feel the pulse of their attitude. And I can tell you this, Rick, that in the 31 years that we've been doing this, I have not had this kind of an attitude so soon in the game.

Now, the proof of the pudding will be in the actual selling of the product. That will commence on the fifth week of November, which is just two weeks away, at the NACS convention in Atlanta when we will have a green booth and the Crossover and a sister product that goes with the Crossover that is basically the focus product on the pumps will be introduced. Our reps are going to leave here within an hour with a special marketing program to jumpstart this product. We're going to put 1600 fixtures out immediately as an opportunity to move into the marketplace. This is all an important part of the strategy to get this product out and get people to see it.

Okay. What do you mean by the 1600? Your free samples?

No, no. It's a special program on how we're going to approach it. I'm not going to get into the details on the phone. This will all be introduced in November, but we spent 14 months studying the market. We knew we had the opportunity from the solid state. We knew what was coming with white LED. Actually, white LED has come faster than even our anticipated timeline. When we started this 11 to 12 months ago, we were getting 35 lumens per watt. We're now up at 80 lumens per watt, which offered us to design the fixture with fewer LEDs and get the same light output. But no. What we're saying is we're sending the reps in each of their territories.

It was our feeling that we wanted to give each of the agents an opportunity to get product in the field throughout the United States in all parts of the states and get this product out for people to see it. Not only the customer that's going to take the first opportunity to put it up, but his competition across the street. This product works. It's great-looking. When you're looking at 60 to 80% energy savings and -- you heard me right, 60 to 80%, depending on [lamp or] lamp replacement, you're talking about a product that the return on investment for the market, the marketer, is outstanding. And then you add to it the tremendous life expectancy of 10 to 12 years as maintenance-free product and the fact that we have designed a packaging process that definitely contributes to the environmental issues as far as packaging is concerned. We've done -- we've taken all the initiative to make this truly a green product for the environment.

Okay. Let me take a step back and ask a little bit about the billboard business. It sounds like you had some technical issues with the four or five billboards you had out in the market. You said you haven't made much -- many inroads into Clear Channel beyond the initial few that you had out there. You have a new approach to making billboards. Presumably the glitch in your new approach is solved or didn't exist to begin with. So what's the hold up? I guess, they had originally committed to a larger order than the several that they took. What's the hold up? What's keeping them from --

Let me explain one thing. First of all, we didn't have a technical problem, we had an LED failure problem. That's different than a technical problem. The technical part of our digital advertising board is right on the money. It's doing everything that it was supposed to do. And every once in a while in the lighting business -- and the LED is a light source, you run into these problems. We weren't expecting this to happen, but when it did happen and the people that are in it did tell us that this isn't unusual. Clear Channel said this is not unusual. It's happened before with other vendors. It's just it's the red LED apparently that has that phenomenon that can have that degrading process. Now as far as the actual board itself, if you recall, we spent a number of months redesigning the production process of a new board. That came directly as a result of Clear Channel's basic contribution, if that's the right word, to the idea of what kind of board they would like to see. All of that engineering is done, all of the ability now to produce that new board is done, and certainly we are looking forward to Clear Channel as certainly the main contact to start the process. And the disappointment, of course, was that now that these five boards are up and we were monitoring them and then we started to see this failure, we were disappointed as well.

And I think now what we've done is shown Clear Channel the kind of company we are. We are new in this game. And as you heard me say before, we need to be right the first time and we have been right. But to control the actual manufacturing process of an LED, that we have to depend on on our vendor. We have changed the vendor from that particular light source to another one that we believe has a better technology in protecting that LED from failing. We've had confirmation of that with folks that have a lot of experience in this. The actual process of the marketing theme has been developed and our folks are out calling on customers now. We have an advertising program in place, we have a mailing program in place. And actually I am very happy to tell you that not only have we started this with our direct sales force, which was really directed out of North Canton, and as most of you are aware of the fact that we've truly taken our Montreal operation and made that our true R&D center and we'll address that a little bit about the business segments and put the overall marketing and sales, which we believe it belongs under North Canton, under David's direction. And as a unified approached with our business segments, we're now going to expand the opportunities by giving our lighting reps -- that's true -- our lighting reps an opportunity now to go out and make calls in markets that we believe -- they will have the opportunity. They are working every day in the sports market, when you're talking about the schools, and the lighting programs -- the parking lot lighting, stadium lighting, and they're working with architects every day.

We've now made the decision to take this product and extend it beyond our own direct sales force to over 400 reps around the U.S. We've got a very good group of agents that we believe can certainly start making contacts and get this ball rolling as it relates to that particular board. I know it's been a little bit longer in the process, but we wanted to be sure that we really did it right. The disappointment was that this red LED failed on us, but it's nothing that we're not used to as far as changing and working with light sources. That's been addressed. It's behind us and we're moving now. Clear Channel has said -- and Fred will address that. Fred, as a matter of fact, why don't you take this opportunity to tell Rick exactly what Clear Channel said as a result of this situation?

I just confirm exactly what you have said, Bob. It wasn't a technical problem at all because the board since Day One functioned right, the mechanical system was perfect, all the logic, the processors, the software driving the board, driving the LED -- all this has given a great result and the problem was in the red LED from the supplier. It happened by batch sometime and the supplier took full responsibility of this. So we took the opportunity to upgrade to the new standard and the new system that LSI had designed. The first two boards had been completed and the picture looked great and the comments from the clients, it's the best picture they ever have seen on a digital billboard.

In addition to all that, we have other digital billboard projects that is in process right now as you know. We have high definition -- three high definition screen to do in 15 millimeter pixel for Perkins Row. And they should be installed very shortly and running and we have other, two board, 20 millimeter resolution to go here in Montreal in December. I think with the new design that LSI has redone on the digital billboard unit, it's a great -- the supplier of the LED, it's been selected the high end LED to be used. The failures came from a batch of LED was wrongly manufactured and was actually the mistake of the producer of the LED itself, and took full responsibility of that. So in conclusion we can say that the board we have, it's a very high quality board. It's running very well, technology is great, so there is no issue for the future.

