LSI Industries Inc (LYTS) 2006 Q3 法說會逐字稿

Welcome to your third quarter LSI investor conference call. Today's moderator will be Mr. Bob Ready, the Chairman and the Chief Executive Officer of LSI Industry. Throughout the discussion, all participants will be muted. And as a reminder, your conference call is being recorded.

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

Thank you. Good afternoon, everybody. Welcome to the LSI third quarter conference. I have with me today Ron Stowell, our Chief Financial Officer; Scott Ready, President of the Lighting Group; and David McCauley, President of the Graphics Group.

Steve Brunker, Vice President of our IT Group, is going to make a couple of comments in reference to the accessibility of this conference this evening, and then he will turn it back to me and we will get into the agenda for the afternoon. Steve?

Good afternoon, everyone. We just wanted to make you aware that visuals that support today's conference call are available on the LSI website, by visiting www.lsi-industries.com. At the bottom at that page you will see an Investor Relations link and that will take you to the pages that will allow you to view the slides that go along with today's presentation.

If you do not have access to a computer at the moment, no worries. This audio conference and presentation is being recorded and will be available at that same website after 5 p.m. tonight for a replay.

So with that, back to Bob.

Thanks Steve. What I would like to do today is kind of give you a little bit of the agenda. I'm going to make a couple of opening remarks in reference to the quarter and then I'm going to turn it over to Ron, who will do his illustrious Safe Harbor explanation and then Scott will pick up the Lighting Group discussion, and then David will talk about the graphics and then it will be back to me to kind of give you an overview of the future.

The third quarter came in just about where we expected it to be. It wasn't a stellar quarter but it was a quarter that fits the conditions of a market and certainly the weather conditions. And it is basically giving us some very, very strong signs about how things are starting to move forward with all the things that we have done in getting ready for the programs and the concepts that we have in place. Scott will get into more detail, as it relates to some of the lighting and David will do the same.

My direction toward the end will really give you guidance on how I feel about the conditions of the market. The overall view of our thoughts would these tremendous profits that the oil companies seem to be making and hopefully give you a comfort level about where LIS has positioned itself and the types of opportunities we have as we move toward '07.

With that, Ron, I'll let you handle this very difficult task about Safe Harbor.

I'll do that Bob. Thank you very much. Our remarks today will be related to our expectations with regard to a number of activities in which the Company is engaged, reliance should not be placed on such forward-looking statements because they involve risks and uncertainties which may cause our actual results to differ materially from those which we're going to talk about or which we may imply.

You can reference these risks and uncertainties in our 10-Ks and 10-Qs that we file with the SEC and I think importantly, we do not have any material nonpublic information that will be discussed today.

Over to you, Scott.

Thanks, Ron. Welcome everyone. We really appreciate your taking the time to join us for this afternoon. It's a great opportunity for us to share with you where we see the company and its current state and where we believe we are going and what kind of results we can produce in the future. The third quarter as Bob has suggested, was a good quarter for the Lighting Group and we are very proud of the ability that we have to pick up, if you will, some of the slowness that we are seeing in our in our overall big program business that we experienced last year and really translate enough of that steady day to day lighting business to keep the company on a good even plain as we look forward to the growth and the programs reemergence in '07.

If you recall the '06 fiscal year for the Lighting Group, it was really the year that we have to start showing improving that the strategy that we put in place in the latter part of '05 -- '04 and '05 was working. And I am very pleased, personally, to share with you that confidence. It is working. We have created, I think, a very strong trend. Moving in the right direction. And we're pleased with our progress. The '06 fiscal year-to-date has shown through the first three quarters a good strong growth trend and it's one that's built upon the foundation and the strategies that we have created in the latter part of '04 and fiscal '05.

If you look at the comparison in terms of quarter to quarter comparison, for the last three years, through the third quarter, that's the theme that should come through to everyone. And that is a good, positive forward-looking growth trend. From a revenue as well as an income standpoint, we were up 14% for the quarter on a quarter to quarter comparison on the revenue side and up 10% on a year-to-date. And that's very comparable to what we're seeing in the market overall.

