LSI Industries Inc (LYTS) 2011 Q3 法說會逐字稿

Good afternoon, everyone. Welcome to the third quarter earning conference call. Today's host will be Bob Ready. (Operator Instructions.) Without further delay, we'll turn this call over to Mr. Ready.

Thank you, Matt. Good afternoon, everybody. First, let me make some introductions on who's on the line on our behalf, starting with me and Scott Ready, the President of LSI Industries, Ron Stowell, Chief Financial Officer, [Shawn Toney], who is the Senior Vice President of our Lighting Group, and Steve Brucker, who is our Vice President of Communications.

We also have on the line today David McCauley, President of the Graphics Group, and we've also invited a new -- not new to LSI but new to the conference call, Robin Hood, who has been with our Company a number of years. He's Senior Vice President of the Graphics Group working with David, and he is part of our succession plan. So, I thought I'd invite Robin to be online with you folks as well today, and have David work with Robin to answer any questions regarding the Graphics business.

Welcome. To say that least, we were very pleased with the third quarter. As most of you who follow us know, the third quarter is always a challenging quarter for a number of reasons, two of which are the most significant reasons, that being weather. It was kind of a rough winter, to say the least, I'm sure, throughout the country, as everybody knows.

With our large involvement with national accounts, if -- their budgets really don't start to come out 'til March or April. I'm personally very pleased with just the whole balance of our business plan. There was no big significant amount of business. There weren't any of those big rollout programs that we've had. The 7-Eleven program is just about complete, a little here, a little there.

As we shared with you before, the Canadian program hasn't really started yet. We're hoping to start to see that in the fourth quarter. The BP program, as you're all aware of, was in the initial stages. As we shared with you, really wouldn't start to roll out 'til April. Our reps were out there in that harsh winter trying to do surveys. A lot of that work's been completed. Order entry is now starting to develop, and that will be, obviously, a part of our fourth quarter estimates as we look into the balance of the year.

It's just a good -- business is just steady. It's -- our commercial businesses, by the numbers that we've -- they shared with you today in our press release is obviously growing. Our LED business is strong. We're still doing a -- kind of a preliminary prototype work in the international market. But, the press release, I think, kind of told it all. I mean, in all the statements that we put in there, it's the disciplines that we put in place that really improve the margins. Volume, obviously, was up, and just everything right now is in a very forward position, and we're looking forward to a continuation of that.

We'll have to see if there's any direction as a result of these gasoline prices, which could affect everybody, but it's business as usual here. We're very, very confident that business will continue at the level that we're seeing now.

So, I'm not going to go into anymore detail. There isn't a whole lot more to say other than what the press release said, and I'd like to, Matt, open it up for question-and-answer, please.

Thank you. (Operator instructions.) Glenn Wortman.

Can you just tell us how much 7-Eleven contributed in the quarter?

Well, as you know, we don't put numbers out by customer, but it wasn't anywhere significant as toward -- as compared to normal business. I mean, it's just some cleanup work with a few sites that they've added to it. As I said, the Canadian business hasn't really started yet.

7-Eleven is, really, yesterday's business. They're going to continue on, I'm sure, to be a good account, but we're pretty well completed with their project.

Okay. And then, your Lighting sales were much greater than I had forecast. Your C&I was up 39%. National retailers and other niche markets have 25%. Can you just help us out and understand what's driving the strength there?

Well, I'll let Scott handle that, but, very, very simply, it's all of the work that we've been doing for the last year in developing new markets, new direction. We've put new people in place, but that's the basis from where it started. But, I'll let Scott share with you --.

Yes, Glenn, it's really a result of the fundamental blocking and tackling strategies that we've had in place for some time. We've improved both the product offering as well as the channels to market, starting with our own salaried salesforce, improving, additionally, the agent base, their knowledge of our product line, the level of service we're supplying to those gentlemen and their companies and really culminating in the -- truly, the addition of LED technology to that commercial industrial space.

If you recall, our first venture into LED product was really geared towards the petroleum market and our niche market strengths. That foundation gave us not only the production experience, the supply chain experience, but also the performance credibility in our product that we could then leverage against that commercial space. And that has proven to be a very, very effective strategy.

And I would say -- I'll let Shawn add a couple of comments to that as well, but it really is coming down to improved salesforce, improved distribution channels and improved product offering.

Thanks, Scott.

Shawn, you have anything you would like to add?

Glenn, I think that pretty much covers it. The only thing I would add is we're really, as a team, direct and indirect salesforce, really connecting solidly with the end market. So, beyond agent, beyond distribution, our efforts remain to continue to build demand and preference for LSI product with specifiers, including architects, lighting designers and so forth.

All right. So, you don't think there was anything unusual or maybe one time in nature? Maybe a [buy-ahead] in front of your price increases? Anything like that --?

No.

No, there's just -- it just really -- we're really, now, firing on all eight cylinders with all the work that we've done -- bringing Shawn on board, making changes in the regional managers, making changes in rep areas, adding new product direction. All of those things are contributing to that, and that's why our confidence level is that if the economy doesn't get too messed up in the next -- this quarter and beyond, then things should continue to show improvement. And we're very pleased with that.

