LSI Industries Inc (LYTS) 2010 Q1 法說會逐字稿

(begins in progress) -- Steve Brucker.

Good afternoon, everyone, and welcome. As with our previous presentations, today's is accompanied with visual aids that you can access by visiting our website, which is www.lsi-industries.com and clicking on the Investor Relations tab at the lower left. If you're not within convenient access to the Internet right now and you'd like to access these later, they will be posted on the website and can be viewed at the conclusion of today's presentation.

And now it's my pleasure to introduce Mr. Bob Ready, Chairman and Chief Executive Officer of LSI Industries.

Thanks, Steve. Good afternoon, everybody.

As we've done in past conferences, I have with me today Mr. Ron Stowell, our Chief Financial Officer; Scott Ready, the President of the Lighting Group; and David McCauley, President of the Graphics Group; and standing in for Fred Jalbout is Jonathan Labbee, our Vice President. Fred's on his way to the Middle East. As we have discussed in prior meetings, we are actively pursuing a direction, an international plan. Fred is actually on his way, as I said, to the Middle East as part of that first leg of that international plan, which to some degree we'll discuss today, but we'll actually be discussing in much greater depth at our annual shareholders meeting, which I'd like to remind everybody is on the 19th of November at 10:00 here at the corporate center.

And if there are folks there that can make it, I think it will be one of our most interesting and hopefully one of our best shareholders meetings for a number of years, and I say that with confidence on the business plan and most importantly the new education center. And that may not be the final name. We're going through a review now on names for a new center. It's been well in the last eight months in production for some of the highest and the most interesting high-tech solid-state LED products to be produced, both on the graphics side, with digital advertising boards, and certainly our lighting program. So, as a reminder, November 9 -- 19, we're looking forward to a very interesting meeting.

Now, to get to the reason for the conference call, the first quarter is behind us, a much better quarter than we've had in a while. Obviously, things are improving to some degree. I'm being very cautious when I say "to some degree." I'm not at all comfortable with the economy. It's a very, very tight market right now, especially in some of our niche markets.

The automotive market is basically dead, no different than it was a quarter ago when we reported to you. The retail segment is very quiet, obviously, with sales being down in the retail segment. And, of course, we're entering the Christmas season. We've seen some refurbishing with one or two of our bigger accounts. But the most interesting news obviously is on the LED and solid state. This has definitely improved our petroleum business, and Scott will be going into more detail about that, as well.

As we've done with past conferences, we'll do a little bit of an overview. I'm going to have Ron spend a little bit more time with you here shortly to kind of walk you through all the changes that have been made as a result of the SEC and their review. It's been somewhat frustrating, and certainly a tremendous amount of work has been required and put into place, but I'm pleased to report that all that seems to be behind us now, so we can start moving forward in a more productive area. Jonathan will be online, as well, with some news on a new article that's out with some of the things that we're doing.

So, with that, I'm going to turn the meeting over to Ron and have Ron kind of discuss with you some of the things that I'm sure you have a lot of questions about.

Ron?

Good afternoon, ladies and gentlemen. My standard Safe Harbor Statement is presented on the screen now, and I'll refer you to similar statements in our 10-K and 10-Q filings, and we'll indicate that today we have no material nonpublic information to discuss.

We had a long summer, and I'd like to kind of talk to you about one of the changes that resulted from and came out of the normal three-year SEC review process, and, as we've disclosed, it has to do with our reportable business segments. After long analysis and kind of response back and forth, dialog with the SEC, from our starting point of two segments, lighting and graphics, we came through the review process, and we added two additional segments. So we took some of the operations out of lighting and some out of graphics and we now are reporting a technology segment and an all other category. And that's what we reported in the June 30 '09 10-K, and, as you saw, the amended filings for fiscal '09, as well. So we then had four reportable segments.

Going into fiscal 2010, we acquired ADL Technology. It was not able to be aggregated into any of the other categories or segments, so it became our fifth segment, the electronic components segment, so we now have the pleasure, if anyone wants to call it that, of reporting five segments. We know that's a lot. We know that's pretty thinly sliced in terms of our business and our volume and so on. But we are convinced, along with our audit firm, that those are the requirements. That's kind of what the SEC was -- is demanding of us. We can only believe that they're demanding the same thing of other companies. But that, I think, is yet to be seen. So we will be reporting under that five-segment category now beginning in fiscal 2010.

Just a few comments and a few pieces of data related to the ADL acquisition. It was acquired July 22, 2009, so results of ADL Technology are included in with the LSI results beginning actually on the 23rd. Our purchase price of $15,781,000 was comprised of $14.8 million worth of LSI common shares and $1.3 million of cash.

$14.4 million.

Yes, $14.4 million of common shares. And that was 2.400 (sic) million -- almost 2.470 million shares. In that acquisition, we assumed $3.3 million of debt and then immediately paid off $2.2 million. So we have assumed and have on our balance sheet today $1.1 million mortgage on the facility in Columbus, Ohio. After going through the valuation review and fair value review, it was determined that there was $4.8 million -- $4,830,000 of intangible assets, and you can expect that our expense in this fiscal year, which is not quite a full fiscal year, would run about $479,000 for that amortization of those intangible assets. After going through the purchase accounting and fair value accounting of that acquired balance sheet resulted in goodwill of $9,208,000 on this acquisition.

One element that I'll get to a little bit later was a fair value inventory reserve of $678,000. Essentially, that brought all finished goods on the balance sheet up to sales value so that as those finished goods are sold in fiscal 2010 on those particular finished goods there will be no profit recognized. That's just a part of purchase accounting and a requirement that we must follow. And then our acquisition deal costs were $513,000.

Now, this acquisition, because we issued new common shares, had the following effects on our common share count. The shares outstanding as of the balance sheet date increased a little over 11%, to 24,039,498. So that's 11% increase from June '09. The number of shares used to calculate diluted earnings per share increased only 8.6% from the first quarter last year, and it will further increase in our second quarter. This is done on a weighted share outstanding basis, so those almost 2.5 million shares were not outstanding for the full quarter. They were outstanding for a little over two-thirds of the quarter. So you can expect the share count to go up from 23,000,688 probably up by at least 600,000 shares for the number of shares to use -- be used to calculate second quarter earnings per share.

