Daktronics Inc (DAKT) 2006 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Daktronics fiscal 2006 first-quarter earnings results conference call.

As a reminder, this conference is being recorded Wednesday, August 17, 2005, and will be made available on the Company's Internet site via the dial-in number noted in the press release.

Before we begin, the Company would like to caution investors and participants than in addition to statements of historical facts, this conference call and its quarterly news release contains forward-looking statements reflecting the Company's expectations and beliefs concerning future events, which could materially affect the Company's performance in the future.

The Company cautions that these and similar statements involve risks and uncertainties, including changes in economic and market conditions, the 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 the context of information available to the Company as of the date of this conference call.

The Company undertakes no obligations to update or revise such statements to reflect these circumstances or unanticipated events as they occur.

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

Afterwards, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Mr. James Morgan, Chief Executive Officer for Daktronics.

Please go ahead, sir.

Thank you, operator.

Good morning, everyone.

Thank you for joining us this morning.

We reported revenues and earnings for the quarter within our previously announced estimates, with income being at the lower end of the range.

The two main factors that went into this lower end of the range were our higher-than-expected effective tax rate and the deferral of part of the gain on our SportsLink transaction, which we initially expected to be recognized during the quarter.

Bill will give you more on that in a minute.

We were very pleased that we had our second consecutive quarter of order growth exceeding 20%.

This has resulted in a record backlog and this in turn has placed a real challenge on our operations to deliver on this backlog, and I will talk a little more about that later as well.

I am going to let Bill Retterath, our CFO, review our numbers first and then I will be back with some additional comments before we open it up for questions.

Thank you, Jim.

Good morning, everybody.

As you can see from the press release, sales for the quarter were up over 23% over the same quarter last year at 72.3 million.

Included in sales was approximately $4 million related to the sale of our SportsLink equipment, which we announced previously.

The SportsLink transaction is getting mentioned for two reasons.

First, we had originally expected that the net gain would have been included in non-operating income.

Based upon the structure of the transaction and various other factors, we concluded that it would be more appropriate to classify it in net sales and in cost of goods sold, reflecting the cost of the equipment sold.

Our net sales estimates for the quarter did not provide for this to be included in net sales.

Secondly, the transaction in total is more actually more than $5 million and includes additional equipment.

Since we have not shipped that additional equipment, there is still some margin or gain to recognize on the transaction as a whole, which should occur later in the fiscal year.

And the timing is -- whether it is second our third quarter is not completely known at this point yet.

For competitive reasons, I prefer not to get into details on what the cost figures are other than to say this transaction did not have a significant positive or negative impact on our gross profit percentage as a whole by including it in operating income the way we did.

Net sales represent the 13th consecutive quarter of growth of net sales quarter-over-quarter.

Earnings for the quarter were $0.23 per share compared to $0.25 per share last year and within our range of estimates.

For those of you who are newer to our financial model and results, the first quarter of last year included a 34.3% gross profit percentage, which at the time we acknowledged is unusually high and at levels that were not sustainable in the near-term.

Consistent also with recent quarters, our commercial market continued to perform well with sales growth up more than 60% for the quarter, excluding the effects of the SportsLink transaction, which we consider to be a commercial market transaction; but including the effects of the Kuwait Stock Exchange transaction, which was over 4 million in revenues for the quarter.

The growth in the commercial market is across the board in terms of standard orders and custom projects, and we did almost as much business in the commercial market in one quarter as we did in that market for all of fiscal year 2002.

Our Sports Market continued to experience growth on a domestic and international basis for the quarter.

Sales in small sports venues continued its historical rate of growth, although we are generally flat in orders for that segment of the market, which we attribute more to the inherent volatility of sales as opposed to any sort of trend.

Within large sports venues, which comprise professional and collegiate facilities primarily, our net sales were up slightly, primarily as a result of lower sales in the professional facilities portion of that market.