Okay. And then, just looking at your gross margin, it did improve sequentially on lower sales and what I would presume would be higher cost, just given the commodity inflation we're seeing. Can you just help us understand how you're able to expand the gross margin? Was -- were you rolling off 7-Eleven work at -- was that lower margin work, and you're selling higher-margin products during the quarter? Can you just help us understand what happened there?

7-Eleven had nothing to do with it. I know 7-Eleven has been a big target for all of us over the past year or two, but I want to emphasize that again. That's behind us. That really had no influence on it. It really comes down to the fact that our folks were asked to do a lot of things differently. It's a culture change that we've been sharing with you for the last few quarters of what was going on.

Those disciplines have been in place, people are now educated to those disciplines. It's a new culture here dealing with a very difficult economy. It's a whole different attitude change.

Certainly, the volume has helped going through our facilities. As we've -- as you know, we closed the Greenlee operation, consolidated to Cincinnati. That obviously would have some impact. Our AdL business is strong with the investments that we've made. As you're probably well aware of and remember, we shared with you, over the past six or eight months, we reinvested in our manufacturing operations because of our strong balance sheet. Those improved efficiencies.

LSI's a new company today. We still have the basic history and the direction, and we do understand the challenges of the material increases. We've done a great job with our -- working with our vendors to keep those costs at a minimum. And yes, we did put a price increase out there, as most of the industry has. I don't think that had anything to effectively do with it. Again, understanding it's the third quarter, based on the conditions that exist.

I give a lot of credit to our employees for really coming to the direction that was put in place in order to improve those margins. Everybody knew that that was our challenge. If you recall, in our last conference call, our -- my main focus was to get the profitability back to the Company and hopefully, with the results, see an improvement to our stock price for our shareholders.

Okay. Then, just lastly, just thinking about that gross margin heading into 4Q, yes, it's a -- stronger volumes, presumably, just given seasonality. You do have raw material costs that have continued to go higher, but you have the price increases out there. Okay, have the price increases stuck? How should we think about the gross margin in the fourth quarter?

As a total, there's -- it's very difficult to forecast that. But, from what we have learned over the past few months, yes, we expect more material increases. And as they come, obviously we will be announcing other price increases.

Being a very competitive industry as it is, we're being very careful how we do that. But, as I will reemphasize the fact that, right now, looking at material price increases, we're doing a lot of work with our vendors to find better ways to keep those costs down and minimize that kind of an increase.

So, as we go from month-to-month with these energy prices going up, only time will tell. But, I can tell you this, that from an efficiency standpoint, our Company has extremely improved over the past number of months. Again, goes back to some of that investment on some of the high-tech equipment, very automated direction. That's how we're competing with China imports.

And again, with a very high degree of confidence but, obviously, a very guarded confidence because of the economy, we're working and pushing forward. And our strategic plan is to go after more business and be more aggressive with the folks that we put in place and the strategies that are in place to go after that.

Okay. Thank you for taking my questions.

Thank you, Glenn.

Thanks, Glenn.

Jed Dorsheimer.

This is Josh Baribeau for Jed. Just a couple questions. Can you tell us what the percentage or, maybe, the dollar value of LED sales were in the quarter?

Yes, hang on just a minute, Josh.

We've got that here, and it was -- in the quarter, 20%.

Great. And then, maybe just taking a step back, can you tell us what markets you're seeing the most success in? If it is, in fact, petroleum? Or if you're starting to break into some of the other bridge/tunnel, etc., lighting markets that you've entered?

I'll let Scott and Shawn share that with you, but petroleum is obviously still a very strong part of our business. But, because of the success, as Scott indicated, and the expansion of our products, we're now in a lot of different markets. Scott --?

Sure. Yes, Jed (sic), as I tried to characterize in my earlier comments --.

Josh.

Or Josh, excuse me. That's right. We have really expanded the penetration, now, into those other markets. In some cases, participating in business that we would've traditionally participated in with older technologies, fluorescent metal halide. In many cases, penetrating markets where we did not have a position without LED. That has done much to add to those overall volume opportunities for us in the commercial industrial space, as a matter of fact.

So, I think it's fair to say that that kind of activity could be expected to continue. It's built on solid foundation of fixture performance and a extremely high level of value for the customer. And LSI has always proven to be a company that the market could look to when they were looking for value. The economy demands it today, the energy prices that the economy and our customers are paying today demand it.

As they look towards the future, and they understand our product line, we see more and more opportunity. Our new product release schedule for the fourth quarter and into the summer is much more aggressive than, when, for instance, we were looking at in the second or third quarter. So, we expect to maintain the kind of pressure we're keeping on the market and, in many cases, accelerate the performance.

To add to that, the costs of LED technology is coming down, even though material prices are going up. When you look at the product line that LSI has now -- and one of the great things that I think has really affected our whole acceptance of our product line was the additional of AdL, the acquisition that we made a year and-a-half ago.