And I think to add to that, and then we can move on -- I think to add to that, I think that once we get the five boards over to the level that we know they can be with a changeout of the panel of that board, it will give Clear Channel an opportunity to really see how these boards perform. And I understand that. We are the new guys on the block, we're going to have to prove ourselves and I think the approach that we took in identifying it on our own and not having it come from the actual customer, I think that certainly bodes well of the integrity of LSI and how we do -- how we work as a company.

I have all the confidence in the world that our technology and manufacturing efficiency can compete one on one with anybody in the world as it relates to these digital advertising boards. I know time is of an essence at Wall Street, but this is long-term and I believe we have some of the best products out there. And we'll give you more guidance as we start to get more and more information from people like Clear Channel and whoever the next opportunity is with more volume. It's very difficult to give guidance on one, two, or three boards at a time. I don't expect you want us to do that unless that is real, credible information as it relates to more of a volume product. I assure you that as that starts to unfold, you will definitely hear about it.

Okay, thank you.

Thanks. Next question, please.

Next one comes from Min Cho.

Hello. Min Cho, Friedman Billings. Couple of questions for you. Saw on the tape a couple weeks ago about the Federal Highway Administration authorizing electronic signage?

Yes.

If you can talk about the opportunity for you there. If you already have relationships with the municipalities or if you're even interested in attacking this market currently.

It bodes well from the standpoint that it gives us a vote of confidence as far as a market and an industry is concerned. I know there's a lot of concerns out there that relates to different states and cities that may be pushing back on these visual boards, because one thing or another, they're either too bright or they detract and so forth. I think that this press release was a vote of confidence that says this is the future and it's coming. We certainly endorsed it. We felt it was definitely an advantage to have that in place. And I think it's just going to take time to determine how this is all going to play out as it relates to the future.

I think it's also important to realize that even though we have high expectations to see that type of that market grow, it's not the only thing that LSI does. We are so diverse -- now, I understand that we're lumpy and I know that that's not necessarily the best thing to be, but we are who we are and we're very straightforward with these programs and approaches. I think that that announcement that came out is going to do nothing but help us as we move forward and start developing and showing our product in the marketplace and let the customer determine who has the best product out there.

Okay. On the last conference call, you'd talked about imaging upgrades and how the backlog and customer activity was very strong. I was wondering given the more recent recessionary fears, have you seen that activity change at all?

David, why don't you address that, please?

Right. Because of the slowing of the economy or the recessionary fears, that type of thing, we've never noticed in the graphic end that it tags along, it follows that line. Many times it goes the opposite direction because the advertising dollars spent. But we have a lot of programs in queue in terms of our sales activity and prospects that are more robust now than they were last year at this time. It's just a matter of if we get those programs and when they kick in. But the activity level has been extremely high. And as it relates directly to the video boards, whether it be transportation, sports, custom, the spectaculars, or the billboards, we just measured our opportunities there, compared it to six months ago when it was switched to North Canton, and we're fourfold in the opportunity [bend] right now. So we're very encouraged as we close these orders to start driving the revenue.

I think I would like to add to that again, as far as the projections or the guidance is concerned. In all of the projects that we seem to be in discussion with these prospective customers, in the past, and the folks that have been with us a while can remember some of this, we've had a tendency where some of our customers have announced reimaging programs in advance. And then the market looks at us and says, well, where are you with these programs? And in most cases, most of them, we've had the dialogue with them and we've had the opportunity to start working with them. And we've been very up-front by saying, yes, we are involved, but we don't really know what's going on. We're in the same situation right now. We do have a tremendous backlog of interest of companies that are reviewing their images and they are coming to LSI because the projects that we have rolled out over the past few years have been so successful and it carries our image with that. And this again is difficult to give guidance, because I don't want to put you or myself in a situation where we're guessing at what's coming.

I'd rather be up-front with you and tell you to the best of my knowledge of what's happening or what's not happening and try to continue to look at the strength of the company, the balance sheet, the dividend policy, all the things that we're very well known for. And I think we're going through some market conditions that are changing. And this is why I really wrestled with how to approach this guidance situation and develop the press release around what we felt was the most ethical and proper way to give you guidance on where this company is. I can assure you of this: that as some of these programs come to fruition, we're going to tell you about it. I would rather tell you the positive than rather tell you that we're working with XYZ company and three months from now that company says, well, we decided to hold off a little bit. I think this is the better approach. This is the way we're going to take these guidance directions and put it exactly in front of you and let you know exactly what we're doing.

Okay. A quick question about Wal-Mart. The last call you mentioned that you were supposed to ship some product in August. Did that actually occur?

Scott, why don't you address that?

Sure. We're shipping product for Wal-Mart every month. The challenge for us right now is trying to determine based on their construction schedule changes how much we're going to end up shipping every month. I don't want to give the impression that we're not engaging in actively supporting Wal-Mart's outdoor program. It has been a transition from indoor to outdoor. The transition typically involves a ramp-up period in which those sites begin to accumulate, but the added complication or the added uncertainty, if you want to call it that, that frankly comes from Wal-Mart themselves. And they have publicly announced some of their construction pullback plans -- has certainly added to the difficulty in predicting exactly how much Wal-Mart we're going to ship each month. We continue to ship Wal-Mart each month and we will continue to ship it each month over the length of the contract. It's just difficult to say how many stores each month based on the original forecast that they had given us.

Min, this is Ron. There's been periods or quarters in the past where Wal-Mart has popped over 10% or 11% of our total volume. And with the status of the orders today, as Scott said, we are shipping to Wal-Mart. For the quarter, they're under 5%. So they're still substantial, but it's just not up to the levels that they've been based on the transition to the new contract.

I would like to add to that. Wal-Mart's a very important customer, there's no question about it. It certainly behooves us to take the next step. And as Scott mentioned in his comments that this new Crossover fixture is really the beginning of the future of white LED in how LSI will develop its future product line is that it behooves us to start working -- and we certainly are working -- on the next generation of aerial lighting, parking lot lighting, outdoor light using white LED. I think if we look at the comments that are made by many of the CEOs, including Wal-Mart's CEO, as being so energy conscious, that gives us a real opportunity to bring product in play much sooner than the indoor package. It's going to be a lot more difficult to replace fluorescent interior lighting with LED. The exterior lighting is going to be a much easier approach using white LED. And I'm glad that that's where we are with that responsibility to Wal-Mart as one of their partners in the development process.

