Daktronics Inc (DAKT) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Daktronics third quarter fiscal 2006 earnings results conference call. As a reminder, this conference is being recorded Wednesday, February 15th, 2006, and is available on the Company's website at www.daktronics.com. During the call, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. Instructions will be given at that time. I would now like the turn the conference over to Mr. Bill Retterath, Chief Financial Officer for Daktronics for some introductory remarks. Please go ahead.

Thank you, Jamie, and good morning to everyone on the line with us this morning. With me is Jim Morgan, our President and Chief Executive Officer. Before we begin, I would like to caution investors and participants that in addition to statements of historical facts, this conference call and our quarterly news release contain forward-looking statements reflecting our expectations and beliefs concerning 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 contracts, and other risks as noted in our SEC filings, which may cause actual results to differ materially. Forward-looking statements are made in the context of information available to us as of the date of this conference 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 would like the turn the call over to Jim, our CEO. Go ahead, Jim.

Thanks, Bill. Good morning, everyone. Thank you for joining us this morning. We are very pleased with our third quarter results. Just as a comparison point here, third quarter is typically the lightest of our 4 quarters because of the fewer work days that comes with the holiday season. We talked last quarter about our efforts in increasing capacity to meet the growing demand. Our revenues were up 40% quarter-over-quarter which is an indication of the degree to which we have been able to increase our capacity, as well as indication of the commitment of our people to get the job done and to serve our customers. And I would certainly like to thank all the employees of Daktronics for this achievement. It is really a commendable achievement.

Revenues came in at the high end of the range of our previously announced estimates, and earnings hit the mid-point of the estimate. Orders continued very strong and we are entering the fourth quarter with another record backlog for the end of third quarter. So we are well positioned for a strong fourth quarter. We do expect that orders for the fiscal year will exceed 300 million, which will be a nice milestone for us. We had our fifteenth consecutive quarter of growth of net sales, quarter-over-quarter, and for the trailing 12 months, net sales have grown in excess of our previously announced long-term target of 15%. Also, this was the third consecutive quarter with quarter-over-quarter revenue growth in excess of 20%. The commercial market, again, was our leader in terms of growth, with orders up over 70% for the quarter and 60% year-to-date. The growth is across all areas of the commercial market, including sales to sign companies, national accounts, and the digital billboard business. The commercial market is now almost 35% of our total order volume year-to-date, as compared to less than 30% a year ago. So it is growing as an overall percentage of our business.

As discussed previously, this growth is driven by the high degree of effectiveness as an advertising media, and the lower price points of our Galaxy product line. The Galaxy product is used predominantly in on-premise retail advertising. Our ProStar video product line is utilized in the digital billboard application. And we continue to invest in the product development to take costs out of both of these product lines, while at the same time enhancing the features and the control systems for commercial applications. Order bookings in our sports business are up over 20% year-to-date. Really, this is with increases in all levels of the sports market. For the quarter, orders were especially strong in the smaller facilities, while the larger facilities were down slightly due to the timing of orders. We anticipate a strong quarter for bookings in the fourth quarter, as well.

As we mentioned in our new release, we had a nice run of orders for minor league baseball. We will be continuing to ship these orders in the -- through the fourth quarter. We announced previously that we are installing a system for Miami Dolphins Stadium, which features 2 large high-definition, often referred to as HD ProStar displays. It is noteworthy that this past quarter we received a change order on this already very large project, large contract, to install ProAd displays around the fascia of the second deck of the stadium, as well. And this change order was for several million dollars. So this will make Dolphins Stadium even more unique in terms of the amount of RGB LED displays that are incorporated into the stadium. It will really make for quite a showcase for our product, and really quite a show for the fans.

We also booked a nice order for the Arizona Diamondbacks. Daktronics installed incandescent displays there. It was about 9 years ago when that stadium was originally constructed. Now they're putting the ProAd displays around the fascia, and also some other display updates. And this is another example of a stadium enhancements that incorporate our product. We also saw good order and sales performance from our high school market, which got us back to double-digit year-to-date increases on both orders and sales for that market. Our Sports Marketing continues to work with selected customers on sponsorship projects. And here again, this is where we help facilitate the customer raising the revenue to finance the project. And we see ongoing opportunity in this area, though, is a relatively small percentage of our sales, and also it is a little different -- it's a little slower to ramp-up because it is a rather labor intensive and time intensive area.

