Q3 2020 Earnings Call
[music].
Greetings and welcome to the Ellis I industries fiscal third quarter 2020 results conference call.
At this time, all participants are in listen only mode.
A brief question 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, our Jim Clark, President and Chief Executive Officer, and Jim Police Chief Financial Officer.
It is now my pleasure to introduce your host Jim Gliese. Thank you Sir you may begin.
Good morning, everyone. We issued a press release before the market open 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 Dot Oh, sorry Dash industries Dot com.
Information contained in this presentation will be reference throughout todays conference call.
I would like to remind you that managements 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.
I refer you to our Safe Harbor statement, which appears in this mornings press release as well as our most recent 10-K and 10-Q.
Today's call will begin with remark summarizing our fiscal third quarter results at the conclusion of these prepared remarks, we were open to lying for questions with that I'll turn the call over two Oh, sorry, President and Chief Executive Officer, Jim Clark.
Thank you Jim Good morning, all and thank you for taking the time to join us today.
At the start todays call I would like to address three items right upfront that might help frame things up.
First I would like to acknowledge that weren't strange times. The challenge is it we're pacing is a global community is unprecedented nature.
A few of us could have imagined two months ago that we would be in the middle of a global pandemic.
With that in mine I want to wish you and all your family safety from this challenge and on behalf of Ellis I want to get thanks to the men and women that are on the frontline fighting through those.
Number two I.
I want to acknowledge the efforts of the folks at all it's I have worked tirelessly to keep our employees safe maintain business continuity and continue to deliver much needed solutions to our customers.
Yes, I was categorizes the central services group early on.
We proactively reached out to various resources to assure we can 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.
This trial, we have provided a number of services and products the directly address some of the challenges associated with this fight.
Including lighting products for temporary and permanent medical facilities.
In Kobin related graphics, and signage for a number of our customers, including grocery farmer petroleum and.
We've even engage our electronics fabrication facility and the manufacture of an experimental patient monitoring device it could prove to be a valuable tool.
For our medical community in the future.
Lastly, a number three I want to acknowledge in respect to 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 all the site as we move forward.
I do not know, whether we will experience a v. you are l. shaped recovery.
But I would like to say is it we're working with real time data and we are just our plans as needed.
We have multiple paths prepared and we were ready to go weather experienced a delay in orders or surgeon business.
None of us wishes to be in this situation, but we are ready to respond.
No jumping into the last quarter.
As reported earlier today, we experienced slightly lower sales in Q3.
Sales decline came from our lighting business and it reflects a shift in strategy as we continue to move away from lower margin Commoditizes solutions to high quality higher valued solutions.
This effort to move our business realized 170 basis point improvement in 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 balance between indoor and outdoor.
These new products built in various gaps in our solution set and worked across some of our most popular product families.
In Q4, we will continue to and if you choose.
Another six or so products, including our low cost controls platform to help augment our existing hiring control solutions.
We've been working on this platform for sometime and we believe that it could <unk> proved to be a differentiator by creating more value in our solutions.
On the graphic side of the business I'm happy to say that we just passed or a 10th consecutive quarter of growth in sales for this segment increased 10% for the quarter.
Our backlog and 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 a 100 million dollar multiyear project in digital graphics.
This award demonstrates the confidence folks have in our solution coupled with our ability to manage the logistics of a large projects, including on time delivery.
Installation commissioning and post sales support.
This post sale support continues to demonstrate our ability to create a recurring revenue model and we're 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 in sold our New York facility well at the same time, we increased our space in Texas as we all overhauled and optimized our graphics business in that location.
Earlier this year, we completed the sale of our North <unk> facility, which supports our printed graphics and digital graphic solutions.
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 well 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 in into 21 is a sharpened point on our commercial activities in lighting.
I'm happy to say that our new commercial leader, Jeff Davis joined in January and its influence can already be felt across the organization.