More importantly, however, orders were up significantly at over 20% year-over-year with a 10 plus percent increase in the professional sports facilities.

Finally, our Sports Marketing business also appears to be gaining some ground after a disappointing fiscal year in 2005.

In our transportation market, we saw sales growth in excess of 20% resulting from the strength of the backlog going into the quarter and orders booked during the quarter.

Orders in the transportation market were up more than 40% quarter-over-quarter.

In short, as you can imagine, our book-to-bill ratio was extremely strong, and while we typically do not publish this ratio, I can say that the lowest book-to-bill ratio of all of our markets was 1.2.

The bottom line on orders is that this order performance has been strong in all three of our markets.

On the international side, we stated in the fourth quarter that it seemed to be improving and getting better.

That trend continued this quarter, with both sales and orders being up substantially.

It's now two quarters in a row that we have seen better performance, which reinforces our optimism on the investments we are making internationally.

Our mix of standard product sales to total sales remained at 30%, which was the same as the first quarter of last year.

It is interesting to note that for small sports facilities, the majority of the growth that did come from sales came in custom projects as opposed to standard orders, a trend of expanding market opportunities for our custom video systems.

Our services business made up again 6% of our net sales.

Moving on to gross profit margins, as mentioned in the press release, during the quarter we achieved better performance in estimated margin at the time of contract booking than in the fourth quarter of last year, which we attribute to some easing in the competitive environment.

We also gained a little extra profit on a few larger contracts due to a number of factors, none of which individually are consistent patterns to plan on for the future.

Because of these factors, our gross profit was a little higher than expected.

For next quarter, we stated that again we expect it to be down a little bit.

For the long-term, however, the trend seems to be improving.

Operating expenses for the quarter were lower, as expected, at 14.9 million, or 20.6% of sales compared to 12.2 and 20.8% of sales in the first quarter of last year.

Selling expenses were 9.8 million, or 13.6% of sales, as compared to 7.4 million, or 12.6% one year ago.

Although sales expenses declined from the fourth quarter of last year, when looked at a percentage of order bookings, it is obviously more favorable -- something to keep in mind when looking at the model.

The increase in selling expenses over last year is a result of increased personnel costs, higher cost of demo equipment, higher travel costs and the investment in strategic initiatives which we have underway that we have mentioned in prior conference calls and releases.

We also continue to focus on investing in the domestic market, opening new offices, which included Philadelphia during the last quarter.

We expect that selling expenses will increase slightly in the next quarter.

As Jim will talk about more, we are generating orders in Asia due to our presence and investment, obtaining interests in our mobile and modular investment, and we are seeing interest in our narrowcasting networks.

Moving onto G&A expenses, which were at 2.6 million, or 3.6% of sales, for the quarter, as compared to 2.6 million, or 4.5% of sales, for the first quarter of last year.

This increase is a result of increases in personnel costs to support our growth, higher costs of information systems costs, training costs and international expansion initiatives.

As compared to the fourth quarter of last year, remember that G&A expense included professional fees associated with our research and development tax credit work.

We are expecting that G&A costs will increase slightly into the next quarter.

Our product development investment for the quarter of 2.5 million was 3.4% of sales compared to 3.8% last year.

Jim will give some additional comments on product development initiatives during the quarter later in the call.

As expected, spending did go down, as we lowered the levels of costs going into our ProTour product line.

The result of the above was a 10.1% operating margin as compared to 13.4% one year ago.

We believe that we can increase the operating margin over the rest of the fiscal year.

The effective income tax rate for the quarter was 38.5%, higher than we had expected.

As mentioned in the press release, we reassessed our foreign tax benefits recognized in prior periods based on current information and made the determination that realization of certain of those tax benefits under GAAP may not occur over the recommended time horizon under GAAP, and as such, we wrote those assets down.

Looking forward, we expect the rate to be in the 37% range.

Cash from operations was actually negative, which has not happened since I have been with the Company in over four years.

This compares to 4.1 million in the first quarter of last year.

