LSI Industries Inc (LYTS) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the first-quarter earnings conference call. All lines have been placed on listen-only mode, and the floor will be open for your questions and comments following the presentation. Without further ado, it's my pleasure to turn the floor over to your host, Mr. Bob Ready. Mr. Ready, the floor is yours.

Okay, thank you, Wes. Before I start, I would like to turn it over and have Steve Brunker kind of go through our normal dialogue as it relates to our webpage and so forth. Steve?

Good afternoon, everyone, and as with our most recent conferences, there will be no accompanied handouts or visuals with today's conference call. However, you can get collateral information after the conference call is finished by visiting our website, www.LSI-Industries.com and clicking on the Investor Relations button, and there you will find the collateral information from today's presentation as well as a replay if you would like to listen to some of the comments from today once again.

Thank you. Good afternoon, everybody. I would like to introduce our team that's onboard today, starting with Ron Stowell our Chief Financial Officer; Scott Ready, the President of LSI Industries; Sean Tony is our Senior Vice President of our Lighting Group; David McCauley, President of the Graphics Group; and Robin Hood, Senior Vice President of Graphics. We are all on board here to answer questions that you might have.

I will give you a quick snapshot. Obviously, the first quarter was not the kind of quarter that we would like to have started the year off with. But understanding that a number of things happened with the -- starting the slowdown obviously of the 7-Eleven program was a comparison. Obviously, we have had a real challenge to make up that volume. A lot of that information was in the press release. There were a lot of good things that happened and as challenging as the economy is and that quarter has been, we are going to get into more detail as it relates to the lighting side of it.

I think the biggest challenge we have now, obviously, is the graphics. The disappointment in the quarter, not to put all of the gorilla on the back of the graphics guys, it really was a challenge based on the whole economy. Our customer base has really cut back on any kind of a direction. I think also we see an earlier direction in the Christmas season, so from the retail standpoint, those things obviously come into play. What we have done now is to really analyze our graphics and looking at our markets, and we are in the process now of going through a whole review to get our graphics group back on a breakeven plus basis. We believe we can accomplish that as we go into the second quarter and -- but it is going to be a challenge; there's no question about that -- because of the economy.

We have made tremendous strides on the international markets. Scott will go into more detail on that as well. We have continued to make changes in our rep organization, which has also had some effect based on a short-term basis. When you make the transition in a couple of major markets that we did in this quarter, we are going -- we have to go through an extensive training program in education with these new agents, but this is part of our vision that has really come to fruition, and that being that our goal has been to convert some of the conglomerate agents to an LSI agent, and very happy with that direction as well.

Our video screen business is moving in just the way we planned it to be. Again, the economy hasn't helped, but on that basis, we have made some major changes in how we are approaching the market with new products or new design products that are coming on board now, and we feel that that is going to definitely bring some potential.

I'm not going to spend a lot of detail on the overall quarter. It is what it was. And I would like to turn it over to question and answers with our staff onboard. I'm sure we can answer all of the questions that you may have. Wes, if you would, please.

(Operator Instructions). Glenn Wortman.

Good afternoon, everyone. Can you just help us understand what was behind the sequential decline in Lighting sales?

Well, I think it really comes back to the 7-Eleven program. Based on what we did last year, Glenn, it was really -- I think that we are very pleased with the lighting overall, based on the fact that we made up a tremendous amount of dollar volume in our commercial and industrial and our petroleum.

The BP program that we have had has been rolling out as we have said, very, very conservative direction. We're hoping to see a little bit more of that next year because of the success of it. BP has been very happy with it.

But it really relates to the fact that we had a tremendous amount of volume last year. With that major rollout program with 7-Eleven. And with this economy being the way it is, the real challenge was to make up that volume, and we have done so.

This is Scott speaking. If you look at the fourth quarter compared to the -- the fourth quarter of 2011 compared to the first quarter of this year, we still are operating in a pretty volatile marketplace. We have had in some really important opportunities, the opportunity to make some agent changes during the first quarter. That does tend to have an immediate and sometimes a negative effect on immediate sales because of what occurs as you evolve yourself into a new agent.

But the marketplace in general still remains very, very challenging and very volatile. And a volume that we were able to achieve in the fourth quarter, it was the reflection of some good opportunities that we took advantage of. And the first quarter again is probably a better representation of the standard market.

