Daktronics Management Discusses Q1 2013 Results - Earnings Call Transcript

Daktronics (DAKT)

Q1 2013 Earnings Call

August 21, 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

Stephen Altebrando - Sidoti & Company, LLC

James Ricchiuti - Needham & Company, LLC, Research Division

Richard A. Ryan - Dougherty & Company LLC, Research Division

Morris Ajzenman - Griffin Securities, Inc., Research Division

Robert Hoffman

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Daktronics First Quarter Fiscal Year 2013 Earnings Result Conference Call. As a reminder, this call is being recorded today, Tuesday, August 21, 2012, and is available on the company's website at www.daktronics.com. [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.

William R. Retterath

Thank you. Good morning. We appreciate everyone's participation on our first quarter conference call.

I'd like to first offer our forward-looking disclosure statement. We caution investors and participants that, in addition to statements of historical facts, this call and our news release contain forward-looking statements reflecting 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 economic and market conditions, management of growth, timing and magnitude of future orders and other risks, as mentioned during this call, in our press release and our SEC filings.

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.

With that out of the way, 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

Good morning, everyone. Thanks for joining us. Our business operates somewhat like a 5-cylinder engine, with each business unit being one of the cylinders. And when we are hitting on all cylinders, we run really well. And we did that this quarter, not only in sales, but in orders as well and turned in some nice results. So hats off to all of our employees for their excellent work through the quarter.

On the other hand, with the large contract component of some of our businesses -- so we do occasionally have a quarter where one of the business units is not so strong, and this is where the diversification of our business into the different market niches helps provide a more stable business overall over the long term. As we mentioned last quarter, we went into this quarter with a little pent-up demand in some areas. There were some orders that we were expecting that -- last quarter that got delayed and ended up in this first quarter. Likewise, we had some inventory built in the fourth quarter that converted to sales quickly when orders came in the first quarter. So to some degree, we set the stage for the good first quarter in the fourth quarter of last year.

And this is an example of how our business tends to be a bit lumpy as well as seasonal. Our challenge on the operations side is to deal with this variability, and our people that fulfill orders for customers did a great job not only during this quarter, but in planning and preparing last quarter to execute this quarter. Again, the fact we had strong orders and ended with a strong backlog sets us up very well for a strong second quarter. Our factories are all very busy at this time, which is always a good indication. This quarter does tend to be our busiest quarter of the year, and we are prepared to execute well in the quarter and deliver against our backlog in meeting customer's needs.

Although we did have a nice improvement for the quarter and we were very pleased with the results, we have set a 3-year strategic goal for ourselves to significantly improve our operating margin. Our strategic plan includes continuing to grow the top line along with reduction of cost of sales as a percent of sales and continued focus on SG&A containment as we grow the top line.

I'm going to leave my comments at that for now, and we look forward to responding to your questions after Bill gives a little more color on the numbers.

William R. Retterath

Thanks, Jim. As Jim noted, our orders and net sales are stronger than expected across our business units. Reaching the $132 million top line was driven primarily by better-than-expected results in our Live Events and Transportation business units. Live Events revenue was boosted by orders booked during the quarter that generated sales in the quarter. You can see by the comparisons to last year, we had a relatively weak first quarter last year on orders in Live Events, but made up for it in the second quarter. Typically, our first quarter order bookings in Live Events are higher than in the second quarter, so we're back to this year, where there's a more typical state.

As Jim mentioned, our strong first quarter order bookings puts us in a good position for Q2, which should drive sales for the second quarter to levels higher than the second quarter of last fiscal year, which was $136 million.

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