Jeff along with our field sales reps and agents it really pressed on the accelerator and the whole organization is responding to his engagement and processes that he's putting in place.
Changes in the sales process did not take place overnight, but I'm happy at the progress I see it at this point.
Carriage moving into the future.
In January we had our national sales meeting, which served as a halfway point on our fiscal year.
Mike per car, our CMO led the meeting along with Jeff and other members of the company.
The professionalism 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 as building a list of opportunities in front of them.
Our balance sheet strong our debt as a fraction of what it was a year ago in our liquidity will allow us to pursue opportunities we have been eager to explore.
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 Gleaves for comments on our financials.
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 seven cents versus a loss of 12 cents in the third quarter of fiscal 19.
Third quarter results include a nonrecurring 3.7 million pre tax gain resulting from the sale of the North Canton, Ohio facility.
And 700000 of restructuring cost.
On a non-GAAP basis, adjusted operating income was a loss of 400000 compared to a loss of 1.9 million in the same period prior year.
Non-GAAP earnings per diluted share, we're a loss of four cents versus a loss of eight cents in the third quarter last year.
A complete reconciliation of third quarter GAAP and non-GAAP results is contained in our press release and 10-Q.
The company generated 3.5 million a 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.
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 LSR.
The cares act grants taxpayers, a five year carry back period for net operating losses arising in a tax years beginning after December 30, Onest 2017, and before January Onest 2021.
A corporation can carry back on a wells 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 800000 as a result of applying the legislation.
This favorably impacted current quarter tax expense by 300000.
We continue to review the act for any other potential qualification opportunities.
A regular cash dividend of five cents per share was declared payable may 12 for shareholders of record on May force.
Moving to our two reportable segments.
Lighting adjusted operating income was approximately flat to 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 margin indoor products.
The lighting adjusted gross margin rate also includes the impact of structurally lower manufacturing fixed cost.
The lighting supply chain continues to function as usual experiencing no measurable disruptions to the procurement process.
Shifting to the graphics segment graphics generated sales growth of 10% for the quarter growth was driven by the petroleum market vertical 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.
Graphics segment adjusted operating income for the quarter was 1 million versus a loss of 900000 in the prior year.
Gross margin rate improved 310 basis points versus last year, driven by an improved cost position as programs mature longer lifecycle volume leverage and overall expense management.
Lastly, our north Canton relocation project remains on schedule for completion in June.
No interruption to current customer service requirements.
I'll now return the call back to the moderator.
Thank you we will now be conducted a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad.
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One moment, please what we pull for questions.
Thank you. Our first question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Hi, good morning, and thanks for taking my questions.
[noise] so.
First thing I wanted to ask about 800 million dollar award from a tier one.
QSR customer.
You mentioned the release that it's there's it's an existing customer.
And that you can do about 6000 locations domestically.
There is very Hugh.
QSR competitors that have 6000 locations in the U.S.
So we can kind of guests so it is.
But maybe can you frame out for us how this is likely to a ramp over the next couple of quarters.
Well it ramp quickly or incrementally and let's 6000 locations. What you would you expect there potentially to be incremental sales, maybe from the lighting side or other products.
Over the course of the next couple of years.
That might be additive to that hundred million dollars.
Well good morning, Craig and thank you for a jumping on the call with US This morning.
And thanks for recognizing that award that we're very happy about it. It's one that too we 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 engaged with this customer was from more of a a product standpoint, but we were able to demonstrate to them our ability to manage logistics associated with the distribution of the products and then the ultimately the install and then from.
Both sales perspective.
The ability to manage the projects after.
I think that as we were demonstrated does through their piloting programs.
They became more confident with us and the conversation became less about price in more of outperformance in so.
Aggregating all of those elements together, we were very happy to get the award.
We do believe that we have opportunity.
In excess of just the digital menu systems as you know we have printing graphic solutions that go along and complement the digital menu systems, but we also have lighting and controls and.
Our our approach has been if we're going to be on property are there other things that we can do for you.
