Daktronics Inc (DAKT) 2004 Q1 法說會逐字稿

Welcome to the first-quarter fiscal 2004 earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Wednesday, August 20, 2003.

I would now like to turn the conference over to Mark Steinkamp, Investor Relations manager.

Please go ahead, sir.

Thank you, Tammy.

Good morning and welcome everybody to our first-quarter fiscal 2004 conference call.

Just a reminder, the conference call is being recorded and that recording will be accessible via the Internet and by telephone.

To access the webcast replay or the phone numbers for the telephone recording click, on the investors button at www.Daktronics.com.

With me this morning is Jim Morgan, our President and CEO;

Bill Retterath, our CFO; and also on the call is Dr. Al Kurtenbach, Chairman of the Board.

Before we begin, I would like to caution participants that in addition to statements of historical fact, this conference call and our quarterly earnings news release contain forward-looking statements reflecting the company's expectations or beliefs concerning future events, which could materially affect company performance in the future.

The company cautions that these and similar statements involve risks and uncertainties, including changes in economic and market conditions, management of growth, timing and magnitude of future contracts, and other risks noted in the company's SEC filings, which may cause actual results to differ materially.

Forward-looking statements are made in the context of information available to us on the call.

The company undertakes no obligation to update or revise such statements reflecting the circumstances or unanticipated events as they occur.

That said, I will turn it over now to Jim Morgan, our CEO.

Thanks, Mark, and welcome everybody to the call.

Thanks for joining us this morning.

We had another excellent quarter here, really strong on all fronts.

We are at 49 million in revenues, which was about the middle of the range we had predicted with excellent earnings, we had 22 cents a share bottom-line earnings, which actually exceeded our expectations.

We will talk about the factors that went into that here in a bit.

And furthermore, we had very strong order bookings.

So we had not only a strong quarter for sales, but we actually built backlog which positions us well for the second quarter as well.

I'll turn it over to Bill Retterath at this point to give some insight into the numbers, and then I'll talk a little more about some other factors of the business.

Thank you, Jim.

Good morning everybody.

Most of the information I'm presenting in this portion of the call is in the press release we issued earlier today.

Let me start by mentioning the first quarter of 2004.

It included 13 weeks as opposed to the first quarter of fiscal year 2003, which actually included 14 weeks.

This had a minor impact on the comparison between the two quarters.

For the first quarter of fiscal year 2004, net sales were up 10.9 percent at 48.9 million, compared to 44.1 million for the first quarter of last fiscal year.

The net sales results were within the $46 to $51 million range we had previously announced.

Earnings per share at 22 cents on a fully diluted basis compared to 16 cents per share for the first quarter of last fiscal year.

The quarterly earnings per share results exceeded our guidance for the quarter, which was 13 to 19 cents per share.

Net sales and net income were both records for a single quarter.

For the quarter, our mix of business between the sports, commercial, and transportation markets varied slightly, with sports being slightly more than two-thirds of our revenue mix.

For the first quarter, net sales were especially strong in the sports and transportation markets as compared to last year, while the commercial market was down slightly due primarily to a decline in the national account business.

The last component of our revenue mix, our service business which includes primarily maintenance services, content development, and equipment rental was up slightly for the quarter.

Looking deeper into these markets, our major league sports business was strong in the quarter, due primarily to the work we did for a number of major league sports facilities which I'll mention later.

Our midsize sports market, which includes primarily colleges and universities, continued to show strong overall growth rates for the quarter continuing the trend of previous quarters of last fiscal year.

Our smaller sports facilities including high schools and smaller institutions were relatively flat quarter-over-quarter in terms of net sales.

However, the market for video product sales continues to show promise in smaller facilities continuing to expand our market opportunities.

Finally, our sports marketing projects continued to contribute to operations for the quarter across all sports markets.

Order bookings for the quarter were strong as compared to the first quarter of last year.

Although net sales in the commercial market and smaller sports facilities were down or flat, order bookings in both these markets areas were strong for the quarter.

On the commercial side of the business, national accounts picked up nicely as well as some orders in the gaming segment of that business.

And in smaller facilities we've been stretching our sports marketing personnel, which has been good, and driving video sales to high schools.

