LSI Industries Inc (LYTS) 2009 Q1 法說會逐字稿

Good afternoon, and welcome to the LSI Industries first quarter earnings conference call. Today's host will be Mr. Bob Ready.

During the discussion all participants will be muted. As a reminder, this conference call is being recorded.

Now without further delay, I will turn your conference over to Mr. Bob Ready.

Thank you. Good afternoon, everybody.

As in prior conference calls, our team is here, Scott Ready, President of the Lighting Group, David McCauley, President of the Graphics Group, Fred Jalbout, President of the Technologies side, and Ron Stowell, our Chief Financial Officer. Steve Brunker is also here, our CIO.

Steve, you have something to relate to the folks as far as how this is being recorded and what access they can have this evening. So if you would, please.

Yes. Good afternoon, everyone and welcome.

As with our prior conference calls, there are visuals that accompany today's presentation that you can access by visiting our website, which is www.lsi-industries.com, and clicking on the Investor Relations tab. If you're not within convenient access of the internet right now you can find our presentation available in a replay of today's presentation on the website after about 5:00 p.m. this evening.

Thanks, Steve.

As in prior conference calls, what I think we'd like to do is really share with you some of the good points. I've had a number of conversations in the past few months, and what comes to mind is the Clint Eastwood movie of years past, The Good, The Bad and the Ugly, and when we look back to '07, and having the greatest year in our history, that being the good part, the bad being obviously the fact that we couldn't repeat those big programs that we were so successful in the rollouts, the Dairy Queen, the 7-Eleven, certainly a slow-back on the Wal-Mart and a pull-back on the Chevron, and obviously the ugly is the economic conditions that we're all faced with today.

However, with all that said, I am very confident that the level of our market penetration, specifically -- or especially I should say, and the tremendous success that we're now experiencing with the solid state technology which Scott will share with you in a couple of minutes, obviously the biggest challenge we have is in the graphics side, and David will be certainly addressing that. And Fred will bring you up to date a little bit on some of our international direction that we have actually started to develop a strategic direction, and working toward an international presence by using some of our solid state technology.

I think that you folks are probably going to have a lot of questions, so our presentation doesn't have a lot of slides, but I'm going to turn the first phase of our discussion over to Scott, and he's going to share with you a little bit of the success with -- with the Crossover product line.

Scott? Thank you, Bob. Good afternoon, everyone.

The short time that I'm going to speak today I'm really going to focus on what we've accomplished so far in our solid state lighting market initiative. As Bob mentioned, the overall strategic direction of the Lighting Group remains solid and steadfast, and methodically moving forward. Not necessarily the kind of exciting volume that we'd like to share, that often we do have the opportunity to share when connected to major programs, but we certainly do characterize our business right now as steady, and strong, and growing stronger in some specific areas.

But the Crossover marketing plan is certainly the most exciting initiative that we have on the plate today, after multiple years, several years now, of technology development, testing, and evaluation. We are bringing to the market products that are proving themselves, both from a performance perspective, and most importantly from an economic perspective.

The goal to establish products that achieve a reasonable ROI with technology, that is exciting to say the least, has really been accomplished first and foremost in the petroleum market. A year ago we introduced Crossover as a solid state lighting brand, and brought forth specific products into the petroleum market for petroleum canopy installations. We've sold multiple thousand units now. We've had units in the marketplace for some time.

We've actually accomplished exposure in the market across the United States, Mexico and Canada, as well as overseas. The map that you're looking at here briefly illustrates just some of the locations that are currently installed with the Crossover system. And I'm happy to report that having had the system in the market now and in the field for many months, the level of excitement is only accelerating. It is a proven system. It is really -- puts LSI in the forefront of lighting manufacturers that have been able to achieve repetitive, consistent business now with white solid state lighting.

But moreso than just the canopy fixture design and what we've achieved so far, we're creating an identity now in the marketplace that even extends beyond the petroleum market. We were awarded a best in class status, if you will, in the petroleum market as selected as retail -- retailer's product choice of the year for 2008, with the innovation of the Crossover design, and we're building on that now with the remaining products that we had outlined for this fall, both in interior applications and exterior applications, building on a very strong performance platform and economic platform, for multiple market use, specifically the commercial, our general commercial and industrial lighting applications, in building lighting, and parking garage lighting and other types of multi-purpose applications. And last, but not least, the golden egg, at least this year, of the market, is successful area light fixture which we will be bringing into the market here in November.

Certainly the canopy lighting is producing results financially for the company. The rest of these products are built on that same platform, and frankly have yet to contribute because they've only been introduced and we're currently going into production in the product this second quarter. So the results that we've been able to achieve so far built on our standard product offering is strong, and when combined with what we can accomplish in solid state lighting products, promises to be even stronger.

The area light itself is designed on a format to actually penetrate several different market opportunities for LSI. Certainly have strong opportunities in small-site, multi-site, retail, national retail facilities, such as the petroleum facilities, such as QSR markets, that combined with soffit lighting that we are introducing for QSR markets, will give us the opportunity, frankly, to penetrate some accounts that we currently do not have, and beyond that it's a very scalable format that will address applications up through street lighting in addition to retail exterior site lighting.

So the street lighting market will be a new market opportunity for LSI. We're not typically known right now in the utility market and in the lower wattage street application, but the performance of the product, are patented -- excuse me, patent-pending design features from a heat dissipation perspective and a photo metric optic control perspective, offer, frankly, the first product to the market that is both aesthetically pleasing and high performance. And this is something, as you compare LSI's products to other products currently being introduced into the marketplace, will truly differentiate LSI.

We've actually finally received, I am happy to announce, orders -- hard orders for some of the early concept projects that we were working on. I know a number of you have heard me discuss bridge lighting and some of the development work we've done with New York City. Again, I'm very pleased to announce that, during the second quarter, we will ship lighting to support two major bridges in the New York City marketplace. The George Washington Bridge and the Verrazanno Bridge. This only represents the beginning, frankly, in our opinion to the opportunities that we see just in that New York City market.

We continue to work with the same folks that we've been working with now for some time on variety of other applications. But, again, proving the fact that that after two and a half years of constant testing and really strenuous evaluation, LSI's technology was selected as the technology of choice for these applications.

