Daktronics, Inc. (DAKT)

F1Q2011 Earnings Call Transcript

August 24, 2010 11:00 am ET

Executives

Bill Retterath – CFO and Treasurer

Jim Morgan – CEO

Analysts

Steve Dyer – Craig-Hallum Capital Group

Jim Ricchiuti – Needham & Company

Dick Ryan – Dougherty & Company

Stephen Altebrando – Sidoti & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Daktronics fiscal-year 2011 first quarter earnings results conference call. As a reminder, this conference is being recorded today, Tuesday, August 24, 2010 and is available on the company’s Web site at www.daktronics.com.

I would now like to turn the conference over to Mr. Bill Retterath, Chief Financial Officer for Daktronics, for some introductory remarks. Please go ahead, sir.

Bill Retterath

Thank you. Good morning everyone. We appreciate your participation on our first quarter fiscal 2011 conference call. We will give some brief comments about the quarter to start with and we’ll open it up to few questions and answers after that.

I would like to first offer our disclosure cautioning investors and participants in addition to the statements of historical facts, this call and our quarter-end news release contain forward-looking statements reflecting our expectations and beliefs concerning future events which could materially affect our performance in the future. We caution you that these and similar statements involve risks and uncertainties including changes in economic and market conditions, management of growth, timing and magnitude of future orders and other risks as mentioned herein in our press release and our SEC filings which may cause actual results to differ materially.

Forward-looking statements are made in the context of information available to us as of the date of this call. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

With that, I will turn it over to Jim Morgan, our Chief Executive Officer, for some comments.

Jim Morgan

Thanks, Bill, and good morning, everyone. Thanks for joining us this morning. Overall, we were pleased with the results for the quarter. Our operating margin of 4% is not where we want to be but it is a significant improvement over the past few quarters. It is also noteworthy that this is an improvement over the first quarter last year despite the fact that we had higher sales in the first quarter a year ago. This is indicative of the positive impact of the cost reduction we have achieved across the organization over the past few quarters.

We are pleased with the order bookings of $117 million for the quarter, and with only $100 million in sales, we built our backlog to $143 million as noted in the press release. The summer is typically our busy season and it's a good sign that we are indeed busy this quarter. Bill will talk a little more about backlog in a minute.

Regarding the outlook, we recognize that there is still uncertainty in the overall economic outlook; however, as we discussed in the news release the comparison of orders over the last few quarters is up over the same timeframe last year despite our domestic sports business lagging somewhat, and we see that as a positive indication.

Just to give a flavor of some of the order activity in addition to the orders mentioned in our press release, our order this quarter in the international front included a multimillion dollar order in the Middle East for the Qatar Convention Center and a baseball venue in Mexico that exceeded $1 million. University football orders included orders from Marshall University, Southern Methodist, George Washington University and Notre Dame. We also received an order for video displays for Remington Park Racetrack in Oklahoma City just to name a few orders.

A comment on the overall seasonality of our business; for many of you who follow us are aware of this, but I think it's worth reviewing that. Second quarter is typically our strongest quarter for sales, and third quarter is typically our weakest quarter for sales and that's for couple reasons. Third quarter is a slower time for the sports facility business and also there are fewer workdays in that quarter. In line with this, we expect Q3 to be a tough quarter for us but not to the extent it was last year.

Q4 will be heavily dependent on baseball projects and there are a number of projects that are keyed up for this year and this depends on how many of those actually come to fruition. The recently announced new Brewers project, the Milwaukee Brewers, is a nice start for the baseball season.

Our cost reduction efforts this past quarter have been focused on reducing the cost of producing and delivering our products while at the same time delivering products with improved performance. The new products that we have recently introduced, the DVX video displays, 4000 Series digital billboard displays, and redesigned Vanguard display in our transportation business, all of which we are now shipping are key contributors to cost reduction.

Our product development and manufacturing engineering along with our ongoing efforts in lean manufacturing will continue to play a key role going forward as we continue to design costs out of our product value streams. We also continue to work to take costs out of our business processes across the company.

Since football season is just getting underway I might mentioned that a number of NFL stadiums have started their preseason with a new Daktronics video display system. These include the Jets and Giants and The New Meadowlands stadium which incorporates over $50 million worth of displays in and outside the stadium. The New England Patriots, the Baltimore Ravens and the Washington Redskins also will be watching replays on a new Daktronics video display.

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