LSI Industries Inc. F4Q09 (Qtr End 30/06/09) Earnings Call Transcript

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 |  About: LSI Industries Inc. (LYTS)
by: SA Transcripts

LSI Industries Inc. (NASDAQ:LYTS)

F4Q09 Earnings Call

August 20, 2009; 3:00 pm ET

Executives

Bob Ready - Chairman & Chief Executive Officer

Ron Stowell - Chief Financial Officer

Scott Ready - President of the Lighting Group

David McCauley - President of the Graphic Solutions Plus

Fred Jalbout - President of Technologies at Saco in Montreal.

Steve Brucker - Chief Information Officer

Analysts

Glenn Wortman - Sidoti & Co.

Josh Baribeau - Canaccord Adams

Jim Ricchiuti - Needham & Co.

Jim Stone - PSK Advisors

Operator

Good afternoon everyone and welcome to the LSI Industries fourth quarter investors teleconference. Today’s host will be Mr. Steve Brucker, Chief Information Officer. During the presentation, all participant lines will be muted. As a reminder, today’s call will be recorded and a question-and-answer portion will be taking place at the end of the presentation.

Now without further delay, I’ll turn your call over to Mr. Steve Brucker.

Steve Brucker

Good afternoon everyone and welcome. Today’s presentation is being supported with visual materials that you can access by visiting the LSI website at www.lsi-industries.com and clicking on the Investor Relations button. There it will take you to the in the slide presentation and will be able to follow along with us during the meeting here today.

If you’re not within convenient access of the internet at right this time, you can you dial in later and a replay of this presentation will be available this evening and now it’s my pleasure to introduce Mr. Bob Ready, the Chief Executive and Chairman for LSI Industries.

Bob Ready

Thanks, Steve. Good afternoon everybody. As normal, what we’re going to do is kind of highlight a few things during the quarter. I have with me Ron Stowell, our Chief Financial Officer, Scott Ready, President of the Lighting Group, David McCauley, President of the Graphics Group and Fred Jalbout, President of Technology at Saco in Montreal.

I guess the only way to start off this conference call is thank god the year is over. It’s fiscal 2009 was probably the toughest year in my 48 year history and it has been a challenge to say the least.

However, with that said, I’m extremely pleased with the way our company has been able to operate through these difficult times, keeping our balance sheet as strong as it is, some of the important things that are beginning to happen as you probably aware the fact with our press release, just a few weeks ago, with the major rollout program that we are actually involved with right now from one of our major convenience food store customers.

We’re in the process of not only building product but installing that product in over 1100 sites throughout the North American market. That project will be completed by the end of December and we hope from the success of that project, not only will that customer see the benefits of the tremendous energy savings that are going to be incurred by taking off the old traditional lighting and replacing it with LED technology, that there will be more opportunity.

We also hope but in the competitive level, the competitors of our customer, as well as the sites are starting to be relit and may stimulate more opportunity with that same market. One of the things that we really achieved in the fourth quarter was the acquisition of AdL. Smaller company up in Columbus area, not too far from headquarters here, probably no more than an hour and half drive.

AdL is a company that we have been working with for a couple of years. It was a company that we sourced out in the process of developing some of our solid state drivers and circuit boards that are certainly present in our LED fixtures. That acquisition we feel is going to be extremely instrumental with specifically in the lighting side, but equally as important and as time goes on we will be implementing a manufacturing process at AdL to help in the development and the building of our modules for our video board displays.

It will take a couple of months, a few months to get those folks up to that direction, but that’s our intent and one of the main reasons why we made the investment. Fred is going to touch a little bit today in reference to our direction on the international market. We are very active now in pursuing a much broader process from an international level, certainly starting with the LED technology, but with Fred’s expertise we hope to expand that opportunity with some of our video displays as well.

David will touch base with you today, a little bit on a few items as it relates to the graphics business. Things are still pretty tough, obviously understanding that the graphics business, as you all know is more project driven. The retail segment of our economy has held pretty tight, but be that as it may, we’re out developing other areas of opportunity. We have an ongoing program with Stop & Shop and certainly CVS, but there are other things that Dave will touch on as well.

I think now, what I’d like to do is turn it over to Ron. He’s going to highlight a few things and then we’ll turn it right over to Q-and-A. Ron, if you would please.

Ron Stowell

Good afternoon, everybody. I will start off with the Safe Harbor statement, which I presented in the materials, but I think the main thing here is that we do not have any material nonpublic information to disclose today at today’s discussions. You’ve heard us talk about our areas of focus over the last several quarters and I’m just following up on those areas of focus.

First of all was spending. Spending in the SG&A, operating expense area, and as we look at that excluding the goodwill impairment that we’ve recorded, loss contingencies, the last year and the sales commissions what’s clearly vary on sales, so trying to get a bead on our spending. In the second half of fiscal ‘09 SG&A was down 17% and in the full year we were down 13% from fiscal 2008.

Manufacturing overhead spending, somewhat similar, actually my percentages are incorrect here. They were about 10% down for the full year, rather than the 13% that’s indicated here. The other area, next area of focus was our accounts receivable and our DSO, we’re very pleased to present in at 51 days as of June 30, ‘09 and just six months ago prior we were at 63 days. So in spite of the recessionary pressures, our customers are having a cash flow issues. We are still achieving one of the better DSOs that we’ve had in a long, long time.