Now I'd like to spend just a moment on talking about what we would see as our -- a better view of our earnings power as the results of our first quarter that we reported and compare that to the first quarter of '09, which had $75.8 million of sales, $2.7 million of income and $0.12 per share. We have the GAAP reported numbers, which resulted in $0.07 per share in this first quarter, as you saw in our report. But if we add back the acquisition-related costs net of the taxes, and these are the deal costs and the -- probably about 70% of the inventory reserves they rolled out in the first quarter, which represented additional cost to us -- that would add back $634,000. And the adjusted earnings power would be at a level of $0.10 per share.

Now, that's not a GAAP number, but I think it's a better comparison to take out these acquisition-related costs, costs that we would not have again until we make another acquisition, to have a comparison of $67.7 million sales, $2.3 million of earnings and $0.10 per share. And, mind you, the share count was up I think it was 8.6%. So we're diluting those earnings a little bit by the additional share count. So we think that's a better and more fair comparison of quarterly earnings and performance year over year.

We continue to have a very strong balance sheet, and each of these elements of the balance sheet -- the change from June 30 '09 to September 30 '09 -- have been influenced certainly by the ADL acquisition. We've got over $9 million of cash. We've got -- goodwill and intangible assets have increased because of the amounts recorded for the ADL acquisition. We see the $1.2 million of debt. And we've got equity far exceeding that small amount of leverage of $146 million.

The Board of Directors continued the quarterly cash dividend payment of $0.05 a share. Obviously, then, that's at an indicated annual rate of $0.20 per share, and graphically you can see how that compares from the past. But it is reflective of our dividend policy, which would have us pay out between 50% and 75% of current year net income.

Bob, I'll turn it back to you.

Thanks, Ron.

I think with Ron's kind of review, based on what the requirements were through the summer with the SEC, certainly confuses the Company a little bit more. That's why I asked Ron to kind of step you through this. And we will be more than happy to work with you folks throughout the next few quarters as this becomes a more acceptable direction. It was a tough summer working with the SEC with all the other things that were going on, but we got through it, and it is what it is.

In reference to the quarter, before I turn it over to Scott to make a few comments, with the business conditions being as tight as they are, the Company has really been working hard to keep our costs in line without tearing the heart out of the Company. We still have a tremendous relationship with a lot of large customers who still have a very tight budget right now. But the important thing is is that there is more dialog, there's more interest, tremendous amount of interest in the solid-state and the LED technology. We're making some inroads now into the high school market with some of our visual boards. So it has been a much better quarter, but we still have a lot of work to do.

My confidence in the economy is extremely guarded. I'm not liking anything that I'm seeing out there. But, on the other hand, looking at the international market plan, the introduction of more new LED products. We have our largest trade show going on today in Las Vegas, started yesterday. The review just an hour ago with the folks that were in attendance have been a tremendous interest in some of our new products that we are introducing today. Scott will mention a little bit about that, as well.

I wish I had stronger news for the graphics business. It's still a very, very tough market out there. As you all know, graphics is project driven, and with the exception of some of the things that David will mention, it's still a very, very tight market.

But, with all that said, the responsibility that we have taken upon ourselves to do a very, very strict discipline in our spending and controlling our costs are working in our behalf. The inventory increase that you see obviously comes directly from the interest in the solid state and the LED. Deliveries on materials in that specific area are much longer from vendors, so that requires us to put in a little bit heavier stock in order to meet the demand, but nothing that is unusual, nothing that is concerning. It is good inventory that we will seek continually to turn because of the interest in our new products.

That gives you kind of a general feeling. I'm going to have Scott get more specific now on the lighting side and give you a little bit more of a view of how this LED market is changing.

Scott?

Thank you. Thank you. Good afternoon, everyone.

My comments will be brief this afternoon, and I've only got one slide, but I'm going to leave this slide up and let you absorb it a little bit, because it says a lot about what's going on. We understand our challenge as a company today is to maintain the proper balance that Bob's referred to, and that is a focus on cost reduction, a focus on waste elimination, along with a concurrent degree of investment in the future. And I can say that that's working.

The climate of the economy is something that we're all well, well aware of. As Bob mentioned, the particular markets that we address on a daily basis are providing mixed results. There are some opportunities out there. Many of those opportunities are a direct function of what we have created using our LED and solid-state lighting technology. The markets overall are much, much lower in general activity, but these exceptions are very important exceptions.

The exceptions that we are creating in the petroleum market with the work that we've done now for two years have resulted in the program that I think by now we're all well aware of, the 7-Eleven program. The 7-Eleven program is proceeding very well. We're right now probably close to 60% completion. We have -- when I say completion for this calendar year. We have a number of sites to complete before the end of December 31, 2009 to conclude Phase One of the commitment that we have from 7-Eleven.

And we have every reason to believe, although we do not have the firm agreement in place yet, we have every reason to believe that we'll have opportunity moving into January and beyond. As I said, the program has been deemed a tremendous success by the customer as well as ourselves, and we're very, very excited to be moving the way we are with that program. There's --

Scott, you might refer to the fact that 7-Eleven has looked at this as an energy program rather than an --

Absolutely.

-- upgrade in lighting.

Yes, an important, important distinction that Bob is referencing is the fact that as we've talked in some of our earlier conversations we've focused on the value that LED can bring to the market from an energy reduction perspective. Clearly, LED is an energy -- a reduced energy source of lighting. While the market is pushing the industry and the manufacturers and the technology very hard right now for more and more performance out of the product, we have proven that the performance is -- that we're achieving today in our products is certainly acceptable to this market and is one that, as 7-Eleven views it, brings them a tremendous advantage in terms of energy reduction. Now, this energy reduction story as it applies to the US market is even more significant as we talk about our international program, and we'll get into that maybe a little bit later in the conversation.

The remainder markets, if you will, again are exhibiting some mixed results. We've seen a little bit of improvement in some markets. Most of the improvement that we have seen relating directly to our sales have -- has been the direct result of our efforts with not only solid-state lighting technology but also improvements that we have made in representation. I think we mentioned in the last quarter we were getting ready to initiate a rep change in a very, very important marketplace. That has taken place. Training has taken place. And we're now in the early stages of beginning to process business with this new agent.