The primary reason for the decline was the increase in receivables and inventory.

On the receivables side, there were a couple of very large items that have now been collected and we have since reduced our receivables significantly and increased our cash.

On the inventory side, the increases were the results of the mix and timing of our business, and over the quarter we should expect to see that down.

In short, we think that the decline was due to timing differences more than anything and not a long-term trend.

Our investments in capital assets during the quarter were approximately 3.8 million and included costs incurred for our plant expansion.

Factoring all plant expansion costs, we are expecting CapEx to be slightly higher for the year as compared to last year.

We also funded the dividend during the quarter, which is approximately 1.9 million.

As mentioned in the release, we are expecting revenues for the second quarter to be in the 70 to $77 million dollar range and our earnings to be in the $0.17 to $0.27 per share, fully diluted.

Our annual revenue guidance is still expected to show sales growing at more than 15%.

These expectations could vary due to a number of factors as we have mentioned, including the timing of orders the timing of booking orders and the timing of revenue recognition on contracts.

With that, I will turn it back over to Jim for more comments.

Thanks, Bill.

The most significant factor in the results for the quarter from my perspective is that we had our second consecutive quarter for order bookings where we were up greater than 20%.

We have often said that our business is lumpy and we can have one exceptionally large quarter for order bookings and that should not be interpreted as a trend.

However, two such quarters in a row certainly has to be looked at a bit differently.

Just kind of in terms of our typical business cycle of the year, historically it is common for Q4 and Q1 to be our strongest order quarters; and consequently, our Q1 and Q2 are typically our strongest quarters for sales, taking into account the normal lag between our order booking and revenue recognition.

And our pipeline is still strong, so we expect to be able to continue to book orders as well, again, though, taking into account that Q2 will is historically down a little from Q1 in terms of orders.

Strong order bookings in Q1 have resulted in a further increase in our backlog and challenged our operations side to respond.

That is really engineering, manufacturing and our project management groups.

We're giving a lot of emphasis -- just talk a little bit about our capacity.

We're obviously challenging that right now.

We're giving a lot of emphasis to ramping up our production capacity.

We just completed a 25,000 square foot addition to our plant at the end of FY '05.

We have another 100,000 square foot addition that is under construction right now that we expect to have completed at the end of this fiscal year.

In the meantime, we're also bringing on additional machine capacity, and our primary areas for investing in machine automation are in electronic assembly and in our metal shop.

And so we are continuing to bring on additional capacity there as well.

Also, we do use outsourcing strategically and we continue to add to our work force to add to our capability to produce internally.

Our suppliers are a key.

As always, we work closely with our suppliers to ensure that they can respond to our growing demands as well.

So expanding the capacity and bringing our capacity up is certainly key to being able to deliver on the opportunities that are in front of us.

As Bill mentioned, margins to continue to be a challenge for us.

As we have discussed before, our aggregate margin is a result of the mix of all of the business that we do, of course.

And that spans from very small orders of less than $10,000 to multimillion dollar contracts.

Contracts in some cases include significant amounts of subcontracting, and so that can of course affect the overall margin on the project as well.

Typically, subcontracting has a lower margin as a complement of the project.

So the volatility in our margins tends to be more on the large contract side of the business than the standard order side.

And larger contracts also are typically susceptible to greater margin pressure at the outset.

Margin for this quarter was up from last quarter slightly, but lower than the overall margin for FY '05.

And we believe that the margin for Q2 will be similar to Q1, possibly down slightly, based on the estimated margins in our backlog.

But again, there is always some uncertainty in those forward-looking estimates.

We believe longer-term there is room to improve margins through continued efforts in cost reduction and product manufacturing and just overall streamlining of various processes in our operations.

And also, to the extent we can increase our standard orders as a percent of sales, that also has a positive effect our aggregate margin.

As Bill mentioned, orders were strong in all of our market areas this past quarter.