In addition, major league sports orders were stronger than we had originally anticipated going into the quarter.

We are also extremely pleased with the order performance of our international business for the quarter as we continued to book a number of nice orders.

For the quarter some of the more significant project we recognized revenue on included the Houston multipurpose arena where the Rockets play, which is approximately half complete;

Lambeau Field, home of the Green Bay Packers which is substantially complete;

Glendale Arena, future home of the Phoenix Coyotes, which is slightly less than half complete.

The Philadelphia Eagles for which we have realized some nice add-on business is now nearing completion.

The Omaha Mecca (ph) which is substantially complete; the Vincennes contract in France, which is slightly less than half complete; the Berlin Olympic Stadium which is substantially complete;

San Diego Padres which is three-quarters complete;

University of Utah which is one-third of the way complete;

University of Oklahoma which is slightly less than half complete; and the RBC Center which is two-thirds of the way complete.

I want to add a little clarification on a topic that I do get questions frequently on.

As you know, we typically announce the large multi-million dollar orders and we disclose with our standard orders represent approximately 25 percent of our business.

It is important to note that we also book a tremendous level of other custom orders for scoring and display systems that fill up that difference.

Jim will be talking about some of these orders we booked during the quarter later in the call.

In addition, I would refer you to our press release which indicates a small fraction of these types of orders.

This level of business is a core component of what drives our business and complements, obviously, the large projects and standard orders.

Our gross margin percent for the quarter of 35.7 percent was up over last year's first quarter 34.7 down from the fourth quarter of last year of 33.1.

Margins in both the sports and commercial markets were strong for the quarter, and as a whole were higher than we had expected coming into the quarter.

The gross profit on standard orders was also higher, mostly as a result of improvements in the smaller sports institutions in the commercial market as compared to the first quarter of last fiscal year.

Margins in the transportation market were relatively flat quarter-over-quarter.

There were a number of key things that came together during the quarter that led to this margin improvement.

Much of it resulted from improvements on projects on site, including for example finding different ways to get the work done than originally expected, which saved us money on the project.

Much of these types of savings are due to our experienced product management team who are constantly looking for more effective and efficient ways of doing things on site, and work hard to ensure that our projects get completed timely and within our budgets.

In addition, we experienced further price reductions in various components of our products, including, for example, LEDs, that will ultimately get reflected in lower unit sales in the future.

Finally, lower cost of excess and obsolete inventory during the quarter as compared to last year, which resulted from the work we did on inventory last fiscal year.

We would expect gross margin percentage through the rest of fiscal year 2004 to be lower than this quarter's level.

Operating expenses were 10.7 million or 22 percent of net sales as compared to 10.3 million and 23.3 percent of net sales, and were up sequentially from last quarter's level of 10.4 million.

Keep in mind again that this fiscal quarter included 13 weeks as compared to 14 weeks last year.

The overall improvement in operating expenses as a percent of sales is due primarily to the growth is sales combined with the elimination of costs incurred in the first quarter of fiscal year 2003, which were not present in this quarter.

We believe that as a whole, we can keep operating costs as a percent of sales in the 22 to 23 percent range for the entire fiscal year.

Selling expenses were at 6.4 million and 13.1 percent of sales compared to 6.8 million and 15.4 percent of net sales from the first quarter of last year.

They're also up from 6.3 million in the fourth quarter of last fiscal year.

The lower dollars as compared to last year was primarily due to lower bad debt reserves, lower cost of demonstration equipment, which were offset by higher travel costs relating to higher sales volume.

The higher dollars in the first quarter as compared to the fourth quarter of last fiscal year was the result of higher payroll costs due to increasing staffing levels, the higher travel costs offset by lower bad debt reserves.

We expect that selling expenses will go up slightly in the next quarter, primarily due to higher compensation costs.

General and administrative expenses were 2.1 million or 4.3 percent of sales for the quarter, compared to 1.6 million, 3.7 percent of sales for the first quarter of last year.

They are down sequentially from the fourth quarter of last fiscal year, which was at 2.3 million.

The increase from the first quarter of last year was primarily due to higher payroll costs and costs associated with information system changes.

