LSI Industries (NASDAQ:LYTS) Q3 2020 Earnings Call

0:00 Greetings and welcome to the LSI Industries Fiscal Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. On the call today are Jim Clark, President and Chief Executive Officer, and Jim Galeese, Chief Financial Officer. It is now my pleasure to introduce your host, Jim Galeese. Thank you, sir. You may begin.

0:40 Good morning, everyone. We issued a press release before the market opened this morning detailing our fiscal third quarter results. In conjunction with this release, we also posted a conference call presentation in the investor relations portion of our corporate website. at www.lsi-industries.com. Information contained in this presentation will be referenced throughout today's conference call. I would like to remind you that management's commentary and responses to today's conference call may include forward-looking statements about our business outlook. Such statements involve risks and opportunities, and actual results could differ materially.

1:25 I refer you to our Safe Harbor Statement, which appears in this morning's press release, as well as our most recent 10-K and 10-Q. Today's call will begin with remarks summarizing our fiscal third quarter results. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to LSI President and Chief Executive Officer Jim Clark.

1:52 Thank you, Jim. Good morning, all, and thank you for taking the time to join us today. As I start today's call, I would like to address three items right up front that might help frame things up. First, I would like to acknowledge that we're in strange times. The challenges that we're facing as a global community is of unprecedented nature. Few of us could have imagined two months ago that we would be in the middle of a global pandemic. With that in mind, I want to wish you and all your families safety from this challenge and on behalf of LSI, I want to give thanks to the men and women that are on the front lines fighting through this. Number two, I want to acknowledge the efforts of the folks at LSI that have worked tirelessly to keep our employees safe, maintain business continuity and continue to deliver much needed solutions to our customers.

2:42 LSI was categorized as the central services group early on. We proactively reached out to various resources to assure we could provide a safe environment for our employees and to confirm with various government agencies that we were working in a safe manner and one that was consistent with changing stay-at-home orders. Throughout this trial, we have provided a number of services and products that directly address some of the challenges associated with this fight, including lighting products for temporary and permanent medical facilities and COVID-related graphics and signage for a number of our customers, including grocery, farmer, petroleum, and we've even engaged our electronics fabrication facility in the manufacture of an experimental patient monitoring device that could prove to be a valuable tool for our medical community in the future.

3:37 Lastly, and number three, I want to acknowledge and respect the situation we're in and the uncertainty of the future. We, like everyone else, have limited insight into the timing of the recovery and what those days will look like. I'm happy to say that we have a diverse set of solutions that we can offer our customers, and I believe that those solutions may create some opportunities for LSI as we move forward. I do not know whether we will experience a V, U, or L-shaped recovery. What I would like to say is that we are working with real-time data and we adjust our plans as needed. We have multiple paths prepared, and we are ready to go whether we experience a delay in orders or a surge in business.

4:23 None of us wishes to be in this situation, but we are ready to respond. Now, jumping into the last quarter. As reported earlier today, we experienced slightly lower sales in Q3. The sales decline came from our lighting business, and it reflects our shift in strategy as we continue to move away from lower margin commoditized solutions the higher quality, higher value solutions. This effort to move our business realized 170 basis point improvement margin for Q3, and we believe this demonstrates our ability to move the business and that we still have room as we balance this transition. Last quarter, we introduced a half a dozen new lighting products balanced between indoor and outdoor. These new products filled in various gaps in our solution set, and worked across some of our most popular product families.

5:17 In Q4, we will continue to introduce another six or so products, including our low-cost controls platform to help augment our existing higher-end control solution. We've been working on this platform for some time, and we believe that it could prove to be a differentiator by creating more value in our solution. On the graphics side of the business, I'm happy to say that we just passed our tenth consecutive quarter of growth, and sales for this segment increased 10% for the quarter. Our backlog in graphics remains very strong, and although it is anchored in our petroleum vertical, we have celebrated a number of wins in grocery farmer and QSR sales, including the recent win of $100 million multi-year project in digital graphics.