So combining these together, we look at a strong basic performance or steady performance within our niche markets, actually seeing a little bit of growth in the petroleum market again, due to the solid-state lighting influence, and an even stronger double-digit growth in our commercial marketplace. We're very excited about what that base provides when we add the solid-state lighting products to it over the next six months.

Bob? Thank you.

Scott, I'd like to add to that, if I may, before I switch over to David, if the folks that have been on prior conference calls or have attended some of our other conferences throughout the year, we have been very, very straightforward in the commitment, and certainly the acknowledgement of how we've approached this solid-state white LED market. And I can tell you right now, from everything that we've done, and certainly the folks that have seen it, and we've had a lot of people come through the image center here in Cincinnati this year, to be certainly aware -- or made aware of what we're doing. Even though it's been a slow process, it's a process that's growing. It's a process that has great interest. It has a tremendous effect on energy reduction. The maintenance levels -- the maintenance costs that we shared with you before are very, very obvious to the markets.

The unfortunate part is that we're in a slowed down economy, but I can tell you from all of the interest that we seem to be gathering in our major markets, this product and the other products that are coming off of these designs, have tremendous opportunity for the future growth of this company.

Scott failed to mention the tremendous opportunity and growth that we've had in the commercial industrial. He said double-digit, and that is true. And in a slow-down economy we are starting see a tremendous improvement in our CNI market penetration with some of the things that we've shared with you in the past, and the bottom line of this is that the seeds that have been planted over the past year, year and a half, are really starting to bear fruit. It would be great if our economy was in a stronger mode, and I personally think we would have seen more revenue dollars, but I think the important thing is that LSI has maintained its true direction, which Ron will talk about in our balance sheet, and I think made all the right investments as it relates to these new products.

The disappointment, of course, is in the graphics business and not to be negative, because David will share some things with you in reference to what we're trying to do in growing that business, but very obviously with LSI's tremendous strength in the retail environment, as you all know, this is really been -- had a big effect on not only us, but many, many businesses out there, but we have never lost focus and we have full attention to reducing costs where it's appropriately -- appropriate, and obviously putting all of the pressure where we have to in order to start developing more market penetration in other areas.

And, David, I'll turn it over to you, if you would, please.

Okay. Thank you, Bob, and good afternoon to our audience.

It was a mediocre-type quarter. I think we were -- know we were north of our goal, our sales come in, revenue come in at a little over $25 million. Now, that's compared to the first quarter of last year which was slightly more than $42 million. But a very interesting extraction of those figures that I'll relate to you today, is that last year the big three, at the particular time that had large programs going on on the graphics side of the business, was Chevron, Dairy Queen and 7-Eleven. With some lighting components in the 7-Eleven and Chevron. Those three totalled $27 million out of the $42 million, or 64% of the volume.

This year that same group, those same three people, contributed slightly less than $4 million, and that would be 15% of the $25 million. What's that tell us? The balance of the nod big 3 last year was approximately $15 million. This year, other customers other than the big 3 did $21.5 million, and that shows a 42% increase. So that's one of the brightest points that we can talk about this quarter is the increase of our current base of customers, and adding new customers without any large programs. We had no one close to a 10% declaration of the business for LSI. So we're very pleased to see those numbers.

We're making our move into the areas that are strong right now, taking less emphasis on the banking and the auto, and putting more emphasis in the restaurant, convenience stores, and the like.

As far as the economic times, historically we've been very strong in gaining more customers, gaining market share, in these tough times. I think that says a lot for LSI in their balance sheet and their ability to weather these type of economic storms. So, we think history will continue to repeat itself. In the last six years we've seen three times where graphics has kind of lost the momentum because of lack of strong programs, and that's one of those periods now, but, again, we've never lost market share. We've always gained, and we feel we'll continue to do that.

As far as we talk about being programs and not products and graphics, well, we're coming to a point where, at the beginning of the year in January, when we have our next earnings call, the graphics is going to introduce two new products, maybe three. If they don't introduce all three in January, the third one will be introduced in earnings call in April, and they all have something to do with the solid-state technology, again, another benefit from the acquisition of SACO some years back.

Now if someone can flip the slides on the screen for me, for those who can view, we're going to show you seven projects that were entered into the revenue stream. I'll go through them. I'm not looking at the same screen you are right now.

Florida International University, their score board, video board. Next one would be -- I'm looking at Ohio State University, the Schottenstein Center. We just installed that large program of video replay boards, circular graphic LED boards, and eight smaller boards at that venue. We, of course, do the football, and we have for many years down at Ohio State. Saputo, Canadian Soccer League. Penn State University, that is a ribbon board along the end zone of -- that's a large capacity stadium, I think that seats like 108,000. Minor league baseball for Savannah. Memorial Field, that is in Bryan Texas, and that is a high school market that LSI will make a lot more waves in. The high school market is like the billboard market, there are going to be a lot of boards in the next five years in that market, and we're going to try to capture a large market share there. The last one on the screen would be another Canadian facility, Red Deer facility, and that's a hockey arena, but it is used for many other occasions, similar to the Ohio State Schottenstein Center.

With that said, Bob, I'll bounce it back to you.

Thank you, David.

The other comments I'd like to make in reference to the graphics side, it's very, very obvious that when you go through an economic turndown as we're going through now, is that the smaller companies, the smaller graphic businesses, are really getting hit a lot harder than we are. And time will prove that, as the economy does come back, and when that will be I don't think anybody really knows, but when it does, with the customer base that we have and the new customer direction that we're earning, history has proven that some of those folks are going to jump back on the wagon, and they're going to want their products and their programs immediately.

We have made some tremendous cutbacks in overhead, but not cut to the bone. We have definitely skinnied up the company, the graphics part of our business. We're putting all of the effort into new business, wherever we can, to create more -- a larger customer base. Certainly the efforts that are being placed in the visual boards, not as dynamic as everybody would like, including myself. We have some formidable competitors out there and they're making it very difficult, obviously, for us to get into that market.

But we're taking a step at a time. We're cracking the door open a little bit at a time. And we're starting to gain momentum because, in all honesty, we feel our quality and the type of boards that we are now putting out there, are superior to anybody else's. Time will tell.