Okay. And then the cost-cutting actions for the graphics business that you had mentioned, was that -- were those in place for the first quarter or do you expect to see more of a benefit in 2Q?

Yes, really that's where it's going to go. As a result of what happened in the first quarter, we have brought all of the three operations together, the management team and are now working on a strategic direction in order to write the company as it relates to the market and the economy. Obviously we're going to be looking at new market potential, but it really comes down to an evaluation from a cost standpoint. And there are all kinds of ideas that we're working on as far as implementing a program.

The one thing we don't want to do is to cut the heart out of the company. We've got a lot of good people out there that have been working very, very hard in a very, very difficult market. And we still believe that at some point, if the economy just stabilizes a little bit, and more specifically on the retail side, that there is that pent-up demand and we want to be in a position to handle it. It has been, without a doubt, one of the more challenging periods in our history and, yet, we are still financially very strong. We are very committed to the products and the people that we have in place and we're going to just work our way through it.

Okay. And just on the international growth, can you just give us a little bit of color on geography, which business segment lighting, graphics, and how fast -- where do you think this business can go over the next year, two years?

I'd like to give a lot of credit to Fred Jalbout and his team. As you all know, Fred was President of LSI Saco. Fred and myself came to a direction of an implement of a program to move into the European and the Middle East. Fred established LSI International, as it's called.

And really the direction that's in place -- and he's done a great job of establishing a very strong market presence. He now has opened up four locations, being France, the UK, Arabia, and Lebanon. And he has staffed those offices with a number of people, and really now establishing the presence of his company with the utilization of our products.

And with that effort, we have a number of prototypes. We have talked about some of that in the past. Those are expanding. The success of those products or of those prototypes has really established the beginning of LSI as a product offering through LSI International. And obviously his efforts are -- obviously -- his efforts are obviously in place as it relates to his history, and that being with visual boards and visual displays, with the most recent -- the Elton John piano that we call it the $1 million piano, which was a partnership through those folks and Yamaha and Elton John opened up in Las Vegas.

Now, it's not a big, big deal as it relates to volume, but it is new technology. And it was something that had never been done before. And as a result of that kind of capability, we on the lighting side also have the ability to learn from some of this technology. So there's a number of things that are going on in the international.

Now the rest of the international world, that being Australia, Malaysia, and other countries that we have already been into are also expanding. And our product -- specifically are LED product line -- is becoming more and more acceptable and actually more what's the word I want -- more of a selected product line over our competition. So, that's where you're going to see a lot more opportunity.

Okay. And then lastly on the gross margin, it was up sequentially. What was behind that improvement? And do you expect the margin to trend higher in future quarters as well?

Well I wish I could say that I have a crystal ball to tell you exactly what was going to happen, but again with this volatility in the marketplace and the competitiveness being so strong, I can't really tell you how strong those margins will be. But, with that said, being the kind of company that we are, understanding our market and really working hard to reduce cost and improve the margins, that's obviously our objective, understanding that the volume out there has been very challenging, but we've done a great job.

Our management team has done a great job of really, really controlling our costs. And as we also indicated in the press release, we did have a price increase and that has -- not all of it holds in a competitive market, but it has held in a much stronger level than maybe we even anticipated it would, which really shows that this market is extremely challenging, both on the pricing side as well as the volume side.

But, we know what we have to do, and we know where we're going. And we're just going to continue exercising the strategic direction of the company and being sure that everybody within the organization understands that cost reduction and cost control are very critical in an economy like this, and combining that with the fact that we are introducing some new products.

And I think that over the next 12 months, our goal is to roll out a lot more LED products than we have in the last couple of years because our technology is in place. Our production is also in place, and we're really focused on that. And I think that a combination of new product introduction as well as cost controls will certainly, hopefully, keep our margins in the proper direction.

Okay. Thank you for your time.

(Operator Instructions). Rick D'Auteuil.

Just a question focused on Scott's world and the LED products that you have been developing I guess first for the petroleum, your core business and you were also looking at parking lot applications and other applications.