Order bookings in the Transportation business were up over 17% year-to-date and activity in the quarter was excellent, as we booked orders with a number of states, as mentioned in our release, news release. Sales for the transportation market are up slightly for the quarter, but essentially flat year-to-date. As we explained previously, in the earlier part of the fiscal year, first couple quarters, we actually were really pressed to do deliver on a lot of deadlines, especially in the sports and commercial area. And we had some flexibility in transportation, so we actually delayed some shipments there, and that's one reason that we're flat there year-to-date. We're now gaining with our increased capacity, we're able to move forward on that and hopefully get that above flat by the end of the year. I will point out that we are meeting our customers needs in the transportation market.

A few comments on capacity. We're somewhat space constrained, and are looking forward to occupying an additional 80,000 square feet of manufacturing space, which is about a 30% increase, starting in May. As a side note, we have increased our manufacturing work force by approximately 40% year-to-date, as well. Of course, we have had to staff up our technical field support and other areas of the Company at the same time. In connection with the new space coming on, we're embarking on reengineering our manufacturing processes and systems, with the goal of being able to gain both through-put and efficiency. We'll also be adding about 30,000 square feet of office space, which we also are very much in need of at this point.

Finally, given the growth that we've experienced this year being almost proportional to the increased manufacturing space we will be adding here in a few months, we are beginning planning and design for additional manufacturing space that would come on line in fiscal year 2008. We expect that over the course of the next fiscal year-and-a-half, we would invest in excess of $7 million in additional plant facilities and associated equipment.

Again just regarding product development, just kind of as a review, we have 4 major product families. Namely, our Sports products, which are scoreboards and timing systems; our Commercial Products, which are -- that is our Galaxy product line and our Venus 1500 controllers; our Video product line, which includes our ProStar and related control systems; and then our Vanguard product, which is especially designed for DOT applications. Our product development efforts across all of these areas include the development of new products, as well as refining and existing products to add features and reduce the cost of manufacturing and installation. Our product development investment for the quarter was in line with our target of 4% of revenue.

Just to talk a little about some new opportunities that we've embarked on. Last year we purchased Dodge Electronics, a designer and manufacturer of sound systems for sports facilities. We have successfully integrated this operation into Daktronics, and we feel we are well positioned to grow that business next fiscal year to between 5 and $10 million. One new product line that we have been investing in for over a year now and we've discussed previously, is our ProTour Modular product, which is designed to be easily set up and torn down for temporary use at traveling road shows, such as rock concerts and temporary sporting events. We've just launched our 13 millimeter - which is our pixel spacing of the display - outdoor ProTour, and we're seeing good reception, both in the U.S. and in Europe. We will be shipping in fourth quarter our first multi-million dollar order for this product to a major rental company, video rental company in the U.S. And we're negotiating a couple orders in Europe, which we expect to close this quarter. And overall, we expect that orders for this 13 millimeter ProTour product will exceed $15 million for the second half of the current fiscal year.

Another niche we are beginning to have some success in is digital gas price displays. This is a low cost, high volume market, and so margin is a potential challenge in this area. We have developed some new products for this application, and believe we can grow our business in this niche in the next fiscal year. We're also exploring opportunities in the narrowcasting and media rights niche. As we have mentioned before, we believe that this business has potential for us in selected areas. We are working currently on a number of transactions that could potentially close in the fourth quarter. These transactions could involve us investing in the infrastructure in exchange, at least partially in exchange for media rights, which differs somewhat from our historical approach, which would be, of course, just cash payment. We're excited about these opportunities and are working on negotiating and structuring these transactions in a way that makes financial sense for us. This could entail a cash investment, although how much remains to be determined.

Looking ahead at fiscal year 2007 which starts in May, we stated in the news release that we expect that revenues for fiscal year 2007 will grow faster than the 15% target we typically mention. Our basis for that expectation is our order pipeline, general interest from clients in buying larger systems at all levels of sports facilities, and continued interest in our product for a variety of commercial applications. We expect that the price points for our products will continue to trend down, which will continue to increase the market for our products. We expect to grow our existing business, as well as the new business opportunities that I mentioned earlier. With that, I will turn it over to Bill Retterath for a few comments on our numbers.

