Daktronics Inc (DAKT) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Daktronics second quarter fiscal 2007 earnings results conference call. As a reminder, this conference is being recorded Wednesday, November the 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. I would now like to turn the conference over to Mr. Bill Retterath, Chief Financial Officer of Daktronics. Please go ahead, sir.

Thank you, Darryl. And good morning, everyone. Thank you for participating in our second quarter earnings conference call. Prior to getting into the details of the quarter, I would like to offer our disclosure cautioning investors and participants that in addition to statements of historical facts, this 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 and growth, timing and magnitude of future contracts, and other risks noted in our SEC filings, which may cause actual results to differ materially. Forward-looking statements are made in the context of the information available to us as of the date of this call. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. With that, I would like to turn it over to Jim Morgan, our CEO, for highlights of the quarter.

Thanks, Bill, and good morning, everyone. Thank you for joining us this morning. This was one of the most phenomenal quarters we've ever had here at Daktronics, and we've had a lot of good quarters. But this one is certainly right up there with the best. Revenues up 63% for the quarter, and 46% year-to-date. The bottom line is also up very nicely, being up 71% quarter over quarter, and 41% year-to-date. We went into the quarter with a very strong backlog, and we had many critical delivery dates that we had to meet. Second quarter is historically our fall sports season rush, and this year, that came along with a large increase in commercial business. So orders for sports are up over 45% year-to-date, while orders in the commercial market are up over 75%.

As we've discussed previously, the growth in our commercial market is the result of the effectiveness of our technology as an advertising medium, both for on on-premise and also third party advertising, and the attractive price points of the product at all levels. While digital billboards gets a lot of attention from the investor community and certainly is a very exciting area, it is important to note that the growth is strong in other areas of our business, as well. In sports, we see increased expectations of displays at all sporting venues with smaller schools, including our very cost effective full color smaller standard matrix displays as part of their new display systems. As we stated in the news release, the primary reason we exceeded our estimates to the extent we did, was a truly remarkable team effort by everyone at Daktronics to deliver the product and meet these critical deadlines. We did think this past quarter that we would not consider sustainable, in terms of the number of hours worked and the number of people who worked outside their normal assignments to help however they could to get the product built and shipped, and our people truly went above and beyond to accomplish what we did this quarter. And I want to thank all Daktronics employees for the great job and the great results we turned in for the quarter. Of course, our outsourcing vendors and suppliers also came through for us in a big way and we thank them, as well.

There were a number of other dynamics that contributed to the large increase of Q2 over Q1. The new 110,000 square foot addition that came online in Brookings in the first quarter was a key to our being able to process this much work, as it allowed us to work on more projects simultaneously. As you recall, we moved into our new electronic assembly area in Q1, so that was a disruption during Q1. And we were set and ready to go in that area at the beginning of Q2, and realized that benefit. Also, we implemented process improvements to allow for more efficient manufacturing and we benefited from these during Q2. Our Sioux Falls facility was not a significant factor in Q2, as it just came online at the end of the quarter, but we are very excited to begin production of digital billboards out of that facility.

We continue to invest in our lean manufacturing initiative, which will extend to our business processes, as well. It's particularly challenging to implement process improvements while one is growing as fast as we are. But likewise, it is all the more important to do so, and we are committed to doing this. One of our fortes as a Company is our ability to develop new products and continually improve our products. Our product development effort continued in our four product areas, namely sports products, which includes scoreboards and sports-specific products, commercial products, which is primarily our Galaxy display line, our video products, which centered around our -- is centered around our ProStar video technology, and the transportation displays, which are specifically designed to meet DOT specs. Product design and development was on target dollar-wise, but slightly below our 4% norm due to the significant increase in the top line.