Maybe you can give us an update on that, Scott. And there's an installed base out there, so how much of an installed base have you converted? And if it's -- maybe you can give an indication what the hesitancy with the buyers are at this point or the stations or the stores are at this point to make that purchase. It's probably more compelling on the energy side than it's ever been, so --

Well, Rick, it is continuing to improve when you evaluate that balance between cost and savings that generates an ROI. But, I think that more than anything else, and I know we keep saying the same thing and we keep hammering the situation from an economic perspective, a macro perspective, but the fact is that folks still have to make decisions and come up with money to retrofit. So we've got products now that are in almost all applications when we looked at the exterior applications from the service stations which you're right, which was our core, which we probably still haven't done more than 15% or 20% at the most I would think of the entire market potential out there. There's still tremendous market potential out there.

And if you go from that, obviously, through the outdoor parking areas, through the parking garages, through the architectural accent lighting aspects into now warehouse lighting, interior applications both commercially and appropriate for office areas and things like that, we have either products that have been released or products that will shortly be released for those market applications. And we continue to gear those products for a three-year ROI. But having said that -- or less. But having said that, the buyer has still got to have the cash. He's still got to have the confidence that he won't need that cash for other purposes. And in this economic environment, it's not on automatic. You are absolutely right.

All of the direction, all of the trends are going in the right direction when it comes to rising energy and lowering costs, but at the end of the day, why an individual retailer or an individual business owner chooses to make that purchase decision this month or next month, I think has a great deal to do with his level of confidence in this economy.

The other application, the parking garage? Have you had any successes there or --?

Oh, absolutely. We've got some very good known profile projects, projects that you would recognize, airports that you would recognize from Hartsfield to Memphis to some -- Carta -- yes, some projects that really take advantage of the interest in public spaces to save energy where there is public money related to those projects, but I think that the general market opportunity, as it applies to the private company or the private sector, is still very, very much influenced by that general economic confidence or lack thereof.

The product breadth, as Bob mentioned, will continue to increase. We have more products scheduled to be released in the next two quarters than we had all of last year. The technology continues to improve. We are very happy with our position as leaders in that technology, providing products that reach performance and price points that many of our competitors can't reach.

And when we have the opportunity to blend that, obviously with applications that are core to us based on the relationships that we have, either in the petroleum market or even in the commercial market where some of these agent conversions that I referred to are bringing us into a much, much stronger level of relationship opportunity to markets such as a warehouse lighting or parking garage lighting that might not have been our traditional strong point.

The field is really level. And we've talked about this before in terms of what the larger competitors are able to do versus the companies the size of LSI. And the preference continues to grow for LSI products. The preference continues to grow for representation of the LSI product line, and we just need a good shot in the arm for the market.

Unfortunately, back to Glenn's original question, it's difficult to establish any trends. You can see some real strong business one month and some weaker business the next, and it really can't be related to anything other than that general macroeconomic situation.

You know, Rick, if I could add to that, is from our observation, looking at the markets, we are a market-driven company, as you know. We've been very, very successful in the niche markets. And when you take those niche markets as a starting point, where we really believed and we still feel very strongly that the product offering that we have provided to those niche markets where we have a tremendous amount of strength, those markets are very viable.

What the disappointment is that -- let's start with the petroleum industry. The fact of the matter is, is that over the past few years, the major oil companies got out of that retail business more and more, so selling it back to the independents and the jobbers out there. Those guys now have to fund the money based on the ground cost of fuel being stored at a higher cost. And the challenge really is, from our sales standpoint, the reps that we have out there is to convince that market that this energy savings is really to their benefit using this LED technology. But it's not an easy sell because you are dealing with a much higher cost product and these guys are dealing with higher inventories, or higher cost inventories which has fuel on the ground.

So each market has its own challenges. I think the comfort level is, is that we have the strength in our marketing. We have the strength in our reps. And patience -- you've heard me say this before. Patience is a virtue, but on an industry transitioning like this lighting industry is going through, with a highly competitive level and the economy being the way it is, we as a company I think are in a very, very strong position.

The numbers are not as strong as obviously we would like to see them, but I really believe that the foundation that we have in place, the investments that we've made, we are going to have -- when some of this economy turns around to the point where the confidence level there, the big customers that we serve are giving us a better direction.

I will tell you right now, in all the years we've been doing this -- and this is, by the way, our 35th anniversary, the fact of the matter is that the relationship that we have with our customers is as strong as it's ever been. But the kind of information that we're getting from them is very limited. They're really not sharing any of their true feelings of what they're going to do. So it is a very difficult time to try to develop that opportunity with these higher cost fixtures. But it's coming and it's slow, but it's slowly getting there.