From an income standpoint, we are even more pleased. All the work that we have done to prepare this company to move forward into the '07 fiscal year and really to move forward in the strategy that we have explained many times in the past in terms of our multi-market strategies and our focus not only on our regional niche markets but also the more important or emerging market for LSI and that being the commercial and industrial market. Again, the trend that we have created and I think projecting that forward, we have a great deal of confidence.

A 300% increase in our income from operations over last year and a 62% increase in that same income comparison year-to-date. I think those are strong indicators. They do create a great deal of confidence that our strategy is correct and that we are executing it well. On a year-to-date basis, I think you are going to see this performance really serve as a springboard to what we do in '07. Again, that confidence is created from through what we see in terms of building momentum. The building momentum has the benefit of our multi-market strategy with the emphasis again on the traditional niche markets, petroleum, automotive, QSR.

Our growth and focus more recently in the C&I, commercial and industrial lighting marketplace, and not -- or last but not least this is what kind of growth we're seeing and brand recognition we are seeing in the international marketplace. There is a photograph on the screen right now of a building which is a new sales and distribution facility that belongs to a partner of ours, located in Brisbane, Australia. We participated in a grand opening with them, during the third quarter, and are very encouraged by the growth opportunities that we see internationally, specifically in the Asian marketplace.

Continuing on the building momentum theme, I am happy to report that we have really good evidence of growing acceptance of the LSI Lighting Solutions, plus company, as a reliable alternative to what may be considered larger, more traditional commercial industrial lighting suppliers. We are competing well in this marketplace. We are competing through better products and better service from all the operations and all the product lines that we have developed and improved in the last 24 months.

Some may ask, and have asked in the past or have interest in, how we plan on really competing in the marketplace that can be some competitive? And I would like to just point back to the last three quarters and as an indication that we are doing quite well with that. And our service levels, the foundation that we started this company on 30 years ago, and our interest in maintaining those and our commitment to maintaining those, are serving us well, as we continue to penetrate deeper in the commercial and industrial marketplace.

On the building momentum theme, we continue to see strong market share in our traditional niche markets. While these markets have not contributed - or I shouldn't say, the growth has not been as significant as we would like to see in recent quarters. We are encouraged by what we are seeing through the last part of the third quarter extending into the fourth and '07. We're starting to see a little more petroleum growth than we've experienced more recently.

We have a great deal of positive feedback on our improved customer service performance through the focused one call access to all the lighting product lines. We are Lighting Solutions Plus today and we're operating as such. The past made it a little more difficult for our customers as they had to communicate independently with operations and independently with product lines. Today that's no longer the case. The investment in the systems that we have in place, the investment in the training, and frankly, the overall team effort that's being applied is working well.

All operations, right now, are strong. And really, the increasingly effective use of that reorganization plan that was put in place over 18 months ago, and the application of the ERP systems and the tie together of those ERP systems through the operations are really showing what we expected to see in terms of volume, on-time performance and service levels. And I'm happy to report that all operations are performing right now within our expectations. There certainly is room to grow, and the good news is we do have the opportunity and the capacity to grow as our volume opportunities increase.

Generally, the nonresidential commercial construction markets are looking very favorable. And this is a metric that will be more important to LSI Lighting Solutions Plus in the future than maybe it has been in the past, given our emphasis and focus on the commercial lighting market. We're seeing our products now, those products that were introduced last year, arriving on facilities or showing up on facilities now that are very much tied to that nonresidential commercial construction phase. The outlook there, again, looks very positive.

You can't go through the conversation in lighting today without talking about energy. And it's a real, real hot button for many, many people at all different levels of our economy, and it certainly is for us at LSI. We see a part of this building momentum, being created by growing demand for energy related products and solutions. We have the opportunity really as LSI today to blend the natural market demand that exists with our expertise in optics and, frankly, our focus on emerging technologies to help grab at increasingly large part of -- or market share of that important business segment. We've introduced new products in the last quarter, we've introduced new marketing programs in the last quarter, and we're shipping jobs now that are tied to this very, very important business.