6:05 This award demonstrates the confidence folks have in our solution, coupled with our ability to manage the logistics of a large project, including on-time delivery, installation, commissioning, and post-sales support. This post-sales support continues to demonstrate our ability to create a recurring revenue model, and we are looking for more and more ways to expand this. We spent the last 18 months optimizing our operational footprint and decreasing our overhead. This time last year, we exited and sold our New York facility while at the same time we increased our space in Texas as we overhauled and optimized our graphics business in that location. Earlier this year, we completed the sale of our North Canton facility, which supports our printed graphics and digital graphics solutions.

6:55 We are actively in the process of moving to a new location just down the road, which will allow us to retain our existing workforce while optimizing our production footprint. At this point, our timing and schedule related to this move has not been impacted, and we expect to be fully moved into our new facility and operational by the end of June. Our focus moving into Q4 and into 21 is a sharpened point on our commercial activities and lighting. I'm happy to say that our new commercial leader, Jeff Davis, joined in January, and his influence can already be felt across the organization. Jeff, along with our field sales reps and agents, have really pressed on the accelerator, and the whole organization is responding to his engagement and processes that he's putting in place.

7:47 Changes in the sales process did not take place overnight, but I'm happy at the progress I see to this point, and I'm encouraged moving into the future. In January, we had our national sales meeting, which served as a halfway point on our fiscal year. Mike Prachar, our CMO, led the meeting along with Jeff and other members of the company. The professionalism and engagement were first-rate, and I know much of that energy and training are coming to good use now. As we move forward, our company is much improved, and our commercial group is building a list of opportunities in front of them. Our balance sheet's strong, our debt is a fraction of what it was a year ago, and our liquidity will allow us to pursue opportunities we have been eager to explore.

8:34 We are not blind to the potential challenges ahead. Markets can change, but we are energized by the work we've done and the possibilities that lie ahead. With that, I'll turn it over to Jim Galeese for comments on our financials.

8:48 Thank you, Jim, and good morning, everyone. To summarize key fiscal third quarter financial statistics, net income was $1.9 million compared to a net loss of $3.2 million last year. Earnings per diluted share were 7 cents, versus a loss of 12 cents in the third quarter of fiscal 19. Third quarter results include a non-recurring $3.7 million pre-tax gain resulting from the sale of the North Canton, Ohio facility and $700,000 of restructuring costs. On a non-GAAP basis, adjusted operating income was a loss of $400,000 compared to a loss of $1.9 million in the same period prior year.

9:33 Non-gap earnings per diluted share, or a loss of $0.04 versus a loss of $0.08 in the third quarter last year. A complete reconciliation of third quarter gap and non-gap results is contained in our press release in 10Q. The company generated $3.5 million of free cash flow in Q3, reducing debt to $7.1 million, or 0.5 times the company's trailing 12-month adjusted EBITDA. Net debt has been reduced by $31 million since the beginning of the fiscal year. Other income and expense was flat to last year, a combination of lower interest expense combined with an increase in currency transaction expense related to the change in the peso exchange rate, the majority of which occurred in March.

10:22 The President signed into law the CARES Act on March 27, 2020. The legislation includes a number of tax provisions. at least one of which will benefit LSI. The CARES Act grants taxpayers a five-year carryback period for net operating losses arising in the tax years beginning after December 31, 2017 and before January 1, 2021. A corporation can carry back NOLs to offset pre-2018 ordinary income or capital gains, thereby generating a current refund and a favorable tax differential. As a result, the company recorded a receivable of $800,000 as a result of applying the legislation.

11:11 This favorably impacted current quarter tax expense by $300,000. We continue to review the Act for any other potential qualification opportunities. A regular cash dividend of $0.05 per share was declared payable May 12 for shareholders of record on May 4. Moving to our two reportable segments. Lighting adjusted operating income was approximately flat the prior year. The combination of sales of 49 million, 7% below last year, and a 170 basis point improvement in the gross margin rate. This reflects continued progress on shifting to higher margin market applications, evidenced by the increase in third quarter sales of higher margin outdoor products and decrease in select low and Michael Prachar.

12:03 Thank you. Thank you. which has six major programs currently in progress, all in different stages of their lifecycle implementation. The outlook for the next several quarters for the petroleum vertical remains positive. Graphic segment adjusted operating income for the quarter was $1 million versus a loss of $900,000 in the prior year. The gross margin rate improved 310 basis points versus last year, driven by and improve cost position as programs mature along the life cycle, volume leverage and overall expense management.