Thanks, Jim. Just a few comments. First, I would like to add some detail on the gross profit margin for the quarter. Last quarter, margins were at the 29.4%. We had thought that margins would increase a little into the third quarter. The increase was a little bit better than expected, due to the performance on a few larger contracts. Although last quarter we did say that current market conditions should get us to the 31% level, absent some of the capacity and other issues we were dealing with at the time. So, overall the margin level was good. We anticipate margins into the fourth quarter will be near the same level. I would also like to point out that the margin on large contracts booked for the quarter again exceeded the level of the previous quarter on a sequential basis. That's the third quarter in a row that has happened, so we're definitely headed in the right direction on margin.

Now I would like to focus a little bit on our financial model, and where we're headed with that. For the quarter, our operating margin was 8.8% which is very good for a third quarter, and in fact at a level we haven't reached in years. This in spite of some 1-time costs that we felt we had related to our foreign operations of a few hundred thousand dollars, and the incremental costs that we are incurring with our investments in the international market, our mobile and modular business which is primarily focused on the ProTour line, narrowcasting, media rights and other initiatives. For the fourth quarter our goal is to get the operating expenses in the 20% range, which is clearly reachable at the high-end of our sales estimates. Either way, whether we're at the higher or the low end, we should end the year below 21%, a level we had not achieved since fiscal year 2001. Depending on how gross profit margins turn out, we should end up with an operating margin somewhere between 9.5 and 10.5%. Factoring out the benefits of the R&D tax credits that related to prior years, that were included in last fiscal year estimates. Even at the low end of our fourth quarter estimates, we should experience leverage on improving net income as a percent of sales over the previous year. A direction that we continue -- that we expect to continue into fiscal year 2007.

Jim made a couple of comments about investments in plant facilities and the media business. While we can't forecast the actual requirements at this time completely, although we did mention it would be in excess of 7 million, we intend to fund these investments through cash flows and possibly, depending on the level required, some debt. You will note that our cash position did decline for the quarter. However, much of the decline is like other quarters where we've had the significant fluctuation. It's caused by timing of a few larger contracts, as we mentioned in the release. We are committed as a Company to grow while improving the balance sheet. However due to the nature of our business, these large fluctuations do occur. Our emphasis on uses of cash is on building the business internally, rather than through material acquisitions, although we don't rule them out. This includes capital expenditures in facilities and equipment and in initiatives that add pressure to earnings, including market and product development. Just a note on the new option expensing rules. We'll be developing firm numbers in the fourth quarter, but we still believe that beginning next fiscal year, it will be a few cents a share effect on us for the year.

In closing, I would like to just quickly mention that during this fourth quarter, we'll be speaking at 2 upcoming investor conferences, both in New York. And we would invite you to our investor website for additional details if you're interested. With that I would like to turn it back over to Jamie to open up for questions.

Thank you. [OPERATOR INSTRUCTIONS] Jim Ricchiuti, Needham & Company.

Bill or Jim, I wonder if you would just break out the revenues for the Sports, Transportation, and Commercial business in the quarter. And then I have got a couple of follow-ups.

What I will give you, Jim, is the percentages.

That's fine.

On a year-to-date basis, maybe, if that's okay.

Okay.

Roughly, the Sports business was 55-plus percent and Commercial was roughly around 35, and Transportation is the difference.

Okay.

That's on a year-to-date basis.

Got it. And on the Commercial side of the business, you alluded again to order activity in the digital billboard market. Can you elaborate perhaps on what you're seeing? Is it from multiple customers And I think in the past you've actually given out the number of orders you received in the quarter. Can you just help us a little bit understanding what's been happening in that market?

This is Jim.

Hi, Jim.

Good morning, Jim. Most of our business is still with, primarily with 1 customer, as far as the digital billboard area. And we think that others -- there is certainly some interest in the other areas, but that's where the bulk of our business is at the moment.

Okay. And just the level of order activity in the quarter?

Yes, we do see it picking up. I think we mentioned that it was less than 10% of our -- .

It is less than 10% of our total revenues for the quarter.

It is getting up into that range.

Let me clarify that. With the 1 customer, our billboard business in total was maybe a little bit in excess of 10%. And in terms of the number of billboards, it was close, in terms of orders, to what it was last quarter.

Okay. And any update as to your existing pilot with 1 of the big billboard companies, as to where that is? And if you're seeing any interest among some other players in the market?

We had talked earlier about doing that Clear Channel pilot in Cleveland. Is that the one you're referring to, Jim?

That's exactly right.