Looking to next quarter, it's important to note and understand that revenues for Q3 for Daktronics are typically less than our second quarter, as the holidays make for fewer work days in the quarter. And that is reflected in our estimates, along with the lack of the ability to sustain some of the efforts from Q2. And both of these are partially offset by having the Sioux Falls facility up and running. And keep in mind that the Sioux Falls facility is in a ramp-up mode, and so it's not up at full steam at this point. We did finalize the purchase of the assets of the Hoffend and Sons, a hoist manufacturer, in October. We have worked with Hoffend for about 10 years as our supplier of large hoists for center-hung scoreboards. And so on one hand, we've retained a critical display source. But moreover, we will be selling and manufacturing the Vortek hoist system, a computer-controlled hoist system designed for theatrical applications, and we believe the patented Vortek product has excellent growth prospects. It's a relatively new product, but already is being very well received in the industry. Its revenues for this fiscal year will be less than $5 million. At this point, I'm going to turn it over to Bill Retterath to talk a little more about some of the numbers.

Thanks, Jim. Just a few comments. I would like to point out first, in the first paragraph of our press release, [inaudible] backlog at the end of fiscal 2006 second quarter was $121 million. Obviously, I think as most of you understood, that's fiscal 2007. Secondly, I will point out in backlog, that includes roughly 4 to $6 million of backlog that came along with the Hoffend acquisition. So when you look at Daktronics alone from Q1 to Q2, we did get a well -- a needed decline in our core backlog.

Starting out, I would like to add some detail on the gross profit margin for the quarter. We had anticipated that the margins would be slightly higher on a sequential basis. As Jim mentioned, we did a number of things to work down the backlog, including things to expedite deliveries, and we continued with the expansion, both of which cost us on margin. On the cost of expediting, it's hard to quantify all the things people are doing throughout the organization to serve the interests of customers on deliveries. Some of these costs, as Jim mentioned before, like overtime, things like that, are not sustainable in the future, but we'll continue to work hard on doing those types of things. Also, as we mentioned -- excuse me. The mix affecting our gross profit is between small orders and large orders, also affected the gross profit margin. Our small orders were in the 20% range, as compared to a year ago, small orders were in the 30% range. Due to the capacity constraints during the quarter, we probably didn't get all the shipments out that we wanted to or desired to, and we likely did not get all the orders that we could have. It remains difficult to forecast exactly where our mix will end up at this point, and during the quarter this mix roughly had an effect of about 0.5 a margin point. We think we can increase margin slightly in the third quarter as compared to this second quarter, but with the holidays and the uncertainty of vacation time, which can be a factor, it's likely subject to a little bit more variability risk than in other quarters.

Jim mentioned the implementation of lean processes in manufacturing. This is an area where we could continue to see some upside in gross profit margin, especially in Sioux Falls. But again, quantifying the financial implications of these changes is tough at best. In addition, gross margin was affected by approximately $0.5 million of professional services fees with the consultants that we have brought on board to help us in the manufacturing area. It certainly helped us in the last quarter. And more importantly, we expect that to have a long-term positive impact on our business.

Finally, we wrapped up some of those projects from Q1 that were causing us some margin problems in the second quarter. We drove up the operating margin to 11.6%, which is actually the second highest quarter over the last eight quarters. Clearly, the top line was a factor, but it goes to what we talked about last quarter, when our operating margins were down, that selling expenses do not -- or do not increase by driving the top line. And they should be looked at in relation to order bookings. Year-to-date we're at a little less than 10% on operating margin, as compared to 10.3% last year. Considering all the expansion investment, this does represent a solid performance in our opinion. Keep in mind, however, that it typically declines in the third quarter as a result of the sales declines mentioned above. Finally, we did get healthcare costs back to more reasonable levels this quarter.

I would like to point out one rather noteworthy factor that affected G&A and affected our annual effective tax rate. We went -- we did go through an IRS exam during the last couple of quarters, and got that behind us on a net benefit basis on the tax rate for the year. However, that was offset by some one-time G&A costs of a couple few hundred thousand dollars. Also G&A does get hit the most with stock option expense, which total stock option expense year-to-date is about $0.02 a share.

On the balance sheet and cash flow, you'll notice a decrease in cash for the quarter. We have completed approximately two-thirds of our CapEx spending for the fiscal year, which equates to about $28 million. And our budget now stands for the year at about $44 million, which includes approximately $1 million for some demo Pro Tour equipment that we're getting online at this point, and approximately $2 million that we have set aside for potential additional facilities investment the rest of the fiscal year.