The decrease from the fourth quarter is due primarily to lower professional fees, offset by the higher information systems costs.

We would expect these costs to decline or stay relatively flat in the next quarter and that G&A costs as a percent of sales for fiscal year 2004 will be equal to or less than fiscal year 2003 levels.

Our product development investment for the quarter was 2 million or 4.5 percent of sales, slightly higher than our guidance of 4 percent of net sales.

This compares to 1.8 million on the first quarter of last year, which was 4.1 percent of sales.

As usual, Jim will make some additional comments on our product development investment later in the call.

For the fiscal year, our product development investment may slightly exceed the 4 percent guidance we typically provide.

The results of the above was an operating margin of 13.7 percent, which is a level we are obviously pleased with.

In terms of non-operating items, our interest-bearing long-term receivables increased during the first quarter of last year and into this quarter, causing interest income to increase.

Given the success of our sports marketing business and other opportunities for us to invest cash, we expect that interest income will increase over the year.

Interest expense declined from the first quarter of last year, but increased over the fourth quarter of last fiscal year.

The higher than expected level was due to some penalties we incurred on early redemption of some debt as we reduced our debt.

The overall effective income tax rate for the quarter was 39.4 percent, consistent with the rate of last fiscal year.

We would expect this rate to continue to carry forward throughout the year.

Excuse me, I forgot to mention in non-operating income was also a significant benefit from gain on sales of some of our rental equipment in our rental subsidiary, which caused the increase quarter-over-quarter there.

In terms of cash provided from operations for the quarter, which was 6.6 million as compared to 2.9 million for the first quarter of last year, the increase was primarily due to higher level of earnings and the change in our operating assets.

We still feel as though there are some opportunities to cut down on the levels of various operating assets as compared to our sales volume, thereby generating additional cash flow.

However, some of this decline may be constrained by contractual payment terms under the contracts and the balancing of (indiscernible) capacity with customer delivery time frames.

We also invested, as I mentioned earlier, more in long-term receivables during the quarter as a result of our sports marketing business.

For the quarter, our cash balances grew by almost 2 million after paying off over $3 million in debt earlier than scheduled maturities.

Capital investments were up from the first quarter of last year at 1.7 million, compared to (technical difficulty) million a year ago.

This investment was throughout the organization.

We remain optimistic about our prospects for generation of cash and growth of cash on our balance sheet.

For the fiscal year, we expect capitalist expenditures to be higher for the year as a whole than they were in fiscal year 2003.

Backlog at the end of the quarter is again strong at 56 million, resulting from a favorable order bookings during the quarter.

The backlog is up in sports and commercial markets as compared to the beginning of the quarter, and down in the transportation market.

As we've discussed before, the absolute level of backlog can vary significantly quarter to quarter.

We would expect that the end of the second quarter, the backlog will meet our internal goals equal in three months of sales.

We also announced that we expect revenue and earnings per share for the second quarter to be in the range of 50 to 55 million and 15 to 22 cents per share.

We reaffirmed our fiscal year guidance with revenues between 195 and 210 million.

These expectations could vary due to a number of factors, including timing of order bookings and actual timing of revenue recognition on contracts.

We would refer you to our risk factors on our (technical difficulty) items that could impair our ability to achieve these numbers.

I will now turn it back over to Jim to comment on other areas of our business.

Thanks, Bill.

Just to comment a little bit more on the orders in our sales and marketing activities.

Again to recap, our sports business which is over two-thirds of our business, orders were up in the quarter compared to quarter-to-quarter as they were in the commercial market.

Transportation down a little bit, but we are very positive on that.

That is just -- just kind of part of the ebb of flow of that business.

Some of the orders that we booked in this past quarter, Citizens Bank Park in Philadelphia, that is the Philadelphia Phillies.

We're just getting started on that one.

We are just completing, as Bill mentioned, the Philadelphia Eagles.

They are actually operating in their new stadium now.

And the Bradley Center Milwaukee, that's a repeat customer of ours.

We just put a ProAd -- or got an order for ProAd system from them.

As Bill mentioned, a lot of the orders -- the large orders that are in the few million dollar range, but we have a lot of orders are in that one million and under range, that that's kind of what fills in between the standard orders and these really large ones that we put our press releases on.