Inventory over the course of the year has been reduced $10.5 million and we’re turning now at four turns, and we still remain today debt free and cash on the balance sheet at least at June was just under $14 million, which is invested on a short term basis. The next couple slides, just visually indicate the trend over I guess three fiscal years or so 7, 8 and 9, for the DSOs are and those of you looking at the slides, are in the yellow bar is fiscal 2009.

The receivables, clearly our receivables are down for two reasons. One is the lower volume that we’ve had in this recessionary period, but also the improved DSO. Inventory turns and inventory reduction, which is certainly very important to our cash flow. The balance sheet, as Bob indicated remains strong. We’ve got just over $40 million of inventory, just under $30 million of receivables, no debt and over $130 million of shareholders’ equity.

As you saw in the press release today, the Board took action to declare a cash dividend of $0.05 per share and in addition, gave an indicated annual cash dividend rate of $0.20 per share for fiscal 2010 and then graphically, there’s the our payout of cash dividends during the fiscal years for the last several years has looked. Notably, you see the reduction in fiscal ‘09, reflective of the recessionary pressures.

Bob let’s turn it over back to you.

Bob Ready

Those are the highlights of the financial and I’m sure there will be more questions asked in conclusion. Ron, thank you. What I’d like to do now is turn the meeting over to Scott, but before I do that, I think it’s really important to understand that in our evaluation of our company and understanding the market conditions and how dramatically they’ve changed in these last 12 months, and just to highlight a couple of those areas, the automotive industry in my opinion has absolutely been devastated by the government.

I have no idea when or if that market will return to any degree. We have made many adjustments in the organizational direction and the way we operate in order to get our company into a more profitable level. I’m confident that at least for the next six months we, LSI will return to a profit level. I can’t look beyond six months. We’re having trouble looking beyond a quarter now, based on just the economic conditions and the attitude of our customers, but it’s important to note that the continuation of the cost improvement is well in play.

We will continue to work and maintain a strong balance sheet so that when and at whatever time this economy starts to come back, LSI is going to be in great position to work with its vendors. It has always been our experience that when you go through a turn like we are going through, that there is a pent-up demand. We want to be in a position, where we can offer just the great service and the product offering, which has really developed and put in place by the continuation of the strong balance sheet and the relationship that we have with our vendors.

With that, I’d like to turn it over to Scott, let him share with you a little bit about our LED success and even a couple of slides up there that are going to show you something in the New York market right in your backyard from a Wall Street standpoint that is a flagship project for us and Scott, if you would, please.

Scott Ready

Thank you. Good afternoon, everybody. I’ll keep my comments really short today and really focus them on the area that I think there’s a tremendous amount of interest in, and that is the solid-state lighting. Reinforcing what Bob and Ron have said, the Lighting Group has worked very hard and will continue to work very hard to drive our cost in the proper direction, but we’ve been successful doing so without sacrificing our ability to serve the markets and, frankly, our ability to grow from a service level our attraction, if you will, in many of the markets.

The markets overall, results have been mixed still certainly, a lot of pressure in all areas. Some markets feeling it as Bob said, on the automotive side much worse than others, but it is exciting to see, even within that environment, frankly the kind of growth we are posting now on a regular basis with our solid state lighting.

Now, the graph that you have up before you illustrates a couple of things. Number one, relative to the volume that we were doing in solid-state lighting last year at this time, clearly we’ve grown it tremendously, but look at also the mix and the way the slide indicates a difference between white LED and specialty LED.

Really what we’re trying to show here is an indication of how the product is really transitioning now into everyday applications and so, this product line and this product development is not viewed within this company, certainly, and should not be viewed as our investors as a specialty or a custom addition to our regular product line. Certainly, the breadth of our product line is quite extensive. On non-LED products, we remain committed to those products. We continue to cost reduce and enhance the product designs in the metal halide and the fluorescent side of our business.

They remain an important part of our strategy and our capability, specifically as it serves the commercial industrial marketplace, but we’re very encouraged that the technology that we’ve worked very hard to develop, the technology that we worked very hard to acquire and bring into the company is now translating into repetitive day-to-day, week-to-week business that is of what I’ll say the more common industrial and commercial and niche market applications.

The volume here is expected to continue to increase and, frankly, we expect to drive a certain part of our successful income generation from this product line. We have some other projects that I know I’ve mentioned in the past, but really now are something that you can see yourselves and I know many of our listeners happen to be in the New York City environment.

The slide here is a great slide, frankly that was developed as part of the press release around the unveiling, if you will of the new George Washington Bridge lighting system. LSI as you may recall, it was very involved in the development and with subsequent sale of product to New York City for that particular bridge, as well as the Verrazano Bridge and the RFK Bridge. While we certainly are looking forward to more opportunity in the area, it’s just one small indication that as you travel day in and out of the city, you can look up and think LSI.

On the retail environment, I’m going to pass the baton back to that for a minute to hand over to David, but I’ll mention that everyone is very familiar with the work that we’ve done with JCPenney in our traditional product lines and it’s very exciting to again be able to unveil some new things to you and to the market associated with a great project we had the privilege of participating in.

With that, I’ll let you take that from here and back to Steve.

Steve Brucker

The only follow-up to Scott’s comments, as I want to point out that in the fourth quarter where we show obviously a very strong growth of LED, the white versus the specialty that really doesn’t indicate the rollout program magnitude. We did about 100 stores as a pilot run for our customer, but the real program, really officially kicked off in July. It is ramping up very, very quickly, moving into August and as I said, it’s our intention, whether allowing us to do it, is to have the entire 1100 stores completed by the end of December of ‘09.

So with that, David, if you would bring the folks up to speed on our pride in the middle of Manhattan and what’s forthcoming in the graphics side, please.