We own our own technology. We have the flexibility of buying the technology on the open market as much of the lighting industry has done and continues to do. We have that ability as well. But, because of what we've done with the acquisition of AdL, we've developed some very unique options, very unique products which the market has really accepted well.

Building off the platform of the success of the petroleum, which was always part of our strategic planning, with our strength with the petroleum market, that was the first market that we wanted the exposure, and we wanted to build the confidence level in our product line because it was such an open market for us and a very visible market.

From that platform design concept, we've made numbers of improvements, made new introductions of new technology and options that aren't available on the open market as shelf items that the industry works on. So, I think there's a combination of things that have really strengthened our LED technology, and we're going to continue to invest that and expand on that as well as this market is changing. And it's changing, as you know, Josh, more rapidly than any time than I've ever seen this lighting industry change.

The challenge and the goal here is for us to continue to do the best we can to introduce some of the more unique products and expand those markets' potential as more and more customers out there are recognizing the benefits of the energy, benefits of the maintenance and now seeing the lower costs. And so, it's a rapidly expanding market.

With our investment in people and the efficiencies, we're effectively becoming a much bigger player and giving us much more opportunity to expand in those markets.

Great. And I guess just one clarification of the LED number. 20% -- was that of Lighting sales or of total sales?

No, Josh, that was of total sales. For the nine-month period, we're almost -- just under 22%.

Great. That's it for me. Thanks, guys.

Thank you.

Thank you. (Operator instructions.) Glenn Wortman.

Yes, I just had a follow-up. Just moving on to the Graphics business, can you just talk about bid activity, what the pipeline looks like? And then, maybe talk about that in the context of the healthcare legislation and the requirements for menu boards?

Yes. I'm going to turn that over to David and Robin, but before I do that, as you well know -- and I'm going to just remind folks in case there's some new folks on, that our Graphics business is project driven, our Lighting business is product driven. The project-driven part of our business is obviously somewhat flat, because I still feel, personally -- and these guys might throw a different color on it, is that confidence level out there, I think, is very, very guarded, especially on the Graphics side of our business.

With that said, the tremendous change that we brought about with the integration of our companies as part of our strategic planning that was set in -- about -- just a little over a year ago in bringing our companies together, utilizing the strengths and the assets of the Company and going after more business as a result of the investments in our people that we have is part of that new attitude change that I mentioned.

I'll turn it over to David and Robin and let them get into more detail.

Thanks, Bob. Good afternoon, Glenn. To your point, there was nothing fancy about the quarter in terms of any large project or program driving the quarter. It was like Scott said, blocking and tackling. As the football coach would say - - hey, if everyone does their job, we'd score a touchdown on every play. That's pretty much what happened.

As Bob told you earlier, we're getting honed in. We're getting pretty sharp on our skills in terms of playshifting our work and combining the operations with the new equipment, etc. So, with a standard order entry and nothing fancy, we can expect more of the same.

What possible in the future? Well, we don't have a lot of the LED technology. We're kind of -- we have a fancy one in the digital signage. And you asked the question about the color ink or menu labeling information. Those board are catching on. We will more than double our business in the next nine months than what -- compared to the previous two years and nine months.

There's a lot of screens, a lot of sites' deployments to be happening in the future. Yes, menu labeling is driving some of that, but that legislation really won't hit home. The penalties and the flags won't be coming up for another 18 months on that. It's still in -- for discussion.

As you know, when we take this standard business and combine it with these monster projects that LSI is very much suited for, that's when things really begin to happen. The rule of the day in the industry still seems to be that the retailers and buyers are getting the necessity items only. The convenience items still haven't come back, excepting for some of the convenience has flowed over [into] necessity because they just can't flow out any longer.

Robin, if you would, address with Glenn the conversation we were having yesterday on the lifecycle of -- we'll pick on a petroleum account, no particular account, but the lifecycle and how they run their, I'll call it, 15-year -- from zero to 15 years and -- if you would.

Sure. Glenn, in the petroleum industry, in particular, an image life is anywhere from 10 to 20 years, depending upon a variety of factors, everything from the durability of the image that's been implemented all the way through to the general economic conditions. We are seeing a lot of the programs that we've implemented in the past extend the active life of that image just because of the economic conditions.

But, in general, we've got optimism because of what we see to be pent-up demand in a generally improving economy. And in the Graphic side of the business, where there's a drive and a demand for LED in the Graphic side of it, there's a curiosity of it. We've got an awful lot of projects that utilize conventional illumination systems within a Graphic product where there's an awful lot of design and development and curiosity on the part of the customer as to what part of it can be converted to LED.

So, that's an opportunity for us also when -- and we'll spend some time over the next several months working hard to expand some of our market influence. We've got an awful lot of strength in petroleum and QSR in the Graphic side, but there's more that we can do in some of the other markets that LSI serves.

Glenn --.

Glenn, if I could -- this is Scott. If I could add too -- or David, if I could add, too, talk a little bit about the comprehensive Company strategy and what's happened to our competition in this same timeframe.