Again, this represents the success that we have developed in presenting to the commercial industrial marketplace LSI as a very, very strong and viable fifth choice. We're excited about what that means for the future. Not a lot of results in the first quarter can be directly attributed to that change. That opportunity still lies ahead of us.

The trade show that Bob mentioned is a very important event for us. It is an opportunity to bring to the market now much of the new technology that we've been developing over the summer. This technology is a direct result of the acquisition and the resources that we brought into the Company through the ADL acquisition, and it's a very, very important step to moving LSI into a stronger leadership position with regard to product performance and specification, features and options that the solid-state lighting technology can bring to market that's not currently available.

We continue to increase the number of patents we file for. We continue to increase the markets that we're testing our product in. I think what's most significant about the chart that you're looking at today in front of you with an over 450% increase in LED sales from quarter to quarter last year is there's certainly a large portion of that that's happening in new markets now. When I say new markets, outside of the petroleum industry where we had generated such momentum. The product portfolio is growing, and, again, we're doing this, I think, in a very, very responsible way, a very methodical way, and producing the kind of income that we were able to contribute to the Company in the first quarter.

Bob?

You might want to comment, Scott, in reference to the commercial market, as we had indicated, it was down, but I think from my perspective is that we are beginning to see the lag in the commercial real estate market. There's not as much construction going on. We seem to see a lot of retrofitting going on. But, again, it's a sign of the times. It's not one that we're happy with, but in true reality the market out there is changing. This is why it's so important that we penetrate new markets with these new products, that we move into an international stage. We don't have a major presence in the international market, so in my opinion you take the European market, the Middle East, to some degree, we have nowhere to go but up.

And the success of the products that we're building in the US gives, we believe, the confidence of the customers that we're talking to in the international world that LSI has been putting these products out into the market under many different conditions, and they're doing exactly what we're telling the North American market, the domestic market, that they're doing exactly what we said they would do. So we're working on that confidence level.

When you develop a new market with new products, there's always a lot of skepticism out there. There's a lot of misinformation that filters through the industry. And it does create a much more difficult challenge to convince our customers that these new products are the type of products that they need to invest in and that they will see the benefits of both energy reduction and better maintenance. You might want to comment -- take it a step further on the CNI part based on --

Yes, clearly the market's changing. I mean, the market opportunity in the CNI construction overall is much less, and continuing to shrink, frankly. We believe -- I think you'll see this from some of our comments made by the -- by our competitors -- is that the general construction market has yet to hit the low point when we look at general commercial construction. We are obviously balancing against that the opportunities that exist with energy reduction renovations and the influence that LED and solid-state technology will have in those -- in that marketplace, or in those opportunities.

In addition, we continue to believe we grow our market share there. While the market does shrink and is shrinking, it is transitioning at the same time, and as it transitions to new types of product needs and requirements, it's giving LSI as a company an opportunity to blend some new agent relationships with that new technology to really go out and create market opportunity that will be, frankly, a market share improvement for the Company. And if you relate what we currently do in that marketplace as a percentage of the overall market size, there's a lot of room for LSI to grow, and a lot of room for LSI to post some very, very positive results there, regardless of the climate of the economy.

It won't be easy, and it's certainly a tide that we'll be pushing against, but it's one that I think we've proven again in the last couple of quarters, this quarter as well, that although the volume was down significantly, we continue to find ways to improve our market share and influence the market with solid-state lighting technology.

Thanks, Scott.

I think at this moment we'll shift into second gear and get David online and just give you a quick review. Unfortunately, it's not quite as rosy as the potential of LED and solid state in the graphics side of the world, but there are things that are going on out there that I think are really effective on some of these conversions that we're working on and potentially in the menu board part of our world, as well.

So, David, if you would, please.

Thank you, Bob. Good afternoon to the group.

And, as Bob said, we didn't have the rosiest quarter, but it has -- the glass is more than half full. And if you compare our last four months of operating income, I have to go back to 2007 to find four months, consecutive months that could beat that. So it's pretty robust in that end, even though the sales are down, as we talked earlier. The cost cutting, the rightsizing of the Company, inventory reductions and market share we feel very confident in.

It's a tough market especially now for signage, any print, whether it be newspapers, graphic print like we do, magazines, etc. The order of the day is necessity, not convenience. And a lot of our signs were more the promotional convenience, and a lot of budgets were cut in the last 18 months, and we're feeling the consequence of it. But it looks like considering all things considered, we like the position we're in.

As you may have known, two weeks ago one of our major QSR made an announcement of the new identification they're going to have at their quick service restaurants, and we look forward to participating in that. We don't expect any immediate rollout. They did not mention anything about an immediate rollout. But they did mention the start of the program and a long-term situation, and these are the kind that we like that are consistent over a number of years, and that's what we expect from this particular QSR.

As mentioned earlier, we are having a good show at the National Convenience Store Show currently going on in Vegas. We have a show coming up in the spring for National Restaurant Association. These are two of our stronger markets now compared to non-food, the general retailers of the world. They're down a lot more than the food-type people, especially the quick service restaurants. The lower menu pricing has caused a lot of people to gravitate to that, and the advertising promotion in those -- that end of the business is stronger than other sides.

At the National Restaurant Show we'll be introducing new menu boards with LED features involved and other additional product lines in our digital arena for displaying menu boards. Many people call this out-of-home advertising, out-of-home TV, digital placement, direct placement. You've seen it already in many of the QSRs that you're visiting, or will see it.

We have quite the mailing campaign coming up on both the digital sides of the business -- by that I mean the LCD, which would be menu boards and TV monitors, again, out-of-home monitors that are advertising products, promotion, talking to the customer as they travel through the store, and then the other side of the business, the video boards. As Bob told you, we're making quite the attack on a large quantity of high schools throughout the United States. And we'll have both these campaigns finished before mid-December, so we're hoping that we can grab some low-hanging fruit there and boost our sales in this third quarter.