David McCauley

Sure. Thanks Bob. On the screen you’ll see here a JC Penney’s site. It is like Bob said at Manhattan. It’s called the Manhattan mall area. It is at 33 and Broadway, which is the old Gimble store and this was recently opened about a month and a half ago. The slide that you’re seeing shows JCPenney on one side. That is what they call a flex face.

That’s backlit LED and then the other sides that you see that have JCPenney with advertising, some of the words you’re looking at prices we’ve been around a long time, etc., that’s all LED, not LED-lit, but its LED light. No different than our sports or entertainment boards that we build, excepting that this is a high definition, 10 millimeter and as you can see, it’s quite attractive and is the centerpiece of that mall.

The next slide is on Broadway there JC Penney’s, on the left of the slide you’ll see the logo during the daytime hours and then of course on the right is the nighttime hours and no surprise, it’s all LED-lit and then the third slide I’m showing you today happens to be a departmental sign. These are throughout this 150,000 square foot, two story retail store. Again, backlit LED and with a new magnetic sign capability, so when in Manhattan, go down there at 33 street and visit that store.

Bob Ready

David, sorry to interrupt, but I want to be sure to remind everybody that, if you go to that store [all of the] lighting is LSI. That entire store, both traditional lighting and exit lighting and all the other traditional parts, as well as the LED technology, it truly is a flagship store for JC Penney and really a flagship store for LSI. Go ahead David.

David McCauley

Now, as Bob said earlier, I’m glad to have this fourth quarter behind us also and break into the New Year and as you remember, we have some programs going on, very strong now. The meet of the long drug conversion to CVS is happening July, August, September are the strongest months for that. So we’re right at the heart of that. It’s going along fine. This is our time of year for the sports market, especially football and basketball.

As you know, the football games is start this weekend, some of the preseason is have already started their games and believe it or not, pro basketball, there’s games scheduled for October 1 and since that season both college and pro seems to have elongated itself, the boards go in a lot earlier, a lot faster into the arenas, into the stadiums.

So we’re excited about those items for our first quarter. We continue to work on our newest version of menu boards, including LED lighting with those, as the light source. The retrofitting of existing boards that have the conventional tubes, again retrofitted, abilities to LED lighting and then the incorporation of an outdoor video into our menu board, so we expect big things in that market as the economy improves.

This is our first six months are traditionally our strongest six months, right up until Christmas time when we can’t get into the stores and it also, because the weather suits us a lot better for installs and Bob mentioned are the grocers that we’re working with specifically, Stop n’ Shop and CVS, they haven’t been hurt in this economy as relative as the more traditional retailers of garment and hard goods. The food industry and the medical industry, two of our very biggest customers, have gone strong and we’re excited about that.

Bob, I’ll turn it back over to you and wait for question-and-answers after Fred’s done.

Bob Ready

Thanks, David. As a follow up to David as a reminder there’s some other programs that are in play right now. We do have a very aggressive rollout with continuation with Chevron and I think the bottom line is that looking at our graphics part of our business, being project driven; certainly the economy has had a major effect, but we’ve taken an approach to really revitalize some of the areas that we feel there is an opportunity to build some business.

With the action that we have in play for the video screens and we’re not really after the big pro stuff as much as maybe some of our competitors are, that’s a petty cut-throat business. We’re getting more active now in the smaller market, the high school, the college market, we’ve been very successful especially this month in rolling out Arizona state, which has been in the mill for a couple of months. The project was shipped we followed up on the basketball, video screen for Ohio state with a football, that was rolled out this month as well.

We’re picking up some more high schools. The opportunities are becoming better our product is being improved. We’re not more than a month or so away from finalizing a new software package that we think is going to be extremely well accepted, compared to what our competitors have. It’s a realization that LSI has the wherewithal and certainly the ability to do things in this large arena that are beyond just the normal day-to-day business that we’ve enjoyed for so much.

This is the way survive and get through this economy and we will continue to build that direction. Our Houston plant is extremely busy right now, as our Rhode Island plant. The area that we are looking for more opportunity is through our North Canton plant, but as David pointed out, the next six months with what we have in, based on what we know, it’s certainly going to help and we’re hoping that as this continues, that more will build as we go into the next six months.

So with that, I’d like to have Fred make a few comments. Fred has a couple of slides coming, it’s very difficult to tell you what it is based on the slides, but I know Fred is excited because this is probably the largest lighting fixture ever built with LED in solid state technology and I say lighting fixture in the world. Fred?

Fred Jalbout

Good afternoon everyone. I would like to start actually with international market that we promise we’ve been working on it. The good news that the business plan is ready right now, after heavy work, investigating the kind of client and distribution channel that we want to set up in Europe and the Middle East and this work has been done.

We had met with many consulting engineer, and always the answer was and the comment that LSI is a unique company, because the first time they have seen a company that has come with full solution in the solid-state lighting in regards to not only produce and to provide light fixture, but LSI is a company that can do the design and implement the video lighting and at the same time hardware and software.

I would repeat again, software it’s so important into many applications of where the lighting and video screen and even lighting itself that turn it to a video screen. It’s so important for this market and LSI is the only company that they have seen that is able to do those things all together.

I would say that business plan is ready completely; full implementation of business plan will be by the end of the year 2009. If we go to the slide that’s Bob was talking about, and it’s really that’s what we have built up, is the largest chandelier light fixture. It measure a 120 by 30 feet in height that it’s made from our solid-state LED.