What does that mean for the future, really looking out of the remainder of this year and fiscal '07? There are a number of drivers that we're encouraged by. And certainly, overall, the outlook is positive. The new products and new technologies will contribute more to our sales growth opportunities as we move forward. It's not simply from riding waves in the market condition themselves. It's the products that we have introduced, it's the technologies that we are bring forward and, frankly, looking forward, I know there's a great deal of interest in LEDs, and I'm happy to report that our work has been very, very productive in those areas.

We have spent a great deal of time developing our own technology and knowledge in this -- and specifically in the LED categories. And I think you're going to see in '07 -- I don't think I know in '07, you are going to see us begin that transition from research and design into deliverable products during the '07 fiscal year. So that's going to be an important growth driver for us.

As I mentioned prior, a little more interest, or a little more activity I should say, in the petroleum market is an important factor here. We are seeing that as recent as the end of the third quarter. We also have a number of programs that I know people are interested in, with some major oil company customers I know, David will touch on that a little bit later. We've actually -- and Ron will touch on the impact that it's had on our percentage of petroleum business overall. But that increasing activity is again an encouraging sign. Over the last six months, we've maintained some important national account agreements that will position us well, frankly, into '07 and beyond to maintain the important drive to volume that those accounts can produce for us.

The strong operational performance and improved service levels that we're seeing in our operations are critical element to this '07 optimism. I mentioned the strong demand for energy efficient products, and that will be something that I believe will accelerate. Our product development in that area is well prepared to accelerate into that increasing demand.

And last but not least, I know that costs are a very important subject right now to everyone in the lighting industry, material costs, certainly our energy costs, amongst the two most important for us right now. And we do expect to see increasing selling pricing on our products, and frankly, sales prices that will be supported by the market in general as we move through the remainder of this year into '07. So overall, we've very, very happy and very pleased with our execution so far this fiscal year. The numbers are strong and the trends look good moving forward.

David?

All right. Well, thank you, Scott. In fact, good afternoon to the audience, and I wish I had little better numbers to match up here with the Lighting Group. But as a matter of fact, it didn't happen, let us talk about that.

We had sales of 27 plus million in 2005 and in 2006 18 plus million. What happened there? Well, as we explained before, there were two giant programs. In fact, that was our largest third quarter ever for the graphics segment in 2005. The programs were the large drug chain that had acquisition of the Eckerd's program and the conversion of those stores. That was a comedown quick, huge proposition. And then, the menu board rollout that took place over the first six months of the calendar year in -- or the last two months of the fiscal 2005.

What are we doing to replace those? Well, oddly enough, as Scott motioned, we had some programs installed that we expected to be hit in late fall and through that third quarter. And again, we have good news to report later on here in my presentation. In the meantime though, we are encouraged with, as we said before, the additional opportunity that our customer has made another acquisition in the drug market chain, the acquisition of Albertson. We hope that clears SEC. And once it does, if history repeats itself, a quick conversion of those stores would be very nice to add to our next fiscal year.

There's also another program available in the menu board business. It is in the initial stages at this time, but that type of combination along with the movement in the petroleum convenience store markets that we'll report should add up to some good figures.

One point of note on the particular side on the screen, that shows our margins for the third quarter were equivalent with a large downturn in volume. And what that tells us, and tells you, is that the basics and fundamentals are very solid. We have the ability when this volume drops, when we have these valleys rather than the peaks to weather the storm and make good money not necessarily the type of money that we could in a comparative record quarter but the basics and fundamentals are there and as soon as we have the additional volume, you can expect potentially great numbers there.

On the -- today I'd like to talk to you about some new technologies, three in particular. In fact that -- I'd really like to talk to you about five of them but two of them are not ready for primetime. These are technologies that we either have had a news release on or we have had discussed before but we're going to drill down and give you some real statistics and insight on these particular technologies.