So I think as time goes on, as Scott pointed out, we spent 14 months really developing the solid state driver for the white LED chip. That is a crucial part of the success of LED. And with all of that development time, we now have a platform to take the next step and continue on developing products for the outdoor application rather than indoor application. Indoor will come, but right now we have the platform for the outdoor. And that's where we're going to put our efforts.

Okay, one final question. Sorry for being so long here.

That's fine.

Ron, can you provide the operating income by segment. I'm sure it will be in the slide presentation, but if I could get that now, that would be helpful.

I have it, I'll just search for it and -- lighting was about $3.8 million, graphics was just under $7 million.

Great. Thank you.

Okay.

Next question, please.

The next question in the queue comes from Glen Wortman.

Good afternoon, guys. Where do you stand on these other four boards with Clear Channel on the additional billboard package? I know you alluded to it last call that you might be letting them out of those four boards?

Our approach there has been that we've used those four boards as partial parts as we look into the development of some of the other projects that we had. We haven't put the responsibility on Clear Channel to take those four boards. We're going to market those in other markets and some of those component parts may end up with some of those orders that we have now that are non related to Clear Channel. It's been our intent to try to get the newest product into Clear Channel. That's really what we want to do. We want to get their vote of confidence. We want them to come to us and say, now we're ready. And we'd rather put out the new boards across the market rather than the older ones. The older ones were designed by Seiko and they were good boards. But they weren't really designed for high manufacturing efficiency.

That's when we took that bull by the horn and we looked at that board and said, these will work fine, but we really need to design these boards to give us a higher capacity in our manufacturing efficiencies. And that's what we've done in developing that. And we would rather take those boards from Clear Channel and get the newest board out there for them and the rest of the market to see because we believe they have the higher visibility than anybody else would have. That's been our marketing approach. I think it's a solid approach and I think time will show that.

One more question. I don't know if you guys have this figure. In percentage terms, how far along were you at the end of the first quarter on the 7-Eleven and Dairy Queen programs?

On the first quarter, I'm going to guess, this is really a guess.

David's there --

Yes, maybe David, you could help us on that, if you remember the percentage? If you heard his question.

At the end of the first quarter, Glen?

Yes.

Both of them were somewhere between 75 and 80%. Both of them.

Okay. Thank you very much.

The next question in the queue comes from Jim.

Yes, thank you. Just was wondering if you could talk a little bit about the outlook for the lighting segment. Apart from the pushouts you're seeing from Wal-Mart, sales were clearly a little weaker than expected in that segment. What's the outlook there, particularly as you bring on some new agents?

I would like to let Scott address that. But before he does, I would like to make one comment, and we should have mentioned this earlier, Jim. It's a good question. When we look at second quarter -- first quarter, excuse me, when we're looking at July and August, they're extremely right on target. The disappointment was that September for some reason just softened up and I have no idea why. And Scott and I talked about that, but October just came back with a gangbuster. You go through that softness every once in a while. Scott, I'll let you take it from there.

Really, and to a certain degree, you're probably tired of hearing the word timing, but again in this particular case, I think that's what we're experiencing. The fact is that the commercial business that we have developing is growing. The dilution factor that we continue to face is that that comes from our national account such as the business representative with Wal-Mart in this particular case and the petroleum market. The kind of dilution that we continue to see to our overall results because of that flatness is really unfortunately sending the wrong signal. We're still very hopeful and very optimistic about our growth opportunities.

The new agents, while early still, specifically in three markets, they're very early in the adoption of the LSI plan, but in the rest of the country they're a little more developed, is going well and we have every confidence that we're going to continue to meet plan our expectations for the upcoming quarter and the upcoming year. September was a slow month. There was no doubt about it. It's really strange to see when we look at the kind of backlog -- we've got the strongest backlog, the strongest expectation that we've had in some time for October based on our bookings. The answer really is to stop having to see the kind of dilution we're seeing from flat petroleum or a declining petroleum market. And the answer to that is the Crossover. And we're very pleased, as we said earlier, to be at this point in our process.

It's going to take another couple of months to really begin that adoption. We're not going to see a lot of contribution until the third quarter and even then it's difficult to say exactly what that will look like. But it's pretty cut and dry. We're doing well in terms of our strategy and we're right on target in terms of what our strategy should be to enter the commercial market and develop more market share there. We are seeing growth there and it frankly continues to be diluted by the petroleum market, and in this particular case, was compounded due to timing in all markets and specifically with the impact of the Wal-Mart pushout.

I would like to add to that also, Jim. When we go back a few months ago and we were really looking at the development of our C&I business, actually, over a year ago, and we knew what was going on in the petroleum industry. The petroleum industry has been a huge disappointment as it relates to just potential volume, and it really put the pressure on us to get this back in some kind of a direction. We're hoping and we feel Crossover there start this. In the meantime, it put ourselves in a position where we were certainly in that battle with those top four companies and we still have some weaknesses in there. We have some holes in our product line. We know that, and where it makes sense is that we need that right acquisition. And I'm not going to go into product or market yet, because that would tip our hand to our competition of where we're going. But I think in the strategy, which is more long-term, is that we know and we've identified how we're going to strengthen our commercial industrial capability. And we're fighting out there every day. I think we saw a little bit more pressure. Those four big companies had a lot more to lose in the residential down trend. We're not in that business. And I'm sure that put the pressure on them to do more activity that was out there on the other side, in the commercial and the industrial and certainly that creates a even bigger challenge than already existed. But our reps now are becoming more and more familiar. Our customer service program has been improved. Our systems now has taken all of our companies together that are involved with commercial industrial products. All of these things now are in place. And I think it's just a matter of time and we're going to stick with this core business. It's an important part, but the diversity we have with these other projects that we've already talked about are going to have a major impact as we move forward.

If you take orders next week, Scott, for Crossover, when would you be able to ship?

As I mentioned before, I want you to look toward the third quarter for our primary, for shipping opportunities. We're going to do a little bit of marketing between now and the end of the year --

A lot of marketing.

Yes, that's an understatement. But formal shipments should be expected during third quarter.

Does that cause customers who might otherwise being ordering product to hold off?