I think that about wraps it up, there, Bob. I'll turn it back over to you unless you've got a point that I --

Yes, David, you might just kind of wrap up with kind of a quick review on the CVS program. I'm sure the folks have some questions in their mind, Stop & Shop that we refer to with some of the rollouts. Just take a minute and just bring everybody up to date on where we are with those.

Okay. First of all, the Stop & Shop program, it remains healthy. We don't expect any change, downturn in that. In fact, it keeps trending up. What they have done, one thing that they've done that really surprised us, they've raised their budgets and initiated LED lighting in support of their graphics. Where you have a particular department in the store, let's say meats or produce, all those signs now get a shadow halo light with LED lighting. Before, the only way you could do that with neon, it was quite dangerous, expensive and high maintenance. You get the exact opposite with adding this LED product. We're not only seeing that with Stop & Shop, but a lot of our -- that's becoming a strong trend throughout the industry because of the low maintenance and the beautiful appearance that it makes, and it's very easily installed, too.

Then, on the CVS end, we've recently completed the last of the shipments for the conversion of Long (sic) Drug except for the state of Hawaii, and that will be probably taken up after the first of the year or this time next year. But that doesn't leave us lonely there with CVS. There's many programs that have been put on hold during this strong initiative to rapidly convert these Long (sic) Drug. In fact, they were done ahead of schedule, and it allows us to get back into regular and special projects with them. So we're very encouraged there.

Thank you, David.

And, last but not least, if Jonathan, he's got some information for you folks on an article that's just recently been published, and, Jonathan, if you would, just let the folks know what the article was, where they can get it, and then we'll open it up to Q&A.

Okay, thanks, Bob. Good afternoon, everybody.

There's an article that was recently published in a magazine called The Edge. It's going to be available on our website starting tomorrow at noon. It's a six-page editorial about the big project that we're doing in Qatar, which is the largest chandelier in the world. You have heard us talk about this on and off for the last couple of months. It is finalized. It's sitting at the customer's place in Qatar ready for installation in November.

The article is entitled "Larger than Light" and talks about this giant chandelier, and you'll get all the specs in that article. It also talks a lot about the process that LSI went through to manufacture this chandelier and all the interactions that we had with the different entities in the Middle East and the designers and the manufacturers all over the world in order to make this possible.

Just one thing I want to mention also is that the title "Larger than Light" really talks to what LSI is trying to do in Europe and the Middle East. We're going to be bringing not only just solid state but all of our expertise and our abilities to interact with designers and store owners and shop owners in order to bring to them full solutions, not just from a lighting perspective but from a graphics perspective in the future, and also from everything that's basic general lighting all the way to high-end lighting like we're going to see here in Qatar in December. And, really, this chandelier is going to be ready and launched just in time for our permanent deployment of our international plan.

Thank you, Jonathan, and to repeat, that will -- that article will be on our Web page by noon tomorrow, so if you have an interest, please take a look at it.

Before I open it up to Q&A I'd like to make a couple of comments about the confidence level that we're starting to establish in the marketplace. You know, when you start from scratch with a brand new product line like LED and solid state, which is really revolutionary to what traditional lighting has been all about for all the years we certainly have been in this business, my confidence is that LSI's reputation is growing rapidly in multiple markets.

For example, this chandelier, the largest one of its kind in the world, yes, it's a unique project, it's a one of a kind, but it's a very complex item not only in the solid state and the LED but just the design, the manufacturing process, the handling of the product. It is really something very, very unique. You combine that with our entertainment capability. Certainly as we're moving now into the digital sports boards in a stronger direction, combine that with all the different and the more unique lighting products that we're having. LSI is -- truly is a corporation that has invested heavily and really knows what it's doing in this technology side. It's, I believe, in the years to come, going to be the real basis for the future growth of this corporation.

The most difficult part of this story, of course, was that we were right on the verge of that a couple of years ago coming off the big conversion programs that you all knew about, the CVS program, the 7-Eleven program in those days, and others, the Dairy Queen, and the disappointment is is that with the economy changing as rapidly as it did we were right on the edge of really moving into a whole new dimension. We never lost sight of that, and from a marketing standpoint we stayed focused. We didn't let all this negative market direction sway us from our direction. And that commitment was absolutely straight on with the direction that we're taking with this new education center.

And I'm going to emphasize that again before I open it up to Q&A. It will be the most unique room of its kind in the world. It will have some of the most interesting technology -- a 4 mm screen 20-some feet wide, 9 feet high; software that will drive this screen, so unique and different; a combination of many different light fixtures; menus within the room based on different markets. It really will be something to see. And, of course, the marketing strategy is to bring as many customers, as many reps, as many new opportunities throughout the world to Cincinnati, to the corporate center, and show them all of this unique technology.

And we've done it without affecting the balance sheet. We brought on a new acquisition, and ADL was a great move on the part of LSI, combining it with Saco, to really give us a stronger anchor in this new technology. And even as new as that acquisition is, with their tremendous efforts, these new products that are now on display in Las Vegas will become a very important feature for our ongoing calendar 2010 year.

Now, when it'll bring us into the marketplace it's so early to tell, because we have so many mixed signals of truly what is going on in the environment. But let me assure you of this, that we know where we're going, we know how to get there, and we're certainly committed to do it combining the graphics capability, as Jonathan pointed out, from an international level as well as domestic and certainly ongoing with our lighting.

So, with that, I'd like to turn it over to you folks, and fire some questions at us and we'll answer them to the best of our ability.

Thank you, sir.

(Operator instructions).

And it looks like your first question comes from Glenn Wortman. Go ahead, Glenn.

Glenn, yes.

Yes, good afternoon, everyone.

Hi, Glenn.

On the 7-Eleven project, what percentage of the -- of it was completed in the first quarter?

Well, maybe I'll let Ron talk about that a little bit from a revenue perspective versus a shipments perspective, because there's some discontinuity there based on the revenue recognition rules. Ron?

Glenn, 7-Eleven will represent about 11% of our volume from first quarter, and I think that's probably something close to 37%, 36% of the sites, somewhere in that range.