Parking garages are a big market potential. Soffit lighting is another. Certainly the canopy lighting that we've been very focused on, and the transition of some of the outdoor lighting now that they are seeing the advantage because of the efficiency as well as the energy saving. So all of those things are --.

And the other thing is that we haven't touched on is the tremendous change that we are making in the technology. You know it's not just turning a light fixture on any more. There are motion sensors. There's all kinds of different technical things that are being built into this new technology. Most of it obviously comes with a higher price, but the return on that, on those designs. And the market now is beginning to understand that. And I think you'll start to see in the next year or two a lot of volume change going to LED technology.

You know, Rick, the comparables to we mentioned earlier were certainly a challenge this first quarter. 7-Eleven had a significant impact on our business last year, both in the lighting and the graphics side.

But to give you an idea, maybe a little confidence here in we're going and what we've been able to achieve, if you take the 7-Eleven volume out of that comparable, we more than doubled our LED sales this last year. And so that's going to all those other markets that we're talking about.

And it isn't just petroleum. It's not just petroleum. I think that's the key.

Absolutely.

Wal-Mart -- what are you doing currently? Is that indoor and outdoor, outdoor or indoor? What's the status of where you stand with them?

Wal-Mart, we have a continued position for the interior and the exterior. They have begun the process of moving towards LED technology. We completed a very important site for LSI and I think Wal-Mart as well this summer in Texas that featured LSI product in the exterior design. But we continue to be I think an important partner to Wal-Mart, both on interior and exterior lighting.

Do you have any 10% customers in this quarter?

No we don't, Rick.

So they're not doing that much business with you?

Well they're not doing that much business with anybody, period. Again, that's the challenge we face is that retail-based program business that you have known and we've been known for, for so long is very dormant right now. And so our challenge is to backfill that -- and the lighting group has been very successful in the last year to backfill that volume with general commercial business in some of these new markets, non-petroleum markets. The graphics team has had a much more difficult challenge to backfill that volume.

Yes. It feels -- so you mentioned graphics again. So the goal is to get it to break even within a quarter? Is that sort of the goal?

Break even plus, Rick. Yes, we've been working on this. We could see the clouds based on the fact that the overall attitude of our customer base has obviously been very, very guarded and recognizing that. Certainly, we understand what our goal is and I can tell you this right now, that we are working very, very strategically in a direction to right size the business plan to the economy that's out there.

But I think that's breakeven for the graphics side, but more than breakeven obviously (multiple speakers)

Oh yes, from a lighting standpoint, that's a whole -- another direction.

-- when you look at the context (multiple speakers)

Yes, but it seems like the graphics, it's boom or bust there. And granted, the 7-Eleven business gave it a window of upside, but it seems more often than not we're talking about problems on the graphics side. And honestly, I applaud the right-sizing. And I'd probably, if I had a vote, would go further. And I wouldn't expect that business. That's very discretionary kind of spending. I wouldn't expect that business to come back in the near future with the clouds that are out there, so --.

Well it's a different market. And we have the capability and the strength to go after a smaller market. There's certainly business out there. And I will let Robin and David kind of give you their feeling. Guys, why don't you jump in on this?

Sure. This is David McCauley, and, Robin, you can follow-up with me.

On the lighting side of the business, when Bob and Scott made reference to the new products because of the efficiency savings, the energy savings, the low maintenance, the rebate programs that are out there, that gives some -- a lot of retailers and users a reason to make a move in the lighting market, even though there's not a lot of building going on, not a lot of construction, not a lot of new sites.

In the graphic business, we are in that dormant period where there's not that reason now. It is an item of not having necessity. It's a convenience-type situation that they are ignoring the convenience label on there and only getting into it if it's a necessity.

And they find out now at this point that they can't get their return on investment from re-identification and we feel that's where the pent-up demand is. And until that breaks loose and they have some confidence in the economy to get moving again, we're not going to see opportunities for large programs. Robin, you might want to add to that.

Just to tack on the fact of a very active marketplace, but one where the fact of the matter on the graphics side is much of what we do is a delayable purchase, and it's hard to put a tangible return on investment on a graphic element or a graphic program.