Yes. Well, as in reference to the competition, they're having a hard time of it. They have the costs that we have to deal with and the customers we have to deal with, but their financial resources aren't near as strong as LSI's, and most all of them are much smaller than we are. It's becoming a -- gone from regional to national in many, many markets, and they just can't keep up with the pace.

As these programs come out, and when they're ready, we expect to be one of the strong survivors. Many of the competition have already dropped out of the game, but yet, [alone], [wouldn't] have the financial wherewithal or the facilities and the technology -- over the last three years, many of the couldn't make that move. We're ready for it.

One other thing I'm -- Robin I'm going to ask you to address, too, is, again, that lifecycle on a petroleum account. When it would hit, I don't know, $15 million a year for a period of years and then dwindle down -- maybe you can address that as we talked yesterday, again.

Sure. There are a variety of very good customers for LSI, particularly in a petroleum business, that we maintain our status as the provider of imaging products. When they begin a program, there's a great deal of activity, as you know, to get that project off the ground and to implement it over as many sites as they possibly can as quickly as they can.

Once that's done, it retreats a bit into a maintenance phase where they still are a very good customer for LSI, but they're not to the level of volume that they were during the implementation phase. We hold that position with many customers and are still poised -- and Dave said it well -- that the competition that's out there -- if you consider LSI's skills in implementing large scale projects, smaller companies that are in tough economic times, the first thing to go would be their ability to implement projects. That would be the first place that they'd cut. We've been able to hold that infrastructure together and are poised to handle projects of scale through any type of economic condition.

(Multiple speakers) Glenn, in closing on that comment about the larger projects in the future, if -- as a layman that goes out and just looks at the general market, the sites out there are in deplorable shape compared to what they were five years ago. I know it's getting old and tired hearing these words, but old and tired is what's happening out there. And again, we stand ready to address the market when they're ready with their capital.

Bob, you were going to say something. I'm sorry.

Yes, I was going to add something to both of your comments that I think is really important as we look into the future. There's no way that we can determine exactly what a customer s going to do or when they're going to do it. But, as Robin highlighted, we have that -- we've maintained that relationship.

But, I think equally as important is what's happened to the economy and the downsizing that so many different businesses have had to go through, that we have maintained that strength and we have that installation capability, which has always been unique to LSI.

Really, when you really start looking at the future, and you start asking yourself the question - - what are these customers going to do? When are they going to do it? How are they going to do it? The key to it is that LSI, understanding the markets and looking at the ability to do rollout programs, which I know, in many cases, gives us a lumpy sales direction -- but, I love that business because it really puts volume through our factories.

We are the only company that I'm aware of that's positioned that when and if this economy starts to really rebound and these tired, old images are -- people are starting to make decisions, they're not going to want to wait. They want to get the jump on the competition. They want rollout programs, and they want them right away.

That, I hope, in the next few years, if that's true, it gives us an opportunity to select who we want, which is obviously going to hopefully drive a higher volume of profitability, and, obviously, through the implementation process that we -- we have it from A to Z. We have the design capability, we have the production capability at a high volume production, I may add, to remind everybody of the $4 million or $5 million that we spent in the last year putting new equipment, very efficient equipment.

You've seen that in the Lighting business. I know I'm being -- I'm going back a little bit, but I'm reminding you that this same effect is in the Graphics business is from a production standpoint, [wherein] we put more automation, high sophistication to drive those costs down and improve the profitability and, equally as important, to be able to maintain and, hopefully, grow the level of interest from our customer base.

When you look at that whole unique story from a Graphic side of our business, there isn't anybody that I'm aware of that can react to a -- any kind of a change in an economic position. If that comes -- and hopefully, it'll come sooner than later. We are in the best position of anybody else out there.

The whole idea, from a strategic direction, is to maintain the stability of our profitability and the number of people that we have that are so important to the success of this Company today and beyond and be able to react to that market better than anybody else out there and still keep that strong balance sheet.

So, Glenn, I hope that gives you a pretty good flavor of, really, where we are from a Graphic standpoint.

Yes. Thanks for that. Just one final question. Can you quantify yet the opportunity from BP? How you expect that program to roll out? Any other opportunities you're seeing [for any de-leading] within the petroleum market?

Well, I'm going to let Scott give you a little more detail, but I've said so many times this program's so much different than any of the other programs that we've had, like a 7-Eleven. This is a contribution of BP to the franchisee or the independent. It's not that they're paying it, so there's a lot of work that has to be done, and it's very difficult to tell exactly what this is going to be.

And I promised you that last quarter, and I promise the market that when we have a better feel for that, we certainly will let you know. But, Scott, why don't you --?

Yes. Sure.

Fill Glenn in on that?

Sure. I think the thing to note is during third quarter, there was very little contribution from any of the BP business. The character of that business is such that it is much more similar to our regular day-to-day base business. While there is a contribution from BP that's very important, because it lowers the overall cost to their franchisee, that franchisee still must go through the same decisions process timeframe that they traditionally do.