13:03 Lastly, our North Canton relocation project remains on schedule for completion in June with no interruption to current customer service requirements. I'll now return the call back to the moderator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Craig Irwin with Roth Capital Partners.

13:49 Please proceed with your questions.

13:51 Good morning, and thanks for taking my questions. So, first thing I wanted to ask about is this $100 million award from a Tier 1 QSR customer. You mentioned in the release that it's an existing customer and that you're going to do about 6,000 locations domestically. There's very few QSR competitors that have 6,000 locations in the U.S. So we can kind of guess who it is. But maybe, you know, can you frame out for us how this is likely to ramp over the next couple quarters? Will it ramp quickly or incrementally?

14:37 And, you know, those 6,000 locations, would you expect there potentially to be incremental sales maybe from the lighting side? and other products over the course of the next couple of years that might be additive to that $100 million.

14:55 Well, good morning, Craig, and thank you for jumping on the call with us this morning. And thanks for recognizing that award. We're very happy about it. It's one that we've worked on in the last year to kind of demonstrate our value and the services we could offer. I think when we initially got involved and engaged with this customer, it was from more of a product standpoint, but we were able to demonstrate to them our ability to manage the logistics associated with the distribution of the products, and then ultimately the install, and then from a post-sales perspective, the ability to manage the projects after. I think that as we demonstrated those through their piloting programs, they became more confident with us. and the conversation became less about price and more about performance. And so aggregating all of those elements together, we were very happy to get the award.

15:52 We do believe that we have opportunity in excess of just the digital menu system. As you know, we have print and graphic solutions that go along and complement The Digital Menu Systems, but we also have lighting and controls. And, you know, our approach has been if we're going to be on property, are there other things that we can do for you? You know, the most expensive element usually is getting us on property. And then the second being any disruption or working in a way to minimize the disruption, why not take advantage of it? We've been, you know, now that we've moved into this phase where We're working on the actual deployment schedules and the awards.

16:38 We are actively engaged in each of the locations, offering surveys, offering site surveys, offering the opportunity to discuss other solutions we can offer. So I'm very encouraged by that. We don't have enough history yet to determine what that's going to look like in terms of traction, so I can't really comment on it, but we do have a very a strong program around explaining those benefits, explaining the other services and products we can offer, all under the guise of a solution that not only helps them potentially improve their image and their effectiveness with their customer, but also energy savings and performance related to overall lighting and that type of thing.

17:26 Great. Thank you for that. I had no idea that you were chasing a $100 million award, so that was actually a really nice positive surprise to see that press release. Can you maybe share with us, are there any other contracts? I mean, I know there's a dozen guys that have 6,000 plus in North America locations, but are there any other contracts that are north of $50 million that you're chasing or at least discussing? with customers at this point, either on the identity side or on the lighting side of the business?

18:07 Well, the answer is yes. And as you know, when we first started sitting down talking, I came into this spot a little under two years ago. And the first thing we wanted to do was make sure we built that better business before we built that bigger business. It did not mean that we weren't in parallel pursuing some of these commercial opportunities and laying down the groundwork on that improved systems and operations in the background. But to be competitive, we couldn't do it at the cost structure we had. So as you see, a lot of the operational changes that have occurred over the last year and a half, they've been about right-sizing our ability to deliver a cost-effective solution. And then as we get engaged in projects like this, are our efforts to demonstrate our ability to manage not just, again, the manufacturer of products, but the delivery of solutions. And that's, you know, there's multiple facets we've got going on with that, you know, from a lighting standpoint with our agents, you know, recognizing, identifying, supporting, training, being in improved communications with our overall agents from a lighting perspective so that they have more confidence in us, and then we're delivering additional new products and improved productivity relative from a cost standpoint and on-time delivery and all of that, and then demonstrating to these large national accounts that we can work and we have the resources, and I know I've mentioned it before,

19:41 but it's specifically in a group we call ADAPT with Inside LSI. I know we don't disclosed it publicly in terms of a reportable segment, but it's our project management capabilities, and that extends across lighting and into graphics, and it's demonstrated in our petroleum successes, but it's also demonstrated in the graphics rollouts from a printed standpoint, particularly around grocery and quick-serve retail, and then it's demonstrated in lighting, again, as you come back to national accounts. We had a large auto dealership, not auto dealership, auto parts supplier that we had a large contract with. I didn't particularly love that contract because we were in at the wrong price point, but it still demonstrated our ability to manage through deployment and make sure product arrived on time and that type of thing.