The most expensive element, usually as getting us on property and then the second being any disruption or working in a way to minimize disruption why not take advantage of it.
We've been now that we've moved into this phase where.
We're working on the actual deployment schedules in the awards 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.
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 strong program around explaining those benefits explaining the other services and products. We can offers all under the guise of the solution.
That.
Not only helps and potentially improve.
Their image and their effectiveness with their customer, but also energy savings and performance relative to related to overall lighting and that type of thing.
Great. Thank you for that so.
I had no idea that you were chasing a 100 million dollar wise. So that was actually a really nice positive surprise to see that press release.
Can you maybe share with such Oh.
Are there any other contracts I mean, I know, there's a dozen guys that have 6000, plus in North America locations, but are there any other contracts that are north of 50 million to chip, you're chasing or at least discussing.
With customers at this point either.
On the on the identity side or on the on the on the lighting side on the business.
Well the answer is yes, and as you know when we when we first started down talking I came into this spot a little under two years ago and the first thing. We wanted to do is 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 comes.
Opportunities in weighing down the ground work 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 rightsizing, our ability to deliver a cost effective solution and then as we get engaged in projects like this are our efforts to do.
Demonstrate our ability to manage not just again to manufacture project a products, but the delivery of solutions.
And that's.
There is multiple facets, we've got going on with that from a lighting standpoint, with our agents you know recognizing identifying supporting training being an improved communications with our overall agents from a lighting perspective, so that they have more confidence in us and then we're delivering.
You know of additional new products and improved productivity relative from a cost standpoint, and on time delivery in all of that and then demonstrating to these large national accounts that we can work in we have the resources and I know I've mentioned it before but it's specifically in a group we call adapt within.
In side by side, we don't.
No we don't.
Disclose it publicly in terms of reportable segment, but it's our project management.
Capabilities and that extends across lighting and into graphics in its demonstrated in our petroleum successes, but it's also demonstrated in the graphics rollouts from are printed standpoint, particularly around grocery and quick serve retail and then as demonstrated in lighting again as you come back to.
National accounts like we had a large auto dealership are 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's still demonstrated our ability to manage through deployment and make sure product will drive down time and that type of thing. So over the last year, we've taken a real look at those national accounts efforts and revamped our position relative to what.
Sure a backend look like what's our capabilities for customization looks like whether its lighting or graphics or both and then added some resources in our deployment management 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 sure.
Are you happy to say, we've got to earn a new commercial sales leader onboard each he's joined us in the last quarter same as Jeff Davis, and I am I going to tell you is only bandwidth as a short time, but his pace in his cadence in his professionalism around the details.
We package all this stuff together and it's about confidence.
In these large deployments customers that have thousands of side.
If we were out and deployment, we get a couple of hundred if I'm wrong, that's a significant impact.
That's not going to happen with us, but I'm, saying, if they get a couple of hundred wrong, demonstrating the professionalism demonstrating our ability to deliver in that area. I think we have a lot of waste we have ways to go in that and we have some real big opportunities potentially in front of us.
Great. Thank you for that so 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 corporate swear.
You'd have a good amount of exposure.
But then there are other areas market that has just been shut off.
Particularly anything retail exposed.
Ken can you maybe walk us through.
The dynamic.
That's going on underneath your lighting business.
Im not asking for a a forecast on this on this current quarter that we're in now but.
How do you feel the fundamentals are working as far as.
The normal progress in in this market.
This this cobot 19 environment that everybody's trying to work through.
Yeah, I mean, it's tricky to comment only on only in the sense that theres a lot of unknowns I don't know the timing I don't know theres going to be any rebound to opening things up different states, you're going to open it different.
You know 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 you know.
You know even as early as the first couple of weeks in May So I think theres 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 to a few minutes ago.
We sat down and we said, okay, Whats best case, which worst case.
And how do we adjust to respond to each of these.
The upside Andre are.
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 this is of course of business right now.