The chandelier it’s completely assembled and finished and it’s expected and been shift. We think that by the end of October, it’s going to be up and running and this project is going to the international market. It’s [superstar] in the Middle East and it’s the beginning of application that people the first time they will see something like that. Because we incorporate into this fixture the lighting system inside and at the same time the same pixel it turns to a video.

So what we supplied this in fixture that is capable of doing both lighting and a video animation and our software package is with this project and that will show you how much LSI is capable of doing, things that other competitors cannot do. This is a unique application it is going to become a typical application. They will use them in large facility and building and imagine it’s a 30 feet height chandelier. We actually after our visit to the Middle East and to Europe, we have seen many application could be identical to this one.

I turn it back to you, Bob.

Bob Ready

Thank you, Fred. Fred’s plan is here at corporate. It has been reviewed. We are in the process of an implementation process. I’m excited about it. I think we’re ready now with a certain numbers of products that we know will fit the market with its energy capability and certainly its maintenance and with Fred’s contacts and certainly knowledge of the international market.

Fred’s position we will be more involved in producing the product and shipping it. We are not going to open up a facility. We are going to set up an agency or an organization that will help market and service the product, but all the product will actually be built and shipped here in the U.S.

So I want to be sure that everybody understands that we’re not necessarily looking at buying or building a company to produce this product. We feel we can do it economically. We feel that with our experience, for example, in the Australian market, in the New Zealand market, that we have six or seven years of established wherewithal in developing that market.

We’re going to more or less apply the same model to that, under Fred’s experience and it’s going to be a slow start, but we think the market is ready for it and we sure are ready for that market as well. We just had two folks come back from China. That’s another market that we’re certainly looking at, obviously a lot different, but with a review that we had our folks over there for about a week, that is also within the highlights of the future of LSI looking at this technology.

Understanding that it’s important, that we look at a worldwide market, because of the large national account customer level that we have, as well as the fact that the ownership of our technology is here at LSI the investment of AdL, certainly the number of patents that we have secured and filed for as these product start to rollout; looking at the expansion of our marketing direction in the street lighting with our traditional markets it’s slow, but it’s a process that is well in place and as you can tell by the balance sheet, it hasn’t drained the resources of LSI.

As a matter of fact, we’ve been in a very invested our position in people. We just recently brought on board a Vice President, one of our largest competitors of the industrial commercial lighting world. Shawn is on board now for a month, he is working with Scott to again develop a direction aimed right at the C&I marketplace. In addition to that, we’ve invested in three engineers that we’ve added to the LSI payroll to continue on in developing and hopefully improving our introduction time on new products.

All of these things have been going on in the last six months. The emphasis on our sales side is absolute. It’s tough out there but right now I’m confident that the next six months are going to be a much better six months an from there we’ll just have to build on and depend on what happens as I said in the last six months. That kind of gives you an overview of where we are and what we’ve been doing and I would like at this point to turn it over to questions-and-answers, please.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Glenn Wortman - Sidoti & Company

Glenn Wortman - Sidoti & Co.

You guys have mentioned a possibility for some follow on business with this large LED customer. Can you just tell us what that hinges upon and is there a potential to upgrade all their stores.

Bob Ready

I think like any program likes that, Glen, I’ll field that one and then Scott can climb in on that behind me. It was our intent to obviously secure this business and working with this customer and with that initial pilot run, the success of the pilot run certainly stimulated the interest to go to the next step. There are quite a few other stores that are still within the realm of this customer.

I think it all will depend on the ability for of course we were under the gun to try to get this program for them completed by calendar ‘09. We’re going to be able to accomplish that because not only we’re building the product but we’re actually doing the installation as well. I think and it’s just my hope and the other guys can chime in behind me, that the energy savings the retrofit, the new LED, it’s all outdoor, it’s extremely high as far as the energy savings.

As this customer starts to realize more of that and depending what his budget is, we’re hoping, obviously a sizable amount of opportunity, but we’re not under today’s environment, it’s very difficult to say with any certainty that this is going to happen. So we would prefer to take each step as we go forward, but we’re excited about it and we hope the customer is, based on the pilot run that they initially saw.

We know they felt good about it, to turn over another 1100 stores. So the next step, we’ll just see as the months rollout and what their attitude is, what their budget is and what their feelings will be to convert more or the balance of their stores, which could be quite sizable.

Glenn Wortman - Sidoti & Co.

Aside from that major program, there are some challenges in some of your other lighting markets. Could you just give us a sense of how your other markets performed year-over-year. In the past you broke down C&I maybe if you can give us figure on auto dealers it that’s possible and how much each market accounts for as a percentage of sales in lighting if that’s something you guys are willing to disclose.

Scott Ready

We really try to refrain from breaking down to that level of detail each one of those markets. We’ve typically talked about in general our commercial industrial lighting effort, what we’ll call our niche market lighting effort which kind of encompasses the automotive churn and the QSR, some of the national account work that we do.

Clearly, the best opportunities remain in the C&I market. The market size is certainly impressive as compared to the rest of those niche markets combined. I think what’s key is while all markets are being challenged right now. We continue to hold the market share that we’ve always held in the niche markets and we continue to grow our market share in the C&I market.

It’s very difficult to tell how that’s going to develop month-to-month right now. So much of the spending is dependent upon construction projects. There’s certainly a lot of consideration now, based on the stimulus dollars and where those will fall, how those will actually flow through to some form of project work. We’re working very hard to develop, frankly, new niche market approaches, focusing quite heavily on what we call the energy retrofit business.