Just to talk a little bit about our various market areas, some of the more notable orders in the Sports Market include basketball and football venues for Kansas University.

Likewise, for South Dakota State, right here in our hometown, we are excited to be upgrading their displays at both football and in the arena -- that is a DSM project.

Others include Indiana University;

War Memorial Stadium in Little Rock, Arkansas; the Staples Center in Los Angeles;

Continental Airlines Arena in New Jersey; and two large ProStars for a stadium in Alexandria, Egypt, one of our large international orders.

In the high school market, orders were not as strong as they typically are, which we do not necessarily see as a trend.

We do see continued interest in video systems for high schools and that had a positive effect on the business in the high schools.

For example, during the quarter with, we booked a ProStar video display for Massillon high school in Massillon, Ohio, and that is being installed in time for their opening.

Commercial market continued its great performance again this past quarter.

We remain confident of the opportunities in all areas of the commercial market, including sign companies, the national accounts area, and also what we call the video marquees and spectaculars.

We booked nice orders for eight digital billboards this past quarter with a major billboard company.

Also a large ProStar for a hotel and casino in Macau.

We also completed the installation of seven digital billboards in May, as you may recall, in Cleveland for Clear Channel.

So we are seeing that activity in the area of the digital billboard market -- seems to be picking up some momentum and we believe we are exceptionally well positioned to serve this very demanding digital billboard market.

In the transportation area, we had nice orders from New Mexico and Nevada DOTs, and the North Texas Tollway, which are relatively new customers; and the New Jersey and New York DOTs, which are longtime customers of ours.

The North Texas Tollway order is interesting in that it included 14 full-color RGB displays for use on their toll booths for a new tollway that is opening soon in the Dallas area.

Again, overall one of the appealing things about this DOT business is the opportunity for repeat business due to the customers' interest in having a consistent vendor for the display systems.

So once we begin working with an entity, we work hard to perform and then get repeat business from that entity.

We built backlog in our transportation business as well.

We had excellent order bookings and our pipeline there remains solid.

Again, the key for us really in all the areas in the next few quarters is to get our production ramped up to respond to the opportunities.

The recently signed $286 million Transportation Funding Bill is also positive indication for the long-term future of the transportation market.

Product development, as Bill mentioned, as a percent of sales was down a bit this quarter.

Product development continues to be very important part of our strategy at Daktronics, as we invest to improve existing products, bring new products to the marketplace and reduce costs of manufacturing of the products that we have.

We have ongoing product development efforts in each of our product families on an ongoing basis.

And again, I would review for those who are maybe new to Daktronics' story, we have four major product families -- namely sports products, which is sports specific product, such as scoreboards and timing systems; a ProStar video products family; our Galaxy trademark commercial products, which are primarily for smaller, full-color and monochrome advertising displays; and then our Vanguard transportation products.

So again, we have ongoing product development in all of those areas.

Our spending in product development, again, was down in percentage but up slightly in actual dollars from Q1 of '05.

We continue to invest in our ProTour modular product.

We had mentioned in previous quarters that that was pushing our product development a little bit over our 4% level.

That rate of investment in ProTour is down a little bit.

It is a whole product family; that is why it is such a significant investment.

And there still is work to do on that product to flesh out the whole product line.

So we will be continuing to work on that, really for the next few quarters.

On the service side, our ability to deliver service is one of the differentiating factors of Daktronics.

And again, we have our forty offices located around the country, as well as the international offices that we have been developing over the last few years and which have been an investment for us here the past few years, but we feel they are a key part of our strategy to increase our international business.

Selling and expenses as a percent of revenue were higher this quarter than we would like, as we were building backlog, and we can edge that down slightly over time as we ramp up our sales.

Again, our international development efforts do put upward pressure on selling expenses.

We expect that to be the case for the remainder of the fiscal year.

As I mentioned, we received a nice order from a hotel and Casino in Macau during the quarter.

This is a very large ProStar display that will be on the face of a building over there.