The first one, as you can see on the screen those that are viewing, is the digital printing technology. Last month -- excuse me -- last quarter we made the announcement that we replace the order for the large digital Inca(ph) of press, a large format printing, the largest and fastest of its kind in the world. That press was delivered to North Canton, Ohio in March. It was operating the first week of April.

Now, we're turning capacity, compared to our other first additional, our first press -- our first digital press, at 300 times faster -- three times faster, 300% faster. We're getting a wider color garment on that particular press, improved quality, and obviously a lot better throughput. Why did we get this press? Well, not only the -- surely not to have bragging rights but there is definitely a demand by our customers in our prospects for this on-demand printing. We would face many capacity problems without this press.

Does it take away from the current traditional printing methods that we have? No. It's an add-on. The traditional methods are for the high volume. What it allows us to do is to take these come down quick orders in churned -- fit the customers need to have an inventory list type situation. They know from past experiences that they throw away 28% of the product that we built for them in the old traditional printing methods.

With this press, they can dial the number they want and that's why it is called Demand printing. And the premium that they pay for it, this type of printing press traditional, is not that much more. And it is the trend of the future. When -- as these presses improve, and we hope to have even maybe another press ordered before the end of the calendar year as these presses improve, they will again become faster and maybe at that point start even into the traditional large high-speed printing.

Next technology, Scott mentioned the word LED. I'm going to talk a little bit about LED, as it relates to graphics end of the business. On your screen for those viewers that can see their monitors, you see that traditional signs with the addition of LED enhancements. These are large type customers that have their marquee types sign there to have -- when in many cases have not added light in the past because they couldn't meet energy standards that they wanted to. They weren't safe enough or there was too much maintenance involved.

With the advent of the LED, that answers those three problems that I just described to you. And it has maybe driven the cost up double for the signs, that's fine with us. That just increases our revenue stream and our margins. But keep in mind if the customer realizes that they get a lot more impact out of this type signage with the LED and the backlighting -- that gives them that total image that they're looking for.

In fact you can see on one sign on the far right of your screen there is a video monitor placed in that and that brings us to our next technology. In fact, again, last quarter at this time we announced that we were moving into a business development initiative with the 3M digital signage end of their business. That, in the last 90 days, has moved along nicely. Again, digital signage, a lot of people have to think of it or it's called by other names such as out of home TV, narrow casting, POP, video, these are monitors that are placed at the point of purchase with the right message, to the right crowd, at the right time. And they can be day-parted delivering specials to help move inventory or to increased brand recognition.

I'm going to show you a marketing piece that's -- it's on your monitor now. A small piece that was sent out to 700 of the targeted corporations on our hit list, sent to their heads of the Vice President's IT, Vice President of Marketing and Advertising and also to a lot of leading design and advertising firms, to help announce an excite them about this technology. Most - not most of them, all of them do know about the technology. Right now, it hasn't reached its trigger point. It's a look-see test type situation. We understand that we like this leading edge that we're positioned well now. And as this technology grows, LSI and 3M are going to enrich themselves and shareholders through this process.

As you can see the next slide, it shows the customers that -- the first slide, excuse me -- I will back up -- first slide tells them to optimize their sales with digital signage. At that point they activate a button, a red button on the device that was sent to them, the LED light in the center of that product blinks and a voice announcement comes on telling them that they can increase their sales and encourages them to open and learn more. And when they do it tells them to rely on LSI and 3M digital signage. And then takes them to an action step of trying to activate them to call our office, to get more information, and arrange for an appointment. If they don't, we surely follow-up with them, and do our best to get that appointment.

Okay. Moving on, the next group of slides is going to show you a little bit about the digital signage used in the real world. This happens to be a large convenient site in the state of Ohio, here. The next slide shows two monitors. The next on showing four with different messages, different advertising on those messages, there are two additional monitors, I don't have pictures of on your presentation today.

I'm going to back up and tell you some good news about this. If in fact you look at this site, you can see where LSI could participate on the outside of the building in many ways. If you look at the pumps we can identify those. All the egress(ph) signage, the standard signage for directional information, to the building or for the parking area. That is an LSI opportunity. All the lighting, of course, the canopy identification. Moving back into the store, again the traditional graphics with isle markings, floor markings, facility markings, now with this new additional video content that we provide, it can double the amount of revenue and of course increase the margins that we get, per store, on those type of locations.

