Daktronics, Inc. (DAKT)

F2Q2011 (Qtr End 10/31/10) Earnings Call

November 23, 2010 11:00 a.m. ET

Executives

Bill Retterath – CFO and Treasurer

Jim Morgan – CEO

Analysts

Steve Dyer – Craig-Hallum Capital Group

Steve Altebrando – Sidoti & Company

Jim Ricchiuti – Needham & Company

Dick Ryan – Dougherty & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Daktronics fiscal year 2011 second quarter earnings results conference call.

As a reminder, this conference is being recorded today, Tuesday, November 23, 2010, and is available on the company’s Web site at www.daktronics.com.

At this time, all participants are in an listen only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions)

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, and good morning. We appreciate your participation on our second quarter fiscal 2011 call. We will give some brief updates about the quarter, and then open it up to few questions and answers.

I would like to first offer our disclosure in cautioning investors and participants in addition to the statements of historical facts. This call and our 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 during this call and 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. We were pleased with our performance and delivering against a strong backlog that we had going into the quarter. We were also pleased with our order performance for the quarter; despite the price pressure in the market we were able to realize an operating margin of just under 8%. We see this as a testimony to the success of our cost-reduction efforts over the past couple years.

To provide some perspective on third quarter. Third quarter’s typically our lowest quarter for revenues due to this forced seasonality and a greater number of holidays in the quarter. However, one of the more lower aspects of our current situation is the difference between our outlook for Q3 and Q4 this year compared to last year of this time.

In addition to the fact our backlog is significantly greater going into the quarter, the outlook for baseball orders to book yet in third quarter is also much better. In fact, since the quarter end, we’ve already booked three baseball orders totally approximately 10 million and we’ve received the non-binding award on two additional baseball orders totally about 10 million as well.

These projects are all work for third and fourth quarter and are not reflected in the end of quarter backlog. We’ve also been awarded a couple of college football orders, totally approximately 8 million, which should book in our third quarter, giving us a start of next fiscal year revenue opportunities.

The other significant change from last year at this time is that the outlook for order from our two largest billboard customers for calendar 2011 is very positive, which we see as in turn, indicative of the overall outlook for the outdoor advertising industry. We are actually hiring a few people in our billboard factory at Sioux Falls.

As we’ve mentioned in the past, the new products that we’ve introduced over the past few quarters, our DVX video displays, the 4000-series digital billboard displays, and the redesign Vanguard display for our transportation business, all of which we are now shipping, our key contributors to cost reduction for us.

We are also continuing to see some nice orders for our new architectural lighting product, as we mentioned in the news release. These displays are constructed using either slim column elements, or round pixel elements that are individually mounted and then connected on site to form the intended display. And this provides a lot of flexibility in how they can be deployed in any given application.

A few examples of projects using this technology that are in our backlog include an exterior display at the Mexico City Arena, and the news release just went out on that project today, a large display at the top of the Target headquarters building in downtown Minneapolis, and a lighted tower for the Minnesota Twins new stadium. This is a new technology, but the more installations that we have with this new technology, we believe the more ideas customers will have for how they can use it.

With this product is it’s possible to provide a much larger display area, very cost effectively. For example, the exterior display at the Mexico Arena will be approximately 100 feet high by 700 feet wide. Pressure in the industry continues to be keen. Our product development and manufactured engineering, along with our ongoing efforts and lead manufacturing will continue to play a key role going forward as we continue to design products out of our product value stream while at the same time offering a product with improved performance.

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