Let me just make a few comments on our media business investments. For the quarter, we seemed to make good progress overall. But we may decide to inject additional cash in our Arena Media business, given our current outlook there. On the other hand, we're extremely positive on our pump-top business, given the level of interest we are seeing. We currently have up and running a six -- approximately 60 station network in Chicago, with another [NLA] to follow, so that during the quarter -- during the third quarter we should reach somewhere near 300 stations on our media network through our affiliate that operates under the name FuelCast. The ultimate effect of these investments may be a little bit higher than the $0.05 we had mentioned previously, and we'll be able to firm that up more so in the third quarter. With that, I would like to turn it back to the operator, Darryl, to open it up for questions.

[OPERATOR INSTRUCTIONS] Jim Ricchiuti.

Congratulations on the quarter. Question, if you could just give us just a couple of housekeeping things, would you be able to give us the breakdown of revenues in the quarter by sports, commercial and transportation?

Sure. Jim -- .

I can tell you the [inaudible] the number. Year-to-date, it's about 55% sports, 35% commercial, and 10% transportation. In the quarter, it was skewed a few percent heavier on sports.

Okay. So it was a little higher on the sports side, Jim?

Right, the fact we have, again, our fall rush season.

Okay.

But I think, again, that varies from quarter to quarter a little bit, but to give kind of an idea of the overall, it's in the numbers I mentioned there.

Okay. Any 10% customers at all in the quarter?

No, there was not.

Okay. And just with respect to the investments, Bill, I know there was some question as to how you were going to be accounting for that, whether you would have to consolidate it. Is there anything -- any change in that at all?

Jim, I'm sorry. I missed part of your question.

Just with respect to the investments in Arena and FuelCast. I know there was some question as to whether -- ?

Oh, yes. I'm sorry. Yes, we've determined under the accounting standards that neither one of the entities are consolidated. So both of them are falling in non-operating income.

Okay, okay. And just with respect to the commercial business. Can you talk a little bit about where you stand in terms of you talked about Sioux Falls being potentially at around, I guess, a $75 million annual run rate at the end of December. Is that still-- are you still working toward that goal?

I think -- trying to remember exactly. Again, the timing on this is a little tricky, Jim. And certainly, we're working to get to that goal. Whether we'll be there exactly at the end of the calendar year or not is for sure, but we'll be close to that.

Okay.

And we'll be in ramp-up mode. And just to give a little more insight in what we're doing there. Again, we had the people that we hired for Sioux Falls, we actually hired in the summer and had them working here in Brookings. And so it's been a kind of a gradual transition in bringing things online in Sioux Falls. And we now have all of those people that we had hired are now working in Sioux Falls, so that's in place. And now what we're working on -- so that's basically the day shift that we have in place. And so now what we're working on is staffing up a night shift. And it just takes time to bring those people on and get them trained. So that's the direction we're headed, and that's the process we're going through.

Okay. So Jim, day shift, how many people are we talking about that you have employed at Sioux Falls right now?

I'm just going to give you round numbers. It's about a hundred.

About a hundred. And so how many do you anticipate hiring over the next couple of quarters there?

Let's see, where are we exactly?

We're in excess of 120, 130 now, I think.

With staff and everything?

I don't recall, Jim, what the actual numbers are there.

I think we're somewhere in the 30 to 40 range to get the full night shift going. And we're going to bring out first sort of a, I guess half a night shift, you might say. So maybe 25 to 30 is kind of the next round of getting people in place there. And then there will be room to bring more on after that.

Okay. And that occurs in the February quarter?

Well, we're working on -- again, we're working on getting people hired now. So yes, so I think toward the end of the quarter we hope to bring that -- those people on, and then we'll continue to add beyond that. So some will come on at the end of this quarter, and some come on in fourth quarter.

Okay. I'll jump back in the queue. Thank you.

[OPERATOR INSTRUCTIONS] Jim Ricchiuti.