Yes, Glenn, this is Bob. You won't get all the complete revenue recognition on this. As you're well aware, we cannot do that until those projects are fully installed, so there's obviously a lag time based on the installation crews in getting that out, but we as a manufacturer on the products are absolutely on schedule. There's no delay. To my knowledge, our customer is extremely pleased with the direction of the rollout. And, as Scott pointed out, this quarter that we're in now will be a significantly larger rollout part of that, hopefully completing it on the first number of 1,100 sites, of their petroleum gasoline sites, by the way, by December 31.

Okay. And just so I can better gauge what's going on in your various business segments, how much of the project was -- gets credited towards lighting and how much gets credited towards graphics?

Well, we're not really at liberty to give that percentage because there's a combination of both. The lighting probably represents maybe 65% or so of the volume. There are graphic elements in there, as well.

Okay. And then, let's see, just as far as --

Remember, remember, remember, this is an energy program more than an uplift or an image program, if you wish. So it's lending itself -- and the reason I say graphics is because some of the graphic elements, some of the fascias, so forth, some of the signs are being converted to LED.

Okay. Okay. And then, just within the graphic segment, just so I can kind of figure out modeling it going forward here, as best you can, I mean, how much of the revenue was due to, say, CVS, which is -- it was pretty much completed in the first quarter, how much of it was due to sports boards, that are kind of one time in nature, and how do you expect the sports boards business to perform here in the second quarter?

Well, again, I'm not going to get into specifics of product line. That's too much information for our competition, and especially in these tight markets. Let me say this, that from our viewpoint, obviously it's blended higher on some of these specialty products than it is on standard products, and that, again, based on the graphics being project driven versus product driven, that mix is obviously blended more toward that kind of an item, and, but I'm not going to get specific on the numbers.

Okay. And then, finally, can you just highlight the additional opportunity at 7-Eleven also, the opportunity that you guys kind of alluded to with this -- in the QSR market?

Well, let me answer that one from my perspective, and I think I'm speaking for everybody in attendance today. As we take this rollout program as a major conversion of traditional lighting to LED and solid-state lighting, which, again, is energy driven, it's our hope that our customer will see the value, and with the large number of sites that they own, both petroleum, and non-petroleum, that that interest in that program will continue.

As Scott pointed out, we don't have any commitment in a contract form, but I can believe that based on the results that we've seen so far and the -- certainly the positive comments that our customer has made that we hope that there will be a continued interest. And, of course, I am sure that all depends on the budget and how the economy is going to continue and what that customer and others out there feel will roll out in 2010. We know the situation of what's happened in '09, and I think none of us can really look into 2010 and have any high degree of confidence that things are going to get a lot better quicker.

Okay, and then the opportunity with the QSR?

Well, again, that's all -- what we're doing with multiple design direction is looking at the menu board systems. Everything, if you recall in past comments and conferences, we've talked about the retrofit market. That's where our focus is. There are a lot of menu boards out there. They're not easily converted, and giving the same light levels and the same visuals aspect as fluorescent does. But I can assure you this, that we're very active in working toward coming up with the solution to that.

And, as a matter of fact, if you have a chance to come back on the 19th, we are going to be showing some of our newest innovations with the menu board systems using LED and solid state technology, and, of course, once the room is ready for our customers, you can bet your bottom dollar we're going to be inviting as many folks from each of those industries to come back and see what we've been doing, highlighting the 80/20 theory on the major markets that we've spent 34 years building this company around and building our reputation on.

Okay. Thank you very much.

Thanks, Glenn.

And your next question comes from Rick D'Auteuil.

Hi, Rick. Rick D'Auteuil. Hi, Rick.

Just, I want to follow up on some things that we've heard on prior calls, and maybe if you can update the status. You were good enough to do that for Stop & Shop and the CVS-Longs opportunity, but where is Chevron? Is that Steady Eddy at this point, or where exactly does that stand?

Yes, yes. David, why don't you address that? I think that's a good way to put it, Steady Eddy.

You nailed it, Rich, with the Steady Eddy line, again, a little slower than usual only because of it coincides with the economy. But there's no reason to think that it won't continue to be Steady Eddy or pick up if the economy does.

Okay. What was -- if you kind of go back, you're saying 7-Eleven and their decision was being driven by energy costs, what is Chevron's decision driven by? And if that's true, I don't know that a weaker economy should be slowing down the program.

Well, don't forget, they don't own the stores, in many cases. These are franchisees, and they have to come up with the money for the new identification. That's how Chevron was basically started, the new identification package that had a change in the logo. And it's not that they don't want it. It's just the funding. And if in any support case, if Chevron decides to support it larger by paying a certain percentage of it, that would be a real positive for LSI. But right now the program's Steady Eddy. There's no reason to think it's going to take off or slow down. There's no indication whatsoever.

Okay.

Let me add to that, David. Rick, I think when you really look at the value of what we're trying to do on the energy side, the 7-Eleven program very clearly was designed by 7-Eleven to reduce their energy cost, because they're the ones that are paying the energy cost. Even though their franchisees have the stores, apparently 7-Eleven's committed for the energy side. They saw the value in the large number of stores that they have based on that energy.

Now, as David pointed out, in the major oil company field we don't have as many company-owned stores as we used to. A lot of these guys have been selling them off or getting back into the independents and folks like franchisees that have fewer stores, a lot more of them as far as owners are concerned. These guys are looking at this stuff. They're not willing to go out yet and spend the higher dollar that these fixtures are obviously created. These fixtures are almost two and a half times what a traditional fixture, as we know, is today.

So there's a lot of mixed emotion out there based on energy, based on maintenance. There's that uncertainty that still exists in our industry from a customer standpoint of what this technology is all about. We're going through a filtration period based on how we're penetrating these markets.

So, as the type of company that we are, we are really, really focused on multiple fronts in how to get these products out there. So even though their energy savings are so high, we find ourselves in an environment where as much as we would hope as a country that this was a guiding factor, it's not as strong as you might think it would be. Chevron is more of an image program rather than an energy program, where 7-Eleven is more of an energy program than an image program.

Okay. On one of your prior calls you mentioned Europe as -- and we all know this -- high-cost energy. LED should be -- should play there, with better returns. Have you had any successes?

Scott, why don't you handle that?