We're going to see that have an impact on how rapidly the program rolls forward. The price of gas is going to be a factor. It's requiring that they spend more dollars on inventory for their sites, they're putting more fuel in the ground or more dollars worth of fuel in the ground. All of those normal day-to-day business decisions certainly weigh in on how quickly this program will roll out.

What's important is LSI is the only approved supplier. We are the company that is positioned to take advantage of those buy decisions when they're made, but the buy decisions themselves will probably follow a very traditional type of timing mechanism that our day-to-day core business falls into. So, I'd really look at it as that, Glenn.

Okay. All right, thanks again.

Rick D'Auteuil.

Yes, just a couple follow-ups to Glenn's questions. One, just while we're on that topic of BP, a quarter ago, you talked about having -- waiting for the surveys to be completed, and you -- and on this call, I think you talk about a start date in April. So, obviously, we're in April. So, are the surveys completed? What -- just bring us up to date on the status of that.

Well, the surveys, Rick, were on the basic -- basically a direction that BP gave to us as these independents were signing up with the program with BP. Once that was done, then we were told who it was and started the survey process.

We were hoping that the surveys would be basically more or less completed with the larger independents, and that's where it's really starting, obviously. The guys that have got the most fire power. But, because of the weather conditions, it certainly slowed that up. I mean, there was so much snow and so much bad weather. The guys -- they were going out there and physically -- and that was a -- the surveys -- they had to physically go to the site. They had to get out on a site and look at it. These may continue on for months, as more and more releases go. That, again, we don't know.

Scott, if you want to --.

Well, yes, a large percentage of the surveys are complete, Rick. There's no doubt about the fact that that phase is well mature and in place. But, again, the survey timing doesn't automatically directly relate to the purchase order timing. It's a function, frankly, that has to take place before a PO or a bid can be submitted.

Once that proposal is submitted to the franchisee, he's got to go through his regular process of making decisions on where that capital is going to come from. Is he going to buy it this quarter? Is he going to buy it next quarter? Or is he going to wait? So, those are decisions that we don't have a whole lot of influence on and --.

What I want to add to it -- if you guys remember, in a few conference calls ago, when we announced this -- and we announced this because BP had announced it to the industry that this was going to go on. If you guys recall, my comments was, it's important to us that this opportunity was put at our front doorstep.

But, we did go out and earn it. We did prototype work for them, as other companies did, and at the end of the day, they came to the decision that LSI was -- had the best product out there and was the best company to select to do a very, very direct basis. So, there's no other approved suppliers.

That was the important thing for me is that they made that decision on reviewing our product, reviewing the prototypes that we did as they did others and selecting us. From there, we were hoping, based on what was going to be eventually part of the initial direction with this, to see more volume. We're still hoping that this thing will continue, but there's no way to tell exactly what's going to happen. We're not building a lot of expectations on this. We're taking it as Scott just said, day-to-day business.

Okay. Just a clarification. I'm -- did you say BP is paying for it? Or the franchisees are paying for it?

BP only pays for 50% of the canopy lighting. We had indicated that in our last conference call. That's all --.

Okay.

They're allocating as far as payment, but they have opened the door for us, as part of the survey process, to look at their security lighting, their area lighting and package the deal. This is, I think, one of the things that Scott just alluded to, is that going through the process and making the decision of what that customer -- he may take the whole package, but BP will only pay for half the canopy lighting.

Okay. All right, that's fine. A quarter ago -- I think these were in David's remarks. Seeing pent-up demand turning to orders, better customer budgets, and yet I'm not getting the sense that we're any further along. I guess his business was down 3% this quarter, year-over-year, so is -- are you seeing something more positive now? Or that really didn't play out the -- whatever optimism we were talking about a quarter ago really hasn't materialized?

Well, no, it hasn't. It's -- the bottom line is, how much longer can they hold out? If there's a churn in the economy up -- we've seen more activity in our quotes as of recent, but, no, we haven't seen order entries skyrocket or increase. But, it's just a supply and demand situation.

Well, and if I can clarify that, Rick, I think, really, what David was saying last quarter -- and I think Robin just emphasized that again, is that our basic customer base is looking at more and more of this technology and more of this direction as it relates to [both] the Graphic side as well as the Lighting side. I think that that interest is still there. It's very strong. But, I think -- as I opened up my remarks, I think these people are still very, very concerned about what's going to happen and where they're going to actually spend some money.

We have seen a -- especially with the visitors that we've had, we've had so many folks coming through that are talking more and more interest about what's happening, but are they going to release their purse strings yet? Nobody really knows that yet. As you've been following this for so many years, working with these large national accounts, they're very, very difficult to forecast, and very rarely do they ever live up to a time schedule once they've started down that road.

I think there's a balance here of what's going on. To the credit of the Graphics Group, if it hadn't been for that patent lawsuit that we had to finalize, they would've at least broken even from that standpoint.

