Good day, ladies and gentlemen, and welcome to the LSI Industries, Inc. Third Quarter 2019 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] Also as a reminder, this conference call is being recorded. At this time, I’d like to turn the call over to your host to Mr. Jim Clark, Chief Executive Officer and President. Please go ahead.

Operator, thank you. Good morning, and thank you for taking the time to join us on today’s call. I know many of you have seen our results, but I will review at a high level quickly. For the third quarter of fiscal 2019, we reported net sales of $72.8 million or 8% below Q3 of last year and an adjusted operating loss of $1.9 million, coupled with a debt reduction of $4.6 million. Although these results were not where we would like them to be, they are not a total surprise either as we continue to move forward with our change process. As I mentioned in our last call, LSI is going through a transformational change. Moving away from the broad market commodity supplier focus, which was adopted over the last few years, to a refocused approach as a partner and supplier in key vertical markets where LSI can bring a differentiated solution to our customers. This change, not surprisingly, is having impact on our top line and profitability as we work through this. To help drive these changes, we’ve made a number of additions to LSI to help us strengthen our commercial and operational organization. On April 1, Seth Walters joined as President of the Atlas business, strengthening our focus on our distribution stock and flow channel. The Atlas team has had several wins over the last few months, and it’s just the right momentum for this group as we move into our strong outdoor season. On the marketing and product development side, we recently filled two new senior positions in the marketing organization reporting to the CMO. These positions satisfy the critical need for us to do better alignment of our product management and marketing with our vertical sales model. Continued focus in this area will accelerate the…

Thank you, Jim, and good morning, everyone. As a reminder, today’s discussion may include forward-looking statements about our business outlook. Such statements involve risks and opportunities and actual results could differ materially. I refer you to our safe harbor statement, which appears in this morning’s press release as well as our most recent 10-K and 10-Q. I’ll be providing comments on our financial performance on a non-GAAP basis for comparability purposes and then highlight the non-GAAP items which reconcile to reported GAAP performance. Let me start with key financial statistics. Total third quarter sales were $73 million or 8% below prior year. The company adjusted operating loss of $1.9 million compares to operating income of $800,000 for Q3 of the prior year. Q3 adjusted EBITDA was $700,000 or 1% of sales. Adjusted earnings per diluted share for Q3 was a loss of $0.08 compared to earnings per share of $0.01 for Q3 of fiscal 2018. Moving to reported GAAP results. A GAAP net loss of $3.2 million was reported for Q3 and reported EPS was a loss of $0.12. The GAAP results contain restructuring charges of $400,000 for the quarter, the majority related to the New Windsor facility production transfer project. Although the company projects a federal tax benefit position in fiscal 2019, compliance with accounting standards required a tax expense to be recorded in the quarter. The fourth quarter is projected to report a tax benefit. A complete reconciliation of Q3 GAAP and non-GAAP measures is contained in our press release and 10-Q. Regarding the balance sheet, working capital decreased sequentially from Q2, assisting in reducing our debt level $4.6 million from the prior quarter and serving to increase our available line of credit. A formal program to structurally reduce inventory was initiated earlier in the quarter and results…

Thank you, sir. [Operator Instructions] Our first question comes from Craig Irwin from ROTH Capital Partners. Please go ahead.

Hi good morning, and thanks for taking my questions. So first thing, I wanted to ask about is the progress with New Windsor and the closure there. Can you maybe walk us through what’s left to be done at that facility to execute on the $12 million sale? And then how the savings is likely to layer into your fourth fiscal quarter and then early next fiscal year?

Good morning, Craig. This is Jim Clark, and thanks for the question. Let me break that into two pieces. In terms of just the progress of moving out, we’ve made – we’re wholly done. We have some liquidation auction activity going on for excess material up there this weekend, and then we anticipate that we’ll be doing a walk-through and final cleanup through the month – it will bring us into midmonth of May and then ready for transfer to the new owner. In respect to the sale of the building, we have a definitive contract for the sale of the building. There is a need by the City Council of Windsor to meet with the new owners of the building in terms of their marketing plans and their use of the project. That is the only contingency we have on the close of the sale. I don’t anticipate any problems, neither does the city or the buyer side. It’s more of a formality in terms of alignment with the city’s goals in how they market that as a new person coming – a new owner coming into the city, that type of thing. So all things going – all things – expected, we would expect to have this closed by the first or second week of June. We don’t anticipate, though, that there will be any impact in the fourth quarter in terms of savings or anything like that. That will be recognized in the first quarter of 2020 – of our fiscal 2020 starting in July.

Great. Thank you for that. So the next question I wanted to ask is about your relative growth contribution from core LSI Lighting and then Atlas in the quarter. I know pretty much everyone in the lighting markets saw this quarter, particularly March as a very difficult quarter. Did Atlas possibly outperform? Are there maybe any specific SKUs that significantly outperformed or underperformed that we should monitor from our side?