Lastly, I want to talk about growth drivers also that has got the -- we had those delays by the customers. Finally -- excuse me, the delays we did have in the fall and spring of this year are coming to an end now. They're loosening up. We are in good position with the two programs that we've talked about. The one in the petroleum industry, that thing has left the dock, is moving out to sea and is gaining speed. It is not at full speed yet, but we expect it to be there in short order.

The other group is the convenience store chain. That one comes out of the gate fast and is nearly at full speed and we will make good progress coming into these summer months and surely be at full speed for a good while. We expect that one to continue to progress.

Okay. The graphics -- in fact LSI is on a stronger, heightened quest for potential acquisitions that further widen our customer base, our resources, technologies, as you can see the three technologies I talked about and others that we are looking at. We're surely going to take the move and look for good candidates to help make that progress and also increase our total capability.

I keep talking about widening our capabilities or widening our offerings. That is what works so well and to remind you, we do not sell products in the graphics image programs. We sell programs. And if in fact we can widen our basket by digital technologies, by graphics signage, by lighting, by other technologies, our capabilities in terms of print manufacturer, installations, et cetera., the customer has to come down to making a choice for programs and they say who has the financial strength? Who has the arsenal of products and processes? Who has all the resources and people and geography? And finally, who is that low-cost manufacturer with good quality?

It leaves very, very few. In fact the one at rises to the top is LSI. We're very proud of that. New products will contribute to more sales growth and opportunity. Last year at this time in the graphics end of the business, we weren't talking about those new products. We were in the developmental stages of the LED; the active digital was more of a place holding situation. In the digital printing it is more enhanced now. Again that's why we feel so encouraged about these drivers. They are in place now. They are active. And that explains why I rate the outlook positive, very positive.

And lastly, my favorite slide. As I keep showing from time and time to the shareholders and to the investors, to the audience here, is this opportunity is everywhere. And as you all know, there's been a lot of mergers, there's been a lot of acquisitions, alliances, co-branding going out there, joint ventures, and these are seeing those. When they become a reality, when the deals are closed, when the marketing plan is set, that those dollars come to people like LSI. And we expect to get our fair share here. Bob, with that, I would turn it back over to you.

Thanks to Dave. I think, this is Ron, and I will make a few comments next. And LSI is Leadership, Strength and Innovation. You heard from Scott and Dave so far about some leadership and some innovations that LSI brings to the marketplace. I will talk to you little bit about our performance and our strength from a financial perspective.

The third quarter at $64.5 million was about a 5% lower than the prior quarter of last year. When we had very strong programs. But you can see a mix here of the kind of strength and growth that Scott talked about in the lighting segment for the 14% growth and lower sales in the Graphics segment. I will also back up to mention here, the slides that you will see in this section of the presentation are very consistent with what we have been presenting for the last several quarters. There's more data and more numbers than I will cover on this call today. But they're certainly there for your reference in the future if you need to refer back or get some data that I don't particularly cover on the call.

The nine month period, had 208, almost $209 million is less than 1% below last year. So again, we've got a growth in the lighting segment to 145 million or 10% up and the graphic segment coming in at almost 64 million for this nine month period. This is a graph, but I will also point out and mention for those that know LSI, this third quarter that we have just reported on has traditionally been, and could likely always be, our seasonally lowest quarter. That being the winter months when construction is down and some budgeting considerations from our customers.

Petroleum Convenience Store is our largest market. We've talked about that consistently. You see that for the nine month period, we are -- in both years, we are at about 25% of sales and almost up to level, the level that we had last year. But for the third quarter petroleum sales were stronger than last year and we had about a 9% increase up to 15.5 million. The gross margin for the company as a whole, I think the thing to note here for the third quarter in absolute dollars, were about two percentage points below last year. However, if you recall the sales were off by almost 5%. So we picked up margin. You see that here, we have got 23.3%.