In this particular case, no, because we really believe that the greatest opportunity in this market is in the retrofit business. Facilities that are already built, facilities that already have lighting, and frankly facilities that are currently paying much more for energy than they have to. And that's where -- unfortunately, that's the story of the whole industry. There's not enough construction going on anyway. That's really where the softness is coming from and the lack of volume is coming from. So I'm not too concerned about having a significant impact in terms of folks holding up business over the next two months. The folks know when the product is going to be available, or they will know as they're introduced to it and I expect to fold right into those construction schedules on a normal basis. Whether the lighting is available or not is not going to keep somebody from opening up their sites.

And I'd like to add to that that we go off daylight savings time the first week of November, so the days are shorter and the nights are longer. And we're working on 60% plus energy reduction. I think the market opportunity based on getting this product into the marketplace couldn't be a better time.

There's not a lot of float in that market in terms of distribution stock, so our products are going into canopies that are under construction and those schedules will be maintained and they'll have to use the product that we can provide today and then plan on the new improved product as we move into the third quarter.

I would like to add to this Jim, one of the things that we're going to do to help you and others understand the Crossover product and the absolute tremendous attributes it offers, is we're developing a web page, a Crossover web page. And once that is up and running -- it should be right after the NACS convention -- is that we'll give you that web page. You can get online and you can see all the things that we've developed for this product and how we're marketing the product.

Okay, thanks. Last question for me, on the orders you did se in the billboard market, can you talk about how many different customers were these tier two, tier three outdoor companies and how many boards are we talking about in.

Fred, if you would, please.

Yes, there are two clients, one is having two boards of 20 millimeter resolution board, similar to Clear Channel resolution board, and the other one is high resolution 15 millimeter outdoor. It's a three board -- this is a significant customer.

These are 14 by what size --

No, 11 by 24, the 15 millimeter high resolution.

Okay, but this is for an outdoor billboard?

Exactly.

Okay, thanks.

Fred, also, if you may comment on the sports side too, didn't we have some things there?

Yes, we have a project ongoing on the sports side for Nashville (inaudible). So the business is going very good and the placement of the network sales and marketing in the state to have data communication and approach to our client is going to result in the near future with high volume business with sport markets.

Okay. Thank you.

Thanks, Jim. Next question, please.

We have four more questions in the queue. (OPERATOR INSTRUCTIONS) The next one comes from [Barge]. Go ahead, sir.

Hi. [Advor Varit] of Principled Capital Management. Thank you very much for taking my call. My question is just to go back to the problems with the red LEDs. Are you replacing the red LEDs in all of the billboards the that you have put out for Clear Channel?

Yes, sir, yes, sir, we are.

It's actually the whole front block of LED panels.

Right, we're replacing the whole video screen. We felt that was important because then it gave them the real future board we are actually going to go into production with.

And what is the financial impact? Who's paying for this? Is Clear Channel paying, are you paying, or is your supplier paying?

Fred, I'll let you address that?

The responsibility of the red LED is the supplier himself. So the cost of replacing the (inaudible)

And we have a material substitution with the -- the new blocks are little bit more expensive. So that part of it is our responsibility. And as Bob had indicated, that really puts our new board out there for Clear Channel and all others to see.

I think it's important to realize that these five boards that we had out there, certainly we were very pleased with the design and the technology, but when this thing happened, it really gave us an opportunity to upgrade with really our primary major customer and we really needed to get that product out there for not only the customer, but for other people to see as well. This may have been a blessing in disguise. Only time will tell, but certainly the way we approached it and the acceptance of the way we approached it by the customer I think really helped LSI more than hurt us.

So in these replacements, you are using the same type of LEDs that will go in your new products that you recently announced. That's what you're saying?

Exactly the same LED blocks, yes.

Okay, great. You said in marketing for the additional billboards really only started in less than 30 days, which sounds like a delay comparing to what you were talking about on the last call. Is that because of these problems with the red LEDs, or is that something else that happened?

No, I think actually we started the marketing with our smaller sales force and on a direct basis, but we didn't -- when I say the marking, we cut the guys loose to say we're ready to go out into a production basis. We didn't have the mailings and the direct mail, and David, why don't you approach that? I think I'm being accurate when I say it was how we actually pulled the marketing strategy together. If you would, please?

Right, not only did we not have the advertising literature going forward with the newest boards and the marketing brochures and the trade journal advertising, we can place an ad in the trade journal today, but it's probably -- by the time it hits the magazines and the market reacts to them, it's at least 60 days later. So when we started that process last quarter, it's all hitting home now to take it to the large amount of proposals and activities that we're experiencing now. We also again are training individuals, the salespeople to be more proficient at presenting the product. And as we open up to the reps and agents, some of those people will be trained to near the level of our direct sales staff and others will be more of our bird dogs, if you would, to get out and gain the traction with the architects, the contractors, and then our sales force will go in direct and close the order. So all those motions are starting to take place and the activity will come soon.

So it's essentially on schedule, and it started on schedule, but it's now that you're actually seeing the activity happening from what you start doing three months ago?

The phone calls, the reaction to the ads, the number of appointments, e-mails that we have to address is a lot more -- I can't quantify it by the exact numbers, but near fourfold what it was six months ago.

Okay. That's great. Then moving on to the white light LED products, what other end markets or applications do you anticipate your additional products in this area to be focusing on?

Well, this is Scott speaking, as we said earlier, we are going to be focusing on the outdoor applications for the white LED. That will drive itself from the platform that was used to create the Crossover, so we're going to see wholemount applications, we're going to see building mount applications, we're going to see applications that involve street lighting, potentially. Those are the type of applications, accent lighting, architectural accent lighting, all of those types of applications. Which really are involved in many of the markets we serve and really spread across those markets. So it won't be isolated just to the petroleum market.

I think I would like to add to that as well. I think if you analyze LSI and understand that we have a two-fold front going at the same time. We're going after certainly our niche market base that got LSI to where it is and certainly working on that commercial industrial. Now without sharing all of our strategy, I'll share with you a little bit of it. It makes more sense to me to the take the markets we are so strong in -- the niche markets -- understanding they are somewhat flat in construction, but have a desperate need to reduce their energy costs like everybody else does. And I think it makes the most sense that with our image and our customer involvement that the next products that come out, you'll find that really fit those niche markets for retrofit.