But I can assure you the fact that the tremendous interest that is being developed at many different levels in the market, more and more people are asking more and more questions about LSI and its ability to produce this type of product line, and it's just a matter of time. As a truly market-driven company, in all of the years we've been doing this, we understand it, we accept it, we have patience and we'll do everything we feel is appropriate to penetrate that market as we have done in the past.

And with that, I'd like to turn it over to Fred, because one of the major things that we have now in our sights is the international market. And, Fred, please, if you would give the folks a quick update on that, I would appreciate it.

Yes.

In regard to the advancement of the new product and the solid-state lighting, we thought about expanding our market overseas, and we did some very good investigation in regards to the market in Europe and Middle East, and we find that this market is a huge market for our product.

We put the strategy in place. We're still in the beginning of it, so we don't really have very much detail on it, yet, because we are still investigating the way to approach this market and put a business plan together to attack it in the right way. But we have made many meetings. In the strategy that we started, we thought the best way to start it is to start a meeting with consulting engineer and designers overseas in Europe and Middle East, presenting LSI product with all of the new technology we have.

One thing we had feedback from all those consulting, they were very impressed with the company, as a company, because we find ourselves more and more as a unique company. We are able to present to them and offer to them not only one product, multi-product that fits into the same application. Especially when we met with many of the designer, they find LSI is a unique company that can offer solid-state lighting, lighting solution, billboard advertising board, menu board, so this actually is a very positive thing for LSI.

We actually visit many other places of where our product can be sold, too. And the clients find our solid-state lighting, it's very unique, very stable. We are in the process of doing some prototyping and some units actually to be installed at those locations for the future application.

All what I can say right now, the future is very promising for Europe and Middle East. Application, they are very many. Just what we have to do is making the strategy very solid the strategy, and how to support our product when we sell it to those area. I was in discussion with many company in every country to try to create some kind of a partnership with them, since they know the market very well, and they are able to support the product after being installed. And this will actually save on LSI from having technician and engineer located in every country. And we believe that this will be the best strategy, and we are in discussion with many company that are in the field, and we believe that this strategy will work very fine, and it will be a great future for LSI.

That's how much we can talk about it today, but in the near future I assume we have the fullest strategy in place. I think we will explain it in more details.

Thank you, Fred.

Thank you.

To clarify some of that, I can only point to the success that we've had in that strategy in the Australian market by, as Fred had indicated, is finding the right support and the right service capability in that market, and we did that a few years ago in the Australian market, and through the success of that, which has been a growing market for us, we learned a lot and we're going to apply what we have learned on a stronger international direction.

The other thing to remember is that the energy costs in Europe are considerably higher than ours, with some of the folks that I have visited with that have been to LSI, Cincinnati, from Europe, and in looking at our products, I've heard numbers of anywhere from $0.22 to $0.23 per kilowatt hour. Obviously the ROI for them with products like we are now introducing, obviously fit their needs, and fit them very, very well.

It's also important to realize that the products that we are selecting to develop are very high-volume potential market products. The parking garage, soffit lighting, canopy lighting, area lighting, street lighting, all of those areas of those markets are all potentially high volume. All, obviously, are concerned about energy costs. And the most important part of the design features is the fact that we've taken an approach to go after those markets as a retrofit market rather than new construction.

We have no idea what's going to happen in the next few months as it relates to building, or any kind of that direction. But we do know that as these energy costs become more obvious in costs, and the maintenance opportunities with solid-state, they're fitting right into our marketing strategy where we put all our efforts into design, and certainly our marketing and sales approach.

It also is great to know that, since we're doing our own designs and working with our own internal capability, that we have a number of patent pendings on both mechanical as well as design features of these products. That is relatively new for LSI, as compared to prior years, with basically standard fixtures there, that are in the marketplace with fluorescent or HID.

So, as we look at the overall direction of both the lighting and the graphics and the technology, we are definitely poised to make the moves when those -- when that market really improves, and, last but not least, Ron is going to touch a little bit on the financial side, because I can commit to you, our shareholders are investors, that one of the most important directions that are in place here at LSI, is to keep that strong balance sheet in place. That is absolute, and we will continue to do so. I believe that that ingredient is extremely important in rolling out the higher volume potential of the future. Excuse me, for the future.

Ron?

Thank you, Bob , and good afternoon, everybody.

I will refer everybody to our Safe Harbor statements, as always, that are in our 10-K and 10-Qs, and indicate that today we have no material non-public information that will be discussed.

I want to let you know that all of our financial measures, but even beyond that, all of the management of the company and employees of the company, have a financial focus and we're very strong on that now, and I've got just four bullets up here that indicate the areas that we're focusing on.

First is keeping our costs down. And whether that's cost avoidance, cost elimination, elimination of waste, we're working very, very hard to do that. And in that area we have had some commodity price increases in the first quarter that we now see a little bit of daylight, and we see a little bit of softening that should occur for us in the second quarter, talking about steel, aluminum and et cetera.

And another area of focus for us, as Bob said, keeping that balance sheet nice and strong, is our accounts receivable, and we're working very hard on that, both through the quality of the aging of the receivables, and the DSOs, which, as you'll see the 10-Q, when it comes out, we're in the mid-50's, we did come up a couple days from June, but we're in very good shape with -- actually a couple large payments coming in, in early October.

Inventory, let me go back to receivables. You will see, when the rest of the information is available, that our receivables did go up almost $8 million, but that's reflective of that slight modest increase in DSOs, but also higher sales in our first quarter of '09 versus the fourth quarter of fiscal '08.

Inventory is another area of focus, making sure we have enough stock to satisfy the orders, but yet not too much invested and just managing that, and we saw a reduction of about $3 million in the first quarter of fiscal '09, so that's good. Most of that reduction was in our graphics segment.

Then, lastly, debt. You would have noted on the press release that we had debt of about $1.3 million at September 30th. I can say that that was drawn on our domestic line of credit. That was the first draw we've had on that line since April of '07. So -- and today that's paid off. So, we are today debt -free, but we are managing that balance sheet strongly, very conservatively and we it has been indicated to us by bankers and customers and suppliers alike, that that's a very good hallmark trait for LSI to maintain, and we are certainly doing that.