20:37 So over the last year, we've taken a real look at those national accounts efforts and revamped our position relative to what's our back end look like, what's our capabilities for customization look like, whether it's lighting or graphics or both, and then added some resources in our deployment and project management side. And then the last component being just the investments we're making in the commercial side now. I mentioned a little bit of it in the press release, but I'm very happy to say we've got our new commercial sales leader on board. He's joined us in the last quarter. his name is Jeff Davis, and I gotta tell you, he's only been with us a short time, but his pace and his cadence and his professionalism around the details, we package all of this stuff together and it's about confidence in these large deployments. Customers that have thousands of sites, if we're out in deployment and we get a couple hundred of them wrong, that's a significant impact. That's not gonna happen with us, but I'm saying if they get a couple hundred wrong, demonstrating the professionalism, demonstrating our ability to deliver in that area.

21:47 I think we have a lot of ways to go in that, and we have some real big opportunities potentially in front of us.

21:55 Great. Thank you for that. I also wanted to ask about the outlook for the lighting market. I understand there's quite a lot of diversity in construction right now. Some areas are moving forward as planned, completely unchanged. particularly, I guess, the large corporates where you have a good amount of exposure. But then there are other areas of the market that have just been shut off, particularly anything retail exposed. Can you maybe walk us through the dynamic that's going on underneath your lighting business? I'm not asking for a forecast on this current quarter that we're in now, How do you feel the fundamentals are working as far as the normal progress in this market versus this COVID-19 environment that everybody's trying to work through?

22:58 Yeah, I mean, it's tricky to comment only in the sense that there's a lot of unknowns. I don't know the timing. I don't know if there's going to be any rebound to opening things up. Different states are going to open it differently. in different stages. I've seen some information out there that some of the trailing longer tail states may not be fully opened until the end of June. Some are trying to press things even as early as the first couple weeks of May. So I think there's a lot of variables there that I just can't comment on. What I can comment on is what we're doing in the background, and I kind of mentioned it a few minutes ago. We sat down and we said, okay, what's best case, what's worst case, and how do we adjust to respond to each of these?

23:48 The upside on our downside, if there's a downside, we're prepared to take whatever actions we need operationally, and obviously we've implemented a lot of those just as a standard course of business right now. On the upside, what we're doing is preserving the ability to react. We had purposely made a decision in the fall of last year to build inventory in anticipation for demand in this coming summer. We have that inventory available. We've had a number of calls with our agents, with our niche reps, with our specialty market folks. We've become experts at audio conferencing and Zoom and video conferencing. and I'm happy to say many of our partners have become very proficient at it too. The point I'm getting to is we've laid the groundwork for whatever side this leans. If there is an uptick in business, I feel very confident that we're going to be able to respond and I'll tell you one of the things that we've been working on over the last year was our supply chain and diversifying and making sure that our supply chain had redundancy into it and it was robust and it wasn't are geographically concentrated.

25:07 And as a U.S. manufacturer and a U.S.-based company, we've made a lot of effort to make sure that we took a second look and a third look at U.S. supply chain where we could buy cost competitively within the U.S. and then where could we buy and dilute our concentration, if you will, in the supply chain. And we've done that over the last year. So I think it sets us up well to respond to whichever way this goes, Craig. If there's a surge in business, things open up a little bit quicker than we think. Construction projects, because of available labor, construction projects pick up quicker. They try to maintain their construction schedule. They add resources.

25:56 We'll be able to provide the product. If things push out, we haven't seen a lot of talk about cancellations or anything like that. What we've seen on the low end is, hey, look, we're still committed to the project, but we're going to realistically, based on the delays we've had in construction, we now believe that delivery of your product should be 45 days later or 60 days later or whatever it is. So we haven't really had a lot of conversations about cancellations or things like that. It's really been... Most of the conversation has been business as usual, stay to our original commitment date, or extend it a little bit, but very few on cancellation. Like I said, we're hoping that maybe, you know, with disrupted supply chains and things like that from some of our competitors, maybe it creates an opportunity for us.