This is where we think the opportunity is extremely strong. And if we can give that market an affordable LED, because everybody knows they're more expensive, but the way we've developed and designed our products and our production efficiencies -- remember we're a lighting company and we're high volume oriented. I think it will make the most sense that you will start to see products that fit that niche market giving us an opportunity to show that customer how he can reduce his energy by 60% plus. That's the beginning of where all of this will start to create development. With that said, there's certainly the products themselves, which really is in a solid state development may be attributable to other products that fit the commercial industrial. But with our marketing expertise, our customer contact, our involvement with the niche, I'm going after the volume and I think that makes the most sense.

That's helpful. Specifically with the Crossover product, you mentioned the 1600 fixtures. Will these be available for shipment during second quarter, potentially, or are those also would be in third quarter?

Third quarter.

Final question, just to make sure I understand your comments on the softness in September. Essentially, when you talk about the incremental softness in September and the pickup in October, you're talking about everything ex Wal-Mart, right? Wal-Mart is still an unknown at this point, right?

That's correct.

Thank you.

We have four more questions in the queue. The next one comes from Peter. Go ahead, sir.

Hi. It's John Haushalter on for Pete. Just a couple questions for you, I guess more recordkeeping at this point. But if you guys had broken out technology as a separate segment per your previous reporting, what would it have been in the quarter?

I knew, John, that question would come and on a one-time basis only, I will indicate that sales were about $3.5 million.

Okay. Presumably, there's kind of the delay in the billboard shipment from Louisiana that affected that number, right?

Yes, sir. Absolutely.

Yes. That revenue will be in October.

That product is now installed and due to a timing issue on their behalf, we couldn't get installed in the first quarter, but it is now.

Okay. And then just turning over to Wal-Mart, with you guys switching -- I know they've kind of talked, their construction rate is going down. But with you guys getting the outdoor business there, Wal-Mart potentially could still be a growth customer for you, even with a down overall build environment for them, right?

The potential always exists for us to continue to build our business with Wal-Mart, not only through their construction schedule and again through retrofit and what they call specialty programs that go into their existing facilities. We're working with them on a number of things. We've also brought them a great idea in terms of their exterior lighting, as part of the exterior lighting standard which we hope will carry an influence in terms of retrofit opportunities. The potential exists, we can't quantify it and we can't put a level of predictability to it at this point, but certainly we have in our position a majority ownership of the outdoor lighting that Wal-Mart buys. As long as we maintain that position, we'll be in a -- have a great platform to continue to work from.

I also want you to know that Wal-Mart is not the greatest source for information as it relates to what they're doing. They pretty well keep us in the dark, which is a kind of a coined phrase. And so we looked at the future and again that affected our guidance comments is that we took the more conservative approach rather than a high-end approach, because we just don't know what their final plans will be. But I think again, with their energy commitment, it behooves us to work on a concept that will bring them the next generation of reduced energy outdoor lighting products. And I think this is what you will see from LSI as we move into the future -- a tremendous concentration of exterior products using white LED and solid state drivers that we will develop for each of those markets that we serve. And this is the wonderful part of the way we've structured our business with the acquisition of Seiko. It really allows us to develop a concept, a package of lighting products using solid state, which we are really developing for ourselves rather than trying to go out on the open market and buy shelf items that most of our competition seems to be doing now.

Okay. Then just one more, if I may. The margin in lighting was actually pretty good, kind of considering the year on year volume decline. Is that just a mix thing, or is that the way we should think about things, even before Crossover kind of actually gets in your numbers?

I would like to say that's the result of a lot of hard work on the operation side, on the efficiency side. As we've been talking for the last couple of years, as we bring these companies together, we expect to improve our ability to leverage wherever we are from a volume perspective into better income results. From an outlook standpoint, I'll turn that back to the other guys because I don't want to prejudice my comments by giving you the idea of what should be expected, but I'm proud of the work we've done and I think we've done a great job moving with the market and taking what the market allows us to have and improving our position from an income perspective.

I would like to also add to that. I think when you really understand that the lumpiness of our business is very obvious, we have taken tremendous strides to try to work on that bottom line. The addition of this procurement program with bringing this corporate person onboard on my staff. She's been onboard now for about five months. I think we're beginning to see results. It's certainly our intent to continue to drive down those costs and hopefully build up the volume so that our shareholders will see the benefit coming forth as we move into some of these hopefully really exciting projects that we have.

Okay. Thank you. I'll get back in queue.

Next question, please.

Yes. The next question comes from Jed. Go ahead, sir.

Hi. Thanks.

Hi, Jed.

Hi, Bob, Ron. First question, Scott -- the light time, 10 to 12 years, what type of warranty are you giving on the new Crossover product?

Right now I'd rather keep that confidential, Jed, until we get into the marketplace and tell them what we're doing. You hit a very, very important question. We're prepared to answer that, but if you would wait a few weeks, we'll give you the whole program.

All right. Certainly you wouldn't be warranting it for that 10 to 12 years?

No, no. Of course, no.

Good. Is it UL certified?

It's in process.

Tell them about Dark Sky.

One of the interesting things that I think we've failed to mention so far is we have gotten very, very strong support from the Dark Sky association and it's one of the first products to qualify as a white LED product for their approval. So that carries a lot of weight in the marketplace today.

And on the billboard, the move away from the supplier, are you using the same supplier for the Crossover as you are for the new billboards so that we don't have to worry about potential problem in degradation there?

Well, recognize that the Crossover is a totally different product than the product that we've talked about having some challenges in Memphis. The supplier strategy for the Crossover for frankly the white LED is a little different than the supplier strategy on the RBG and the video side of the business. And it really reflects our consistent strategy of finding the best suppliers for that particular product and the products are quite different.

And certain the bid number, as you're probably aware of, Jed, is in the selection of the quality of that white LED and mandating the specifications that that product meet those specs.

Last question. Bob, you've talked about the 60% energy savings. As I look at Pulse Start's metal halide HID product, it would seem that as if you're around 80 lumens per watt, and sort of a fixture efficiency of about 80% and a driver efficiency of about 90%, leaving you with a 60 lumen per watt to what you're trying to light up. As you look at the LED, what are you starting with for a lumen per watt perspective? I'm just trying to understand as you look at your electrical, your optical, and your thermal losses, how you get to that 60% in energy savings?