Along those lines, and I will not have the extensive financial information that I normally have during this call, that will be available later today on our website, but I did keep some information on the balance sheet up here. You see a little bit of reduction in cash from June 30th, you know, our sales volume is higher. We're investing more in receivables at that present time, as you see, and the reduction in inventory. Good strong working capital, $75.4 million. And the debt of $1.3 million which gives us a very, very low debt to equity ratio.

And finally, as indicated in the press release, we have chosen to maintain the guidance that we've issued for fiscal '09. We still see, even though we were up on a diluted earnings per share basis from off the street estimates might have been, we still see ourselves being in this range of EPS of 29 to 36. It's a range that's -- it is a conservative estimate, and with the uncertainty that's out there in our customers' marketplace, we felt it very, very prudent to maintain the guidance that we have. And then sales in the $290 to $310 million range.

Bob, back to

Thanks, Ron.

And I'd like to address that last item. The guidance that we are looking at, as most of you realized, our backlog is no more than four to six weeks out and it is very, very difficult to look beyond that. Especially when you don't have any big rollout programs as we have had in the past.

I felt it was in the best interests for our shareholders, our investors, that we maintain the same guidance that we put out, but understand that a tremendous effort is in place to crack certain areas of the market and certainly the attention that we're paying on the solid-state. And some of that could turn into a higher revenue dollar, but only time will tell based on the way this economy is set up.

The rule of the road right now is maintain a conservative direction. Put all of the pressures in the right place to run our business properly and financially strong to maintain market share and grow it where possible. And, last but not least, to put a tremendous effort, and I mean a tremendous effort, throughout the country on our sales effort.

We have not held back on travel or getting in the face of our customers. As a matter of fact, the edict that is out there right now is that everybody that's associated with sales and marketing, that is to be on the road, making the calls, making the contacts, developing the opportunity to open up new doors, because LSI is a very strong company. We don't have debt. We don't have to worry about borrowing money to keep our business going. We can run our business the same way we run it for all of the years that we have been in business. Even though these are more difficult times, more so than ever that I have experienced in my 45-year career, but this is something that we can handle and we're very, very straight, on a straight direction to maintain that.

Obviously, last but not least, LSI is a very strong leveraged volume company, and you can see the changes that came about, especially in the graphics. And I can tell you the graphics' guys know more than anybody that they've got a long, hard road ahead of them. But this is a direction that I believe we can not only improve on, but also open up doors of opportunity because of what may be happening with our competitors.

My last comment, because I know there is going to be a question about the acquisition. The acquisition is still a very important part of our direction. But based on the evaluation and what's happened in the market and certainly the overall dropping of the economy, we evaluated that acquisition that hadn't gone through. We were in the final stages of our due diligence. We still have dialog with that company. We still feel it's a strong part of our future. And we are working to develop a -- maybe a little different approach on the acquisition. It's not dead. But we wanted you to be aware of the fact that it has slowed down because of the reevaluation that we took based on the market conditions and what was going on in the economy.

It was a prudent thing to do, and it was the right thing to do, because I did not want to load up our balance sheet with a lot of debt in an economy that we really can't look into the future, and really put our hands, what truly is going to come about, so I think it was the right thing to do.

With that, I would like to open it up for Q and A, and be happy to answer any questions that you folks may have. Please open up if you would.

(OPERATOR INSTRUCTIONS)

Okay. You have six calls in the queue, and the first call comes from Glen Wortman.

Glenn, how are you?

Hello?

Glenn, I can hear you.

Okay. Can you just shed a little light on the sequential drop in the SG&A expense?

SG&A is part of the reductions that we've incurred. We have some, I think, favorable changes related to some of the operating expenses, and I think I do not have that with me here, but it's going to be in the -- I do not have it, Glenn.

I won't suspect to guess. It's a bad-debt reserve. It's less legal expenses. Actually, our sales commissions are up from the first quarter. I'm comparing the prior year. Sorry. I do not have a sequential comparison.

Okay. Thank you. Just let me see here. Now as far as just to break out within the graphics segment you guys had talked about --

Excuse me, Glenn, one of the things that we were recorded in the fourth quarter, certainly, was our settlement offer for the many more patent litigation. That was $2.8 million in the fourth quarter.

So put that into your thinking in terms of looking at sequential drop in SG&A.

Okay. All right. Thank you .

Just with respect to the just break-out of revenue in graphics, can you maybe shed a little light on how much of that came from the sports boards and how much came from maybe the more recurring everyday type of graphics

Sure, David, I think you've got that number.

Yes, I do.

Of the approximate $25 million in revenue, $4.5 million was in the board business, not necessarily -- that would be mostly sports boards and that does not include -- oh, excuse me, and entertainment, $4.5 million, up $25 million.

And how does that compare to say the previous quarter?

The previous -- a year ago quarter?

Just the quarter that just passed, I guess both if you have it.

Fourth quarter.

I don't have the fourth quarter figures. I know our sales in the fourth quarter last year were in the $18 million range, so we went from $18 million to $25 million, but my -- I would have to take a guess at it.

It is in the million-dollar range.

Glen, the fourth quarter was really the beginning of some of the things that we're doing in that sports package. We had a couple of small areas, small products, or small orders, I should say, the growth is really come about as a result of all of the effort that's put in place and the calls that are being made and now people being recognizing the product as it is.

Oh, okay.

I hope to see that continue to grow.

Okay. Thank you. Also, just talking about the CNI lighting business, which was 16% year-over-year, what are you baking into your forecasts for fiscal '09 and how it relates to your overall revenue guidance, for that particular market?

The forecast would be very consistent to what kind of performance we've seen so far, Glenn. Certainly proceeding with caution based on what the overall economic condition will do.

As you know, we're not as sensitive on a residential, we're not sensitive at all on the residential side, and we certainly are sensitive to new built construction in the general commercial market space, and certainly are sensitive on the retail side based on project schedules as projected through our major national account business. But our current guidance, I think, takes all of that into consideration, and we expect to continue to see the type of performance that we've been able to exhibit in a general fashion through the first quarter. You know, and I would like to add to that, Glenn, I think that it is very, very obvious that we're taking the conservative approach as it relates to some of these new products.

Understand the fact that the petroleum canopy fixture was the first attempt to really legitimize, and I say that on the basis of having people understand what this product can really do. There is a tremendous amount of new selling as it relates to helping our market, our customer, understand the difference between HID fixtures and this new LED solid-state technology.