Quite heavily on some of the infrastructure improvement business that’s going on or at least projected to go on and again, I say projected because there’s a lot of conversation that not necessarily a lot of dollars actually or POs actually being cut at this point in time, but certainly the confidence level is high that those POs will be cut and we’re working very hard for our share.

Overall from a percentage basis, we certainly took a step backward in the commercial industrial volume for the ‘09 fiscal year. Much as all of our competitors have done. I think what you’ll see is that it will rebound a little faster potentially than some of the other niche markets and frankly we have been feeling pressure on the niche markets, Glen for a number of years, really prior to the big falloff last fall. So the numbers are pretty consistent, to be honest with you, with the exception of the automotive market, which has really shown the largest decline in the last 12 months. We’ve been pretty flat in most of the other niche markets.

Certainly our position with some of our large national accounts has been consistent in terms of what our agreements and our contracts are, but their volume certainly has been much lighter over the last 12 months and I would expect that to continue at least as it was compared to the high points. On a year-to-year comparison date, frankly we’re looking for some improvement over the next 12 months, because we have suffered obviously quite a bit in all markets from an overall volume perspective.

Bob Ready

To support this, Glen, I think it’s very fair to say that LSI has maintained its relationship with its key customers. One of the biggest and of course we made an announcement. The dollars aren’t there like they used to be, but the largest retailer in the world, we lost the indoor package a couple years ago to price. They’ve comeback, they came back to us, asked us to rebid it.

We went back into a process where we are now one of only two. They’ve allocated X percentage to us. That’s great news, but on the down side it’s nowhere near what it used to be. I think the important thing is that LSI is maintaining and working hard to grow its market share in the C&I market.

We’re just not going to let anybody come in and take our niche markets away from us, no matter what condition they are, because that’s the way this company was built and last, but not least, we’re taking major steps to strengthen our customer service program. We’re understanding in this environment. The larger companies, our larger competitors are having some very difficult times in servicing their customers. Their quality has fallen off.

LSI has never had those problems and to take advantage of that, we’ve actually taken more aggressive steps to improve customers service that we feel is already high and certainly improve our quality doing a better job of looking at our products before they’re put in the cartons. It truly comes down to a management direction and involvement with the company in order to maintain our LSI image in the marketplace, while at the same time, building that reputation on the LED solid state.

I personally don’t feel that this U.S. economy, no matter what the political spin is out there, I think we’re in for at least another two years of hard, very, very difficult times. That’s why we’re looking more into the international from the Middle East as well as the European and then continue to focus on this new technology and bring new products from new markets in order to maintain the direction. At the same time, sure, LSI’s volume is down, but we’ve down sized the company without hurting its structure and maintaining the balance sheet, so that we can get through this.

Scott Ready

If I might add, I think the way to think about our business today is we’ve really maintained the balance that we tried to maintain between those different market initiatives and so our focus isn’t radically shifting one way or the other. We’re staying true to course. We’re maintaining that balance and frankly, if you looked at our results as a percentage of overall sales by market, you’re going to see some very similar numbers to what you’ve seen in the past.

Bob Ready

I think just to give you a direction, you asked a specific, not to get into numbers, but let’s just take the automotive market, I don’t think there is anybody on this line that probably doesn’t understand the fact that the automotive market is in total disarray and I’ll tell you there aren’t many dealers out there thinking about buying lighting or anything else for that matter.

So when you talk about a market being down, that one has probably been hurt more than any other market out there. It’s fair to say that market’s are probably off 60% to 70% over what it was just a year ago.

Glenn Wortman - Sidoti & Co.

Actually one more question. With respect to the graphics program, stop and shop and then the CVS program, I might be asking again for too much detail, but how much revenue did those programs generate in this most recent quarter and how much business is left?

Bob Ready

David, we’d be able to give a little bit. You hit the nail. We’re not going to put numbers out there, but understand the CVS hasn’t really contribute a lot to the fourth quarter, as David pointed out, it’s well on its way now. July and so forth it will be rolled out I think David by mid-November. The stop and go is just a consistent program, but we would prefer not to get into numbers.

Ron Stowell

Neither one of those customers, nor any customer, was a 10% customer or more in either the fourth quarter or the full fiscal year. David, did you want to add any more to that? David?

Operator

Your next question comes from Josh Baribeau - Canaccord Adams.

Josh Baribeau - Canaccord Adams

Just a couple here, I know you don’t like to provide a ton of granularity, but if you could just help us think about maybe an average selling price or a number of units that you’re selling in the technology segment. I think it might help us be able to model that business a little bit better. Is there something you could give a little more granularity provide for us?

Bob Ready

You always put me on the spot with that don’t you? Never give up. For Seiko…?

Josh Baribeau - Canaccord Adams

For technology.

Bob Ready

For technology, but that’s really LED. Let me put it in perspective, Josh, if I may. Understanding our niche markets, the average selling price probably is in the realm, depending on the classification of light fixture would be in the $500 to $800 range.

Ron Stowell

Well, but I know Josh is asking more about that.

Bob Ready

I think that’s what you’re going with, aren’t you, Josh?

Josh Baribeau - Canaccord Adams

Well, actually, that brings up a good point. Are you including the LED lighting in the technology segment, because I know you’re rearranging how you’re reporting things.

Bob Ready

No.

Josh Baribeau - Canaccord Adams

So that’s still in lighting.

Bob Ready

The technology side is really the specialty side where we would have the visual boards, whereas Fred pointed out, some of the thing, the entertainment market, the things that come out of Montreal from a lighting standpoint, we kind of classify solid-state technology as a broad brush obviously, categorizing where we have our lighting fixture business and our specialty business.