Do you want to answer that?

I can, but I don't know whether we're ready to or not. Frankly, the exciting thing about what we're doing with the Crossroad --

You're asking some of our secrets.

Is the proprietary nature of our driver design and the fixture -- and the patent pending issues we've got in place. I think I can answer it best by talking to you about how we come up with that 60%. The 60% is really driven based on the standard energy consumption for total wattage consumption for our current 320 watt Scottsdale versus the total system wattage consumption for the new Crossover system. As I think Dad mentioned earlier, 60% is a conservative comparison in some cases. We expect to see many cases where we're saving more than 60%. But I can't -- I'm not really prepared to go into exactly how we do that.

You're not delivering the same lumens, right? You must be targeting from a dark sky perspective, you might be targeting lighting what you want to light, but you're not delivering the same lumen output --

And we're not going to -- and we're not going to and we're not trying to. And I think what you have to when you -- we give you that web page. The real approach is different. It's the quality of the light, it's not the quantity of light. It's the fact that we have developed a product to put the focus of the main part of the light on the pump and surrounding the pump to give general illumination throughout the canopy, stopping at the drip line, not extending beyond that. We've really approached this with our market knowledge and our customer needs differently than you would approach it as a general term of lighting. That's why this product is so unique. That's why it took 14 months to develop it. Certainly with your background, Jed, you have a clearer understanding than most do. And don't take this reluctance to answer all these questions over the line. It's just a matter of tipping our hand with some of the things we're going to start marketing here in the next two weeks.

I understand. It's helpful. So look forward to seeing the product launch in the couple weeks.

Boy, so am I.

Are you going to be in Atlanta, Jed?

Yes, I am.

See you there, because I'm going to be there as well. Next question, please?

Next question comes from Brad.

This is Brad Evans with Heartland. Thanks for taking the question. With respect to your original guidance -- the $1.05 to $1.15 -- could you just give us a sense as to what you were originally expecting from the Crossover and the digital billboards or if anything has changed relative to those original expectations?

That's a tough question. I think that we weren't really looking at the Crossover as much as we were planning to have our billboard or digital advertising board in production sooner than we did. I think that's where more of the expectations were on our behalf, because we knew we had a good product, we certainly knew that we had the ability to produce the product. What caught us by surprise, obviously, was this situation that we've explained on the red LED. The Crossover is -- we knew that we had a product -- we really didn't know how well product was going to be accepted, because it is a different product -- it's different than anything that our sales force has ever had to go out and sell. There is a tremendous education process. As Jed mentioned a few minutes ago, the market's used to lumen rating, foot candle ratings and so forth. This product doesn't fit this criteria.

The approach has been entirely different by us. We recognized that early in the stage of the development process and it was really difficult to forecast that. And we're still obviously very reluctant to forecast that because we just don't know. This is all so new. But we do know this, the folks that we call on are asking the questions about LED. When are you going to have LED products? We are now going to answer those folks on the fifth of November that we have an LED product. So in essence, the guidance as we go into the past and looking forward, it's a very difficult, as you well appreciate, direction. Especially when we have lumpy programs like we have, when they're going to start, when they're going to end and certainly the billboard. Hopefully that answers your question.

Bob, can you talk about the pipeline you're seeing on the digital billboard at this point? Can you qualitatively discuss what you're seeing there?

David, why don't you handle that, based on the information that you have?

First of all, getting back to what Bob said earlier, let's watch the word billboard, because our opportunities in billboards as the market grows are good. But the spectaculars, the things like the NASDAQ and things that you would see in Times Square, the sports market, and the spectaculars -- not to exclude the entertainment industry -- that's where some real margins are going to be available in custom orders, transportation, etc. So we're expecting a lot there.

Has the pipeline gotten bigger or smaller over the last six months in terms of opportunity set?

Much bigger, much bigger. Again, the legislation that was mentioned earlier in the call, that's one trend. Another one is the environmental problems that are out there now that people like Clear Channel and Lamar are facing. Every time they take a vinyl banner down, which is often, with the large number of boards that are out there in this country, those things end up in a landfill and they're not biodegradable. And that's a no-no. And the billboards or the LED boards are an alternative to that. So we're getting a lot of support from that end. And as they've told you many times before if you follow their call, their advertising revenues and margins are much larger on a digital board than on a vinyl wrap. So the market is growing, and the acceptance of them. You are starting to see them everywhere you go. When we talk billboards, again, everyone get caught up with [1448]. There are many billboards that are in a 4 x 6 configuration that will show up on bus stops and smaller cities like Columbus, Akron, Indianapolis that don't have the large billboards, but do have marketing areas where they consider a billboard at a convention center, a hall, but not in the large format that you're talking.

Is it conceivable that that pipeline starts to break loose in the second quarter here?

Not the second quarter. Break loose, the volume pickup -- oh, yes, for sure, but break loose, I don't know when that trigger point will be reached and I'm speaking for the industry, not so much for LSI.

Well, I'm curious for LSI. When do you think that breaks loose for you?

Let me answer that. I think that where we are right now, it's too difficult to estimate that and that's why that guidance hasn't been put out. Let me also address something else. Just to help address this guidance situation and our reluctance to put guidance out there that we don't understand and I'll give you a good example. We found ourselves in a situation where most of you are aware of the fact that we developed a product for the New York Port Authority for the tunnels. It was just a few weeks ago, or a month or so ago, that there was a press release released from New York that they had allocated and budgeted $9 million to replace tunnel lighting and lighting on their bridges -- which, by the way, LSI did all of the development and did the prototype work.

Now, we know that that money's been allocated and we know that it's our product. We spent two years working with these folks, but we haven't been given any solid, concrete direction yet that that money's going to be spent. So there was no way in the world that I was ever going to put guidance out there that related to that part of that equation. And I think that this is where it's so difficult for us based on where this pipeline is full and what's coming. We're going to be as honest and forthright with you, telling you what we know, that we have a comfort level that's going to actually happen. But to David's point, I think he said it earlier, the opportunities, as far as interest, have quadrupled over the last six months. Is that right, David?

That's our numbers. That's our numbers. 400% increase of where we were six months ago.