Part of the beauty of the LED business and lighting for us is that that can be tangibly tied back to a return on investment, and it's more of an investment than it is even a purchase of a product.

In our side of the business, it is a very active time. It is certainly a buyer's market and the condition of delayable purchases and pent-up demand is absolutely there. But I haven't seen a time that has been as active in customer or potential customer activity where they are exploring their options relative to price and the supplier base.

We have seen an awful lot of activity in the past several months. And much of it feels as if it's positioning for 2012 for there to at least be the option of things happening.

Now, do these programs, once they get organized, all get kicked off? No. There's an internal fight for capital and most of these large corporations that make it such that some programs live and some die. But I would be -- I would be discouraged if I wasn't seeing the level of activity that we have in the last few months.

Is anybody at the RFP stage? Or are they -- it's just discussion. I mean we've gone through years of discussion and people coming in to visit your sites and spending your time and not really gotten any major commitments, from much of those conversations. So I guess to qualify those statements, are they tire kickers or are they real shoppers?

They're some of both. There's absolutely some of both. And the idea that -- we talk about pent-up demand a lot. It's real. It -- you see this when you go and look at retail locations all over the country today. And some have exercised their right to delay purchases. And they're paying the price to do that.

And we are seeing and hearing of opportunities getting involved -- actively involved with opportunities where they are going to eventually do something to remedy that condition.

Rich, this is David McCauley again. The most activity in the RFPs are coming from the QSR, the quick service restaurants and the casual dining restaurants. Our numbers show there's 350,000 of them. I know you've heard this before from us. We've been saying it for two years. The tired, old warn-out sites, they're trying to change their identity. We're seeing a lot of activity there, but Robin nailed it when he said how much of it will happen in 2012 and who are the tire kickers, etc. So we are asking the same questions you are.

Okay, thank you.

You know, Rick, let me add something to this. This is Bob. The last year, we have spent a great deal -- and you are right, we have had a bit tremendous amount of people come through and understand who LSI is. And I will tell you what, it's been a tremendous reward to see these people come through and become educated to this company.

We have -- and I'm going to make a prediction, and I'm going to really put my neck out on the line -- but I really believe this truly. In the next few years, the agent that we have today, the lighting agent, and what the real vision and the real challenge has been is to get LSI into a position where it has the ability to attract the stronger manufacturer reps out there that represent the lighting world.

It's a big market. There's, as you know, there are four large companies that own a large volume of the percentage. We are growing in that market based on taking market share.

The reward to me personally has been to visit with all of these people and really see the change in their attitude as far as who we are as a company. And I'm going to make a prediction that the lighting agent that we know today will not be the same agent in the future.

And the reason I say that is I think everybody on this line and obviously many that aren't, that really understand that this economy is never going to be quite like it's ever been before. We're going through, obviously, a dramatic change with the debt that we have as a country and the lack of confidence within our economy, and things are going to have to change.

And I'm making a prediction that based on the fact that we don't see a lot of new construction on the horizon, certainly from a residential as well as the commercial industrial, that all the downsizing that many companies have done, and with the fact that many of them have gone offshore because of cheaper labor, has really affected this whole economy.

And what I'm saying is that the agents that we are now developing and partnering with, the stronger agents out there that represent the highest potential, they're going to have to have a new shopping cart of different products. And my prediction is that when you look at LSI as a strong lighting company now, absolutely the strongest graphics potential, the technology that influences both, the fact that we're in the sports market as well as visual boards, we have a full shopping cart of things that they can't go anywhere else to get as a combined group.

And the attitude of these stronger agents that we are converting are leaving these meetings that we have had in the past year with a whole different attitude on our company. Now it's going to take some work, but we are taking out the strength of our sales force and we are blending that with our sales group, both graphics and lighting, and starting to stimulate the interest of our reps.

And it goes back to the very simple philosophy, it's people doing business with people. The technology is important, but it's the context. It's the relationships. And we're going to build on those strengths.

And nowhere has the stronger lighting agents today have a place to go like they do LSI. And the first step is to get them trained and educated through our lighting business. And at the same time as we are doing that and exposing them to our graphics business and all the other product lines that we offer. And yes, it isn't great today because obviously we would like to see that stock price where we would all like to be -- have it, but we do have a 35-year history that is going to go forward in a different direction.