It will be a very high-profile installation.

We believe our success in getting that order is certainly a testament to the benefit of having a presence there via our new Macau office.

Also we just opened our office in Shanghai in July.

We are just getting that really underway.

With that, I will turn it back to the operator and we will open it up to questions.

(OPERATOR INSTRUCTIONS) Jim Ricchiuti from Needham & Company.

Thank you.

Good morning.

I just wanted to follow up on some comments you made on gross margins.

Particularly, you cited a little bit of easing in the competitive environment.

I wonder if you could just elaborate on what you're seeing in the market?

Certainly there is still keen competition on the large projects, but -- we've mentioned Barco in the past.

Barco is maybe not being quite as aggressive; that is our assessment.

You can ask them their perspective, of course; they might have a different story.

But that is our perspective.

And we are working -- we continue to work to make sure we present our differentiating factors and our salespeople help the customers understand what we offer and how we differ from our competitors.

And again, I might just emphasize that the one main difference we have is that on the large systems, our complete integration, that we have the scoring; timing, if it's necessary in some cases; and the whole software package to have an integrated system.

One point of accountability from a service and support point of view.

We also offer support for the control people that are operated these systems if they would like that.

So that is the full package that we offer.

In addition to that, I mentioned the forty offices that we have around the country and the offices we have internationally as well are also an important part of our approach to serving our customers.

Going forward, I don't know if mix played any role in margins being a little better.

You talked also about you were able to -- on some of the larger projects, you got a little stronger margin on some of those.

Did overall mix of revenues help as well?

No, Jim, generally when we talk about mix, it's the mix of standard orders to custom projects, and that was not a substantial effect on a higher margin.

Just with respect to comments you made in the sports market, particularly in the high school sports market, you're saying that that was not quite as strong as you had expected.

But at the same time, your Sports Marketing -- you feel -- division is starting to gain some traction.

I'm just trying to reconcile that a little bit.

As you recall, at the end of last fiscal year, one area that did not live up to our expectation was our Daktronics Sports Marketing.

We just didn't have as many projects as we were expecting.

And again, we had some good success stores, but just really not enough of them.

And one factor about the Sports Marketing type projects is they have a longer gestation period, they are more complex.

And one thing that happened is some of them that we were expecting initially might happen last fiscal year came to fruition in the first quarter.

So we are seeing some things happen there.

In some cases, they are related to high schools; they are high school projects, I should say.

So certainly, I would say just in general in the high school market, an important component of our revenue there is the marquees for high schools and the video as well, in addition to the standard scoreboards per se.

Okay.

One final question and I'll turn it over to somebody else.

I am intrigued by the activity you are seeing in the digital billboard market.

It sounds like you have additional orders.

Was that from one customer other than Clear Channel in this quarter?

And that was for eight billboards.

Is that in one market or several markets?

It is with one customer.

I believe they are probably going to put them in more than one market.

But it does seem to be that just in general the outdoor -- as it's referred to, the outdoor billboard market is -- and the large players are taking a keen interest in the potential with digital billboards.

And certainly, as we have said before, there are constraints.

There are city zoning restrictions and things of that nature that are obstacles to deploying digital billboards, and we have been careful to say we don't expect the market to explode, per se -- like every billboard will be an additional billboard.

But certainly there does seem to be an interest in certain key market areas with the deployment of digital billboards.

And again, the difference there, instead of selling space, they are selling time on the display, more along the lines of selling time at a radio or a TV station, you might say.

So it seems to be getting some good attention.

Jim, are you supplying the system that controls the content with these additional sales, as you are in Cleveland?

We don't speak necessarily how we work with any of our clients in particular, but we certainly offer that capability if they want it.

How are the Cleveland installations doing?

Doing fine.

We do have a service and support office in Cleveland and we are there to make sure they are running well.

Okay, thank you.

That's it for now.

Jon Braatz from Kansas City Capital.

Good morning, gentlemen.