And I think we did the right thing by peppering the US with the oil industry, getting a number of fixtures out there for folks to really see what this product can do. If you remember our marketing strategy, if seeing is believing, and it really is starting to work.

It's very difficult to tie in a great deal of forecasts on these new products that are rolling out. We just don't know where the market will be because it is so new and really very, very limited product out there. The parking garage is a good example. The area lights. All of these things are very, very new. So we took the conservative approach and really haven't built in a big forecast.

We hope we're going to be surprised as we are being surprised, as we are being surprised with the acceptance of the canopy fixture. The market has embraced it. Certainly that award that was given to us enhances the fact that the product works. So, I think next quarter we'll have a little better feel as these new products are finding their way into our rep's hands, samples are being shipped, and these guys will be making sales calls on the prospective markets.

Okay. Thank you very much, guys .

Thanks, Glenn.

And the next question comes from Jed Dorsheimer.

Hi, guys, it is actually Josh for Jed.

Couple of questions here. You mentioned the $4.5 million in the graphics business was the digital boards and some entertainment. Was that just the seven that we saw? Was it more? Was it less, in the slide projection that was?

Yes, it was slightly more. We didn't show you any entertainment pictures today.

So I guess you can call it about 10 projects.

Okay.

And then over to the lighting side, I know Scott was mentioning that you sold in the thousands of the Crossover units. Can you break that down a little bit more, similar to how you broke it down the graphics business, how much is traditional and how much is solid state, in the lighting?

I prefer not to give that information. We have competitors online.

I can only tell you that where we are with that product is market acceptance. It is all niche market oriented, and by the slide that the we showed you, where those locations are all over the United States, gives us an opportunity to share that appearance with many, many other customers, and that's the way our reps are approaching it.

Okay.

And now on the balance sheet , looks like you burnt about $5 million in the quarter. You've got about $2 million left, or you had $2 million at the end of September. If I do my math correctly, looks like a dividend will be $1 million of that -- $2 million.

Are there any thoughts about reducing the dividend policy or considerations? Because you did mention that you want to keep the balance sheet very

No, Josh. The board did address the dividend policy in August at our year-end meeting, kept the policy the same. That is what resulted in the reduction of the quarterly dividend of $0.05. So that is the direction that we're heading.

And we're comfortable with that. And the -- we wouldn't ever use the term burnt, but we have, as I mentioned an investment in receivables, an increase there of about $8 million in this first quarter as our sales have gone up to $75 million from, I think about $65 million or $66 million in the fourth quarter of '08.

Okay?

Okay.

And then one more, and I'll pass it on to the queue. If I remember correctly, the impairment last quarter for the acquisition was somewhat based on the stock price and the fact that the stock was used for the acquisition. Is there a risk, as we go, forward of further impairments given that the stock is actually come down a bit since those levels, or is that -- or are we looking at that the wrong way?

No, your thinking is correct. And we've looked at that .

The lowering of the stock prices is a potential triggering event for this evaluation. And actually at the September 30th mark, our stock price had increased from what it had been at June 30th. Obviously we're down from that now, as we go forward, we do risk -- have that potential of having a triggering event, and having to evaluate the goodwill that remains on our books which is in about three or four reporting units totaling about $15

Okay.

Great, thanks for the further color. I'll pass it on.

And the next question comes from Jim Ricchiuti, go ahead, Jim.

Thank you. Good afternoon.

I was wondering if you might be able to help us with the volume that you're doing currently in LED lighting? Is there a way to just kind of aggregate what you've sold, and give us a sense of what percent of the lighting products business it represents?

You're putting me on the spot with that one, Jim, on the basis of big ears that are out there.

Jim, I'm really reluctant to tell the market what the volume is at this point. I could only tell you by units, at this point, that we have multiple thousands of units in the market. It really is just the beginning of the prototype testing where we've got a big push-on now on the parking garage, is our next market. Obviously the product has been well embraced in the petroleum industry. But to give you dollars at this point, I'm really reluctant to put that out as information.

I guess the point being, Bob, there are companies out there that are very much focussed on this market, and are certainly getting a pretty good valuation in the market, even with the pullback and the overall market. And to the extent that investors can begin to better appreciate what you're doing there, I think it is something that would be interesting to track.

But maybe as time goes on you'll consider breaking that out.

Yes, I think it's a little bit early, yet, and I do appreciate your comment. We do comment, as you can appreciate extremely strongly, as it would relates to where they're going and how they're going. We could give you a better dollar value.

I think give us another quarter where you're going to see all this. But what we're really striving to do is get our mark, get our name in that marketplace, so people are looking at us rather than anybody else.

Fair enough.

Scott, question for you, just with respect to the two bridge projects in New York that you alluded to. Can you help us understand what exactly this involves? Is this a portion of the bridge where they're evaluating this? Or can you give us any further flavor on that?

Yes, sure. Jim, why I mention it and really why I break it out in the conversation, is because it's a milestone from the perspective that we have gone through an extensive amount of prototyping and testing in that particular program. And there's obviously a lot of conversation in the industry, and specifically a lot of conversation in New York City about contemplated applications where they're looking at solid-state lighting.

And what really, I think, differentiates what we're saying today from that conversation is the fact that we've done gone through all of that. We have gone through really exhaustive testing and field evaluation, and have moved into, now, a regular business mode, and so what we're really talking about today, Jim, are just regular everyday orders. The evaluation is complete. The testing has been validated, and frankly, they're ready to start buying and installing a complete systems on those bridges to highlight the, what we call the necklace light application, which is the decorative lighting that moves along the cables at the top of the bridges.

So what's exciting for us is really the looking back at how long we have gone through that evaluation, and that we have successfully engineered a system that has proven itself over two and a half years in the field, and is now accepted as a standard product. And something of good value for the buyer.

Okay.

So the product has been accepted, the customer has not yet formally placed an order, because I would guess these are fairly large bridges. This is something I would assume you would announce as part of a contract. Correct?

Well, the timing of the release and announcements and so forth is something that I'm sure we'll evaluate here, but, no, we have received orders. Orders are in place now, Jim, and it's exciting to the fact that the first few bridges that we'll be doing this, obviously will be prototypes for the entire United States, as it relates to this evaluation of two and a half years. And if you can appreciate the fact of the vibration and all of the things that go on with a bridge, especially a cable system, we've weathered all of that, and to my knowledge, we're the only approved product out there that can do this kind of work.