Yes, we're certainly getting a lot of interest, Rick. Part of the challenge is meeting the certification requirements of the different countries. We're doing prototype work in the UK actively. We've seen improvements in our volume in some of our markets, the Asian market, the Australian market, that we've been participating in. We've got strong interest in Canada and Central and South America, Mexico. We expect to see some incremental improvement in volume really directly related to our efforts in Europe and in the Middle East. And those areas, at this point, require a little more certification work to be done on the product before we can start hitting our stride in terms of volume. But the interest is high. We're prototyping projects as we speak. And we look forward to some good volume there.

You know, the real challenge, Rick, for us right now is people and time. I wish we had double the size of our engineering group. We are looking for more engineers, engineers that have the ability to contribute on the LED and solid state. They're not easy to find. And the fact of the matter is is that you've got to look at where the opportunity is. The international market is very obvious. But the challenge for us is by country we have to meet certain certifications. There isn't really a, quote, unquote, a "uniform international certification." To some degree there is, but then once you get by country, then you have to meet certain criteria.

So as we go through this process in selecting opportunities, looking at the quickest return for us as a company, with a difficult economy, we don't have that additional volume to help us with the efforts that we're putting forward, so we're actually doing a select-by-select basis on where we're putting our most effort to try to turn these products into viable products to sell in these different markets. It's taken time, and at the same time we're finding that in the development stages this technology is changing so rapidly that you might have something done two months ago that now doesn't even work, based -- I don't mean that it doesn't work, it doesn't fit the market, based on what we're finding with more technology development.

So it's a lot more complicated. My confidence level is very strong that the investments we've made and the market penetration and the pilot runs, the pilot stores that we have out there now are building the confidence with those customers, each one being a little bit different than the other, that the products are doing what they're supposed to do. This is a long-term return. In the meantime, we've got to fight through the traditional, the economy, and continue on with our R&D.

You had -- this is in Scott's world, I think, the LED applications for parking garages, buildings, area lights. I think you guys were even doing some testing in some municipalities -- Cincinnati, Pittsburgh, parts of California, maybe. Any progress or wins, or what's the status?

Yes, there's certainly progress, not the kind of wins that I know you're interested in hearing about and we're interested in hearing about. I think that the market is still somewhat uncertain in terms of what they actually want from their products. We continue to be evaluated. We continue to adjust the design to meet certain criteria that are being developed by those cities and municipalities. We continue to improve the product. We've gone through several major revisions that apply to that market or both of those markets, the variety of those markets, really. Some of the technology that we're exhibiting, for instance, in Las Vegas this week will be directly related to the parking garage marketplace, the opportunity to further enhance the energy reduction.

You know, Rick, the opportunity that exists with LED is also, frankly, some of the challenge with LED, and that is that it is so moldable. You can do so many different things with it that sometimes it's a little difficult to pin down when your design is actually complete, because you've got a market out there that is very, very new to the technology, and, frankly, the market has not settled in some areas as to exactly what the standard product requirement will be.

So that education process is going on at the same time that the technology is developing, and we're making progress. We've got more sites, more cities under test than we had last quarter. We've had several cities move us past the initial phase into a bid phase. We've got several projects in the parking garage marketplace that have given us orders to be released. We've introduced a new version of our parking garage product, enhanced in performance over our original one. So a lot of small steps, and I think that's what Bob was trying to characterize. You have to take a lot of small steps on your way to success, and we're currently doing that.

And you also have to be very careful based on your commitment, and that -- I mean that by the fact that we all in this industry have a large number of manufacturer reps that sell our products in this industry. All these guys are hurting just like the rest of us are. And so everyone is looking for the magic bullet, and there isn't a magic bullet. This product, LED and solid state, doesn't fit every application, and people are out there saying, "I want this, I need that, and I want it at the price of traditional lighting that's been around for 40 years."

It's a whole new environment. So you have to pick your way through this minefield and be sure that the investments that you're making in R&D and certainly in the marketing side are going to bring a return. And I can assure you, and I probably speak for the entire industry, that in this competitive world that we live in we're all trying to get this product into that customer's hands as quickly as we can to see the return or the revenue recognition that we're all working for.

Rick, I think that as you look at that chart that we put up and you show -- you see the kind of improved volume that represents our LED sales today, that's where our wins are. They're not necessarily anything on a large scale to the same degree that a 7-Eleven program and the petroleum market would represent, but those projects are out there. I don't think anybody is winning those projects at that scale yet. But we are getting orders on a day-to-day basis in all of those markets.

Well, let's face it. There's not a lot of money out there as far as anybody is concerned, and the stimulus dollars that this government keeps talking about aren't out there. The test sites that we're talking about specifically on the street lighting side -- and remember that street lighting is a brand new market for LSI. We've never been in it. We've got a great product put together out there. We're going through the prototype process right now, and it's taking that one step at a time in the development of those markets. So it's going to take some time.

Okay. You did a couple of bridges in New York -- New York, New Jersey, I guess, the George Washington and Verrazano. What's -- any more work there?

Sure. We subsequently got an order for the RFK, which is complete, and, again, we got a contract extension into next year for additional bridge work, but I can't tell you when those will ship.

Okay. And then --

But we have completed the Washington.

Yes, we've completed three bridges.

Okay. I mean, those are relatively small projects? I would think they're decent size, but --?

Yes, well, you know, in the realm of things they're decent size, because we have them and nobody else has. And, again, it's building that reputation of what we can do. In dollar value, they're not big -- they're not big to offset this tremendous drop-off in the marketplace based on the economy.

They certainly are high-profile projects that have a great deal of value in terms of our prestige in the marketplace.

Okay, and, actually, two more. Sun Oil Company a couple of years ago was going to spend all this money on this fancy solar -- and they ended up not going forward with that project after some serious prototyping, right? And so did they end up doing anything, or they basically left their old --?

That was BP, wasn't it?

Yes, I think you're, maybe, Rick, confusing --

Oh, maybe it was BP, I'm sorry, it's BP.

Right. Right. Right.

Yes, they did some image work. They had some program rollouts. But they have, like many of the companies that we've discussed today, gotten in this mode of selling their sites. They're really moving out of the retail marketplace, and, frankly, their whole message of beyond petroleum I think is a pretty strong indication that what they're saying is anything other than gas stations. And that's part of what has hampered the entire petroleum market opportunity is that general move by the large oil companies out of retail.