On the upside what we're doing is preserving.
The ability to react.
We had purposely made the decision.
The following last year 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 new traps with ours specialties.
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 had become very proficient at it to.
The point I'm getting too is we have laid the groundwork for whatever side. This liens. If there is an uptick in business I feel very confident that we're going to be we're 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.
Geographically concentrated and as a U.S. manufacturer in the U.S. based company. We've made a lot of effort to make sure that we took a we took a second look and a third look at us supply chain, where we could buy cost competitively.
Within the US and then where could we buy in.
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 it if there is a surge in business things open up a little bit quicker than we think.
Construction projects because of available labor construction projects pickup quicker.
They try to maintain their their construction schedule. They add resources will be able to provide the product if things push out I. 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 it we're going to.
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 then 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 extended a little bit, but very few and cancellation and like I said.
We're hoping that may be.
With disrupted supply chains and things like that from some of our competitors, maybe it creates an opportunity for us.
Okay, Great and then I guess on on that on the opportunity seem right.
Net debt.
What 7.1 million down 35 million year over year is huge accomplishment.
And in this environment a lot of let's see the private companies, we talk to saying that.
Some of their tiers are.
A much greater appetite to sell.
Particularly people that had been flirting with the idea over the last couple of years I know that you've been really internally focused on now on execution and fixing.
What you can it outside the company position to to execute well and grow over the next few years as things normalize.
But what's your appetite for potential accretive growth.
If something came up strategically interesting would you would you consider.
Completing a transaction are are you not interested in transactions are you actively looking any color would be helpful.
Yes, I mean, I think that you know as you know from a prior calls are strong we've worked hard to have a strong balance sheet and we've also worked hard and have had.
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 in to it as a team I want to be very opportunistic here and we are hoping.
You know as opposed to looking at all the downside of the potential you know this situation. We are looking at the potential opportunity and be opportunistic out there and I am hoping that it moves the conversation and new direction, where.
More folks are willing to engage in conversation and.
You know 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 accretive.
And we have we didn't just turn this on we've been looking at it for you know a few months now.
May be going into double digit on since we have our list.
We are opening that may be this does open up an opportunity for more conversations.
Excellent that's great to hear with that congratulations on that on the really impressive when with that 100 million dollar contract and.
Kenyan healthy execution.
Hope everybody downsize healthy healthy in this in this challenging environment.
Thank you. Thank you seem to you.
Our next question comes from the line of Aamodt sale with H.C. Wainwright. Please proceed with your question.
Hey, good morning, everyone. Thank you for taking my questions.
With respect to this 100 million dollar win.
Could you help us understand how this me second the financial due the next calendar year, one third including integration.
Yes, so I'm at what we know right now is that we had an initial deployment schedule obviously.
It's a life project working through.
Our customers their locations and the kind of the restrictions that we have around it right now in some areas where constructions more restricted than others or.
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 throughs 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 in the resources to be able to install it what I can say to you I'm at right. Now is is that the plan.
Is within a 30 month at 31 month kind of.
Planning cycle, it may accelerate a bit or it may be delayed.
But we haven't to Theres 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 is less restriction or those type of thing. So those are all real time things are going on right now.
Understood. Thank you for that and.
From the commentary it looks like you know you still deploying and doing relatively well in the petroleum vertical but with what's happening in the energy markets.
It doesn't seem to losing anything but should we expect some pushouts and demands the 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.
Yes, Great question and you know obviously just within the umbrella of this current.
A challenge to covert challenge.
There is no playbook that any of US can open and say what happens next so theres, obviously lots of variations I mean, you see oil prices crashing and you see you know.
All kinds of things happening in that sector with that said the conversations that we've had to have remained committed. This is a long cycle decision. These are our multi year projects that are create they have a lot of momentum behind him in a lot of scheduling logistics all kinds of things that go along with it so.
Sometimes we're simply doing a graphics update other times year tearing up the whole facility and putting in new tanks and things like that right. Now is we look out over the three three plus month period, we don't see any disruption at all.