Ron Stowell

Really more custom work, than standard product, so all of our standard product LED product…

Bob Ready

That custom stuff is all over the board. It’s all based on the type of design and the size of the product and you’re in the realm of anywhere from $100,000 to whatever on a board. It’s all over the ballpark.

Josh Baribeau - Canaccord Adams

So the 147,000 that you booked or that you billed in this quarter for the technology segment, is that sort of like one unit? I think is it the Arizona one, or is that multiple projects?

Bob Ready

Sports board would fall in our graphics segment, Josh. The building now the technology segment is perhaps a little bit in the entertainment world and it’s perhaps a little bit of specialty LED lighting. Good falling in our technology segment only.

Josh Baribeau - Canaccord Adams

Shifting gears a bit, could you just provide us with the cash level at the end of the year?

Ron Stowell

Sure. I think I have that with me. Cash flow from operations.

Josh Baribeau - Canaccord Adams

I’ll take that too, actually.

Bob Ready

Did David get back online?

David McCauley

The conference muted me by accident.

Bob Ready

That’s fine. Okay. We just lost the screen now too.

David McCauley

We have a thunderstorm here we were knocked out with lightning and the other was a conference problem.

Bob Ready

Okay. I’m glad you back on.

Ron Stowell

What is you’re asking, cash flow from operating activities for the year was $16.5 million.

Josh Baribeau - Canaccord Adams

Then just the cash balance at the end of the year?

Ron Stowell

Yes, was $14 million?

Operator

Your next question comes from Jim Ricchiuti - Needham & Co.

Jim Ricchiuti - Needham & Co.

Question just with respect to what you’re doing in the c-store market on the LED side. Are you involved in any other pilots that potentially could lead to some larger deals down the road?

Bob Ready

Frankly, we’re involved in everyday rollouts of very small customers, customers that might have just a handful of sites all the way through some prototype work with customers, larger than the one we’re currently dealing with.

Scott Ready

This is the first big commitment of any major company to do a massive exchange of traditional to LED. We’re hoping that as these start to pop up all over the country, and that’s the nice thing, Jim, about this program.

These sites are all over the North American market and we’re hoping now with our sales force in place, they’re going to have a lot of facilities to bring potential customers who are looking at this to actually it’s to follow our marketing theme, ‘Seeing Is Believing’ and that’s what’s exciting about this and you always hope to have one major deal like this to get this thing cooking. We’ll just have to see how that all folds out once it’s completed.

Bob Ready

Jim, remember, the current program is primarily a North American, US domestic program. Some of the work that we’re doing right now that I would consider still in the pilot stage, it’s really beyond prototyping. It’s not prototyping isn’t a good would word for it’s really pilot stage to determine whether the kind of investment return the folks can expect is real and frankly, it’s moved from a technology evaluation to really a business evaluation and some of those programs are international. So…

Scott Ready

I think too, to add to that, we’re beginning to see more interest in energy credits being available in different markets. For example, California for sure, Texas is another, where we’re really looking at that and the utilities making available certain dollars for conversion to these energy sources.

As these states and utilities start to look at this in more earnest, and I think that’s part of our hope is a good work, based on the stimulus dollars that haven’t been thrown out there yet, all those things kind of go into this pot and we’re going to really see what’s going to happen next year, I think, but having this program is a good start.

Jim Ricchiuti - Needham & Co.

In the way that you’re characterizing the year, it certainly sounds like it’s going to be front end loaded in the first half and I’m just wondering if you can comment on that and also Bob, based on what you see right now, you would expect your revenues to be up year-over-year. Looking out into the second half, what needs to occur to potentially not have it so heavily skewed toward the first half?

Bob Ready

Only reason it sounds like the first half, because that’s all I’m willing to look out beyond, because I can’t read beyond that Jim at all and obviously with the programs that are in play right now, those are in the first half of the year. Some of it will continue on into after December, but it’s my hope that if they start to comeback in a more traditional manner, as Scott pointed out.

We’re not only working on LED technology, but we’re trying to find ways to cost improve our traditional lighting, make it more competitive. All of these things are in play right now and from a graphics standpoint, based on what I know, there’s certainly people out there that are looking and they’re thinking, but they haven’t acted yet and without getting too optimistic.

I think what we’re doing is being very conservative and saying this is what we know right now and as things change, then we have to let you folks know as they’re changing and we’re literally living from month-to-month now based on forecasts, which has been a very, very interesting part of our history to say the least.

Jim Ricchiuti - Needham & Co.

Just in the sports market, the smaller sports market that you’re going after, the high school, college markets. How much is the budgetary pressures that these folks are facing affecting orders that you’re anticipating?

Bob Ready

I don’t know that we know that yet. It’s our hope and certainly our thoughts that as our lighting reps are getting more active and our thoughts are we’ve got a very active group of guys out there and gals, representing LSI in the lighting market and the high school market being a much smaller in size by unit, but lots of them out there and if the government truly is going to throw some stimulus money into the education market, where there will be some upgrading in lighting and there will be certainly reviews for energy savings.

It’s our hopes that as our reps are out there calling on these schools for lighting. We were trying to develop a marketing direction to stimulate those agents with these scoreboards from the athletic department. These are revenue generating boards, based on different types of businesses within their general area. They’re definitely under interest from their alumni.