26:52 Great. And then I guess on the opportunity theme, right? Net debt of, what, $7.1 million down $35 million year over year is a huge accomplishment. And in this environment, a lot of the private companies we talk to say that some of their peers are of much greater appetite to sell, particularly people that have been flirting with the idea over the last couple years. I know that you've been really internally focused on execution and fixing what you can at LSI to get the company positioned to execute well and grow over the next few years as things normalize.

27:43 But what's your appetite for potential accretive growth? If something came up strategically interesting, would you consider completing a transaction or are you not interested in transactions? Are you actively looking? Any color would be helpful.

28:02 Yeah, I mean, I think that, you know, as you know from prior calls, we've worked hard to have a strong balance sheet, and we've also worked hard to maintain liquidity and have that capital available should we want to invest in something. The answer, the short answer is yes. I mean, I do want, and so does the team, want to be very opportunistic here. And we are hoping, as opposed to looking at all the downside of this situation, we are looking at the potential opportunity and be opportunistic out there. And I am hoping that it moves the conversation in a direction where more folks are willing to engage in conversation.

28:47 And as you mentioned, we have spent a lot of time focusing on the structure of the company We are now spending a lot of time on the commercial aspect of the company. Now that we are a better company, we can be better represented in front of our customers, agents, partners, and it creates that opportunity for us to start to look at those other creative growth. We didn't just turn this on. We've been looking at it for a few months now, maybe going into double-digit months. We have our list, and we're hoping that maybe this does open up an opportunity for more conversation.

29:30 Excellent. That's great to hear with that. Congratulations on the really impressive win with that $100 million contract and continued healthy execution. Hope everybody at LSI is healthy in this challenging environment. Thank you. Thank you. Same to you. Our next question comes from the line of Amit Dale with H.C. Wainwright. Please proceed with your question.

29:58 Good morning, everyone. Thank you for taking my question. With respect to this $100 million win, could you help us understand how this may reflect in the financials of the next three calendar years? Is that $130 million, $130 million, $130 million roughly?

30:13 Yeah, so, Amit, what we know right now is that, you know, we had an initial deployment schedule. Obviously, you know, it's a live project working through, you know, our customers, their locations, and the kind of the restrictions that we have around it right now in some areas where construction is more restricted than others. Or, you know, frankly, one of the things we're dealing with right now is obviously In this digital menu system, a lot of them are for drive-through. There are some interior, but drive-through is extremely busy right now. So we're working around that scheduling, managing the potential benefits of the updated system along with any disruption to the business and the resources to be able to install it.

30:59 What I can say to you, Amit, right now is that the plan is within a 30-month, a 31-month kind of planning cycle. It may accelerate. a bit or it may be delayed, but we haven't, you know, there's been no disruption to our current deployment schedule, but we have had conversations that, again, we may push things out or we may concentrate things in an area where we can get resources and there's less restriction or those type of things. So those are all real-time things that are going on right now.

31:36 Thank you for that. And, you know, From the commentary, it looks like you're still deploying and doing relatively well in the petroleum vertical, but with what's happening in the energy markets, it doesn't seem you're losing anything, but should we expect some push-outs and delays? How should we view the current environment in that vertical relative to the projects you have lined up and business you're pursuing in that space?

32:07 Yeah, great question. And, you know, obviously just within the umbrella of this current challenge, COVID challenge, you know, there's no playbook that any of us can open and say what happens next. So there's obviously lots of variations. I mean, you see oil prices, you know, crashing and you see, you know, all kinds of things happening in that sector. With that said, The conversations that we've had have remained committed. This is a long cycle decision. These are multi-year projects that have a lot of momentum behind them and a lot of scheduling, logistics, all kinds of things that go along with it. Sometimes we're simply doing a graphics update.

32:55 Other times they're tearing up the whole facility and putting in new tanks and things like that. Right now, as we look out over the three plus months Thank you very much. Your group, you know, you have the upstream, you have the delivery, and you have the retail. And each of them work independent of each other.

33:43 They work adjacent and with each other, but they tend to work independent of each other. The news that we're receiving right now on the retail end is that there will be no change in course, and that commitment stays as it is. And we've even heard some on the positive side that, you know, it now may be a time for to accelerate some of those projects, both from a competitive standpoint and because the actual ability to implement disruption to business is minimized. We need to balance it right now, but what I can say to you right now is there has been no disruption to any of our commitments, and that's extending 90-plus days as we see it right now.