I guess going back to the billboard business, I guess, I'm getting more and more intrigued by that.

Number one, is there anything you can tell us about sort of the economics of the video boards for the users?

I get the sense that it is quite attractive and the economics alone should drive that business quite a bit.

Secondly, to the extent that business does grow rapidly, do you have the capacity and the ability to supply that market in a very rapid fashion, so to speak?

A couple of good questions there.

First of all, in terms of the financial model, of course the first thing is the capital investment for electronic billboard -- a digital billboard is significantly more than the typical vinyl decorated billboard and so there has to be payback.

I guess we don't, again, speak for the financials of our customers, but just the fact that they are buying more of them, I think is -- and they are in fact public companies, so they are in business to make a profit.

So I think that it is safe to conclude that they're seeing that they are profitable.

Certainly, we would invite you to, since they are public companies, to check with them and see what their take is -- what their presentation is on it, as well.

So certainly the response is very positive so far.

What was your second question?

Second question, if the market really does blossom from a capacity issue, can you meet the demand?

There is kind of two parts to that -- it's the capacity and lead time, and so it really comes down to being able to have some visibility to what is coming down the pike and working closely with the customers to be a part of the planning process there and involved in the planning process.

So, as I mentioned, we're bringing on another 100,000 square foot addition to our plant, which will be online at the end of the fiscal year.

And so we can -- we are prepared to ramp up as needed to serve that market.

Okay.

Secondly, Bill, question on your accounting for stock options.

Will you begin that in the January quarter?

And any thoughts on how much that might be on a quarter or annual basis?

The amount on a quarterly basis -- or an annual basis -- what is it?

A couple of cents per share on a quarterly basis, $0.02 a share maybe.

On a quarterly basis?

Quarterly basis.

All right.

Will you begin accounting for that in the January quarter?

We have not decided on that yet.

Are you not required to begin -- sometimes the rules seem somewhat confusing, but --.

Jonathan, you actually got me on the spot there.

I have got to check that in terms of the actual official implementation.

Because it changed in April and it was deferred.

And I thought it went into effect for -- off the top of my head -- you're asking January -- I thought it was effective beginning in our next fiscal year.

I could be wrong on that.

I'm sorry.

No problem.

I will get back with you.

Thanks, Bill.

Jim Ricchiuti from Needham & Company.

I was wondering if you might be able to give a rough breakout of the revenues in the quarter by sports, commercial and transportation?

You do it on an annual basis; can you give any flavor for how the quarter looked?

Jim, if you will just bear with me, I will give you some rough guidelines.

Jim is also pointing out to me, going back to the previous question on stock option expense, I said it was per quarter, it is a couple cents per year.

So, clarify that.

Now, I'm sorry, getting back to the product mix.

For the quarter, sports was just under 60%, commercial was just over 30 and transportation was slightly under 10.

Okay.

You mentioned that -- I think I heard you correctly -- the order growth in sports was upper end 20%, Bill.

Is that right?

Year-over-year?

Yes.

I am not sure if you gave it -- if you did, I may have missed it -- a percentage increase in commercial, what your order growth was in that area?

Order growth on commercial was over 50.

Over 50, okay.

Can you talk a little bit about where the activity is coming?

It sounds like it is pretty broadbased in the commercial market?

Generally, we talk about the three areas of our commercial market.

We sell primarily our Galaxy, the smaller monochrome and full-color Galaxy displays through sign companies, a reseller channel.

Then we have our national accounts, which included convenience pharmacies, the quick service restaurants and that sort of thing.

And then we have we call the marquees and spectaculars.

Of course, the digital billboard is kind of a billboard national account -- or a video national account, but we look at that as a national account as well.

So all three of those areas we see are very strong, so there is none of those that we do not have high expectations for.

Okay.

Bill, I am coming up with kind of a rough calculation on your book-to-bill of around -- and I don't know -- when you talk about book-to-bill, are we backing out that 4 million for SportsLink?