We’re developing a whole different marketing plan and literally coming up with a complete new product line, which we believe will be more affordable, more cost effective for the schools. As Fred pointed out, we made a huge direction on the software, which is a critical part in the selling process of this technology. It’s not just the Board itself, which we have great capabilities to produce, but it truly was developing a new software package, which was unique to LSI and that is just a few weeks away from actually being introduced.

Within the next six weeks or so, we’ll be establishing a full courts marketing plan to go after this market and then we’ll see how the results are going to be. We’re not going to just sit around and wait for things to happen and I think there’s an opportunity based on the success that we’ve had in the Ohio market.

We’ve knocked off three or four high schools in the last month or two that really based on some of the things that we just mentioned and these schools have come into LSI, visit us here in Cincinnati, seen our capability and we’ve been able to walk away with business that normally would have fallen in one of our competitor’s hands.

Operator

Your final question comes from Jim Stone - PSK Advisors.

Jim Stone - PSK Advisors

It sounds like it was a pretty good quarter. Couple questions, I had to slip out for a moment. That big sign that you were talking about in Europe, what was the application for that one?

Bob Ready

Fred, if you would, that’s in the Middle East and it was a Chandelier, not a sign if that’s the one you’re referring to, Jim.

Jim Stone - PSK Advisors

Yes, you said it was the biggest ever made?

Bob Ready

The biggest Chandelier, LED Chandelier to our knowledge.

Fred Jalbout

It’s a huge light.

Ron Stowell

It is just one big product.

Jim Stone - PSK Advisors

The size on that again was how big?

Fred Jalbout

It’s around 30 feet in the height and 120 feet of diameter that it goes around because it’s hanging from the ceiling, down 30 feet, and it has the lights LED inside and those lights they are actually like a picture and those picture they kind of change by our software to do animation and effect.

Jim Stone - PSK Advisors

So they basically have TV screens built in?

Fred Jalbout

Well, it’s some kind of animation that you can play with the picture and show thing that is moving and you can use it as a light fixture alone if the client wants.

Jim Stone - PSK Advisors

What was their primary reason behind buying that type of a fixture?

Fred Jalbout

It’s a specially made for that big huge expensive building. They like over there to have the main entry lit in a different way with a special design and like everyone will have a different design than the other to show the difference in those big buildings.

Jim Stone - PSK Advisors

I think it’s fair to recognize the fact that a very important architect it’s very much involved with special projects like this selected Seiko to develop and Fred, I don’t want to speak for you, but I think you folks have been working with that design architect for better than a year and a half on this one project?

Fred Jalbout

Yes, also, we are working with them on the different project, different design.

Jim Stone - PSK Advisors

It’s definitely a slightly bigger chandelier than I ever installed.

Bob Ready

Well, that’s true.

Fred Jalbout

You can call it 120 feet in length.

Jim Stone - PSK Advisors

In terms of the billboard market, has that looks like it emerging or is it still kind of dead?

Bob Ready

The billboard market I think from our perspective, because of advertising dollars being so tight, is not a market that we’re totally focused on now. I think that we recognize the fact that that’s a market that’s still in a state of limbo. We’re better served if we go after the smaller markets, to high school, that college market. There seems to be a lot more activity in that market than the billboard market. So it isn’t that we’re not still focused on it. It really is a marketing decision to put our efforts, where we know we’re going to get a quicker return.

Jim Stone - PSK Advisors

Then lastly, in terms of the football, basketball market that you’re aiming at the moment. I gather from what you’re saying you’ve had relatively limited marketing in terms of geographic dispersion and you’re now opening that up or…?

Bob Ready

Yes, what we’ve done there is we’re reorganizing our efforts and actually without getting into a lot of detail, Scott, President of the Lighting Group, is taking on a special project. When we brought this new Vice President in to support Scott’s effort in the C&I, this will relieve Scott of sometime to focus on this market and with his direction and working closely with David, in certainly the development of what we feel is a better direction with basically a selection of more inexpensive boards, boards that could be produced at a higher production level with a market as broad as the high school market is, that the first thing we had to do is develop a much more aggressive software system to run these boards for the high school.

That’s been done. We’re tweaking that now. The boards are in their final design to go after this market with a more aggressive direction. With Scott’s background and capability, and his direction, we will establish a kind of a new effort from a marketing and introduction standpoint.

Hire a couple young guys that are really high on the technology side and then combine them with a couple young guys that we already have in place. Let them go to town and go out there into the marketplace and then hopefully as we start to show the marketing capability, influence some of our lighting reps and we know we’re not going to get them all.

With the couple of agents that we’ve already talked about, they’ve looked at this product and this market and said hey, we have an interest in this. We think there’s an opportunity there. So there’s a combination of things in play right now. Some of them are going to work many some of them may not work, but we’re not going to sit around and wait for things to happen. We’re going to make it. We’ve got to supplement that market that are down with other ideas and other direction and that’s exactly what we’re doing.

Jim Stone - PSK Advisors

I gather your marketing up until this point has been relatively limited?

Bob Ready

It’s been more focused on the bigger projects. Which everybody has a tendency to do, it’s the hit in the grand slam home run. I’m not interested in the grand slam home run. I want to hit home runs and that’s basically we’ve taken a different attitude in how we’re going to go to market and that is all in the basic development stage right now and doesn’t mean we can’t do them. It just means that we want to put more attention to a broader market and use more and leverage more of our assets and try to get a better return.

Scott Ready

That’s the key, Jim, is utilizing some resources that we’ve always had that we haven’t really targeted towards that market opportunity yet, and that principally comes with what I can do to help coordinate some of the agent relationships that we have in the marketplace and drive that business opportunity through them back to LSI.