I know that there are more questions, but they're getting ready to close this rep meeting. I'm going to excuse Scott. Scott is going to have to leave because these reps are wanting to leave. He wants to close the meeting. I would like to answer as many questions as quickly as I may so that I can also attend this meeting. So Scott, if you would, you go ahead and that is very important. I don't know how many more questions we have, Michelle, but I'll do them as quickly as I can.

The next question -- we have two more in the queue and the next one is from David [Starks].

One quick question. Can you tell me the percentage of business of the 7-Eleven and Dairy Queen that will be finishing up and are you going to be getting residual maintenance contracts on that stuff?

David, please.

Yes, the other 20% that was pending there for the 7-Eleven will be done before the end of the year. The Dairy Queen will probably go right into March of next year. And there is some residual business, but I'm more excited about the other opportunities. Now that these programs are out of the way, they tended to not have three or four going at the same time. So beyond menu boards in one program and beyond conversion of the CITGO stations, both 7-Eleven and Dairy Queen have opportunities right there in front of us.

I will add to that that we have not addressed on a positive note, is that the third customer, the Chevron program, is beginning to ramp up.

Again, we don't a real solid idea of how many they're going to do, but we do know that they are definitely ramping up. And that again will come about in the third and fourth quarter as far as we can tell. But until we have more concrete evidence and what those numbers will be, we just -- we hesitated to really put those numbers out as far as what the estimates are until we know exactly what they're going to do. If you go back in our history again, we find ourselves in these very precarious positions when we're told information from some of these customers, we share it with you -- we don't make it up, we just share it with you. And then it doesn't happen. I learned a long time ago that that just doesn't work. That's why our conservative approach is what it is and we will do the best we can to give you the best guidance, bit will be the proper guidance that we feel comfortable with as far as how it affects our company.

Okay. One quick question as it relates to that, and I appreciate your comments. I'm trying to get a number in my head as to how much business you need to replace from these two contracts that are going to be wrapping up. Is it $20 million to $30 million a year just to keep you even next year, or what's the situation on that terms?

I'd say that number, around $20 million, is probably a good number. I think that we feel comfortable that we can replace it on our day to day, but I think the real impact is where we grow it from that point.

Right. And that's what we're working on right now.

I think it's fair to say that we're comfortable that things that we've done on the day to day, some of the new products that we don't really talk about, the new markets that we're going into, we don't have an acquisition that we can relate to. That I think will have a definite impact and as I said, we're definitely hot on that direction. We recognize that that is needed, not just because of the interest in Wall Street, but certainly from fulfilling our package as we need to strengthen our market position in the related markets, both commercial, industrial, and certainly in the graphics side. And that's really all I can say, as it relates to that.

Okay. Thanks, guys, good luck.

Thank you.

We have two questions in the queue and the next one comes from Shawn Boyd.

Hi. This is Shawn Boyd from Westcliff. Just real quick, on the lighting sales, I'm still a little unclear. Down 9% year-over-year in the quarter, but commercial and industrial up 4. So is the discrepancy due to the petroleum market --

Yes, very clearly, yes.

As well as Wal-Mart.

As Wal-Mart softness, yes.

So can you help us on a rough breakdown on lighting revenue by customer type, what percentage would be petroleum, what percentage would be retail, et cetera?

I don't have that.

Our petroleum number we do disclose that you'll see in the 10-Q includes the graphics that go in for instance 7-Eleven and Chevron.

I think we'll have a clearer picture of that as we move into the next couple of quarters and the success of the introduction of the Crossover. That we will be able to share with you.

Okay. And that number that's in the queue, that's roughly 25% for the overall business?

This quarter has been a little bit higher with the strength of 7-Eleven and Chevron. It's 31%.

31%. Okay, thank you.

Thank you.

And on the weakness that you saw in August --

September.

Excuse me, me in September in lighting and that rebounded back in October, can you give us more clarity on -- I know we never know exactly, but can you give us any better feeling on what you think drove that?

I really don't know. To be very honest with you, it's timing, with just a four-to six week window, which is our backlog window, it's really difficult to tell why things happened the way they do. The tremendous heat that we had, the construction, we don't know where some of these projects that were pushed back from a timing standpoint and those are the unknowns that we really can't peg. We don't have a distribution network set up, so we really can't identify that. That's not the way we market compared to some of our competitors. I think it's just the fact that periodically, you'll run into a little bit of a softer period than others and I think that that was exactly what happened in September. There was no way to -- it isn't anything that we feel is serious, especially the way October rebounded. It was just amazing how all of a sudden -- and in the last two weeks of September that things slowed down -- and then all of a sudden thing just ratcheted right back up again. So again, we're -- very difficult to tell you why.

Got it. I assume most of your business in the lighting is book and shipped that quarter?

We ship -- a lot of our business shipped within 48 hours within receipt of order, believe it or not.

Got it. So visibility isn't that far out?

Exactly.

On the Crossover, just very quickly here, I know we talked about the energy savings at 60 to 80%, but can you give us a rough feel on what an average purchase price for the Crossover would be and what the payback would be?

We're not going to develop that on this conference call. We know exactly what it is, but we can tell you this, that if you take product for product a 320 watt pulse start Scottsdale, it's certainly well conservative 60%, there are a lot of canopies out there that have 400 watt and that's 80%. So when you look at the energy savings and we understand that in basing on our pricing structure, we've made the statement that we believe that this is the most affordable white light solid state LED product to hit the mark in the volume potential that it is. The pricing announcement will actually come out around the November period when we introduce it. So we would prefer not to discuss some of these strategies online.

Okay.

It's just too new.

I'm sorry?

I say, it's just too new. We're going to catch our competition right where we want to.

Got it, got it. All right. Then just on the graphic side of the business, there was a comment earlier that the business is not cyclical. And I'm just trying to get a better feel, so if it's not cyclical, what are the key drivers there?

David, please?

Well, the key drivers are the remodeling programs and the capital expenditures available from the various customers. But why we are growing and why we are so encouraged is we tend to right now really zero in on this fast food industry. And the DQ programs and programs like 7-Eleven or Chevron where they want to improve image or improve food selections in their store is a hot market right now. There's a lot of tired or fast food or QSR sites out there. And they're driving that market. We're advertising stronger in that market. To go back 14 months when we were just developing the DQ program, that was a big menu program.

