Daktronics' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Daktronics (DAKT)

Q4 2011 Earnings Call

June 01, 2011 11:00 am ET

Executives

Bill Retterath - Chief Financial Officer, Principal Accounting Officer and Treasurer

James Morgan - Chief Executive Officer, President and Director

Analysts

Neil Chatterji - Craig-Hallum

Richard Ryan - Dougherty & Company LLC

James Ricchiuti - Needham & Company, LLC

Stephen Altebrando - Sidoti & Company, LLC

Morris Ajzenman - Griffin Securities, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Daktronics Fourth Quarter and Fiscal Year 2011 Earnings Results Conference Call. As a reminder this call is being recorded today, Wednesday, June 1, 2011, and is available on the company's website 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. We appreciate your participation in our year-end conference call. We'll give some brief updates about the quarter and then open it up for questions and answers.

I'd first like to offer our disclosure cautioning investors and participants. In addition to statements of historical facts, this call and our news release contain forward-looking statements reflecting our expectations and beliefs on 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 the economic and market conditions, management of growth, timing and magnitude of future orders and other risks as mentioned during this call and in our press release and our SEC filings, which may cause actual results to differ materially. Forward-looking statements are made in the context 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.

So with that, I'll turn it over to Jim Morgan, our Chief Executive Officer, for some comments.

James Morgan

Thanks, Bill. Good morning and thank you for joining us this morning. We were generally pleased this quarter. We wrapped up fiscal 2011 with a reasonably strong quarter with our Commercial and International business units leading the way out of the downturn. And we were especially pleased to see that the Digital Billboard business has come back quite nicely, and the public outdoor advertising companies that are some of our key customers are continuing to report good financial performance on their digital investments. It is also notable that our ongoing investments in international market development have gone through with a record year for orders in the international front.

Our Transportation unit had an excellent quarter in revenues, as we were able to increase the throughput of our transportation factory. We were up 64% year-over-year for the quarter, and we were up 36% sequentially for the quarter. And this was done to a large degree through product and process improvements with minimal headcount increase, which is great to see and is a testimonial to our progress and our lean manufacturing, which has been a key initiative for us for a number of years and continues to be a key initiative for us. So it's great to see that execution. We maintain a strong backlog in our Transportation business, so we have a good outlook there, a strong outlook.

As we mentioned in the news release, we are seeing slower recovery in our sports-related businesses, partially due to the turndown in the economy and partly due to the low-cost Asian competition. And particularly on the Live Events side, also because we had extremely strong performance in that area with some amount of new construction prior to the downturn, so tough comparison there. However, we are pleased with the gross profit margins in our large video display business for the quarter, and the outlook for the future as the cross benefits of product improvements, along with the benefits of some confident price reductions to date are realized.

We were disappointed to see working costs running higher than we would like for the quarter, which pulled our gross profit down about a percentage point. However, new products shipped over the past year are still performing much better. And I’d also like to add that despite the condition of Japan and the earthquake, we have managed to avoid any significant supply chain issues and don't foresee any at this time. We are excited about 2 new growth opportunities that we have discussed in the past, IPTV, which is Internet protocol television for sports facilities, and also architectural lighting.

We’ve had some nice reference installations in both of these product areas and have a good sales pipeline going in both areas as well. And we're continuing to invest in product development in both of those areas to continue to capitalize on the opportunities there. It was an exciting quarter for us on the baseball front with our completing 4 major league baseball installations. You can see one of Daktronics' latest DVX video displays control with Daktronics Show Control system in action at a baseball game with the Texas Rangers, the Milwaukee Brewers, the Houston Astros or the Philadelphia Phillies. I trust that everyone has had a chance to read our news release. So with that, I will turn it over to Bill, with a few comments on the numbers before we open it up for questions.

Bill Retterath

Thanks, Jim. Starting with the top line, which exceeded our expectations from going into the quarter. As some of you may have noticed in the prior quarter, our inventory levels were a little higher than one would expect, given forward-looking sales going into the quarter. This higher level of inventory allowed us to capture and deliver on a number of smaller projects in the Live Events unit that were booked and delivered in the quarter. Secondly, as mentioned by Jim, we were able to make significant progress in increasing throughput in our transportation plan and reduce the backlog more than expected. Finally, international came in higher than expected. I should note that we discussed on the last call that sales were dependent on product development initiatives, and all went well in that area.

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