Right. We had talked about that. And from our perspective, I guess, that appears to be going well. And of course, you have to ask them from their perspective on the financial side. But we of course have a support -- our office in Cleveland is making sure that everything is running well out there, and we've been doing -- been very diligent about that, and I think doing a good job there. So again, as far as we know, it is going well. But the financial side, you would have to ask Clear Channel.

Okay. And then just on that third player in the market. Have you seen any activity from any of the other players?

Not so much at this point. Now there is some smaller players that are putting up a billboard here and there. So it isn't limited to the top 3. But that would be the, obviously the higher volume potential is with the big 3. But we are getting some business from smaller players, as well.

Okay. Great. And Bill, your orders were around -- bookings were around 74 million for the quarter?

Yes, roughly.

Okay. And I will jump off. Thank you.

[OPERATOR INSTRUCTIONS] Stuart Kagel, Janco Partners.

I just wanted to get some color on the commercial X billboards. Are there any particular retail outlets where you're seeing strength?

Stuart -- .

You mean other than billboard, you mean?

Obviously, other than billboard. Just trying to figure out if there is a particular category, whether it be convenience stores or grocery stores or anything along those lines?

Certainly we see -- and again we sell -- in the first regard, we sell through sign companies that, throughout the country. And they in turn sell to retail. And really, any type of retail is a potential customer, especially retail that has located on a high traffic street. If they feel that being on a high traffic street is important to the business, then utilizing our displays as an advertising media tends to make sense for them, because they can communicate directly in a realtime mode to their potential customers driving by. So we're seeing continued interest and increasing interest in that area. Also, we've talked before that we've had national accounts with the convenience pharmacy companies, and we've continued to see business there as well. Those are some of those that maybe stand out over the other areas.

Okay. And then a couple of quick questions. High school represents about how much of your Sports business?

Go on to the next question, and I will come back while I look that up, Stuart, if that's okay.

That's fine. And then is there any way that -- should we be thinking about the capacity additions that come on in the first quarter, as sort of being all at once? Or is there sort of a staging process for that to come on line?

That's a good question. Really, capacity is something that has to ramp-up on kind of on an continuum. It doesn't ramp-up in what we would call a step function. We bring the space on in a large increment, because that's how you build buildings. But in the end, it's people that get the work done. And so, as I mentioned, we've already increased our manufacturing staffing by 40% since the beginning of the fiscal year. And right now we just -- the space will allow us to just operate a lot more effectively. And so we expect we'll continue to add people, but it will be at a kind of a just a continuing, kind of ramping up function as opposed to a step function.

Just to talk a little about the -- we mentioned the gaining the efficiency. We're actually going to -- some of you may have heard a term called "lean manufacturing." We're going to embark on a program of lean manufacturing, here. And really what that's about is better utilization of space, better utilization and really less inventory, on as compared to revenues, certainly high focus on quality, getting the quality product out, and all of that together. So this new space will really allow us to have some flexibility there, that we just don't have right at the moment. We're just too jammed up. So we do see that hopefully we'll be able to get better utilization of our space, in addition to having more space here, after we get this new building on line.

Stuart, on your first question, it is roughly around 25% of the Sports market is the small facilities.

Okay. And then final question. Obviously you're adding capacity in the summer. And you've already stated that you intend to add capacity once again. I guess I am just trying to understand in the context of growth north of 15%, you're already seeing enough visibility to do the the due diligence to add even more capacity a year from now. I guess I am just curious to know what you're seeing, and if we should be thinking about that 15% very differently?

First of all, we're too crowded right now in our space. So when we finally have the space to move in, here in a couple months, we're going to not have a lot of head room left at that point. And so we'll have some head room left for expansion. But that's why we see we need to get started on the planning and design of another building at this point. Because certainly if we -- even if we hit 15% growth in FY '07, 15% let's use just round numbers, let's say our revenue is going to be on the order of 300 million for the year. 15%, that's an additional 45 million that we have to put out. So, and our product, it tends to take space. We ship displays, and we're not shipping cell phones here. We're shipping big displays and they take up space. So and we see that we don't want to get ourselves in a situation where we just can't react to the market opportunities. So that's why we're looking at getting some more space under way here at this point.

And in the context of the 15%, you're just trying to clear the head room, or do the due diligence to clear the head room, should the demand that you're sort of seeing come to fruition?

Even with 15%, we see that we need that space by 2008.

All righty. Thank you.

Steve Balog, Cedar Creek Management.