Okay. Just -- yes, I think Robin said -- talked about this 10 to 20-year lifecycle. And when we think about petroleum, we know what the name brands are out there. As a long-time shareholder here, let's say 10-plus years, I can't think of more than a couple that have actually done a reimage program over the last 10 years.

So, I guess maybe you guys -- how many have actually refreshed in the last decade? And then -- that likely leaves, since you guys still, essentially, have 80% share out there in the market right? That leaves the balance of them that are in the tired and old phase that I guess relate to that pent-up demand.

Who has actually done a reimage? We just had a 7-Eleven reimage, right?

Robin, why don't you handle that? I know that the bigger ones are what the investors are aware of, but, my Lord, over the years, we were -- we've been so involved with so many different accounts, never -- not many have the impact that a 7-Eleven has, and there aren't many out there that have 6,000 sites either. But, Robin, I think you can address that with more detail than I.

Absolutely. And Rick, it can be addressed in a relatively crude way. Our recent past has not included very many large projects in the petroleum and C-store industry, but the crude portion of this is, I challenge you, as I have our salespeople, to be aware as you drive around and -- be aware and watch for what you see at the petroleum [side] level.

Do you see anyone out there that's got what you'd consider a fresh or converted image? I think you'll be in a position where your mindset will parallel ours as to the pent-up demand that's there, particularly in that market.

Yes. I'm just thinking, okay, Exxon Mobil, no. Texaco, Shell, no. Chevron did do something, right?

Chevron did something that's still in motion, but the bulk of it was done four years ago. Texaco is probably the most current one on our list of large customers.

Okay.

And theirs was limited.

Okay. So, potentially, there's a lot out there. I mean, I don't know what the catalyst is. They seem to be content with tired and old, to be honest with you, but -- so, back on the 7-Eleven subject, the -- again, a quarter ago, you were talking about largely being done with the initial wave and hopeful that you would have some Canadian business. You're still talking about the Canadian business, but I also said -- you also said that there were potentially some follow-on US stores. What's the status of those?

Yes, we've been -- as we pointed, we -- still doing business with 7-Eleven, and those other stores are starting to trickle in. The Canadian market hasn't been launched yet, because the weather is still -- is now just beginning to break, and we're still waiting for that release. We've got inventory ready for them.

As we emphasized in the last conversation, Rick, that it's -- it wasn't a big program, 400 or 500, 600 sites. That's our normal day-to-day business plan, and that should pretty well finish it up as far as their reimaging is concerned.

I will emphasize one thing, though -- that when you go back into the history of this Company, certainly with the Graphics folks, I can recall the days when a reimaging would be a change of a brand color or a change of a premium name. When you were talking -- and these were decals that were going up on the pumps and things like that.

The reimaging wasn't like we're doing today or with the initial direction of what we're doing today as they're looking at. We've done so many things with pump toppers. Not just for Chevron or others. We did things with the [faces] on the canopies. Again, as I will remind everybody -- I've said this before -- is that when we go into a program, especially in today's economy, the image, tired as it may be, is not what brings a customer into a service station today. It's their price of gasoline.

And this is why -- and we've been through this now for two years with this economy the way it is. Hopefully, though, as these things settle in, that we will see some kind of a resurgence. Will it be like prior years? I have no idea. We structured our business plan and, certainly, our investment in our own business direction, to adjust the Company to that.

What we have to do on the Graphic side, because it is so project driven, expand some of those markets. We have our folks up in Rhode Island who are more specialists in the grocery store. Robin's new position and new direction will be to take over most of all of the Graphic sales in the Graphic side of our business and start coordinating where our specialties are, where our experience is and then go after bigger and more customers.

That's the key to this thing. It's not exactly what the market's going to do. It's - - where are these guys buying some of their graphics? Their island marketers? Their island identifications in grocery stores, for example? The decal business -- that's all very, very simple. I mean, we've been doing that for -- I don't know how long SGI's been doing it, for 40 years or more.

This is day-to-day stuff for us. What we're looking for, obviously, is who is going to do something different? What might be the next largest acquisition where they want to change the brand? Those are parts of that concept that we're talking about in today's economy.

Okay. Just on -- to follow-up on David's comment that he's going to do more in graphic menu boards for the QSR space over the next nine months than compared to the last two years and nine months, I think he said. So, what wins do you have? Are there two or three programs you can talk to?

I want to clarify that one. David said that, and I was going to make that comment. When he said double it, he's talking about LCD screens now. David, I'll let you expound -- expand on that.

Right. No, I'm not going to mention any names today in terms of who that -- who those players are, but there's a tremendous amount, again, of people now that the prices have dropped considerably on those LCD screens, which is the main -- that's over 50% of the cost of a program. Obviously, the software, the cabling, the install, survey and other small items that go along make up the rest. But, those LCD screens -- the price has dropped tremendously.

The trigger point has hit, and that is why the market is addressing this now, especially when they have to make the decision - - do I go electronically? Do I go to digital? Or do I stay with conventional? And the answer is - - why would you buy conventional boards with all the menu labeling coming up and the future is here now and it's affordable? So, the trigger point has been hit. You can expect to see big numbers over the next nine months and beyond because it is a new market for us like LED was for LSI Lighting.