Okay. Just on the sports side of the business, was there anything unusual in terms of the shipment levels there? Was anything accelerated that might have contributed to the stronger revenues?

Well, as we mentioned, we had of course, a very strong backlog going into the quarter. And the question really, obviously, we estimated we would get less done. The question was trying to understand what we could in fact accomplish. And we were able to accomplish more than we expected, I guess. And we mentioned that all the things we had in place that we knew would help us get things done, we had the new space online, we had electronic assembly in place, all of those things. But above and beyond that, the effort that our people put in just do whatever it took to get things done and meet deadlines was what put us over the top, and that did accelerate some things, and allowed us to meet a lot of these critical deadlines.

Okay. It looks to me, Bill, like your book to bill was slightly below one. Is that -- actually that may not be the case, because I didn't back out the small amount that you got from Hoffend in backlog.

Yes. No, it was less than one.

Yes, so around 0.9 or so?

Yes.

And reduce -- we reduce backlog. And as Bill mentioned, that was actually a good thing. Our backlog was to the point that we were -- our lead times -- the result of having a bigger backlog is your lead times go out. And they were getting out to the point that it was -- that was becoming problematic for us. So it is in fact our goal to get those lead times down.

Okay.

To better serve the customers.

Jim, along those lines, or maybe Bill, you alluded to that you didn't get all of the orders you could have. Can you talk a little bit about that? What area of the business? Was it in the commercial area? Or are these orders that get pushed out or potentially go to competitors? And just a follow-up to that, if you could just talk a little bit about the competitive environment in this part of the business, in the billboard space. Thank you.

Yes, in terms of -- Jim, I'll take the first one in terms of orders we didn't get, and let Jim talk about the competitive business. One of the things that happens that's typically been a big benefit for us in, for example, the high school football season, when that gears up. What happens is typically in July, August, you get a lot of last minute purchases, that potentially can come up where schools didn't plan to make those purchases. And our lead times impacted us getting all the orders, because we couldn't meet those deadlines for opening day, so to speak. And then it, in effect, many times it gets put off for the entire year. So to quantify how much of that business we could have gotten, it's tough. We really can't.

Yes, we don't have really a good way to collect that information, and sometimes you really don't even know for sure. You know, you -- .

But these were basically orders in the sports market, and primarily the smaller schools?

Yes, there's a significant amount of dynamics going on, though, when you get into order bookings. In these types of circumstances, one of the reasons for our annual guidance is, obviously when you look at that annual guidance that says it could reach $450 million. Obviously, there's a lot of orders that maybe haven't hit our system yet that we expect to come in, to allow us to hit that. And there's just a lot of dynamics that go on in the timing of orders due to the capacity. And it's tough to get into them because maybe we're talking about specific circumstances that I would rather not get into on the call here.

Okay, and Jim, would you like to -- could you address the competitive environment in the billboard segment of the market?

Sure. We've discussed before for, of course, the two largest players in the industry that are proactive with digital, and, again, we don't share anything that we -- about these customers, other than what they have made as public statements. So I do want to make that clear. But Lamar on Clear Channel, both are deploying digital billboards in their systems now. Lamar was the more aggressive coming out of the chute with digital. And with Lamar, we were getting -- they identified they were going to use two major suppliers, and so we were one of those two suppliers, and that continues to be the case. To a large degree, we feel that - and I think they are saying that - the-- our ability to produce is kind of the constraint on their being able to roll these out. Now, whether that will continue as we ramp up and to what degree, that's I guess to some degree, an unknown. But that situation is pretty much continues at it's been.

We also are getting some business from Clear Channel. We're not -- it's not quite so clear to us how much they are giving to competitors. But we are getting a nice chunk of business from Clear Channel. And we're pleased about that. And also there's some, call maybe the tier 2 billboard companies, that the next tier of companies that are major regional players, and we're seeing some nice business from them, as well. And we feel we're very well positioned. These are -- we refer to these as mission critical applications because these displays are generating revenue for these companies. And so it's important that they be operating at all times, and so we provide the services that are geared to support these type of applications and help ensure that this -- these displays are running and are generating revenue for them 24/7.