So we have improved our profitability and that is also in the face of what I will call like for the moment, a product mix shift in that graphics, which is traditionally a higher margin than our lighting products, graphics was off. Lighting was off and we have still improved our margins here. So we have got some things that are certainly going in the right direction. On the nine-month period, our gross profit percentage was about constant at 25.2%.

Operating income on a segment-by-segment basis, we have almost 2.1 million in the operating income for lighting segment, almost 1.5 million for the graphics segment and 3.5 million for the quarter. That's 5.5% of net sales. The numbers for the nine-month period appear here as well at 15.4 million. Here you can see the profit of the net sales -- I am sorry, the profit of the percentage of net sales of each segment and that follows my comments at the graphic segment is traditionally a little more profitable than the lighting segment.

And then there is a graph. Again, you can see the seasonality presented about four years of data. And you can see the seasonality of our operating income. And also, you can see in the third quarter that we're higher than we have been in the last three prior years as well.

It's something that we will continue to point out for at least this fiscal year, stock option expense under FAS 123(R). We had expensed stock options and.....

I think we just lost you, Ron.

Ron is removed, so...

Yes, bear with us folks. We are trying to bring that back up. How embarrassing with technology the way it is today. He is off site. We have David off site. Ron is off site. And we are all located in Cincinnati. I think what we can do in absence of Ron is that we can move these slides forward and pick up some of the information as we go forward.

I think we can track Ron back.

The point to note here is, as Ron said, this information is available on the website afterwards. Most of the information you are going to find, either contained in the release or certainly in the 10-Q as we finish that information.

And as Ron also pointed out, we want to be sure to follow a format that you folks can easily pick up after hours or at your convenience.

The balance sheet still referencing the strength that Ron mentioned in the earlier part of his conversation, still representing a real strong foundation for this Company, and not only the increases in the cash position, but certainly the ability to do that and control debt at the same level that we have over the last two quarters. Bob, do you want to mention a little big about CapEx spending in terms of the impact of the machine?

Yes, it's pretty clear based on what we normally try to do. We do not have anything necessarily big to look forward to, as we move into 2007. We have been a pretty conservative company. We maintain that conservative direction. However, when the opportunity is there to invest in, what we believe is the right investment, we have certainly the cash position to do so. That's a great position to be in. It's sort of a very important part of LSI strategy in the past, and it will continue to be there in the future.

Scott's looking through a few slight here, basically just trying to show you some of the slides that Ron normally talks about. And I won't get into a lot of conversation about that because it's pretty basic. It pretty well follows the format of what we have done in the past.

Our cash flow is very strong. Our debt ratio as we know is very -- there is no debt. And one of the things again that we pride ourselves on is the continuation of the cash dividend. We think this is a great investment for our shareholders. And that we're very proud of the fact that I think we are in our 13th consecutive direction as far as cash dividends.

What we tried to do to help in the very difficult guidance level. We certainly appreciate the difficulty that our analysts have, had to bear over the years in reference to guidance. And as most of you know, who followed us, is a very difficult direction to forecast in an industry that we serve to consistently -- is very difficult to get information, as far as the direction they're going. It's been a part of that industry for as long as I've been doing it. And yet we've diversified the company enough and we have enough programs that we feel pretty comfortable with that we've been sharing with you over the past year or so and looking at where these all are going to fit in the play.

Especially now, because we have had a little better direction from the companies that we are working with or the customers we are working with. So we're going to try to help. And we're going to try to give this guidance. So that it makes it a little easier to our analyst to follow, what we're doing. We are trying to minimize this lumpiness from a reporting standpoint that we've unfortunately had to endure, for all the years we've been doing it. It is not a simple answer. I wish it was. I wish we had backlogs, it were certainly longer - with what we have today, but that is to LSI is. And as a result of that, we are going to go ahead and try to help in that direction.

I apologize for losing part of Ron's presentation. But as Ron pointed out, this is pretty much available and all of the reports, certainly if you want to pick up on the screen, we will have that run through by 5 o'clock tonight.