(Multiple speakers) To answer that, Rick, it really simplifies the thought process when you look at what's going on from an economic standpoint and what really attracts the consumer. The old saying is - - a picture means 1,000 words.

Video screens now are very much a part of what the future of marketing is all about. It's the color, it's the movement, it's the excitement that you can build into, and it's the audio. It's all the things that just regular graphics and sheet graphics and things -- they just can't do that.

You look at the automotive industry, car dealers. You certainly look at the grocery chains. You look at the fast food industry. All these folks are starting to look into this new technology and seeing where it applies to their ability to attract that consumer and get them back in those stores.

As David said, the costs are coming down, so it's going to make it more affordable. People that are really aggressive -- and that will set the pace of expansion on this, just like all the other things that go on over the years that we've been in business, as many years as you've been following it. It's a trigger that happens.

We're part of that. We've changed LSI from just a basic lighting company and a basic graphics business to a technology company that utilizes its market history and its products in order to go after that customer and expand on those markets.

Now the opportunities that we have, as all of that foundation is in place -- and now to create the sales effort and the attraction of what we've been doing to get those customers to listen to our message. We're going to talk a little bit about it -- at the end of this about our brand new Web page. We have spent months -- and a lot of time and a lot of effort went into expanding a Web page far beyond anything out there compared to our competition, both Graphics, Lighting and Technology. That's part of our marketing approach, to get people more aware of who we are, what we do as a company.

We're no longer the company that builds lighting fixtures for the petroleum industry. We still focus on the petroleum industry as part of the backbone of this Company, but that's the basis of where we started. That -- those -- that's yesterday's news. Tomorrow's news is what we're doing with technology, not just with LED, but in all phases of technology that can affect our ability, from a Graphics standpoint or an image solution standpoint.

That's what -- we've got to teach Wall Street on who we are. And that's another job that's in play to get that message out to more people to understand what the potential is. We're a solid, financially run company with a tremendous opportunity and high volume markets of both Lighting, Graphics and Technology, which influences both.

Just to clarify, so what is your role in the LCD screen -- I mean, are you competing against NEC for that business? I -- and --.

No. No, we're not.

Okay.

Yes, NEC's a great partner. We are a reseller of their product. They don't sell direct to the market. We work with them on installs also and on the technology, whether it be touch screen, indoor, outdoor, High Bright outdoor, 3-D. So, they're a good partner, just like 3M is also a good partner in the software portion. 3M has been, over the years, in different product lines, so we're a reseller.

One other thing about this digital arena that we're dealing with now. The best thing that's helped that market, beyond cost, is smartphones and iPads. People get used to operating this way. They get used to reading their signage that way. It's here. It's now.

The -- you can see what's happening over at Apple. It's transgressing right into the retail field, and people want to -- they want to be interactive. Like Bob says, they want more than a sign. They want on-demand signage. They can day-part it, they can change it by the hour, they can change it by inventory moods, they can change the price from morning to afternoon. You can't do that with a conventional board, economically. You can with a digital. So --.

Okay.

Hopefully answered your question about our position with people like NEC and 3M and LG, etc.

Yes, that's helpful. Thank you.

(Operator instructions.)

While we're waiting for the next question to come in, I will -- I feel duty bound to mention that we have a Safe Harbor forward-looking statement that everybody should be aware of that was in our press release and in our SEC filings with the 10K and the 10Q. Please be aware of that. And that we have no material non-public information to discuss today.

That's the words of wisdom from our CFO. Very good at that.

Some words of many.

We have had one more question come in the queue. Mr. Dick Ryan.

Say, Bob, just to follow-up on Rick's question here -- or Dave, on the LCD screens. The business you're seeing over the next nine months, will that be indoor boards? Or will you -- are you looking at outside for that?

Mostly indoor, but there are some outdoors. The outdoors are more in the prototype versus today's use. The outdoor market hasn't matured as much as the indoor, and basically because of the weather elements. That 200 degrees screen temperature that you can get outdoor or that minus 32 and the rain and the electronics -- as we're very experienced in the LED [road] with that, that's an element that just hasn't matured in the screen arena yet. It's very close, and we do have prototypes in major cities in the United States.

Are the warranty that -- points where -- attract customers? Or does that need work as well?

The warranties for the indoor are well established. Again, all these screens are commercial grade. They're not -- they look very similar to what you have in your home and what you see at Best Buy. But, the average-sized monitors in the 46-inch range and the engines that run them in the screens have a five-year warranty so --.

I was thinking on the outdoor side, [Dave]. The LED side --.

Outdoor hasn't been -- that hasn't been -- it's all over the place now. It's -- there's a lot of remarks, but it's like LED lighting was two years ago. It is not an established, mature area yet. It's on its way. When we go to the trade shows for the -- like, NRA or the large QSR-type people, it's probably the most progressive question we get of - - when will we be able to do outdoor?