We have three other people right now that are interested in upgrades, but as Bob has told you time and time again, when their interest strikes and when an order's placed can be anywhere from a few months to a year or year plus and that's what makes us a little edgy on giving you any numbers. But we're encouraged because of the Q that we've got in for proposals.

The other thing to add to that is that the company that we are, a market driven company, we're not just sitting around waiting for somebody to come in with a new image request. We're constantly in the face of that market, coming up with new ideas and new products and new techniques. As David has said many times, we're a project-driven company and the lighting business is more product oriented. You never know when you pull that trigger who the next one is going to be. The constant direction that we put in place and the tremendous standard that we put in place for our salespeople to go out there and find that business is really part of the strategy of the company.

With all that said, the success of these programs, as big as they are, and if you really look back over the last year -- for the first time ever in our history, and I don't believe there's anybody out there that can make this statement, we had three very big programs going on at the same time. Dairy Queen, 7-Eleven and Chevron. Two of those programs well, not only built the product, we installed the product. And the fact that we had the production capacity and certainly the wherewithal to do the installation puts LSI in a very, very favorable position in that industry. And I'm sure that the competition of those companies that we did this for are very aware of who did what, when, and so forth. So the unknowns are out there, but the driving force is to get in the face of those customers and show them the capabilities of what LSI can do as a company. And they're growing monthly with our digital, visual boards. It goes beyond the 14 x 48. 4 x6, 4 x4, who knows what the next menu board system is going to be like as relates to this new solid state technology. And certainly the billboard industry is part of it. The fact that the billboard industry is so big, obviously, we're all very anxious to make our mark in that and we will do that. I think it's fair to say that those five boards in Memphis are really the starting point of this. That's why we made the decision to upgrade them to the board that we feel now that we can show anybody in the country -- this is the board that you will get from LSI. The original boards were not going to be the boards that we would show everybody in the country that this is the board you'll get. We now within a month or so will complete those other three boards and now we can sit there and -- or sit down and show Clear Channel and the rest of the industry, you go with LSI, this is what you will get. And I think that's an important part of the strategy of where we're going.

To add to that, Bob, one other thing -- is it Shawn I'm talking to?

That's correct.

If I say a TV, you think to purchase a TV -- Circuit City, Best Buy. If I say hardware, you think Home Depot or Lowe's. If you say office supplies, you think of OfficeMax, Staples, or Office Depot. Well, when you think of remodeling in the graphics industry and including the lighting and the upgrading of those, we're becoming the household word. We're a big player in that. There are not a lot of large graphic players. The audience there can't name them as we talked today. We're gaining strength and every time we do a program and the word in the industry, and like Bob, because of our marketing programs, our the participation in the trade shows and the sales force we have out there -- we just expect large growth in the future. I'll let you go with that, Shawn. Thank you.

Thank you.

We do have one more question in the queue and it comes from Brad Evans.

I'm sorry, Bob, it's just a follow-up. First and foremost, do you think it's reasonable to -- looking at the $0.15 dividend this quarter, is it reasonable to annualize that, do you think?

I think so, this is Ron. The board has declared that as the annual indicated rate to get up to $0.60. There's been no history in LSI where dividends have been reduced and we've paid dividends since 1988 and we've had 14 or 15 increases in that time period.

And I am very comfortable with it. And I think sitting in my position today and looking forward, there is no reason in the world why we as a company cannot meet the expectations of ourselves. We were going to meet the challenges of the market and hopefully we'll hit the expectations that our shareholders put forth. I think we're in a timing process. I know that's not an excuse, it's a fact. This company is a lumpy company and if we get hit with another $30 million or $60 million or whatever million dollar opportunity, I'm going to jump on it with both feet. We will continue to invest in our product development process using solid state as a major part of that advancement in our lighting products. We will continue to operate with the efficiency and the direction with our graphics capabilities.

We will hopefully rejuvenate the interest in the petroleum industry. It's a big industry -- they're making a lot of money. We've got to find the right key to get that turned on. We're working as diligently and as with much effort as we can put forth. And the fact of the matter is that the strength of the company, LSI, hasn't wavered one bit. And I hope that within the next few months I'll be able to tell you that we have a new acquisition onboard and the strength of that acquisition and what it will do for one of our major business segments, all of these things are very positive --

Bob, the way I think of it then, sorry to interrupt but it's an important point is -- your stated objective is from a payout ratio perspective is 50 to 70%, is that still correct?

That's correct. That's our policy.

That's right.

And I know the market is very concerned about just the implications of withdrawing the original guidance. As I'm listening to this conference call, it sounds like the balance of risks relative to the original guidance are fairly equally weighted. There might be a modest diminution in the year, but there's also the possibility you could -- if some of the things we're working on really start to materialize, the earnings guidance could be moving in the other direction.

I couldn't have said it any better.

Okay. Thank you very much.

There are no more questions in the queue at this time, sir.

I would like to wrap up. I know you've on this conference call a long time and really appreciate your interest and the questions that you've asked. Just to quickly close, I look at LSI in probably the most favorable light that I have in the 31 years that I've been here and there are a lot of exciting times. Coming out of this sales meeting today, I think for me has been one of the most elevating things that have happened to me in my career -- to watch these guys just chomping at the bit, when I get my product, when I get out to make the sales calls. The interesting thing, the way we approached it, we brought these folks in, we spent two days basically training them on understanding LED technology and solid state. It is so different than what they've been used to selling. We've given them no literature, no samples, nothing. That all happens the week of the 5th of November. When our marketing plan is launched, our advertising program is launched, certainly our goal is to start developing this product throughout the market so that folks can see it. Certainly we've discussed in depth the digital visual advertising boards.

I don't know that there's any more I can say in conclusion other than the fact that the balance sheet remains strong, the commitment to the dividend policy is in place. And as we start to evolve with some of these things that we've spent the last hour and a half discussing, when that confidence level that I feel comfortable in giving you the guidance that I know you're looking for, I will do that. I promise you that I will never give you guidance unless I personally feel that that guidance is going to be the right guidance. With that, I want to thank you for your time and again apologize for doing this on a Friday. But this sales meeting was so important. We'll be in touch and we'll let you know how things went at the NACS convention and hopefully we'll see some of you there. With that, Michelle, thank you. We have concluded our conference call.