Now, they've turned that responsibility over to the franchisees, and, as David has mentioned, occasionally they're coming back with incentive programs and image enhancement programs like they've done with Chevron to get the franchisees to pay more attention to their sites, to pay -- and to buy more of our types of products to enhance the look of those sites. That probably will continue to cycle up and down depending upon the oil company and depending upon the economy.

Okay. And Walmart has been mentioned, indoor and outdoor you're doing, or what's the status of that?

Yes, another good opportunity to say Steady Eddy. I mean, they certainly are not at the kind of volume levels that they've been when they were at their high point with us. We've not lost any of that share. We're in the same position we've been for the last six months with the company, most of the retailers, both Walmart and several others, but their overall construction is just -- has fallen to a new level, and we --

A low level.

-- a low level, and we participate consistently in that. We're continuing to prototype our LED technology with those companies. Walmart's gotten a little bit of press recently in their efforts, and you'll see more LSI product on their facilities moving forward. But they are being very careful and very, very deliberate about how they invest in that.

And, again, there's a great indication of R&D time by customer, by market, and there's just so much -- so many people that we have, so much time in a day that we can dedicate, and we have to be very, very careful where we spend those dollars and where the return will be.

When you look at the fact that we are in the street lighting market, look at the fact that we're moving into multiple countries around the world, look at the fact that we are being very, very selective in the new products that relate to retrofit, all of these things go into the equation of where do you spend the time based on where you get the best return. Now, I know that you as a major shareholder are anxious to see this turn into revenues, as we are, but, as we said many months ago, this is going to be a long time in getting this industry to where we can look back and say, "Remember those days."

Even without the economy.

Yes, the customer is so used to buying -- in the lighting industry, getting such a great value for his dollar with fixture prices the way they have been for years. They expect that. They want that. And they're pushing us for that.

It's our feeling that as volume starts to develop -- and what's exciting about it is we're -- we in our special niche are seeing that kind of volume starting to pick up, and combining that with our efforts on the video screens, we believe that it puts ourselves in a little different position than maybe some of the other lighting companies out there because we have multiple products that are non-related to lighting to help drive our cost down, working with our vendor program. But it's still months and years away from this country seeing the kind of volume that we've been used to in traditional lighting.

So it's a combination of balance, keeping the traditional lighting efforts in place and developing new ones. It's a complicated marketing strategy based on where you put your sales department and where the efforts are based on return, especially when you have an economy like this. The encouraging thing is is that the first quarter was much stronger. We've turned the corner with all of the cost improvements that we've made and the pressure that we put on the R&D part of it, and given time and hopefully some sign of improvement that we'll start to see an improvement in the revenue side.

Okay. Thanks, guys.

Thanks, Rick.

And your next question comes from Jim Ricchiuti. Go ahead, sir.

Hi, Jim.

Hi. How are you, Bob?

Fine, sir.

Ron, maybe this question for you. As we think about SG&A going forward, you had some acquisition-related expense. Should we think about the number that you reported in Q1 and maybe take off $0.5 million of that going forward? I'm still not quite clear on what the SG&A might look like going forward.

Well, there's also sales commission in there for the lighting products.

Sure. I'm talking about maybe the unusual expense.

What was that, Jim?

Unusual expenses.

Yes, primarily in the SG&A we've talked about the deal costs for the acquisition. That was the $0.5 million. We perhaps had some other costs that were flowing through there, as well, but pretty much that's going to be our level, plus any improvements that we're able to get going forward.

Okay.

Jim, from my perspective -- this is Bob -- I don't foresee any unusual expenses on that side of the coin, and we're kind of hunkering down now as far as any future acquisitions. We're not in the acquisition mode right at this point. We think that our plate's pretty full with all the things that we've discussed already this afternoon.

So I think in the best interest of the long term, we kind of focus on what we've built as a corporation and work on our marketing strategy. And it's been my goal, and certainly in the near future, to develop the strategy of a corporation by the name of LSI Industries with all of these multiple capabilities all related to the markets that we've already developed.

Okay, and -- thanks. The revenue run rate for ADL, is that what we could assume? I mean, could it contribute somewhere around $12 million to $13 million of revenue this year?

That's a hard one to forecast at this point, Jim, but the encouraging thing is is that with very short time of them being onboard, their standard business seems to be in the growth mode. Certainly their growth will be influenced by LSI with some of the technology that they're working, that we're working hand in hand between the lighting and the visual board markets. So I think it's safe to say that as we as a corporation grow, hopefully the international market and some of these other items that we've talked about already, that that will be kind of a hand-in-hand growth curve with ADL.

We've already had an opportunity to increase their capacity. We were at an auction a few weeks ago, picked up some very, very important equipment that's in the process of being installed to increase their capacity for both their standard business as well as LSI's business. So they're a very, very intricate part of the solid-state growth plan.

Bob, let me just amplify that a little bit. First of all, Jim, what you've seen for ADL was not a full 13 weeks. It was a 10-week run period from the date of acquisition.

That's right.

Secondly, the sales that are reported there are really outside customer sales. The growth that Bob talked about in our solid state lighting, ADL is kind of a vertical acquisition for us, so that will become an intercompany kind of a sale. What really you'll see reported here is their outside customer business.

Okay, that's helpful. And just as we think about this year, it sounds like the 7-Eleven program winds down in the December quarter. Is the second half of the year, based on your visibility right now and what you're seeing, is it much weaker than the first half?

We hope not. We're hoping with the success of what we've done will extend itself into 2010. They have a large number of non-petroleum sites. And it's a little early to tell, Jim, based on what their direction is, but I just can reinforce the fact that based on the information that I have that the customer is very pleased with what they're seeing on the energy side and the success of the rollout program. So it's a little early to tell yet where that's going to go.

Okay. Were there any other 10% customers in the quarter?

No.

No.

Just 7-Eleven.

Okay. Thanks very much.

Thanks, Jim, very much.

And your last question comes from Lenny Brecken. Go ahead, sir.