I have a couple of comments that I'd like to get into that, I think is very important that really weren't addressed by Scott or David. I want to start with David. David, one of the programs that I know, a lot of folks are aware of -- most of the folks know we really don't like to mention necessarily customers names. But we are all aware -- of very large company on the West Coast that we've been working on their new image or their new look. And I think we've reported last time, we were together that some of the prototypes were around 125 sites to 150 somewhat in that range. We indicated that the next phase would have been about 500 and then they were going to try to review all of those. Would you give the group an update on where we are with that specific part of our re-imaging program?

Sure. As you -- you're correct, it was a 125 sites. Those sites are about 95% done. We started in to call batch 2 of the 500 -- I thought we lost you there. The 500 sites, we're rolling along fine with those, they are on schedule. And we're highly anticipating the opportunity to get into the big batches of maybe 2,500 per year over the next three years. And so we're very encouraged at this stage.

Yes. I think that's the information that I wanted the folks, who will have an interest in that apart of our program is it -- because our petroleum business obviously has been very, very lumpy. It's been limited based on some of the re-imaging that is going on. And as we've indicated in the past, we're excited about the fact that there seems to be a lot more activity, a lot more interest, as it relates to some of the identification images that are going to be going on in the petroleum business.

And it will, what reassuring to me, is that we've taken this attitude that we are going to maintain that market share no matter what. When I see no matter what, it's the fact that we will continue to develop new ideas, new products, new processes, and do all the things that these oil companies -- that when they do make that decision to move forward they're going to have basically a one-stop shop, and it's going to be all LSI.

It is a market that we built our tradition on, it is a market that is important for the future. And I am very, very optimistic about our position as it relates to new products and new processes investing in that new frame equipment that David mentioned earlier. And certainly the attitude toward what we can develop with the oil companies. Energy, being very important part of our strategy, and I'll make a comment now as I said in my opening remarks. I know that I'll be asked this question many times. And I know this is being asked throughout the country. What about these oil companies? What about these huge profits?

Well, unfortunately the country doesn't really fully understand all the whys and wherefores and what this profitability is, but it is money, and it is profit and as far as LSI's position is, we don't know what they are going to do. We don't have a clue until they really sit down with us and say, this is what we want to do. But what makes me feel good about it is, I'd rather be dealing in a market where I have such a strong control in our market share than a market that is profitable is -- but the oil industry and looking at our position based on if and when there is direction from any major oil company from any of depending oil company, that wants to move forward, and I'll use the example of white hen(ph), which we were up against, we mentioned that last quarter. That they came in. It was a very quick turnaround an independent. And we were in a position to do and handle it very, very quickly. We're that kind of company. We are quick on our feet and we've got a great foundation to take a market that we know very, very well and have an opportunity to help then spend some of those profits if that's where they want to spend it.

And as a result, we're looking at how we diversified the company into a position where we are going to have obviously a lot more to talk about in areas, where we know we can improve our volume and improve profitability. So the question I have for Scott, that didn't come up in the discussion, is that we just recently announced an extension of one of the largest retailers in the world.

And without mentioning names, I would like to have Scott comment on that, because that is a very important part of our strategic direction over the next two to three years. Obviously, the impact of the potential of that volume is extremely important. And we are really, really pleased. I am exceptionally pleased that we were selected again as an extension to that contract. And Scott you may want to make a -- to help clarify some of the things on the whys and wherefores of what's going on.

Sure, sure. We -- as I am sure our audience understands and realizes, we have national account agreements in a multiple market area with a number of large national retailers. But there is one that stands above all in size and certainly influence. And we were very, very happy to seek a stronger position, given the product mix that we can offer this national account. And given our performance over the last two-and-a-half years, we were granted that stronger position and it really it gives us an opportunity now to absorb the kind of volume impact that that account represents in a stronger fashion, given the shift in product mix, primarily moving more from the indoor product side of the business to the outdoor product side of our business.