Yes, well, first off, I’ll break that into two pieces too. Generally, on – in the whole Lighting side, meaning more on the LSI project side, we had – there was no question March impacted us in terms of shipments, but our order bookings for March and April were much improved, where we expected them to be and better. That’s on the whole for LSI Lighting. Specific to Atlas, which we normally don’t break out, but I did make a comment on it, they had two very strong months in January and February and on a year-over-year, March wasn’t exactly where it would have been last year, but we also didn’t run any specials or any programs that kind of increased volume and sales out there that it tends to be more disruptive than any benefit to us. And so we made a conscious decision to not run any of those specials. And so although on a year-over-year comparison it might not have been as strong, it was still a pretty strong month and Atlas had a pretty good quarter for the third quarter.

Great. So then, the improving debt position, $4.6 million, it’s great to see that. It’s great to see the tight management of the balance sheet. Is it possible that other than the $12.5 million payment you’re expecting over the next couple of months that there is more room to squeeze this balance sheet capacity? And I know consolidation sometimes allows that, but do you see a couple of million may be coming out over the course of this quarter? And is there anything else other than the $12 million that helps to get that debt down further?

Well, there may be some small incremental things that will continue to focus on the debt, but we also have some expenses in the fourth quarter that we traditionally wouldn’t have. As an example, we have our national sales meeting coming up here, in fact it’s next week. We would’ve typically done that back in Q3. So on a year-over-year comparison, that might – those are small expenses, but – there will just be little things like that. The contribution on the sale of the building may happen here in June or may get recorded in July depending on how that closeout actually works. We have – I can’t say that we have anything in the works right now that we think is going to meaningfully impact that debt. And the best thing we can do is continue on the performance side, that’s the long-term plan to take that down.

Great. And then last question, if I may, over the last few months, we’ve become aware of a private equity firm in Chicago that could have interest, specifically in the Graphics segment. Numbers I have heard kicked around are in the $60 million to $70 million range as potential valuation that they might want to put on this business, that could give you a lot of capital to go back and readdress some of these issues where maybe capital hasn’t been available previously. You’ve always said that graphics is core, but is there any evolution here, or would you consider a serious offer for graphics only if one was to materialize?

Well, I mean, specific to the sale or private equity, I don’t have any comment on that, but looking at Graphics itself, there’s really two pieces – three pieces if we look at Graphics. We look at our petroleum-based graphics, our branded graphics, which would be – you’d be more familiar in CVS or Walgreens, some quick-serve retail and then our digital graphics, which would share kind of the same customer base. The petroleum graphics are not something that we – well, the petroleum graphics are doing very well. The branded graphics and the digital SOAR, our digital graphics are picking up quite a bit. I think we’re just going through a transition from what was typically our branded graphics and – as they move into digital graphics, we’re adjusting to that. And there is some cost associated with that change, and there is some experience as we move through that process. But I feel good about all three components, and I don’t have any plans to make any changes in the short-term.

Understood. But is there a potential maybe for LSI to make a more aggressive pivot towards graphics, given the consistent profitability of that business, except for when you make discretionary decisions and the interesting growth profile of that business?

Yes, we’re driving both businesses with the same kind of passion and commitment. And like I’ve said before, there is certainly a segment that really appeals to our customer base where we combine the two of them, and it just puts us in a differentiated spot. It really reduces the competition. And when we look at our margin performance in those combined segments, it’s just – it’s compelling and we really want to look on ways where we can manage that to win even more.

Great. Thanks again for taking my questions. Congratulations for decent execution in what’s obviously difficult market.

Well, thank you. I appreciate the comments and the questions.

Thank you. [Operator Instructions] I show no further questions in the queue at the time. I’d like to turn the call back to Mr. Jim Clark, President and CEO for closing remarks.

Operator, thank you. I’d just like to leave everyone on the phone with a couple of thoughts. I hear a lot in the market about the lighting industry and certainly, there are a number of companies that have been impacted, but there’s also a number of companies that are winning. The lighting market is not going anywhere any time soon. We have a 43-year history of competing and winning in this market and we intend to remain in this market and remain competitive for quite some time. Our order volume coming into March and April show some of the results of our increased efforts out in the field and the operational efforts that we have going on back at the – back within our operations are creating opportunities for us to move margin aside from good price control and good price realization. This is a market that we can win in. The combination of our graphics and lighting still puts us in a unique competitive situation, which we intend to continue to leverage. I appreciate the confidence that many of you show in LSI, and we hope to reward you soon with results that prove out our strategies. Again, thank you, and good afternoon.

Thank you, ladies and gentlemen, for attending today’s conference. This concludes the program. You may all disconnect. Good day.