Yes.

I am coming up with something like 1.25.

Is that kind of in the ball park?

Overall book-to-bill?

As I said earlier, all markets were over 1.2, so --

Okay, great.

On the transportation side of the business, any idea as to when you might -- if and when you're going to start seeing a little bit of a pickup as it relates to the Highway Bill?

That is kind of a hard question to really quantify.

There is a gestation period on these projects; the projects have to get approved, there is typically a design phase.

And so I think it is in kind of the couple year time frame.

Okay.

Of course, there was funding prior to that; it is not that there was zero funding.

So there are projects that are already in the pipeline and are happening.

And so I think it will kind of be a gradual influx of the new bill and a gradual influence that we will see as a pickup.

Jim, you had talked a little bit about some momentum that you're beginning to see in the international markets.

You called out, I guess, increased activity in Asia.

I wonder if you could just expand a little bit about what you are seeing in some of the key markets -- Europe, Asia -- and of course it sounds like you had some activity in the Middle East as well.

Certainly, I would say that between Europe and the Middle East, the Middle East has been the stronger of the two for us.

We actually service the Middle East out of our Frankfurt office, so that's we're seeing there.

I would say that in general, we see -- Europe is quite a fragmented market.

You have a lot of relatively small countries with different languages; and despite the fact there is a common currency, there still are differences in working in the various countries.

And so Europe is a bit of a challenge in that regard.

In Asia of course, we really have just recently actually had our own presence there.

We feel that, again, Macau is unique with its gaming emphasis there, but the fact it has some tie-in with the Las Vegas gaming industry which we work with already.

So we feel we can benefit from that connection in Macau is well.

And so with our office over there, we have technical support on the ground.

We feel that we are very well-positioned there.

China, I would say it is kind of a China puzzle, how to work with the China market.

We're taking a cautious approach there.

We have just opened an office and we're just really getting established as a business entity there at this time.

So we're still learning a lot about the China market, but there are opportunities there.

We know that, and our reason for being in China, we're going to actually have some assembly capability there for the purpose of serving the China market.

We feel we have to be able to do assembly there in order to be effective there, both in terms of delivery response as well as being cost-effective.

We don't feel we can manufacture here and then ship it over.

So that is our strategy there, and we're really just, I would say, getting started there.

I will just add, do have a nice ProStar display that is going to be installed on Nanjing Road in Shanghai.

It is going to be installed here in the next month or so.

So we have something to point to there; we're getting started.

Jim, you talked a little bit about the challenges in light of the backlog being at record levels, the challenges on a manufacturing side.

Are you guys facing any kind of components constraints at all?

I would say in any given day if you talked to purchasing, they have a couple component constraints because we have thousands of components.

And so the answer to that is always probably yes.

But in terms of critical component constraints that would be at issue, we certainly try to avoid that and work closely with suppliers to stay ahead of it.

You know, there is always that risk out there that -- because it only takes one component, obviously, to be able to not complete an assembly.

But we work hard to not have that be a factor.

Okay.

Bill, just a follow-up to the discussion about the different markets.

Wasn't sure if you gave a percentage increase for the sports market?

I think you said both domestic and international was up.

Can you characterize how much overall sports was up?

Overall, sports from a net sales perspective was just under 5%.

Okay.

Sales perspective.

From an order perspective, it was over 20.

Okay, great.

That's it for now.

Thanks.

Mr. Morgan, there are no further questions at this time.

I will turn to call back to you.

All right.

Thank you, everyone, for your questions.

I would just like to mention that tonight we will hold our annual shareholders' meeting.

The agenda is included in the proxy statement.

There are tours of our facilities starting at 5 P.M and certainly everyone is invited and welcome to attend.

The shareholder meeting starts at 7.

Again, we appreciate your taking time this morning and for being with us and thanks in particular for the questions that we had.

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

We thank you for your participation and ask that you please disconnect your lines.