And these would be example of those kind of orders that are -- the Bradley Center, for example, was on the order of (technical difficulty) three-quarter million, just to give you an idea.

Metrodome was a repeat -- in Minneapolis was a repeat customer as well.

We did the video displays for them a couple years ago, and now we put our ProAd system.

And just to define that our ProAd is the trade name we use for the electronic displays, the full-color displays that go on the facia of the second deck, and often in an arena these will go all the way around the full circumference of the arena.

We call that the 360 ProAd when it goes 360 degrees around.

So we've put that in the Metrodome.

We added a ProStar display down at the Minute Maid Park in Houston.

Again, that's a repeat customer.

That was just a small little add-on advertising display.

That order for the World Arena in Colorado Springs, that's an indoor display system.

That was on the order of $1 million order.

A number of other nice orders.

University of Oklahoma is kind of a nice repeat customer.

One of our very first ProStar displays that we installed was back in '98, and we are now putting a new video display -- actually reconfiguring the original video display into ProAds for them.

So they are doing a major upgrade on the stadium there.

A couple other nice orders we got actually in the high school market.

Harlingen High School in Harlingen, Texas put in a video display.

We've got the order for a video display there, and the Union Public Schools in Tulsa, Oklahoma.

And both of these orders we assisted the customer with our Daktronics sports marketing group to help them structure their sponsorship programs to help fund the purchase of the equipment.

So nice success stories there in the high school area.

We had an order for a display for the Fawcett Stadium in Canton, Ohio.

That's the home of the NFL Hall of Fame.

Also had a nice order from Arena Monterrey.

This is a very nice size arena that has been -- is nearing completion in Monterrey, and that's about a $3 million order.

We've actually just announced that yesterday, it was.

And again, as Bill mentioned, we've had some nice business in our international area.

That was one that we just recently booked.

I'll go to the commercial market now.

Commercial is about on the order of, say, 20 percent of our business; and one of the international orders that we just booked was for the Vincennes racetrack.

It's actually the Hippodrome de Paris, the racetrack in Vincennes, and that was a very nice size order, and we are just getting underway on that as well.

And we booked the gaming and [pari-mutuel], we booked that into our commercial market.

So that is tallied in with our commercial numbers.

Other activity on the commercial side, some nice casino orders.

Also got a nice order from the Southern California Racing Association; this is also [pari-mutuel] horse tracks.

This was for a mobile video system that will actually be taken to a number of different racetracks over the course of the racing season there.

So that was a nice order.

In the commercial market, those are some of the large contracts.

We have a lot of our business there goes through sign companies; what we call our standard orders.

These are typically the message centers, both monochrome and color, that would the used as on-premise advertising for businesses, typically retail.

And one of our new emphasis areas there is national accounts.

We've been giving that emphasis the last few years, and that continues to do well for us.

There is a little bit of ebb and flow in the order bookings there; down a little bit in terms of sales last quarter, but actually up in order bookings.

And we have some new clients that are coming on board.

And we see some ongoing good potential in the national account area.

We actually have a client in today visiting us, just as an example.

So there's ongoing activity there.

Transportation, although orders were down a little bit the first quarter, we are very positive about that market.

Again, that tends to be larger contracts and so it can be a little bit lumpy.

But we have very good position with a number of DOTs, a number of states, and we get repeat business again.

Some of the orders that we booked in the first quarter, Connecticut DOT, a repeat customer.

Actually most of these are repeat customers.

Oregon DOT;

New York City DOT; and New York State DOT;

North Carolina DOT, which is a customer we just got started working with in the last few months, and have some nice business that we expect to get repeat business out of them, as well; and Tucson Airport Authority, also a nice order from them.

Talk a little bit about product development.

As Bill mentioned, our expenditures this quarter were about 4.5 percent of revenues.

We typically have a goal there about 4 percent, so we are just slightly over that.

We have rather aggressive product development efforts going, especially in our video product area.

And in general what we are doing in our video products area is the trend in the technology is to get higher resolution displays, continue to improve the color resolution, which accurately replicates the color of the original image on the display.

And of course the ongoing cost reduction to make the product more cost-effective, and through that really expand the marketplace for the product.