It's a different market and a different economy, and we're a different company today. We have transitioned from just a very simple company building lighting products for the niche market to a solutions company that has a lot of capability and answers to a changing environment out there and a changing market. And I really believe that this company is probably in the best position of any company out there based on the change that's going on in the market.

Okay. Thank you.

(Operator Instructions). Ted Moreau.

Nice quarter. I have, Bob, and maybe for Scott, just kind of a strategic overview question if I may. What kind of resources do you need to have and have you had available to you to keep the technology lead you have to be able to introduce new products, to continue to gain the market share; in terms of the R&D levels you need to have, are there adequate engineers available to you to keep developing the products that you are introducing? And will you need acquisitions going forward to maintain the lead that you have? And how are you --

Ted, this is Bob. Let me start with -- from my perspective. The answer is, from an acquisition standpoint, no, not at this point in time.

From a development process, from an engineering staff, we could always use more and new and better -- not better, but more experienced engineers in the LED world, which unfortunately, there aren't that many out there. So we are developing and educating our own.

As far as the integration of our company, which is really unique to most out there, I think that's where we have the advantage. We are a very, very strong, self-integrated company as it relates to our new technology. And because of the experience of the both Saco and ADL, the companies that we did acquire, and then melting those or I should say blending those with our lighting capability, the potential is fantastic.

It's just a matter of the technology coming out from the chip manufacturers as well as the development of these new chips that are coming out from performance standpoint, and trying to create that product line that is affordable to that customer market.

And as we've just pointed out, the cost of this LED technology, as any new technology, comes at a higher price. It's converting that market over and showing the advantages. And that was one of the things that we have done a tremendous amount of work. And that really is bringing people through our operations, and we have invested heavily in the education process and certainly the whole technology world. And it just takes time to get these people converted and to an understanding of what their total return will be and why they should be thinking about it today rather than thinking about it tomorrow.

And if the economy was stronger and more robust, it would be an easier job. But really now these people are looking at it much more differently than they used to the old traditional lighting, and that truly is where that return in. And is this the right time to spend money? That's an education that has to come about.

So, and as kind of my comments -- and the other guys may want to chip in with it or pipe in with this thing, we are in the best position than most companies are out there because of our iZone center, which is a tremendous education tool. We've got good engineers. They're developing new ideas and new products, which are penetrating the market. And last but not least, our financial capability to get through these tough times and stay strong so that we can reinvest and spend money where the opportunity comes to our doorstep.

Great. What do you do -- you must be a smaller company that can move faster. Are you spending more of R&D as a percent of your revenue maybe than what the competitors are? Not in absolute dollars, but just on a relative basis? And are you able to maintain that kind of lead relative to some of the bigger players who maybe aren't as opportunistic?

Yes, I think we're in a great shape because we've already made those investments. We invested in Saco. We invested in ADL. That comes with people, obviously, and the strengths of what we -- we've blended those people with our lighting group. We've invested heavily in our automation process. We are an American company and our whole marketing theme -- American-innovation, American-made and we're going to stick to that.

And we're finding that people that are coming through daily are saying we want to buy American products. And really what we also have found that abroad, people are saying -- our customer base abroad is saying we're more interested in buying American products than we are buying products from China or Mexico.

I think we're in a great position. From an R&D standpoint, I don't know that I can tell you exactly what others are doing, but from our standpoint, our R&D investment is really minimal compared to what the opportunities are.

Our R&D runs in the area of 2% of net sales and it has been reasonably consistent at that level, Ted.

Hey, Ted, the other thing to consider is that we have a great group of supplier partners and technology partners that are part of that R&D development, so not all of those dollars have to come necessarily just from our own direct expenditure with our own team.

There's a lot of technology that's developed in partnership. We've got some not only supply partners, but some -- we continue to evaluate and pursue strategic alliances there where technology can come together as a result of two companies working together. So, we've got a lot of flexibility. And I think we're doing a great job looking at all those sources of new ideas.

Are you able to measure your market share into various markets and whether you are gaining market share relative to -- and are there primarily bigger players that you are competing against?

I think from a commercial industrial standpoint, I will let Sean mention -- make a comment, but certainly we have a very good, strong ability to measure that in our niche markets because it's been our forte. And we are very comfortable with where we are.