Okay.

I think you will see some public releases from the New York City side shortly, but due to the sensitivity of their requirements, you know, we want to coordinate ourselves with them as well.

But to the -- just so I'm clear, is it a portion of the necklace lighting that are going on in these two bridges?

No, sir, it is the complete system of necklace lighting for both bridges. In other words, all of the cable. All of the lighting that's required to replace their current necklace lighting for those two bridges.

Okay. Thanks.

Prototype testing is over.

And if I may, one more question, and David I'll put this to you.

I apologize if someone may have asked this already, but I wanted to just go back to a customer that historically has been a major customers and that I'm sure most folks are aware has made a fairly significant or in the process of making a fairly significant acquisition on the West Coast of a drugstore chain. Do you see potential over the next six to nine months of potential orders from that customer?

We sure do and, no, we don't have an order in hand, but all of their acquisitions we have been very involved with, and we would expect that to hit our revenue stream, assuming we get the order in the third and fourth quarter of '09. Third and fourth quarter of fiscal '09. Excuse me.

Okay. Thank you.

Thanks, Jim.

The next question comes from Lenny Brecken. Go ahead, Lenny.

Guys, can you just review what percentage of your COGS is related to, you know, either steel or other commodities?

I'm sorry, what percentage of COGS?

Cost of sales.

You know, I guess we can. We don't have that right at our fingertips.

I do not have that.

The important thing about this, Lenny, is that in this quarter, the past quarter that we're reporting, we have obviously absorbed the price increases that were put into effect prior to that quarter.

What we're seeing now is definitely a direction where our metal costs are appearing to start to come down on the copper side , as well as the steel side. We're in negotiations now, our purchasing group, and in order to finalize what those costs will be as we are looking into the future, but I can't -- right today tell you exactly what those costs are as it relates to the entire product

All right. Yes, if may be Ron could dig that up at some future point, I'd appreciate it.

Just one follow up. Can you review, in the terms of the Crossover, what the sequential growth in the product line was, either in units or revenue, or just some idea of what on a percentage basis? And where it may go this quarter, if you want to venture to guess?

Well, go ahead, if you want to. What I would do, I think, is frame for you a reference of when production actually started, specifically, most of what we've accomplished in revenue addition has come during the latter part of the fourth quarter, and the remaining part, or the entire part, of the first quarter.

We weren't really in full production on the canopy fixture system until, actually March and April of 2008. So, you can appreciate, I think, that the progress that we've made and penetrating the market in that short time, is certainly the starting point. The products that I introduced to you today will all be entering production during the second quarter, and we expect a typical ramp-up time frame with any new product introduction during that second and third quarter.

Of course, we're going into the winter months of the third quarter. Many of our products, as I've discussed with you this morning, are exterior products, and that certainly will have an impact.

Again, as Bob has said before, we are being very conservative about our forecast. We certainly are building our primary business plan on the day-to-day existing technology business, and are very happy with our growth and our progress there. And frankly view this as, you know, addition to that for the most part. You know, it's also important to remember that there has been a great shift in the ownership of service stations in this country?

We've seen the major oil companies unload a lot of their company-owned stores into the independent jobber market. We've got a great sales force throughout the US, and that's where we have done a great deal of the sales effort, because these are the guys that are paying the energy bills.

But you have to appreciate the fact that as this goes on, these guys have to fully understand what the true results are for this great investment. Remember, this fixture is more than double what they're used to paying on the old Scottsdale product line, and the ROI on this product is obviously geared directly to that energy and maintenance, and with the approach that we took, to limit the amount of fixtures that were available to the agents, each agent out there had an allocation by market. We wanted to get them all over the United States.

Also remember that as we were working on the introduction, we had developed this utilizing the Phillips LED light chip, and at the eleventh hour Phillips approached us and said they had a quality issue, which they did, and pulled back every LED chip. We were literally on the area of production. That set us back a couple of months, as it related to going through the testing process and setting up multiple suppliers.

All of that has been done now. All of our units now have been designed and tested, and are in a mode that we can accept multiple light -- white LED suppliers, which was not the case at the beginning. So the results of the prototyping are now well enhanced enough so that people are now starting to reorder and as time goes on, then we'll get a better feel for what that unit volume will be.

We went through this same process in the mid-'90's when the Scottsdale was introduced, and that fixture was double the price of the standard canopy fixture in those days. We've got a lot of history, a lot of experience, and we feel that we're right on target with this.

Now, understand the fact that with the economy being the way it is, that's the conservatism that we put in there, because we can't really read the cards on where the money is going to come from in these markets. I think I mentioned this before, but to give you a maybe a one last glimpse of the kind of impact. I know that is what you're searching for, is what kind of impact is this making on our business right now?

The first quarter was the -- it is the first time that we've seen an increase in comparable volume in the petroleum market now for many quarters looking backwards. And that's certainly the result of the influence of solid-state lighting.

Guys, I'm just curious, the only reason why I'm trying to get the trajectory is -- the credit situation is such that I'm surprised it actually did do that. And I'm just wondering what -- whether it was just a function of the customers getting comfortable with the product, or something else that we're missing, so that we can sort of -- I can get an idea of maybe predicting of where we're going.

It is a very complicated market, and I don't think that there is any one event or any one influence that we can use to develop, you know, projection and a metric.

You take something as simple as the price of the barrel of oil right now. Certainly credit is an issue and a problem in this market, and in the petroleum market, but as fuel prices come down, typically the lag that follows to the retail site, gives them an opportunity to make more money than they've made in quite a long time.

Certainly it's a challenge as the price of fuel goes up. We lived through that through the first quarter and still found very, very interested buyers. As we move into the second quarter, something as simple as where the price of oil is, on a barrel perspective, and how that translates into the retail price of fuel, could have a significant impact on where these customers have flexibility from a capital expenditure perspective and are willing to invest. And there is many other factors that can influence this. The other thing added to this, is the government has mandated, by February, all metal allied lamps that are non-pulse start are going to be eliminated from the -- obviously from the market.