What kind of delivery times are you quoting by product line at this point, Gallery, ProStar, Vanguard? And if you don't want to be specific, which one is the longest and which one the shortest?

It is a range. And our standard product right now, we're typically in the 4 to 5 week time frame, somewhere in there. 5 to 6, depending on exactly what product it is. When we get out to the larger systems there, it can be anywhere up in the 120 day, the 3 month timeframe.

Okay. And that's competitive? Is that -- do you got to bring that down, or that works for the marketplace?

Well, it is our goal to bring that down a little bit yet. And so that's, of course, the balance as you grow the balance of capacity versus the demand. So we're still working to bring that down. We're hitting customer deadlines and requirements now, and we work hard to understand what the exact customers needs are, and try to meet those needs.

Okay. Could you explain more, expand on the investments that you're making? I think you said $7 million in these deals to, I guess you put up some money possibly, or give a discounted price on a sign, and you get part of the kind of the carry along the way? How does that work? Is that -- my understanding correct? How does that work, and what business is that in? Is it in the commercial, in the big billboards, or in the in-mall stuff, or where is that? How does that work?

First of all, to clarify. The 7 million we mentioned was for the -- relative to this new building that we're talking about just getting started that would come on line in 2008.

I am sorry. Okay.

Just to clarify that. We did not mention any specific numbers with regard to this, maybe call it the media business or the digital network business. A couple areas that we're exploring there. 1 is the area of convenience stores, advertising. Also we're, of course we have a presence in sports facilities. And we're exploring that as well. And this is -- we really are just in kind of the exploration stages here of what might make sense for us. And we have not identified any, or quantified anything here as far as an investment. What we're seeing there in terms of the -- that we're looking at doing in some cases, if we would deploy some of the display systems for this, we may take some of these, the media rights and the revenues, in exchange for that equipment, for placing that equipment, instead of cash. That's kind of what we've talked about at this point.

Okay. That's not in the outdoor business, though? That's in these convenience, sports -- convenience and sports facilities?

That is correct. And typically -- that's correct. It is not in the outdoor billboard business. It is in -- in this case where the display media is either LCD or plasma screen.

Okay. Great. And then lastly, you were talking about the digital billboard business, that -- you were talking about a 10% figure. That it was less than 10%, but that the total digital billboard might be over 10%. Was that of orders or of revenues?

They are substantially similar, and I don't have those numbers right in front of me. But I don't think it was much over 10.

Okay. That's great. Thank you.

Jim Ricchiuti, Needham & Company.

Jim, how would you characterize the order activity in the large sports market in the current quarter?

Order activity is very strong yet. We're -- well, of course you can see with our backlog to start with, we've gone into fourth quarter with a great backlog. And the interest is very strong, Jim.

Would you expect more of these HD-type displays going up in the larger sports markets? Are you seeing more interest -- ?

There are a few of those projects out there, potentially in the near term. And certainly we do see that with these, a few installations of HD going up, that will set a new standard for these type of displays. And so we do see that that also bodes well for the long-term for our business.

So potentially the deal size for some of these larger installations could be going up?

That is exactly right. And again, Miami dolphins is an example of that, where we added this multi-million dollar change order on top of what was already a very sizable contract. So that is a good example, not that all of them will be to that magnitude. But it is an example of the bar being raised.

Okay. And just to shift gears for a second, and on the transportation side of the business, I think you alluded to orders being up 20% for the quarter in the press release? And I was wondering if you're seeing any traction now, or any of the spending coming through from the transportation bill from on the federal level, if that's having any impact on the business yet?

Certainly, the transportation funding is an essential ingredient there. It is hard to really draw a real correlation in timing-wise between the passage of that bill and how things actually happen, because of the delays going through the bureaucracy from the federal down to the state levels, and the project planning cycles that are involved. These projects are in the planning and design for a period of time, so it is kind of hard to relate those 2 directly. But certainly it is -- I would say this. We've never heard of states that we're talking to, saying that they didn't want to deploy or go forward with a project because they didn't have the funding due to the transportation bill not being passed. And when that wasn't passed, they had extended the existing level. They didn't cut off funding. So it was in kind of a mode there of delay of increase. But funding was always still available. So certainly for longer term, it is positive. And we're seeing that the technology I think, as importantly as anything, I think the DOTs are really seeing this technology as being useful to them. And the amber LED technology in particular, is very well received and it's very reliable. And so we've had some, just within the last quarter, some new states that we have brought in on line that we hadn't worked with before, and we always like to see that happening. Because once we get a state, we start working with a state, we've had good success in retaining them as a customer.