From a commercial and industrial standpoint, this is the revolution of LSI converting our markets to a larger agent with the LSI culture, which is really interesting because of what we see and measure based on these folks coming through our operations. Sean, you might want to add to that.

Ted, I think we've got a pretty good sense of how large the overall -- the broad C&I market is today. And as Bob and Scott have already shared, I think it's a combination of things.

I think the short answer is we are gaining share. We're making strides. And I would say it comes in a combination of fashions. Educating the end-users and certainly utilizing the fantastic facilities we have to have a continuous stream of users and influencers come back and spend time with us helps us with conversion to LSI, adoption of new technology in LED.

Giving the agents the core, the legacy, the productive agents that we have always had as well as conversions in many key markets the right tools to extend that message, be it Web, be it hand-carried tools that would help market and enable one to understand LSI's unique position; calculators that can help one understand energy.

I think the market continues to recede, frankly. I think the market years ago, the broad commercial market was about $11 billion. Even with a greater percentage of that market now being made up of LED products, we're probably at about a $6 billion to $7 billion basis. We would put ourself in a share gain position and we're going to work hard to continue that.

What percent would you say you have of that market?

A very small percent. We're still --

Fragmented? Pretty fragmented?

Yes. We're still a very small company compared to some of the other four, but the fact when you really look at what's happened, during the 35-year history, people really didn't know who LSI was. The whole image of LSI was you're the guys that make the canopy fixtures for the petroleum industry. Well we sure as hell did that and we've done that very well for a long period of time.

But we have expanded our product line now to be competitive with any of the major manufacturers out there. And as we're making these conversions and bringing these larger agents in who are now seeing the ability of LSI, they're leaving here and saying we had no idea how big or how potentially big you can be. And with the efforts and the partnerships that we are developing with these agents, we believe that we will make more market penetration in the years to come. And it will be primarily through the LED technology.

But also don't forget that only 22% of our volume or 25% in that framework is LED. There's 75% of the traditional lighting, and we do that as well as anybody else out there.

We have our own poll manufacturing facility. We make a full line of florescent and HIV products that can could compete with anybody else out there.

It's the exposure of LSI to the market and that's through the agents, the guys that are in the trenches selling every day.

And that proves its point based on our niche markets. That's how we built it. It's getting those agents educated, giving them the right products and tools to go out there and penetrate the market. And we've done that very well in the niche markets. And now our goal is to do and take the same model and work that through the C&I where the bigger potential is.

Right. Well, great.

Hey Ted, Sean. Can I add one other point?

Sure.

It's tough to see as you look at earnings releases from some of our competitors because they would report broadly in a quote, unquote electrical segment, you back out the impact of currency exchange, of price recovery and then you make some assumptions about their specific lighting business, competitor A, competitor B, into their overall electrical segment. I would also look at that as a contributing data point that we are gaining share. I would say from being very close to the market; having great lines of communication from each of the major markets; and intelligence on the ground in terms of an independent manufacturers' representative network, all reports are that we continued to improve our existing share position. And I would say that's supported by some of the other recent announcements.

Right. Well, great. Well, thanks for the insight. I appreciate it.

(Operator Instructions). At this time, there are no further questions.

Well, Wes, I think we will conclude. I want to appreciate everybody's time. Hopefully we have answered most of your questions. It is a challenging time out there, but I'm very confident based on the strength of our financial position. Certainly, our introduction of new products; the expansion of our international market; the challenge we have and we know it and we fully understand it, is to get our graphics business into a more stable position. And I know I have the commitment of the entire management team to do just that. We are really looking forward to 2012, and I'm talking about the election year to see how things stabilize in this country, and hopefully so. We started to see the confidence being brought back.

But, from our perspective, we are a company that will endure and have endured difficult times. This was a disappointing quarter, but just give us more of a challenge to continue to do a better job, and that's what we are all committed to doing.

With that I would like to thank you for your time. And as always if you have any other questions, just please give us a call, either Ron or myself or Scott or David from a graphics standpoint. But we've pretty well given you a snapshot of what's going on and look forward to talking to you next quarter.

And this is Ron. As always, I will remind everybody of our Safe Harbor statement that you can read at your leisure in our 10-Q and 10-K.

Thanks, Ron. Thanks, everybody. I appreciate it.

Thank you. This concludes today's teleconference. We appreciate your participation. You may now disconnect your line at this time.