Now, I'm sure there's a sizeable amount of fixtures out there that still have the non-pulse star HID light source. Obviously, that is an awareness of where potential is for that market to grow, or that product to grow the Crossover.

But obviously, last but not least, the two elements that are really driving this are energy and maintenance costs. And that's the whole marketing solution, as it relates to the cost of ownership of lighting. When you're looking at reducing the normal-sized canopy that we understand today, some 86%, that's a tremendous driver for the interests of these guys.

Okay. I'll get back into the queue.

Thank you.

Thank you .

The next question comes from Peter Lisnic. Go ahead ,

Good afternoon ,

Peter, how are you today?

Good.

Bob, I was wondering if you could maybe address a comment that you made during the formal presentation, that was regarding the guidance of 290 to 310 on the topline. It sounded like you're hopeful that those numbers are relatively conservative with some of these new products that you have coming on line.

What I'm wondering is, have fundamentals deteriorated and how are you capturing that risk? In other words, should we be worried about downside risk to your numbers given the deterioration in macro that we're seeing everyday?

Well, Peter, like I said before, in the 45 years I've been doing this, I've never seen an economy quite like it is in an election year, and when we sit down and try to give you guidance, we've always taken the conservative approach.

Is there a downsize? Of course. If the total economy tanks, we go into a complete depression, who knows what's going to happen.

I think what we're saying to you is that we have spent a great deal of time getting our product line ready regardless of where the economy was. We're obviously very, very attuned to the commercial/industrial market with the products that we've added. We certainly have done a great deal of work on the graphics side. We've built a great customer base. We've got a tremendous image of our own with these big customers, certainly with the awards. I've been told Dairy Queen is giving us vendor of the year award, which they don't normally give to a product manufacturer. It's usually a food supplier.

There is just a number of things that make us feel confident that the numbers that we're putting out there are very doable. Obviously there are things that we feel we can improve upon.

Certainly the efforts that we're putting in on the digital boards, the visual boards. The sports and the stadium. The success of the items that are out there and people are beginning to see them. The tremendous effort that we're putting in the field with our agents to work on that market penetration.

And LSI has never been a company that really has grown its business on new construction. It's always been market penetration. It's always taken a little bit from this guy, and a little bit from that guy. I'm talking about competitors. And we know how to do that well.

And so, is there a down side? I think in today's economy there certainly is a down side. On the plus side, there have been so many things to put in place, that we feel that we can certainly hit those numbers, and it's my hope that we'll exceed those numbers, and that comes with an effort that we're going to apply to the international market, which we have never been into.

So there's great opportunity there. Especially with the proven product like the Crossover brand, in the market that has $0.22/$0.23 per kilowatt hour. Their ROI, as it relates to the price of that product, is far better than here in our own backyard.

Okay. Thank you for that color .

If I could just follow up with a second question, sort of also big picture. In terms of the competitive environment is what it is, given the macro, but what I'm wondering is, do you see other competitors becoming more aggressive in trying to nip at your heels in some of these markets where you have sort of an early mover or competitive advantage? And do you see -- do you think your advantage has maybe diminished at all, given all of the attention that people are paying to things like solid-state

I would have to coin that phrase and say it is almost a free-for-all out there with the economy being the way it is.

However, with that said, with what we've done, the approach that we have taken, owning our own solid state development, the investment we made with the SACO company, and the patent-pendings that we've applied for our products. The lighting industry, taking the lighting industry as one element, is obviously a very, very knock-off type industry. But we do and have done the best we can to protect all of the development and the type of products that we have.

For example, you saw some pictures of an area light. That's the first area light that I am aware of, and certainly in the US, maybe worldwide, where we haven't had to use fins in order to take the heat out of the product. Working with solid state and heat dissipation has been a tremendous challenge for the entire industry. We set out to design fixtures where we could dissipate the heat without the use of fins. As a matter of fact, the comments around here are fins for fish, not for light fixtures.

Fins are designed into these fixtures for heat dissipation, but architecturally they're not really the type of designs that you would like to have in a lighting fixture. We have mastered the way to dissipate heat that, to my knowledge, nobody else has been able to do without the use of fins. And we think that that's a tremendous architectural advantage.

Certainly the architects that we've already shown it to, who have given us a tremendous positive direction that this is the kind of thing that they want to see come in solid state. The other thing that we've done, is designing the ability to reflect white LED light through the use of reflector designs, not in the optics of the white LED chip. And what does that mean? That means that, again, we've taken the approach as a market-driven company, to develop products that fit that market, not a generic product, as we've had to use in all of the years in the past.

And these are why we feel that as this technology becomes more acceptable, more understandable, and certainly through the sales effort, that we do have an advantage on our competition. But only time will tell, because this solid-state technology is so new, and there are a lot of folks out there that want it, but to be quite honest with you, really don't understand it yet.

So we're going through an education process, a development process, a marketing process, and I think that our approach, based on the success of the first step, which was the introduction of the Crossover, as a culture, and in our first market being the petroleum, has given us that competitive advantage.

Excellent. That is very helpful.

Thank you for the comments.

You're very, very welcome.

And the next question comes from Jim Stone. Go ahead, Jim.

Congratulations, folks, on beating the street estimates.

Thank you, Jim.

As low as the results were, we are happy with that.

Okay. The number of questions I've got here.

Could you give us a shape of what you're looking at for the year? Are you looking relatively flattish quarter, looking for a hook at the end? What sort of shape are you looking for?

Well, we don't really give guidance by quarters, Jim, because it is too difficult to try to pin that down, especially without any kind of a big rollout program.

I think our guidance is pretty straightforward based on what we've given as an estimate, and I don't know that I can really expound beyond that, to be honest with you. Okay. Looking for what 's happening in the large signs, are you running into the Daktronics? Are you in their market, are you not in their market? Well, to be quite frank with you, we're in their market. I'll give them credit. They're a formidable competitor, but I've been there before in all of the years we've been doing this. We are slowly cracking the egg, and it's going to take a little bit longer than what we had hoped to see. We certainly have seen some what of a change in the billboard market based on what the results have been with Clear Channel and Lamar, certainly from their stock standpoint, as well.