Are you seeing any orders out of Europe in billboards?

We got-- we've gotten one nice order in the UK for a billboard application.

One installation.

One installation. Nothing dramatic.

Yes, we haven't seen the -- sort of the trend like we've seen in the U.S. yet. But certainly it seems like there's an opportunity for that in the future.

Okay. Thanks. I'll jump back in.

Thanks, Jim. Appreciate your questions.

[Ash Shea], Oppenheimer Funds.

I guess my first question would be, what do you think the long-term margins are in the business? Has that changed at all with the billboard business? And then with the additional consultants, et cetera? Then take it from there.

Yes, the long-term, I assume you're talking gross profit margins.

That's correct, correct.

I think there's room for those to -- for those margins to increase from where they are at. The timing in all that is really the big question. And by timing, it's getting through all the ramp-up and getting through some of this lean initiative. I would imagine that, this is just a rough guidance, for us to exceed 30% in Q4 may be tough. But it's -- at this point it's too early to really tell. What we did see is that overall margin on order bookings for our large contract business is up about a half a point from last quarter.

Okay.

And so we're seeing some improvements. But we've still got to get behind us all this capacity ramp-up and process improvements. So I think the trend is to go up, but the rate at which it goes up is what's tough to predict.

What are the margins on the billboard business? And where do you think they end up relative to the corporate average over time?

Generally speaking on the billboard business, what we are saying is that that fits within our model for our large contract business. We're not discussing the margins for any particular niche overall, but it fits within our corporate model.

And as we exit the year, I mean, if you do the 450 million that we're talking about here, what percentage of those revenues do you think will be billboards? I thought JIm was just having [inaudible] you guys for a while.

Thanks for jumping in there. I appreciate it. Maybe just to start with, what's in commercial, Bill.

Yes, as Jim mentioned before, commercial was 30, roughly 36% of our total business. And for the quarter, the billboard business might have been, oh, not quite a third of that business.

Okay.

For the quarter.

Third of commercial?

Yes, yes. On a go-forward basis, I think that potentially that billboard -- the percent of the billboard business could increase from the levels in the first half of the year.

I think it is important, just again, to put that in perspective. Certainly, as we said earlier [inaudible] it's very exciting, and to see what's going on there and it's great for our industry. But our business overall, it's still a relatively small part of our overall business. And I think the thing that we're very positive about, is the other parts of our business are also doing very well.

No question about that.

Yees, and I would hope that we're in a position where the -- as we evolve into the third quarter, that the capacity constraints for the billboard business diminish significantly for those customers.

Now, you said lead times had extended out too far. I mean, what were the lead times then, and what are they now?

Again, it does vary by market and by product. For example, if you go down to the high school market, where a lot of standard product, we were getting out into the beyond eight weeks lead time, which is just too long. And some of our commercial -- standard commercial products we were out beyond eight weeks, as well. So those are just some examples. And some of the bigger projects we were getting in the 90 to 120 days, and that just often isn't fast enough response time. So out in that range is kind of -- is getting too long.

What are they now?

Well, we're working on bringing them down. We've maybe gained a couple weeks on lead time so far. If you notice, we brought our backlog down. If you factor out the addition of the backlog from the Hoffend acquisition, we brought our backlog down about 10 million out of our core business. So it's still a significant backlog, and so you kind of can get an idea of how that would affect lead times. But it's maybe gained a couple weeks on it.

What type of efficiencies can you gain here over time? And what type of -- where can you bring the lead times down to? I mean, the lower they are, the better it is, within reason, obviously.

Again, different markets is -- on standard product, we would like to get down to maybe, say, be able to consistently be at four weeks, for example. That would often be -- that would be very good. Of course, on larger products, that's -- there, eight weeks is not bad, if you get into the larger products. That would be actually very good. So larger products, we're talking more getting them down under 90 days, perhaps.

Is there a way to quantify the amount of business that was delayed or lost at all in the quarter? Or not in the quarter, but in the bookings?