So we have an ongoing focus in that area.

Another product area, what we call our business products.

And these are the more standard message centers that would go in, again, selling typically through sign companies for retail establishments, that sort of thing; or to a national account.

And these are either monochrome or color.

There is a real trend to color.

One of the things we are doing there with our product development investment is filling out our product range with the color displays, with a number of different pixel spacings to fit different applications.

We have pixel spaces everywhere from 20 mm, which is about three-quarters of an inch pixel space, and all the way up to 89 mm, which is about 3.5 inch pixel space.

And a 3.5 inch pixel spacing would give you typically like a 24-inch character on a message center, for example.

So just rounding out the product line and having just a good array of standard products to offer to the marketplace.

And again at the same time always an emphasis on adding capability and reducing costs, to have these products cost-effective.

Transportation market, likewise, we are expanding our offering of products there.

Color is becoming of interest in some applications.

The City of Dallas, we are installing a system for them, and that includes color displays, full-color displays.

The majority of those are typically Amber displays yet, the preferred media for over-the-roadway displays.

In our sports products a few years ago we had a big push to convert all of our product line to LEDs.

That has worked very well.

We do continue to add a few models there, and to fill in some new models here or there.

We do have an emphasis on the marketing side.

We recently did a major upgrade in our aquatics timing systems, and we have a big push to get out and actively promote that product.

That is being very well received in the marketplace.

One of the things we have talked about in the past, we refer to it as our regionalization program.

That is getting more Daktronics people out around the country in both the sales and service mode.

We do continue to move forward on that, again in a systematic approach.

And we just opened office in Anaheim actually in July.

Actually it is our second office in the L.A. area.

Again, these are sales and service offices.

And we are in the process of opening an office in Hartford, Connecticut.

We actually have some people already out there, and just in the process of getting the office location nailed down.

But we see a big opportunity in both those areas.

Obviously both populated areas, and by getting our people based there, we feel we can more effectively address those markets.

Along the line of geographical expansion, I talked about the international.

We've been having some real good success in international market.

Kind of a natural step we feel for us at this point is to get somebody from Daktronics based in Europe, to support better support the resellers that we are walking with there.

And we are, actually as of this week we will have an office open in Frankfurt.

And again this will just be staffed with a couple people initially.

But it will give us a base of operations there to facilitate that effort.

Again one of the projects that Bill mentioned, the Berlin Stadium; this is where the 2006 World Cup soccer championship match will be held, and of course other soccer matches, as well.

We are just are finishing the video displays for that stadium.

Also, on the international side we are working the Athens Olympics as we've announced previously.

It turns out that at this time the test events are going on.

They typically have, the year before the Olympics, have venues; activate the venues, and sort of shake down, make sure all the venues are performing up to the standards for the Olympics; and all the electronic and computer systems are functioning appropriately.

So we have people over there supporting those test events, as we speak, actually.

That conclude my comments for now.

I'll open it to questions, and then come back with a few closing comments.

(OPERATOR INSTRUCTIONS) Del Warmington (ph) with Delwar (ph) Capital Management.

Thank you.

I am not too sure if I missed something.

Did you folks discuss DSOs, what it was this quarter, and the trend going forward?

Bear with me one minute.

I'll get the DSOs.

Our DSOs are approximately 51 days, and one of the things I mentioned earlier is I believe that we could get some benefits by dropping our operating assets as compared to the sales volume.

And I'm committed to reducing receivables.

So I would hope that the trend is down into the future.

Okay.

Also you had mentioned, exactly, I think that the OPEX expense trend is going to be in the 22 to 23 range.

You mentioned also that the GM is supposed to be down from the 35.5, but no direction there.

Could you give some guidance there, please?

In terms of what, the level?

GM, the gross margin.

We haven't announced that in the past.

It is always tough to actually give a firm estimate on gross profit margin, because of the variables involved in our projects and our business as a whole.

So we have hesitated to give out the specific guidance there.

Okay.

Thanks a million.

Patrick Donohue with Northland Securities.

Good morning, congratulations on a nice quarter.

I'll ask this question a little differently, you stated that 2000 gross margin will be a little lower over 2003, due to some positive factors in '03.