Bob Ready

It’s going back to the principles of 34 years of niche marketing that has been so successful for LSI and taking that approach now and implementing it into these new markets is a direction that we’re putting in play.

Jim Stone - PSK Advisors

What you described, that would seem like you maybe a little late for this season. I thought you implied earlier that the football, basketball are bought about now and you’re talking more like it’s a really a new market for you that you’re going after.

Bob Ready

Yes, but the important thing is that’s true, but there’s a lag time on those markets, but there’s a basketball, there’s the baseball, there’s soccer. These boards that are being designed now have a multipurpose capability as compared to stuff of past and so even though these different markets come and go based on seasonal, there’s a greater opportunity now in a much diverse market approach.

David McCauley

Keep in mind, we’re talking the high school, small college market and those funds even though the economy is poor, the alumni, they find way is to generate money and the booster club. This high school market and small college market is much like Astroturf over 22% of the schools in Ohio now have Astroturf and it’s a growing market.

That’s almost a three quarter of a million dollar expenditure, but like Bob was saying, these football fields for lack of a better description are now used for La Crosse, soccer, track and field, band they’re finding a lot better ways to use it and the most important thing he said was their revenue generating. So, this is a hot spot right now. A 100 of these is a lot more equivalent to a pro stadium which aren’t available now the pro stadium all built or deemed out there is nothing out there for a bit, so…

Jim Stone - PSK Advisors

What I’m trying to understand is you’re talking about building sales teams, putting features in software, etc. It sounds to me like the product still wrapping up a bit. When do you expect to go into high volume pushing and selling of the product?

Bob Ready

Well, the high volume of pushing is obviously the development stage right now from a production standpoint. We were in a mode where we were actually just throwing things against the wall and hopefully some of it was sticking. That’s not the way I built this company and I said to everybody, regroup, we’re going to go in a different direction. I want to focus on a broader market.

I want to come up with a product that we can build quickly and take our expertise as a lighting fixture manufacturer from a manufacturing process and come up with a variety of selected products that a salesman can go out there and sit down with an athletic director or whomever and say here’s what we’ve got and on that basis we can start to create an interest. It starts with one step at a time.

We’ve got the experience. The thing that we lack the most, the weakest part of the link was our software system. It was okay it wasn’t great. It was competitive but it wasn’t okay. What we needed was something that nobody else had and something that would fit and I’m not going to get into the detail, because I know I’ve got competition on the line listening to this, but the fact of the matter is that this fall, we are ready to launch a new marketing direction and will launch, looking at this market on a much broader point in the years to come.

It’s a big market. There are a lot of high schools out there. There are a lot of colleges out there. There’s certainly some pro teams out there, but right now we’re going after a broader market with a more high volume manufactured product with a stronger software capability at hopefully a lower price and that’s where we’re going to supplement some of this traditional business that’s gone away because of the economics.

David McCauley

Keep in mind Jim, the sales cycle associated with these types of products and these types of sales would indicate that we’re just now starting into the hot season for selling. So our timing is good. We’re going to have this program in place at the right time, because next year’s boards, next year’s shipments are really starting to develop. Those programs are starting to develop now and that’s the timing, if you will that we’re focused on.

Bob Ready

We’ve got number of manufacturer lighting reps, whose business is off a good 25% to 35% that are looking for other products and you don’t give them more lighting products to a market that isn’t there. You given them a product and a good salesman can sell anything if you give them the product and the wherewithal to do it and that’s my hope.

Now, where this will go, I can’t give you a forecast, but the market’s there and I’ve been doing this as a market driven company for 34 years with LSI and my hopes are extremely high with the capability. I’ve seen the product. I’ve seen the software and I know that we’ve got a market out there. So now we’ve just got to go out and develop it.

Jim Stone - PSK Advisors

Do you have any target customers yet, who will take this new product or are you just starting to market it?

Bob Ready

No, we already have some schools in our own backyard right here in Ohio that have this in place right now. There’s one being installed this week.

Jim Stone - PSK Advisors

Let’s hope it’s as successful in that market as the car lighting was in its market?

Bob Ready

We hope so too. We hope the car lighting market comes back as well, but we’re just going to keep pounding away.

Operator

That was the last audio question, sir.

Bob Ready

Well, in conclusion, I want to thank everybody for their time and certainly thank you for staying with LSI. The folks would have been with us for a number of years. I’m very optimistic about at least the first half of 2010. I’m excited about the new products. I’m looking forward to the international plan. It’s going to be a continuation of doing what we’ve been doing and doing very well and managing our business. I know the expectations are high.

Certainly in place to see a higher stock price as a major shareholder, nobody is more committed to that. I think that putting the AdL Company in play this year is going to be a tremendous part of our growth in this new energy saving world, call it solid state. The new products that we are working on beyond the lighting products, the capabilities that the graphics guys have and we’re watching that market change dramatically with more and more of our competition becoming weaker and weaker and hoping that a few programs start to play.

LSI is going to be in a great position to go after business with a strong relationship with its vendors, because of our balance sheet, a strong capability with our employees that we’ve kept in play. The investment that we’ve made in this acquisition and certainly last but not least, the ability for LSI to handle this kind of an economy and get through it.

That is the main message that I wanted to bring out today, that this company is here and going to continue to stay in a very, very strong position financially and that will give us all kinds of opportunities to grow our business when some kind of normality comes back to the marketplace.

With that, I want to thank you for your time and as always if anybody has any questions, give us a call. Have a good day.

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