It's the size of the business that LSI Lighting has been strong in for 30 years. We are certainly the premium, if you will, supplier in this particular arrangement for this account. And we are very pleased that we have been able to not only maintain our relationship and maintain the account commitment from this account, but also to change the character of this relationship, just ever so slightly, with the product mix into an area where frankly we have the opportunity to do two things.

One is certainly supply the requirements that this organization has of us and do it in a stronger fashion with a better product mix, a better margin opportunity. But secondly, now take the capacity that for the last two-and-a-half years has been really exercised and improved and perfected to some degree to service the account, steer that capacity into other markets and steer that capacity now into the further penetration of some of the other markets that we have mentioned.

Yes, I think that is so important in the strategy that we look at this with a very positive approach that we, through the guidance, certainly the pressure, certainly the education of dealing with that retailer, that company has made LSI a better company. I have always said that if you are to be able to make money with that retailer, you can make money with anybody in the business. And what this is going to do for us is it is going to enhance our outdoor capabilities. And that's very important because of our pole business. We manufacture our own steel poles. And number two, our fluorescent business or our fluorescent companies are in a very, very good position now to expand their market opportunity and take that capacity on. And so I look at this business as not a replacement of but an addition to.

Time will tell, but it's certainly is a very, very important part of our strategy. That we have that business lined up, our volume lined up. And now, we have the ability to take our interior product into other markets and other dimensions, because really we will have the capacity.

Bob, I guess...

I would like to conclude with some of the comments in reference to the overall direction of the future of LSI Industries. I am so optimistic about our future -- and those who know me know that I am an optimist, just by the way I am. But I love the way that the companies are coming together. I love the strategy that's in place. The fact that we're diversifying ourselves, we're not putting all our eggs in one market or one particular basket, then we have a great deal of diversification. And that is all new potential out there.

I love the fact that we could maintain our market share and the basic standard markets that we have served so well and the fact that we've gone through a downtrend in those markets. And it's very fair to believe that those markets will eventually start picking up, and we will be in a position to serve those markets, not with old products, but with new products, new ideas, LED. LED is a buzzword in the lighting industry. And we're really excited about the LED potential, not only in new product development, but the retrofit market, which LSI has been very, very good at.

I love the fact that we have our graphics businesses really zeroed in on market opportunities because we've invested wisely in equipment that really works and it gives a benefit to the customer and makes -- and gives a benefit to our corporation on a profit level, because we've had a change in attitude on how business is being done in this world.

I love the fact that we've developed a company, that we have three major business segments, lighting, graphics and now technology, with people who lead those business segments and working together and bring LSI into a dimension that really doesn't "a competitor" on a one-for-one basis. I like that uniqueness. I understand that we've been through the ups and downs within the industry -- the petroleum industry. But that's the name of the game. And I love the fact that we've got a balance sheet, that we can do what we need to and when we need to do it.

The one thing that is very important on my agenda is looking at acquisitions. You know, my basic feeling is that we haven't made an acquisition in 3.5 to 4 years. And there are obvious reasons why we didn't. I felt very strongly about staying and keeping our focus on the ball internally and getting our Company through this crisis, where our petroleum business changed sort of dramatically and being sure that the Company was maintaining a strong financial capability.

But, you know, we're ready for an acquisition. We have all of our -- we have our systems in place now that we didn't have three or four years ago. We've got continuity in manufacturing operations. We've got a centralized brand direction. And LSI is a brand manufacturer of products and services. We have people in place that I think are the best in the business. We have a cash position that we can move forward to. We are in the best position than we have ever been in as far as moving.

Now it's up to us to implement it. And I am excited about the team that we have in place. Am I'm not selling the Company. I'm just telling you the way I look at it from my perspective as it relates to our opportunity. The ball is in our court. And I think we're going to show the results that both David and Scott shared with you, as it relates to how they're going to implement some of the opportunities that are out there.

We've never got Ron back on the phone, so I apologize again for that interruption. And I basically don't have any other comments other than the fact to say thanks again for coming in today and listening on where the Company is going. And we will be back in touch in three months from now. So with that, we will conclude and call the conference to an end. Thank you again, for your time.