You expect it to trend down probably into the low 30s, then, if that would be true.

What are the catalysts to make that happen?

I'm just wondering if the improvements in the smaller markets and the margins, transportation, do you not expect those to stick?

Or can you give us a little color there?

The steady underlying thing, as we look at it, is we certainly continue to take costs out of our product and work to improve our margins in that regard, and at the same time offer a better value to our customers.

One of things offsetting that, of course, is there is price competition in the marketplace.

And in general, with pricing we are offering more products for a given dollar now than we were a year ago in the marketplace.

So that is kind of an offset.

The other thing that is offsetting here, and this is the harder thing to maybe quantify, it is not such a steady-state thing; and that is that with the large projects there can be some onetime things that happen.

And it just so happened in this quarter, we had some -- we were able to, through our creative and good project management, we were able to save some installation cost.

And on a large multi-million dollar project, that can be into the hundreds of thousands of dollars.

If you save that, it goes to the bottom-line.

So we are fortunate to have accomplished that in a couple projects.

And then in addition, some cost reduction in some of our materials that we purchased, that were not initially expected or factored in.

So of course we're always working to find those cost savings.

And whether you anticipate it at the time, ahead of time or not, is kind of where the variability comes in.

So does that help you a little bit?

Sure.

That is helpful.

Next question, are you seeing anything from Barco's purchase of the large sport systems from Translux?

We've seen it come out after a couple projects extremely aggressively.

I guess that's all I can say right now.

Did they win those projects?

They did win a couple projects.

They came out very aggressively, I think probably decided they were going to kick things off with a couple projects, and they were extremely aggressive.

Could you comment on the size of the projects or dollar amount at all?

I don't even remember exactly, but they were, as a recall, in the million to 2 million range somewhere.

Okay, and finally, you have announced approximately 16 (ph) million in new contracts since the beginning of July.

Were these already assumed in your original '04 guidance given in June?

Or are you being conservative by maintaining your forecast for '04?

Say that again, Patrick.

I'm sorry (multiple speakers).

You put out a series of press releases that I've totaled up at about $16 million in new contracts since the beginning of July.

That is presumed to be --.

I guess you would say that we anticipate to have those on an ongoing basis as a part of our business mix.

So no, we anticipate those in general.

Okay.

Thank you.

Michael Friedman with Sidoti & Co.

A bunch of questions have actually sort of been answered, but I'll come at it a different way.

You mentioned the competition;

Barco especially.

Two questions related to that.

One is, is that pushing down your overall margin, hence the gross profit margin decline, I guess year over year that's projected?

And also, can you comment generally, not only on the large orders but in general, what the competitive landscape is now, compared to maybe a year ago?

Is it more or less favorable?

We are -- where it is extremely competitive is on the really large projects.

And certainly it is no less competitive now than it was a year ago.

There’s two companies, two new entities, actually there's three new entities in the mix.

One is the Barco Translux thing.

And as I mentioned, they came out and got real aggressive on a couple orders.

Another combination is a company called ANC, and then Saco teamed up.

And Saco is the company that was in business and then went of business for a while, and now is kind of reinvented itself and they have lined up with ANC.

And they also came out real aggressive after a couple projects, and they have landed a couple.

And then Venue1 is another newly formed entity.

There again, just pulling a few different companies and entities together and going after and bidding against our -- bidding in our industry in some cases.

And they've been successful in getting some business.

Okay, and shifting gears you mentioned some international deals and opening up an office in Germany.

Do you expect international sales to be a higher percent of your overall sales in fiscal '04, compared to fiscal '03?

And a follow-up on that as well.

Are the margins better or worse or about the same on the international deals, when compared to the U.S.?

In terms of sales, we have been having some good success there lately.

I would say that in the end the sales for the year, for '04, will be better than '03.

Margins, again, we run into some of the same competitors over there as we do in the U.S.

It varies.

It's interesting, it depends a little on what the owners' criteria is and what is important to them.

The Vincennes racetrack order, what was a big factor in the decision or the person who was a big driver of the decision there was actually their technical director.

And it was very important to them, our ability to handle the real-time data.

They have a rather complex system.