But, you know, there is an opportunity out there for LSI, and certainly obviously Daktronics, we believe our technology has a little bit of an advance on them. We certainly have a marketing strategy, and we're trying to develop a selling direction through our reps, that have multiple contacts and multiple markets, and it's really people dealing with people.

It's exposure, it is getting the name out, getting the product out, and if it takes us a little bit longer we're going to do it. We're not giving up. We're going to come at it and keep coming at it. It's an opportunity to take our technology and improve that technology with our SACO investment, and it is just like anything else that we've done over the period of time we've been in business. It's really focussed on the market, developing the product, and going after it. That's exactly how we're approaching this billboard or this visual advertising market, as we call it.

When you get down to the short list, have you been able to beat them, and if so, what have been the reasons?

We're not trying to beat them. I don't know that you can say you can beat them.

What we're trying to do is certainly attract that customer to a product that we believe has some advantages. They certainly have the size. They certainly have the market penetration, but again, as I've said, I've been there before, with all of the different things that we've don. There is a market out there, and there is a opportunity , especially with LSI's reputation, its financial strength, its coverage of the market. It's a new product for us, and it is a product that we understand that there is competition out there, that has a stronger market share than we do, but that does not take away from the effort and it won't take away from the effort.

We're in it to stay, and we're going to come at them, and come at anybody else for that

You didn't mention anything about billboards in the conference call. Could you tell us what's happening in that market?

Well, like I've said, we have some efforts in place.

I'm hoping that in the next month or two we'll be able to announce a few more billboards added to the package. Those orders have not been placed. The efforts are in place, the people are -- we are talking to -- we're not going to get into specific names, obviously. But, again, that is only one part of the product.

There is the sports market that we've talked about. Certainly the billboard market is there. All of the other things that we are ready for now, our production facility is in place, to go after that business and for -- I should say to provide that product as we go after that business. The training is in process, as it relates to the people that we're putting into the field to do that.

So, like anything else, we're going to approach it one step at a time, do it right the first time. I don't want to make any mistakes. I want LSI's name on those boards, and I want people to recognize the ability that LSI has to provide this kind of product.

When you first introduced the product, and I keep forgetting its name, it's the one where you plug the pieces together and give you all of the background lighting for a show, you commented that somebody had come in to look at it and on the spot ordered it. And I wondered--

That's the entertainment business, and that's on tour right now, Bon Jovi. Fred, you might add to that, Bon Jovi.

Madonna.

And Madonna.

Biggest show now is everywhere in North America.

So Madonna was the customer?

Yes.

Well, Madonna -- I think, Fred, if I'm correct, what happens with a product like that is a service group takes that product and provides it to the entertainer.

That's right. Because it is a modular system, they buy the quantity, and then they can make any shape, depends what the artist wants to have on his stage. And like on Madonna, that is three different products being used, and they are all from LSI/SACO.

That's a great (indiscernible), I wish you could get her permission to put on a press release on it.

Well, you know, where we're going with that, Jim, is the important thing, of course, is the fact that we have the product and we're -- we are making the penetration.

But more importantly to me is the technology that is being derived from that, and really being applied to some of our other products. I think that, too, is another uniqueness to LSI, in that we have the ability to move a lot of this technology into multiple markets, but whether it be lighting, or even in the graphics, and certainly in the entertainment. Which is really truly part of the sports package. We kind of put that all in the same box, so to speak.

But that's what is so encouraging about our opportunity. We're not the biggest. We have nowhere else to go but up. It is a market that we're going after. We have the technology. We have the production. We've got the balance sheet. We've got the people. And it's just a matter of time.

And one step at a time, and I keep repeating myself, but that is the way this company has been built, one step at a time. And there's no reason to feel that we can't take that one step at a time and slowly build that product.

My hope was that the market was bigger, and the capacity was limited, that we would see that happen quicker. But it didn't happen, and it's not discouraging me. It just makes me want to work a little bit harder and push a little harder to get into that market.

As I'm sure you're aware, New York has passed a law that if there are more than 10 restaurants, you have to put the calories on the billboards. I'm wondering if that is opening up any opportunities for you?

Yes, well, at this point we're really not going to share with you any of the new product ideas of the future, but obviously you knowing our company as well as you do, repeating myself once more, a market-driven company, certainly well invested in the marketing direction of the fast-food industry, we are certainly aware of all of that. And at some point in time, who knows, you might see something like that from us.

Okay. But you are in there looking at that business, then, I assume?

Right now, Jim, we're looking at anything and everything that fits the LSI image. That I can assure you of.

On the bridges, can you give us some feel, because I don't know how big the bread basket is, what the dollar amount might be for the two bridges combined, just some sort of a broad number?

I'm going to be a little conservative on that, Jim, right now. As far as Scott pointed out, we would prefer to unify our direction with the announcement through the New York Port Authority, and then doing this on our own.

It's not necessarily dollar volume, it's obviously a comfortable-sized order -- or orders. More importantly to me, it is a recognition that two and a half years of prototyping through very harsh conditions have been achieved. Others that have tried it have not made the cut. This now opens up -- there are a lot of bridges in this country. Certainly this type of product can go beyond just a necklace light, as we call it. Tremendous amount of vibration, weather conditions, all of the things that go on. That to me is the biggest part of this announcement, rather than the dollar value.

And at one point you were doing some trials on the tunnels, and anything further to talk about in those areas?

Jim, this is Scott.

I guess I would characterize that to say that there still alive and moving forward, and will -- is following the same pattern, the same process as the bridge process -- the bridge product followed. And we are very hopeful, at this point, that we will be able to participate in a rollout program for one or more bridges in New York City.

But we can't predict exactly when that might happen, or assure you it will happen at this point in time.

Okay. Very good.

Lets -- we'll watch this stuff roll out. We've been waiting for it, and it looks like we're finally going to get some paydays here.

That's for sure. We have too, Jim.

Thank you.

If that's it, I think -- I really appreciate your time, everybody, and our shareholders meeting is coming up next month. So anybody that might be interested to come to Cincinnati and see and touch this stuff, that we're going to be showing our shareholders in actual product, we would love to have you.

We are very, very comfortable with where we are today. Obviously, we would like to see that volume come back, and we're doing everything possible to be sure that we achieve those results.

With that, I want to thank you for your time. And I hope to see you at the shareholders' meeting on the 20th of November.

Thank you.