LYTS

LSI Industries Inc. (LYTS)

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LSI Industries Inc. (LYTS)

F4Q08 Earnings Call

August 21, 2008 3:00 pm ET

Executives

Steve Brunker - Chief Information Officer

Robert J. Ready - President and Chief Executive Officer

Scott D. Ready - President of LSI Lighting Solutions Plus

Fred D. Jalbout - President of LSI Technology Solutions Plus

David W. McCauley - President of LSI Graphic Solutions Plus

Ronald S. Stowell - Vice President, Chief Financial Officer and Treasurer

Analysts

Glenn Wortman - Sidoti & Company, LLC

Robert Kolosky

Josh Baribeau - Canaccord Adams

James Ricchiuti - Needham & Company, LLC

Lenny Bracken - Bracken Capital

Shawn Boyd

Presentation

Operator

Now, without further delay, I will turn your call over to Steve Brunker.

Steve Brunker

As with our previous conference calls, supporting materials for today’s presentation will be available, or are available, on the web by visiting the LSI Industries’ website at 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, you can access the supporting materials later after 5 PM this afternoon as well as a replay of today’s conference call. Now, it’s my pleasure to introduce Bob Ready, the Chairman and Chief Executive Officer of LSI Industries.

Robert J. Ready

I’d like to take a moment to introduce our group: Scott Ready, the President of the Lighting group is with me as is Ron Stowell, our Chief Financial Officer, and Fred Jalbout, always in Montreal is online, and David McCauley in North Canton. And all of our folks are here to answer any questions that you may have. After kind of a quick overview of what’s going on, we thought it would be interesting to share with you, especially with the new solid-state LED products, of what’s kind of in the queue and what’s coming, and Scott will address that with a lot more detail.

We’ll start off, obviously, the news that has come out in the fourth quarter which was very disappointing. It’s something that I think we were all somewhat prepared for as we started to see gasoline go through the $3 and then into the $4 mark, and certainly the effect that it had throughout our retail economy. As I’m sure most of you are aware of the fact, and we have said many, many times, the Graphics business is a project-driven business whereas our Lighting business is a product-driven business. And as you will hear from Scott and see some of the things that are going on, our Lighting business is quite solid. It is right on plan. We’re extremely pleased with where we are and certainly with some of the things that are coming in the very, very near future. As David will share with you of the disappointment is that our retail customers are basically on a hold and they are in C basis. Certainly, the dialogue continues but we really just don’t have anything strong that we can really talk about is or relates to a major roll out program. There was a little bit of good news that happened last week with the announcement of CVS buying Long’s and David will address that in his discussion with you as well.

I think my press release kind of said it all. I kind of went through that in my comments in the press release about the direction of the company. What are we going to do about it? Obviously, we recognize the fact that primarily our Graphics market has changed and I can assure you that all of our shareholders that it is in our commitment that we are working on a structure within our organizational as well as business plan to adjust and whatever that really requires us to do to meet whatever the market conditions are truly going to be. There’s certainly a lot of opportunities still out there with all the things that we’ve done and I think from my perspective, to have a quarter like we’ve had was extremely disappointing coming off of record year and all the things that we’ve had worked on to get in place in order to continue on what we felt could be a very strong future. We certainly haven’t given up that feeling. Our Lighting business, as I said, is well on its way with these new products to continue on with the direction. As most of you know, we are truly a market-driven company and our retail environment are those markets have changed accordingly because, I think, that in all essence the consumer has certainly lost some confidence and certainly, his or her buying power has been affected by the change in the pricing of food and the pricing of energy.

As we look into our continuation of our plan, we will stay focused on our Lighting and our Graphics. We feel we have all the opportunities. We certainly have all the people in place and certainly have all the capabilities to meet any kind of objective that may be thrown at us by any customer. And we’re going to keep that in that direction. Our solid-state technology is doing just what we had hoped it would do. As a matter of fact, in the last week or two, it’s even growing at greater leaps and bounds. It’s working the way we hoped it would be when we structured our marketing objective and that was to start with a petroleum industry, getting the crossover product line into the petroleum canopy applications. And from there it is beginning to grow in other segments of other markets, which Scott will go into. The fact of the matter is, is that we’re going to stay focused with our business plan and I have the confidence that our Lighting business will continue to grow. I think David’s group recognizes the challenge and those folks brought us to a record year last year. I know they haven’t given up hope and they will continue to work their hearts out in order to offset some of this softness in the retail economy.

With that, I’d like to turn it over to Scott and let him quickly kind of give you an overview. And we thought that you would find that his presentation interesting with some of the things that are going on, especially with some of the products that are right now in the marketplace or are soon to be introduced to the marketplace.

Scott D. Ready

As we have mentioned in earlier conversations, the Lighting strategy is relatively simple and it’s one that is based upon our belief that our desire to grow market share in new markets as well as maintain the market shares that we’ve had in existing markets. We’re operating in a tough environment as is all lighting opportunities, or lighting companies, I think in the marketplace today. But I think we’ve proven that with successful implementation of this strategy, we can do just what we set out to do and that is growing those areas that allow growth because of the opportunity that exists and maintain market shares there is where we have had such a strong basis in the years past. We have layered on top of that, obviously, our LED solid-state lighting product development. And that is having a major opportunity to frankly accelerate and leverage against that base strategy new opportunities that are creating a brand identity and frankly an opportunity base for LSI that grows almost daily. This applies in all markets; it applies to even the retail business, which is one of the more challenging marketplaces today.

At the very beginning, we worked very hard to develop a product that would be quickly successful and one that would give us the opportunity to have volume opportunities in both the new construction, but most importantly, the retrofit market. We built the marketing strategy that was developed on a concept called "Seeing is Believing" and it was our intention that once the marketplace got an opportunity to begin to experience solid-state lighting on a broad base, that we would quickly have opportunities develop beyond that initial base. And that’s really what is happening. We’re happy to announce that there’s been strong acceptance of the product in the petroleum market, the opportunity to present 84% savings, for instance, in a number of different locations. With a slide here, we’ll show you an before and after, a Shell location, in which that customer did experience just that, a tremendous amount of savings in energy consumption to a degree that the project is quickly paying for itself. But to take that and now roll that into a broader base of opportunities, again, in that petroleum industry on a retrofit basis. Clearly, the marketplace in the petroleum market is challenged. The opportunity for these guys and the particular dealers and retailers that are managing facilities today as the major oils move out of that responsibility on the retail segment, it’s tough. While gas prices are high, their margin on their business on a day-to-day basis is a challenge. That to see the kind of reception that we’re seeing gives us a great of confidence that the value is being recognized and that is something that, as we go through and do more and more work in this marketplace, we believe will quickly translate into other market opportunities.

Read the rest of this transcript for free on seekingalpha.com