Yes, I guess first of all, we don't think we lost a lot of business. But certainly, we expect we lost some, and we probably know we lost some, not a huge amount. But, again, we don't have a good way to collect all that. And sometimes -- if you lose an order, you don't always know exactly why. You get different stories back. But, you're never sure exactly what the reason is. But certainly, in some cases, lead time could be a factor.

I will add that, overall, as we're coming out of this, I don't think that what we've been through has any long-term implications on us at this point, the way we're seeing it.

Okay. All right. Thank you very much.

Thanks for the questions.

Steve [Autobrendo], Sidoti & Co.

I just have one quick question. Given the strong demand in the sports market, what kind of pricing power are you guys seeing? Or I guess, can you talk a little bit about that? Any ability to possibly raise prices, or at least maintain them?

Well, it's still a very competitive environment. There are always competitors in on the mix, so we have to be -- we have to be price competitive. In some cases, if we're a preferred vendor, we would get some consideration on pricing, but there's always limitations to that. So our philosophy on that is we have to be the -- provide the best product and services at the most competitive pricing.

Steve, keep in mind one of the things I said before. We did see a little uptick in the margin rate at time of order booking. And so it's hard to know what that is ultimately attributable to. But, we're working hard at maximizing selling prices, clearly.

Okay. Thank you.

I'll just add to that, again, it's important -- that's why we have this emphasis on lean. We can't quantify -- you start out a lean initiative, it's really looking for ways just continually improving the process. And it's difficult to quantify what can be done until you get into it. But we know we have a lot of opportunities, in terms of reducing costs and just streamlining the flow through our manufacturing, different manufacturing areas. And might just review, one of the things we're doing in our manufacturing, we used to look at our manufacturing as really, think of it as one large factory with different areas of final assembly. And within the last year, we're evolving to have essentially six different manufacturing plants, and give each of those plants autonomy and do the planning and scheduling for each of those plants uniquely, so that we can really focus in. And that approach is what's allowed us to dial in and really streamline the flow through each of those areas. And that's why we're utilizing the professional services to kind of help us through that process, and we have to think differently. I know we're -- internally we are saying, well, how are we going to structure ourself to be a $1 billion Company? That's how we look at it. And you have to step back and kind of look at the whole thing, and see how you can optimize it. So we're putting a lot of effort into that, and investing both time and money in that direction.

Jim Ricchiuti, Needham & Company.

If you look at the year as a whole in getting to that $450 million target, are there any issues that, from the standpoint of component availability, that we need to be at all concerned with? I mean just in general, are you seeing any tightness for any of your raw materials or components?

Yes, Jim, there's none that we consider a real constraint. There's always some certain components where lead times will go out on you, especially in the electronics area, that will happen from time to time. And that's just a case of working closely with vendors. And certainly, we do stay close to our primary vendors, work very closely with them. And at this point we don't see supply chain as being a limiting factor for us.

Okay, and on the expense side, Bill, you alluded to the professional fees that you're seeing. Is that something that's kind of an ongoing cost now? Or do you see that tapering down a little bit? I think you alluded about 0.5 million.

Well, it was a couple hundred million to $300 million. That was -- I identified that more as a one-time cost related to our tax issues, that the accountants solved during the quarter.

Okay.

In terms of G&A overall, what I'll say is the biggest area of growth is three areas, our per sale department infrastructure trying to gear up for the growth of the Company, our IT infrastructure because we've got some major initiatives going on, and then the international business. International, you've got to gear up G&A for every country, in short. And so those three things are really, as you can tell, G&A is really the biggest growth area within our operating expenses, and it's primarily because of those three areas.

And do you feel that you've reached a level now that, where we won't see quite the kind of increases we have? It sounds like it will still tick up a bit -- .

It will still tick up, but that -- it's tough to say. I think it will tick up, but I don't think it will take, if I recall right, it's been a $1 million jump in two quarters or something like that . And we're not going to see that kind of growth rate, I wouldn't expect.