And of course data at a horse racetrack, it is quite important to have the numbers right and have it presented timely and all of that.

So that was a very high consideration in our being awarded that project.

Given all that, we still have to be competitive.

That is just the way those big projects are.

Our margins, I would say that we have generally the same margin pressures internationally or domestically.

If I could add something to that dynamic there.

Our selling costs, at least in the near-term, for these international deals, may be slightly higher.

We are doing some things differently to help drive that business, and it has paid off, but we will have a slightly higher selling cost related to those projects.

Lastly, one quick question for you.

Can you update us on any new national accounts?

Are there any other ones that you could talk about?

And could you give us an update on some of the outdoor advertising signs?

Is that continuing to grow in accordance with expectations?

Yes, we are not identifying national accounts by name.

We have decided as a practice not to do that.

For one thing sometimes the customer is working with our competitors and with each other.

It's just better not to get into discussing the names there.

But we have done some work with the pharmacy companies.

Another area that we're working on is the convenience store business, is also of interest.

Just to give you some idea of the areas that we are interested in.

Or we're finding interest in, I should say.

So those are a couple different areas that we are seeing good promise in.

The outdoor advertising?

Those large potential video boards on highways, any progress there?

We have said in the past there's a number of constraints into the installation of those displays on billboards.

And one of the bigger ones actually is the ordinances in the various cities and municipalities.

We did just install one down in Kansas City with Lamar (ph) .

It's up on the southern part of Kansas City.

So that is up and operating.

But it's been a few months since we installed one prior to that.

It is, again as we have said, it is not something that is just going to take off and explode on the scene here.

Great.

Thank you very much.

Mike Burke (ph), with Basic Capital.

Good morning.

Most of my questions have been answered.

But you guys gave some guidance for full-year revenue.

I was wondering if you could give specific earnings guidance also?

No, we elected not to give specific guidance on earnings.

Okay.

Is it going to be higher than this year's?

Yes, in terms of generally speaking, we've given general guidance out on the Street that says something to the effect that we look for our revenues to grow at a level of 15-plus percent and our bottom-line to grow slightly higher than that.

That's over the long term.

It is not looking at us quarter to quarter.

That's not a real effective practice.

Because of the nature of our business, you need to look at us over a longer term.

So we think we can grow the bottom-line slightly faster than our top-line over the long term.

Jim, anything to add to that?

I think that's -- we are certainly -- obviously this quarter shows the challenge of us trying to estimate exactly what the range in bottom-line is going to be, even in the quarter.

There’s a lot of variables and of course we are working to try to improve the bottom-line, and improve the margin, and that is what we will keep doing.

And one more question.

I was wondering if you could break down the components of the other income?

For the current quarter, the 70, 75 percent of it, somewhere in that; let me say 60 to 80 percent was the gain on sale of this equipment from our SportsLink rental subsidiary.

That was the vast majority of it.

Is that something that will be continuing?

Or is that sort of like a onetime for this quarter?

It is, on the one hand it is a onetime event.

But if you look over our previous quarters, I believe in the fourth quarter of last year we had some gains there.

And maybe also in the first quarter of last year.

It all depends on when the opportunities present itself.

Or it makes more sense to sell that equipment than it does to keep it on rental.

This quarter was very nice, because we were actually able to sell it as a percent of our investment for a much higher percentage.

It worked out well this quarter.

All right.

Thanks a lot.

(OPERATOR INSTRUCTIONS) Del Warmington, with Delwar Capital Management.

Going back to DSOs, all right?

If I hear you, you folks plan to expand internationally.

So I'm assuming the collection period there is much longer than in the U.S.; wouldn't this affect your DSOs?

And how much?

Yes and no.

One of the things that our practice is on international business, most if not all projects, big ones where we have large dollars are secured by Letters of Credit.

And they typically have substantially the same payment terms as the projects we do here in the U.S.

So it should not have a significant difference.

In fact, there are many cases where we'll get 100 percent of our money prior to shipment, or when it is delivered to the site; versus projects here, the payments can stretch out a lot more, because of installation work and things like that.

So I don't see that as negatively driving DSOs.

Thanks.

Lee Schafer with BlueFire Research.

I just wanted a couple quick follow-ups.