Just a follow-up on that, so just to get a picture of where you think the December quarter is sequentially, can you just give us some level of comfort on whether you see sequential growth or not? And also, can you just be more specific on the -- in terms of the solid-state lighting, LED side of the business, just some sense of how the visibility in that business changed sequentially, whether it be quantifying test sites or customer backlog or some kind of quantification just to see what momentum there is in that business? You made a lot of comments during the quarter, but they were qualified, not quantified. Thank you.

Lenny, I'm not sure I understand your question. You were breaking up (inaudible). I think you're on a speakerphone. But let's try to take it one step at a time. From the standpoint of the volume, the 7-Eleven program, as Ron pointed out, was about 11% --

Of our total first quarter.

-- of our total. Yes. This quarter it'll be a little bit higher because the momentum of the rollout is going very rapidly. We've added a few more installation crews. We are under a schedule program to finish this by December 31. We will do that, barring any major weather problems that we may run into.

Where this brings us beyond that based on influencing the rest of our business, obviously this volume has an important part of our cost as it relates to the volume going through the factories, but we have so much interest in other markets, it's not just related to this. This gives us -- this being the 7-Eleven program -- gives us a visibility opportunity. They have sites all over the United States. We are able to now by representative where in each market there are 7-Eleven conversions going on, and this gives us an opportunity to certainly expose other customers to what LED technology can do. That's been the real difficult part of building this market, is we have to basically prove to the market, to the customer, that this technology will really work on the basis that we say it will, and that just takes a little bit of time. I don't know what else that you --

Yes, I'm sorry, that was --

That's better. I can hear you better now. Thank you.

Sure. I'm sorry. I picked up the phone. Yes, that was part of my question. I knew you qualified a lot of the interest level picking up this quarter. Can you just help at least quantify it in some measure, i.e., with some quotation of test sites growing sequentially or interested -- some kind of quantification of backlog? And I'm talking about the solid-state, LED side.

Yes, I wish I could give you backlog. We don't have -- backlog hasn't changed a bit from traditional backlog, five to six weeks.

Okay.

But, really, what's important, I think, certainly from our perspective, and I'm speaking for LSI, we're a market-driven company, and we see the attributes or otherwise we wouldn't have made the investments that we did in this technology. It is definitely here to say. It is definitely part of the future. It's our job now to influence our existing markets and getting more prototypes out there to get more interest by customer into the equation.

It is also important that we take this technology into new markets that we have not had the opportunity to do with traditional lighting. Traditional lighting is such a price-oriented market that traditionally we stayed out of certain markets because we knew that we couldn't competitively compete in the marketplace on price. It made no sense to go into those markets. Today, with the technology that we own and the technology that we're developing, we believe that we have some of the most unique products to create interest in new markets.

It's a matter of bringing in more and educating our agents, which we're working very hard on. That was one of the reasons eight months ago we committed to spending a very, very strong investment in this new education center. And it was my direction to develop this center to be the most unique education center ever developed for technology like this. It's a combination of video screens, of certainly lighting, menu board systems and so forth.

The market is a virgin market. There are people all over this country that are very well aware of the word "LED" and "solid state." There aren't as many really committed to that yet. And it's just going to be a matter of time. It's a very competitive industry, and we're having a lot of competition in the LED technology.

What my hope is is that this company has such a unique product offering and a very diverse market. We're not locked in to just one thing. And our volume is very diverse. Our customer base is very diverse. And our product offering is becoming even more diverse. And it's a matter of time.

And if we had an economy that was a little bit more robust, I think that we would all see a much stronger revenue return, because people out there that would have the money to spend on this new R&D, they're going through a research and development process, our customers are, but they don't have that kind of money. So those folks are putting money where they are going to survive. And so it's a difficult market out there.

Yes, but, Rob, I was just trying to help quantify what that -- management is extremely enthusiastic. I've sensed a turning point in the business the last six months, and it's growing stronger. But I think what investors need to hear is a quantification. And the first quarter is going to be good relative to this past quarter because of the 7-Eleven. But I'm looking at -- I'm just looking at the solid-state lighting (inaudible), some quantification, test sites, interest level would quantify that. What can you quantify?

I can't. And if I could I would.

Okay. That's fair.

It's too early.

Okay.

The prototypes are in the early stages, and we can't quantify what we really hope will come. And we as a company, I hear you and I understand it, but we as a company will never go out on a guidance level on basis of information that we're not really, really sure of.

All right. I respect that. All I'm doing is trying to help. Thank you.

No, and I do appreciate it. You are hearing us correct. We are excited, because we see a momentum going on here. But we're being very cautious in that excitement to the market based on all the things that are on the negative side that can influence our customers from a decisionmaking process.

The unique part of this whole program that we're involved with right now is it takes months to get a program going, but in hours it can be canceled. So we have to be very, very careful about what kind of aggressive information we put out there until we have programs in place. Like -- and we brought up the name 7-Eleven, using that as an example. We have not talked about that customer's name, as you know, since the last conference call, but it's out there now. Everybody knows about it. So we're comfortable in talking about it. There are other things going on right now that we're involved with, but we don't have that comfort level that we fully understand what the commitment of that customer or that market will be.

Have you seen your biddable business grow sequentially, meaning the opportunities for revenue conversion in the next six to 12 months grow by what percentage?

I would hope so. Yes, I think I could say it in this way. I would hope so, because we have multiple prototypes in new markets that we've never been in before. We've got a great product. It's doing what it's supposed to do. It goes through a testing phase. Again, a lot of this may be developed around stimulus dollars in 2010. We don't know what that really means yet, but we'll allude to one market, the street lighting market. It's a huge market out there. There are literally millions and millions of street lights out there. There are certainly cities that are aggressively looking at that, and there are a lot of cities that aren't. So how do we really quantify that? It's too early to tell.

Okay. All right, guys. Best of luck.

Thank you.

And that's the last of your questions, sir.

I think that concludes, and I want to conclude the meeting by thanking you for your time. As always, and I said this to Ron, if there's anything we can do with you -- for you folks to help you work through this SEC requirement that was put in place on the segment reporting, please let us know. We'll do everything we can to try to make it as easy for you to follow how the Company is progressing.

With that, I want to thank you for your time.