As far as you know the customers appetite to remain committed to this with potential financial pressure on them. We've also heard discussions it say hey, this type of imaging.
Bright lighting modern imaging the updates of the stores are even more critical when oil prices are depressed.
As you know through being in the energy sector within your group.
You have the upstream you have the delivery and you have the retail and each of them work independent of each other they work adjacent in with each other but they tend to work independently of each other the news it were receiving right now on the retail end is is that there will be no change in course.
And then that commitments stays as it is and we've never even heard some on the positive side.
You know it now maybe it's time to accelerate some of those projects.
Both from a competitive standpoint and because.
The actual improved the ability to implement and disruption to businesses minimized.
We need to balance it right now, but I, what I can say to you right. Now is there has been no disruption to any of our commitment and thats extending.
90, plus days as we see it right now.
That's really interesting to hear.
But you have that level of traction despite what is happening at the macro level.
Maybe one last one from me.
The balance sheet is de leveraged you have.
Engagement M&A previously fewer to sort of revisit.
Those opportunities again is there any particular verticals that interests you most of disciplined.
As we talk in the management team, we talk about it in in two tranches or three tranches really we talk about core.
Adjacent and additive.
So core being and I'm, just making this up you know a core being a core lighting companies something that adds to our solution set our product portfolio.
Or something like that.
Adjacent would be an technology I mean, a market enable or may be.
Getting.
You know a into new verticals.
Maybe adding to our portfolio.
In terms of the solution set and then that debt 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.
It's a pretty wide.
It's a pretty wide lens, but we want to be opportunistic like that.
We hope that some of the conversations we've had.
We'll be.
Be re energized.
We hope that may be some that hadn't considered talking with us or that we hadn't reached out to yet.
The barrier will be a little bit lower but I do want to say this is definitely something we're putting time to right now.
On the student.
Thank you for that I appreciate it good luck with everything I would stand back in June.
Our next question comes from the line of Joseph Osha with JMP Securities. Please proceed with your question.
Hey, guys hope everyone as well.
Yes, good morning, and same do Joe.
Well I'm out here and permanently shut California. So per your comments were off we're one of the trailing economies I would say.
Hi, just.
Following on a couple of they're all your questions not talking about the necessarily the near term, but but the longer term.
How do you think about positioning is business based on changes from this pandemic that that might prove to be more permanent in particular, how you you position you're.
You are petroleum at your convenience store businesses.
Well, that's a that's a complicated question, but I'll say I'll say this first through this.
Through this challenge.
The award of that QSR business, which is multi site multi year complex.
Our customers that we deal within the petroleum space, which are also.
Heavy logistics in the ability to kind of coordinate and provide services beyond just products. So through you really start to talk about a solution.
During this.
Challenge with Covidien, we were tapped on the shoulder by a number of our customers petroleum in grocery farmer being the ones that come to mind.
At the top of my mind about immediately responding to co bid related graphics, both from a print and branding standpoint, the ability to manage some of our digital assets an update them with.
No warnings and.
Information related to Cove it.
And what happened through that is we were able to demonstrate our ability to pivot in respond and I think it gained does 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 havent fully engaged with us yet so as I look at it.
That combination of Grafix in lighting.
Continues to be a potential opportunity that maybe is leveraged in a different way are recognized in a different way than it had traditionally been.
No we have a very mobile society is you know.
And these solutions that we are 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 you know about distancing in about.
Maybe less seed in more pickup delivery.
You know drive through type things in the solutions, we've been rolling out for the past couple of years I think are going to really up appeal in that market and appeal to maybe what is a developing market or new market as we go kind of a.
Expanded market as we go forward if you will.
Yes, it's interesting to think about on on that note.
Thinking about acquisitions, which again is come up here a couple times what.
Stepping away from just buying another Whiting company, what what kind of enabling technologies do you do you may be imagine plugging into your enterprise as you think about positioning yourself.