Okay. And 1 final question, and I will jump off, is I wonder if you could just talk a little about the competitive environment that you're seeing out there, the pricing environment in the large sports and the large commercial display markets.

Well, in general as we've categorized this before, the large projects typically have the [keyness] competition, and the margin percents tend to be lower on the multi-million dollar projects, as compared to the smaller projects. The -- we had talked a year to 18 months ago about the competition in particular from Barco. I think we mentioned at the time, that been quite aggressive, and that is maybe stabilized a little bit, I would say. Not quite as keen as it once was, but certainly they're still competition. On the real large projects, Mitsubishi is still in there on the large sports projects. And so there is always a competitive situation.

And then on the commercial side of the business, particularly in the billboard market where there seems to be a nice level of activity building, any change there in the competitive landscape? Do you see new players coming into that market?

We haven't seen any change in that recently. As we mentioned, we have -- we're not the only company that's provided displays to the billboard market. But we feel we have a good share of it. And we feel we're very well positioned, and we feel that's an area that we can grow. We provide not only the displays we offer for companies that are interested, we offer additional services in providing the content and the scheduling, and essentially what's often referred to in the industry as a network operating center, or the NOC. We offer those services as well, if companies don't have that themselves. So we feel we're well positioned to grow that area of our business.

Okay. Just 1 final question. Just on the addition that you're talking about, a year or so out. Will that be in Brookings?

Yes, the intent is to build that in Brookings.

Okay. Thanks very much. Congratulations on the quarter.

Steve Alfrendo, Sidoti & Co.

In the billboard business, do you expect orders to be lumpy going forward, quarter to quarter? And has your main customer given you any visibility over the next few quarters?

Actually, the billboard business is -- has been not quite so lumpy, and in fact our main customer there has given us some visibility. And that is kind of important when you're working a program like this, where you are rolling out a number of these displays over a period of time. Of course, in order for both -- for us to be synchronized with what they're doing on their end, because there is the installation side of it as well, it is important to have a schedule that's laid out ahead of time. So that actually is a little smoother, based on that requirement, I guess. So it's, in that sense I guess, a little easier to manage, you might say, than some of our big sports projects that come in one at a time.

Okay. And just last 1. Did you say you were expecting $15 million in revenue from ProTour next quarter?

No, 5. We're saying -- what we said was that with the orders that we -- this order that we are shipping now and potential orders, we are saying that in the first -- in the last half of the year, that would come to a total of about 5 million. Some of which we already have booked in-house, and some of which we have not booked yet.

Thank you.

Michael Friedman, Noble Financial.

Hi, guys. Actually, most of my questions have been answered. Just had a -- just want to touch on 1 thing. When you talk about lean manufacturing, were you talking about reducing the inventory levels and raw material levels? And with the growth that you are projecting into next year, just wanted to be sure that your channel of raw materials, that there won't be an issue there to meet that demand. In other words, there will be adequate amounts to meet what you expect to have next year, without having any pricing issues?

Talk about this last question first. In terms of the raw materials, we do have some key vendors, and it is noteworthy that we're quite dependent on those vendors. Certainly, we buy a lot of LEDs from [Nashia], and also from Agilent, and I'm not -- have their new name, it escapes me at the moment. Avago is the new name. And so they're key vendors for us, and certainly we have a reliance on them. We also buy certain integrated circuits that we use in our product, that are key vendors there that we're reliant on. So we certainly are very reliant on certain vendors. We work very hard to maintain a very close relationship with those vendors. We go to visit with them at their facilities. Of course, they appreciate the amount of business we give them as well. And they reciprocate by visiting Daktronics. And so we get good visibility on their side of what new product development they're working on, what they're doing in terms of capacity. We have dialog with them about their capacity versus our needs. So certainly, we give that a lot of attention. But it's -- if something were to happen to one of these vendors, certainly it could affect us, that's a given. What was the first part of your question again?

That's okay. It was talking about the lean manufacturing initiative, and when will that take place, and -- ?

