Daktronics (DAKT) Q4 2012 Earnings Call May 30, 2012 11:00 am ET Executives William R. Retterath - Chief Financial Officer, Principal Accounting Officer and Treasurer James B. Morgan - Chief Executive Officer, President and Director Analysts Morris Ajzenman - Griffin Securities, Inc., Research Division Stephen Altebrando - Sidoti & Company, LLC James Ricchiuti - Needham & Company, LLC, Research Division Robert Thurston Hoffman - Candlewood Capital Management, LLC Presentation Operator
With that, I'll turn it over to Jim Morgan, our Chief Executive Officer, for some comments, after which I'll follow. And then we'll open it up for some questions.James B. Morgan Thanks, Bill. Good morning, everyone. Obviously, this was a very challenging quarter for us. Our first challenge was that we didn't generate as much revenue in the quarter as we needed to, to have a good quarter. This was a combination of delivery on some projects being delayed and some projects that we were awarded and which could have generated revenue in the quarter not being booked before the quarter end. Some of this pent-up demand ended up in inventory, which Bill will talk about in a minute. Secondly, we did have a couple large projects for the site work ended up creating some problems for us, which hurt our gross profit. While there's always some risk of costs overruns on fixed price in installations, overruns this extent are very unusual for us as we pride ourselves in our project management capability, which we've been doing for many years. We are studying these situations carefully and making adjustments to make sure we don't have repeats of this nature. Our Live Events business top line was relatively flat for the year. We lost some gross profit points including some onetime hits, as described here, above, that will be working very hard to make sure don't recur. We will be focusing on reducing our overall cost to deliver in this area to improve gross profit margins. International revenue for the year was actually up partly due to the higher backlog we took into the fiscal 2012. The gross profit was off of the unusually high levels we experienced in fiscal 2011. We continue to see good activity internationally, but due to its concentration on large project work, it does tend to be the most lumpy of our businesses.
The strongest performance for the year overall from a financial perspective were our Transportation and Commercial business units. It was great to see the increase within commercial for the year, as noted in the press release, with all aspects of the business having a strong year led by billboards and large contract business.One of the opportunities for us going forward, which we're excited about, is participating in the replacement or updating of displays that have reached their end of life. That's both for on-premise and third-party advertising customers. For smaller displays, this will also mean this is a complete replacement of the display. For larger billboard site displays, there is an interest by our customers to minimize the CapEx investment, so we will be working with them to identify what the best approach is. As a minimum, it would mean a module replacement. The Transportation business unit has continued strong through the downturn and continued to perform well this year. We have started off fiscal 2013 with specially strong orders in this business unit. We have talked about warranty fair amount in the past. We did see a meaningful improvement in warranty costs over the previous year. And with the increased emphasis on reliability testing that we have been doing for the past few years, we are expecting warranty cost to improve further in fiscal 2013. As mentioned in our news release, our largest investment in product development will be in surface mount LED products. We do offer some surface mount LED products now, but these new products will be based on a new platform to allow us to more cost effectively offer a wider range of pixel pitches. We are seeing increased opportunities for this surface mount technology and out-of-home third-party advertising, especially in international markets. IPTV for sports facilities and architectural lighting continue to be developing opportunities for us. We believe our offerings in each of these areas offers unique features and benefits. We have some nice reference installations to both of these product areas and have a good sales pipeline going in both areas as well. Read the rest of this transcript for free on seekingalpha.com