And you -- as you know, you've heard us say many times 70% of the business [side] at QSR is [done] outdoor, but let's not limit ourself to restaurants. It's hot now because of the labeling, but like Bob said, these other markets, the banking markets, the automotive market, the general retailer, pharmacy, that type of thing, they're going to be everywhere if they're not there today. You see them at the movie theaters, everywhere.

So, we recognize this market, and we're excited about it.

Okay. Just one last one [and it for me]. Bob, could you refresh me what you're doing either on -- in the digital billboard space or on the scoreboard opportunities?

Yes, I didn't touch on that yet, Dick, because of -- we mentioned before that we have a new product that we are rolling out here shortly. It's taking a little bit longer than initially thought because of some of the change in the dynamics of the marketplace, as you're well aware of. I know you follow it very closely.

We still have a very active commitment and a direction in this business, and we're going to get -- continue on to be more specialized. We recognize the fact that these costs have changed out there because of the influence of Chinese product as well as other things that are going on. So, the dynamics change.

And before we went too far down the road, we wanted to be sure that our product was priced right, both for -- from a customer standpoint and profitability to the Company. Our -- the areas that we were most concerned with, especially during the shortage of electronic components, we put more emphasis on our lighting, to be honest with you, during that period than we did the digital boards, but never left us from a directional standpoint.

If you've noticed, our inventories are up, and they're up for a reason. We've been able to secure our position on electronic components, both at the AdL level as well as our Lighting level. So, we're very comfortable with what we have now. We still know there's a definite shortage out there, a definite pressure point on it, but we've done a great job of securing our position to service our customers' needs.

We have, as Scott indicated, a number of programs and products that we're going to introduce in the fourth quarter that we are preparing for. But, overall, the digital board is still a very viable part of our future. We think there's a market there for us. We're not taking a direction, like some of the other ones, that when we started earlier in the career, when we bought SACO. We've readjusted our position and our direction from a marketing standpoint.

But, it's there, and we are selling some boards. It's more specifically in the sports side and more specifically on the indoor than the outdoor. But, we believe that's all going to change with the new product that's coming out here very shortly.

Great. Thanks, Bob.

(Inaudible) you.

(Operator instructions.)

Well, I think that probably concludes it, Matt. And as a wrap-up, I want to emphasize a couple of things that we've talked about earlier during the -- during our discussion. And that is that LSI is now a -- really a new company. We spent a year to a year and-a-half redefining LSI's position, certainly building off the history of the Company with our strategic direction [in all] the major markets that brought us to where we are, but the major investments that we've made because of our strong financial position and positioning ourselves to strengthen our markets in the C&I business as competitive as tough as it is.

We now believe that we are the fifth largest lighting company out there. We've drawn the line as it relates to the fact that we can compete with any one of them at any time anywhere. We've taken that position, and I think you're starting to see some of the results of that attitude.

The -- certainly, the history of the Company is strengthened by the fact that we are a large volume rollout position company. So, whatever market out there, whatever customer out there has that potential, we have the capability, and nobody else has that position.

Our international market is just starting to really sprout. Our group is positioned now. [Fred] has moved to Europe. We've got a center set up -- or a direction setup in the Middle East, we have a direction set up in Europe. Our Asian market business, our Australian market is growing. We just hired a new vice president up in the Montreal area to now set a new course for our Lighting capabilities. We've got a beautiful facility in Montreal. We're changing that facility, to some degree, over to not only their ability to support the Technology side, but also make it a presentation place -- a presentation building.

We're going to have a reduced iZone, if you wish, a highly technical and market product presentation in Montreal. He just came on board this week. That will be part of our summer expansion and getting more visibility in the Canadian market.

Our Graphics business, as we've discussed in very -- detail -- we have a new direction with Robin taking more responsibility, coordinating our salesforce to go after more markets.

LSI now is -- has the opportunity to start getting back on the growth curve. That's what our shareholders want to hear. Rick, who has been a shareholder for over 10 years, that's what he wants to know and what he wants to hear. I'm a shareholder, and that's what I want to see happen.

No more excuses. It's a tough economy out there. We've positioned ourselves to move into that economy and take whatever steps in order to continue to grow our business. Time will tell as this economy develops and hopefully will develop, that we'll see more results out of that. At the end of the day, we're very, very comfortable with where we are as a company, both financially as well as marketing.

I again will emphasize our new Web page that's out there, wwlsiindudustries.com (sic). You'll find it to be very user friendly. It's a great Web page that really tells who LSI is. We're no longer that -- I'm repeating myself, but I'm going to say it one more time. LSI is no longer just a lighting company that makes canopy fixtures for the petroleum industry. We are a technical solution company with lighting capabilities, with graphic capabilities, with, certainly, technical -- technology capabilities and, last but not least, a company that can do a complete turnkey program for any type of customer out there that has a high volume requirement.

With that, I want to thank you for your time. And if you have any questions, please give us a call. Thanks, Matt.

Thank you, everyone. That will conclude today's conference.