34:29 That's really interesting to hear. You know, you have that level of traction despite what is happening at the macro level. Maybe one last one from me. You know, the balance sheet is deleveraged. You have engaged in M&A previously. If you were to sort of revisit those opportunities again, is there any particular vertical that interests you most at this point?

34:57 You know, as we talk in the management team, we talk about it and in two tranches, or three tranches, really. We talk about core, adjacent, and additive. So, you know, core being, and I'm just making this up, you know, core being a core lighting company, something that adds to our solution set, our product portfolio, or something like that. Adjacent would be a technology, I mean, you know, a market enabler, maybe getting into new verticals, maybe adding to our portfolio in terms of a solution set. And then that last aspect is kind of is there something we can do that broadens our share of wallet and it may be a completely different solution set. We're looking across all three.

35:53 It's a pretty wide lens, but we want to be opportunistic like that We hope that some of the conversations we've had will be re-energized. We hope that maybe some that hadn't considered talking with us or that we hadn't reached out to yet, that the barrier will be a little bit lower. But I do want to say this. It is definitely something we're putting time into right now. Understood.

36:22 Thank you for that. I appreciate it. Good luck with everything. I'll step back into you. Our next question comes from the line of Joseph Osho with JMP Securities. Please proceed with your question.

36:39 Hey, guys. Hope everyone's well. Yes, good morning, and same to you, Joe.

36:45 Well, I'm out here in permanently shut California, so for your comments, we're one of the trailing economies, I would say. Just following on a couple of the earlier questions, not talking about necessarily the near term but the longer term, how do you think about positioning this business based on changes from this pandemic that might prove to be more permanent, in particular how you position your petroleum and your convenience store businesses?

37:22 Okay. Well, that's a complicated question, but I'll say this. First, through this challenge, you know, the award of that QSR business, which is, you know, multi-site, multi-year complex, our customers that we deal with in the petroleum space, which are also, you know, heavy logistics and the ability to kind of coordinate and provide services beyond just products, so you really start to talk about a solution. During this challenge with COVID, we were tapped on the shoulder by a number of our customers, petroleum and grocery farmer being the ones that come to mind, at the top of my mind, about immediately responding to COVID-related graphics, both from a print and branding standpoint, the ability to manage some of our digital assets and update them with warnings and information related to COVID.

38:23 and what happened through that is we were able to demonstrate our ability to pivot and respond and I think it gained us a lot of credibility with some of these larger customers and it also attracted the attention of maybe some of the folks that are just peripherally doing business with us or haven't fully engaged with us yet. So as I look at it, that combination of graphics and lighting continues to be a potential opportunity that maybe is leveraged in a different way or recognized in a different way than it had traditionally been. We have a very mobile society, as you know, and these solutions that we're deploying really kind of address some of that mobility. I also think that there's going to be some changes that we're going to adopt kind of culturally as a nation about distancing and about you know, maybe less heat in, more pickup delivery, you know, drive-through type things. And the solutions we've been rolling out for the past couple years I think are going to really appeal in that market and appeal to maybe what is a developing market or a new market as we go, you know, kind of an expanded market as we go forward, if you will.

39:42 Yeah, it's interesting to think about. On that note... Thinking about acquisitions, which, again, has come up here a couple of times, stepping away from just buying another lighting company, what kind of enabling technologies do you maybe imagine plugging into your enterprise as you think about how to position yourself?

40:04 Well, for us, if we look at adjacencies or we look at some type of enablers, it's really things that are adjacent to the solution we offer now where that expense of being on site and coordinating everything from construction to electrical permits to business interruption and all of those type of things, if while we're in there we can offer additional services or place additional solutions in, I think it's a really compelling story to say to the customer, hey, listen, will be in and out, and we can deliver all of this value, and it's wider than just lighting. It's wider than just graphics and digital menu systems. It's wider than controls.

40:54 So I don't want to constrain myself in saying that I know exactly everything that we can do, and I also want to be careful about stating too much about things we're looking at right now. But I think the easiest way to say it would be, is there a way we can create a greater share of wallet with those customers and show the value through minimal disruption? And those are the opportunities we're going to kind of look at. And when you get me talking about customer penetration and value-added services and technology we can bring in, I get excited, but the conversation can really roll faster But one other element that I think is key and we're seeing here, and it's played out, it's gotten a little magnified.