Tell me again about the rental equipment that was sold and booked -- I think your cash flow statement said 311K.

Why do you carry it down in other income?

Why isn’t that just revenue if you have sold the equipment?

It's part of the ongoing business of the firm.

So I guess I am curious about your accounting treatment, Bill.

Yes, you know generally speaking those sales have been isolated, and we haven't been in that business more than a year or two.

And we don't have -- one could argue you would put the gross sales in the cost of sales.

One could argue that you could treat it that way.

We've elected to put it down in other income because of the nature of the transaction, the infrequency of it, and factors like that.

Good question though.

Okay, because Q4 of last year was 651K, and now it's 450 of other income.

It's kind of a big line relative to your overall income statement.

I was just sort of curious about how you treated that.

We had a couple quarters in a row, but it's not necessarily going to be every quarter.

I guess that's the point.

It is a little bit of a sporadic thing.

What kind of equipment is it?

It's video equipment.

For what kind of user?

Horse racetrack in some cases.

A couple of those we've sold have gone to horse racetracks.

Okay.

All right and just one other quick follow-up.

Your sports marketing group, I am curious about your views on the competitive advantage that group offers you, relative to Barco and some of the others.

What are those guys doing in terms of their effort that might be similar to what your sports marketing group is doing out there in the world?

Actually, to our knowledge actually Barco and Translux aren't actually doing anything in that sports market area.

But also we feel that is a significant value add that we bring to the customer; and the customer does in fact appreciate that.

It allows us to work very closely with the customer in a sort of partnership arrangement, too.

What we are able to do is help the client raise more revenue with their program, their athletic program.

Jim, Venue1, for instance, their approach to the selling process is again different than what your sports marketing group is doing?

First of all, Venue1 has pretty much been just at the professional sports level so far.

I don't know really what their whole game plan is, obviously, but that's where we've seen them so far.

Okay.

All right.

Thanks, Jim.

I might just add one thing on the competitor question there.

There is one competitor that seems to be kind of going away, and that is a company called Lighthouse.

And they were very aggressive in the professional sports area for a while, and they seem to be retracting at this point.

They are no longer bidding projects, Jim?

I haven't seen them for a while.

Okay.

Thank you.

Patrick Donohue with Northland Securities.

How many people do you have dedicated to your sports marketing group?

And also, do you ever have a feel of maybe number of projects that have been recently won due specifically to your sports marketing group?

And if so, could you give us a little color there?

Our group is on the order of ten people that just focus on that.

And of course they're a much larger sales force, and they are all, all of our sports people that are out selling are sort of part of the team that works toward that.

It is not limited to the ten; but those people actually focus on it.

What was the other part of your question?

I'm sorry.

The other piece was, do you have a feel for contracts that have been specifically won due to these people being able to help the schools raise money?

Could you give us some color there on, maybe, recent projects?

We mentioned a few.

Of course there was a couple high school projects we mentioned.

Actually Fawcett Stadium, the NFL Hall of Fame stadium, that involved DSM (ph) .

North Texas.

So at any given time we have, I don't know, in terms of what's going through the plant, probably three, four projects, significant projects that are facilitated by DSM, I would say.

Okay, thank you.

(OPERATOR INSTRUCTIONS) I'm showing no further questions at this time.

Please continue with your presentation or any closing remark.

Thank you.

Again, we thank you for joining us today.

This is our day of our annual shareholders meeting, just to make everyone aware of that.

That actually starts tonight at 7:00 here in Brookings.

And we actually have an open house that starts at five o’clock.

So that is open to the public, and everyone is invited.

Again, we are very busy.

This is always, or typically I should say, our peak time of the year.

The second quarter is typically our busy quarter.

Our plant is going all out right now, and working hard to meet all of the sports facility deadlines.

And so we are very optimistic about second quarter.

We will be making our second-quarter announcement on November 19, 2003.

So you can be looking for that.

And I would like to again thank all the Daktronics employees for the efforts they've put toward making our first quarter a success, and setting us up for a good second quarter.

And I thank you all for joining us.

Have a good day.

Ladies and gentlemen, that does conclude your conference call for today.

You may all disconnect, and thank you for participating.