Well I you know.
Hey, it for US the you know if we look at adjacent seizure. We look at some type of enablers, it's really things that are adjacent to the solution. We offer now where that expensive being on site in coordinating everything from construction to electrical permits to business interrupt.
Question and all of those type of things if while we're in there we can offer additional services or a place additional solutions in I think it's a really compelling story to say to the customer hey listen.
We'll be in and now in we can deliver all this value and its wider than just lighting, it's wider than just.
Yes.
Graphics, and digital menu systems its wider than controls.
So I don't want to constrain myself in saying that I know exactly everything that we can do and I also want to I want to be careful about stating too much about things were looking at right now, but I think the easiest way to say it would be is your way, we can create a greater share of wallet with those customers and show.
So the value through minimal disruption.
And that those are the opportunities we're going to kind of look at and you know.
When you start when you get me talking about.
Customer penetration and value added services and technology, we can bring in.
I get excited but.
In the conversation can really roll, but one other element that I think is key and we're seeing here and it's played out it's gotten a little magnify. We always know it's good it's something we want to tap on but we've got we've hit the accelerator a little bit is that services and.
And it's not just the services in terms of the deployment, but it's the after sales services are recurring revenue the meat and management not just from a performance standpoint relative to is a product working or not does it need repair, but from the management standpoint of can we can we.
Most more information up there can we change price can we put information up there that we didn't even conceive of three months ago in all of those things are starting to be things that we can bring into the conversation.
They don't happen overnight, but where is the awareness has really been accelerated lately.
And I remember you, saying at one point that you weren't sure you could necessarily get paid for stuff like that but but things are are always changing.
Just to go ask question I guess dingy. This is more for you the comment about your supply chain not being disrupted.
And you amplified in this a bit do you think that's a result of the work you have done or could you say Broadway that the Whiting supply chain has disrupted.
Well I can say apps I can say with absolute certainty the opposite the lighting supply chain in many of our competitors that are importing products from.
Importing finished goods in in our heavily reliant on components from foreign sources sources are absolutely feeling a disruption right now it's active everyday.
What we did.
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 on place.
Put in place in that disruption that occurred there we were already a couple of steps ahead of the 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 ACA concentration I mean a decentralized.
As a single source purchasing and the concentration we had.
His 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 and we could serve and I talked about that last year and I'm sure everybody remembers that.
Knowing that we didnt want to get in the situation like that again, we've done a lot of operational changes that we've talked about and obviously they are reflected.
In our conversations and in our balance sheet in all kinds of other ways that you can see that having occurred but one of the things. It happened with that as we decided to look at assembly components parts pieces sub assemblies, and our ability to deliver and pivot quickly. So I mentioned a minute ago that we had built some inventory.
Three anticipation of this year of of our high season, if you will.
So we have those components in house.
We're able to manage with though a much greater degree of flexibility. We have subassemblies prebuilt. We have finished goods prebuilt. 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 their domestic which I do want to underline.
We did move too we did make a purpose will move to get more to best domestic suppliers to underline that us made us 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.
Got it well why my compliments on on your success in states that guys.
Thank you Joe. Thank you very much in 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.
This is Jim Clark and I'd, just like the 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 for the last 18 months.
We were well position 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 coded and the challenges are going to be in front of us the thing that I would leave at each of you is is that we're prepared.
We've we've done the background work, we've done the infrastructure work and we're prepared whether this creates a.
Pressure on the business or whether it creates opportunity and we are certainly looking at how can we 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 and.
Where we're all in business. We're all in the markets you know multiples had had gotten very frothy lately and it was it was sometimes difficult to have conversations grounded in reality.
And looking for the silver lining in the cloud maybe there is an opportunity.
You know here that engages some additional conversation.
We remain focused on employee survey safety, our ability to service our customers in support the work that we put in so far is very important to us and I wanted 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.
Time, when we can Amit 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.