41:43 We always know it's good, it's something we want to tap on, but we've hit the accelerator a little bit, is that services end. And it's not just the services in terms of the deployment, but it's the after-sales services, the reoccurring revenue, the maintenance and management, not just from a performance standpoint relative to is the product working or not? Does it need repair? But from the management standpoint of can we post more information up there? Can we change price? Can we put information up there that we didn't even conceive of three months ago? And all of those things are starting to be things that we can bring into the conversation. They don't happen overnight, but the awareness has really been accelerated lately.

42:31 Yeah, yeah, and I remember you saying at one point that you weren't sure you could necessarily get paid for stuff like that, but things are always changing. Just the last question, I guess, Jim G., this is more for you, the comment about your supply chain not being disrupted, and you amplified on this a bit. Do you think that's a result of the work you have done, or could you say broadly that the lighting supply chain hasn't been disrupted?

42:57 I can say with absolute certainty the opposite. The lighting supply chain and many of our competitors that are importing products from, you know, importing finished goods and are heavily reliant on components from foreign sources are absolutely feeling a disruption right now. It's active every day. What we did, you know, started 18 months ago, really picked up steam about 12 months ago, was that diversification of the supply chain, and it was in advance of the concentration of imported products from China and the tariffs that were put in place in that disruption that occurred there. We were already a couple steps ahead of that, and we were gaining momentum on that supply chain diversification. We could have never anticipated the current situation we're in, but the work that we did to decentralize that concentration.

43:54 I mean, decentralize a single source purchasing and the concentration we had is really paying off right now. And there is another aspect I think I mentioned, which was last year, because we weren't as efficient as we needed to be, we actually had more orders come in than we could serve. And I talked about that last year, and I'm sure everybody remembers that. Knowing that we didn't want to get in a situation like that again, we've done a lot of operational changes that we've talked about, and obviously they're reflected in our conversations and in our balance sheet and in all kinds of other ways that you can see that having occurred. But one of the things that had happened with that is we decided to look at components, parts, pieces, sub-assemblies, and our ability to deliver and pivot quickly.

44:48 So I mentioned a minute ago that we had built some inventory in anticipation of this year, of our high season, if you will. So we have those components in-house. We're able to manage with a much greater degree of flexibility. We have sub-assemblies pre-built. We have finished goods pre-built. So we feel like we can really react, but it's all underpinned by that breaking up that concentration in our supply chain and looking for multiple sources, whether they're domestic, which I do want to underline. We did make a purposeful move to get more domestic suppliers to underline that U.S.-made, U.S.-manufactured, and then also to globalize a little bit more our supply chain so we weren't heavily concentrated in the Far East in one country.

45:47 Got it. Well, my compliments on your success, and stay safe, guys. Thank you, Joe. Thank you very much, and the same to you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.

46:05 This is Jim Clark, and I'd just like to say, first of all, thank you again for taking the time to call in, and thank you for the questions. My closing remarks would be around many of the things we just talked about. We've been building a better business for the last 18 months. We were well positioned coming out of Q3. We had minimal impact and we're well positioned to go into Q4 and into next year. And that positioning is going to serve us well as we're in the middle of this situation with COVID and the challenges are going to be in front of us. The thing that I would leave with each of you is that we're prepared. We've done the background work. We've done the infrastructure work. And we're prepared whether this creates pressure on the business or whether it creates opportunity.

46:56 And we are certainly looking at how can we underline, how can we create those areas where there is potentially opportunity. I did like some of the questions related to conversations on M&A and will those conversations look different. and I hope they will. We're all in business. We're all in the markets. Multiples had gotten very frothy lately and it was sometimes difficult to have conversations grounded in reality. Looking for the silver lining in the cloud, maybe there is an opportunity here that engages some additional conversation. We remain focused on employee safety.

47:42 Our ability to service our customers and support the work that we put in so far is very important to us, and I want to just assure you that we have plans in place to maintain business continuity and adjust either way. Thank you again for taking the time to spend with us, and I'll look forward to a time when we can all meet in person again. Take care. Stay safe. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.