Oh, well that's -- and again, this is something we're going to -- just really getting underway with. And obviously, we've always worked to find better ways to manufacture our product, and achieve all of these things. But we want to kick this into a higher gear here, and again, the goal of course, one of the goals is to be able to run with less inventory. And just for example, in our electronic assembly area right now, if you were to -- and any of you are welcome to come. We'll give you a tour and show you what we're doing. And maybe it is more obvious than what the opportunities are. But basically, we have a lot of racks of modules that we're moving around, and we aren't able to lay out the process in a step 1-2-3 order. We've got our -- we have things moving around, and I guess if you go up there, you would say maybe in kind of a chaotic fashion. But that's -- we're limited to that right at the moment. Once we get in the new area, we can lay these out, where the steps are in line from one to the next. And the idea is to not have this inventory that's moving around from station to station, but really more of a flow and on a module by module basis for example. That is just 1 example to try to give you an idea of what we're trying to do there. And we do believe that we can reduce the amount of inventory that we have, as a part of sales, or compared to sales, as a part of this.

And I would assume you would also be able to cut some costs out of the manufacturing process?

That is exactly right. Certainly, the idea is to cut -- reduce labor time, because there is handling costs that go in with this moving product around, for example, that you can eliminate. So that certainly is one of the goals. I will say this. Our product is very parts intensive. In other words, our materials is the majority of the costs in our product. So the other side of that, in terms of reducing product cost, certainly is to work through designing costs out of the materials side, and also work with vendors on the cost side as well. So that's equally, if not more, important even than taking labor out, quite frankly, in terms of reducing our costs. But just to put it in perspective.

Great. Thank you very much.

Ryan McCormick, Wm Smith &Co.

Just a quick question. On your last call, you mentioned the typical dollar value range for your digital billboards. Kind of curious what that is for this quarter, and where you see that going in the next few quarters.

Ryan, that hasn't changed. General speaking, the billboards are 3 to 500,000, 250 to 500,000. Do you want to add detail to that, Jim?

No. I think that's -- .

And that hasn't changed since the last quarter.

Okay. Just depending on the size of the billboards themselves, correct?

Yes.

Okay. And then on your $7 million plant facility expansion, can you give that as a square foot number?

Yes, just let me think about this. It will be -- it is on the order of 100,000 square feet.

Okay.

Ryan, it is still in the planning discussion, so that could change.

Yes, but, round numbers, it is in the 100,000 square foot range.

Okay. Great. Thank you very much.

Stuart Kagel, Janco Partners.

I heard that one of your competitors, I believe it was Barco, had actually sold square footage to another competitor. And I'm just trying to figure out if indeed that was the case, and if you're seeing any impact from that?

Yes, we did hear something about that. Barco had a facility in Salt Lake City. And it is our understanding that they sold that to YESCO, Young Electric Sign Company, happens to be based in Salt Lake. They are a sign company, and they also do manufacture electronic displays. They've primarily focused in Las Vegas and in the West.

But you're not seeing any impact of that, either from Barco, in terms of their competitiveness on pricing, or from YESCO -- ?

Barco has not been as aggressive in our part of the market as they were for awhile there. So I am not sure what their long-term plans are. I believe they have a base out in California now.

Okay.

And YESCO, I think, is just moving, as I understand it, is moving their manufacturing from maybe from Las Vegas to Salt Lake. I am not sure about that. But that's my understanding.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] Steve Balog, Cedar Creek Management.

On the product development side, you talked about adding features to -- across the product line. What kinds of things do you add, and I assume these are mainly software issues?

Oh, yes, it is runs -- there is a whole gamut of things depending on the product. But certainly, if you just look at the application of our product for say, the digital billboard industry, just for example. One of the things that's required there is some diagnostics, so that basically at your network control center, you could get feedback if there is any operational problems with the displays, for example, and get confirmation that the message that you're -- essentially that it is supposed to be, or the advertisement that is supposed to be running out there, is in fact running. That kind of feature, for example. And in terms of -- it just depends again on the product. Some cases, it is in the whole world of video, of course, one of the things is higher resolution at a lower cost. We're always striving for that.

Okay. That's fine. Thanks.

And at this time, we are standing by with no further questions. I would like it turn the conference back over to management for any additional or closing comments.

Well, thank you, everyone, for participating. Thanks for the questions. We appreciate that. We're off and running here on a strong fourth quarter, and again we're welcome any of you who want to come and tour Daktronics. We can show you what we are doing here, and show you our new facility where, we would welcome that. With that, Bill, do you have anything else? Thank you for joining us today. Have a good day.

Thank you. Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time.