Okay, and I wonder if you could talk about, Jim, maybe I'll put this question to you. What you're seeing in the balance of the commercial business? As you say, a lot of attention is focused on billboards, but what's the outlook like in some of the national account business? And you talked in the past about the gaming market and good activity in Macao. Wonder if you could just talk about the balance of commercial for a second?

The rest of commercial is doing extremely well for us. And a couple factors there, in terms of our ability to continue to grow that, one is getting more sales people out covering geographies that we're not covering as thoroughly at the moment. And then the other is, in just our capacity. We've been kind of maxed out on our capacity, even of course again, our capacity's been continually ramping up. It's not been flat. But we've been kind of producing at our capacity. And so, we're continually looking at ways, and are finding ways, to increase that capacity. One of the things we mentioned in our release were the -- and I might just comment on this, Brookings is a town of about 20,000 population. And about half of that is the college students here. And certainly, we employ a fair number of college students here on a part-time basis. We have over 600 college students working at Daktronics. But in general, the manufacturing labor force in Brookings is pretty well fully employed. And so we do see that that's a consideration for our projected rate of growth here in Brookings. And of course, we're opening the facility in Sioux Falls, and that's a city of about 10 times as big. And the -- we also continue to look at other geographies where we might set up a plant. And we actually have some opportunities we're exploring at this time. So that is a consideration in terms of supply, the labor supply here is an issue.

Okay. Other geographies, you mean in addition to Sioux Falls?

Right.

Okay. And just, Bill, I'll put this question to you. The growth rate that you're now targeting for the full year versus where you had been going into the quarter, is that upside being driven primarily by the uptick, the increased activity in the commercial business?

Yes, and you know in terms of one of the big factors that changed, first, I don't know if you remember back to last earnings release, we wanted to add more clarity, clearly, to where we saw our growth rate for the year. But I think one of the things that's happened this last quarter is the commercial market and in particular, the expectations of future growth in the billboard market. So that's probably the biggest. There's other factors, too, but that's probably the biggest factor.

Okay, and just lastly, on the sports market, what does the pipeline look like as you look out at -- for new orders? And I'm thinking more in terms of the university and professional markets? What does the pipeline look like?

The pipeline is still strong. Historically, Q2 is actually our lowest quarter for orders, actually. Q3 being our lowest quarter for sales. And of course in sports, the baseball season is what's up ahead of us next. And so how we do in Q4 will depend on how successful we are in booking orders for the baseball season. And it's always an unknown till you get there. But there's a lot of -- there are projects out there that are being contemplated, in some cases big projects will be postponed, so there's always uncertainty in that. But there is a decent pipeline there.

Jim, we're not-- our growth rate on order in the sports business was up over 45%.

That's year-to-date?

Yes, year-to-date, and we don't see that the market is growing at that rate. That's kind of the lumpiness factor to some degree in there.

Okay. Is it also-- ?

Although the pipeline looks good, I don't think we're projecting long-term growth rates to continue at this level.

Sure.

I would agree with that.

Okay. Is there any way you guys can give us a flavor as to how much of an increase you're seeing in your average project size in the sports market? Because it sounds like that's also been a contributing factor to what's going on?

Yes, Jim, I don't have that off -- right here. Now that you bring that up, I wish I had. I just -- I don't have that at this point. Our average transaction size.

But is it -- ?

That's within the sports market.

Is it fair to say that it is going up, it has gone up?

I would say certainly that we see -- yes, I would say generally that's a true statement. Certainly, we see more projects that are up in the $1 million range than we did previously.

Okay.

I would say generally that's true.

Okay. Thank you.

So we're going to have to -- going to bring this to a close here. But maybe just kind of make a couple of comments here. One is that as Bill mentioned, our business has -- because we work with a lot of large projects, it is somewhat lumpy. And one quarter at Daktronics does not make a trend. And last quarter, we actually missed our numbers by just a little bit. And I think just always concerned maybe there's a little over-reaction in the market. So this was an exceptionally great quarter for us. So the challenge is always to communicate what is the underlying long-term here, and certainly we see a lot of positive things going forward here. But communicate that this was an exceptional quarter for us, with a lot of things that came together, and a lot of people just really going above and beyond to achieve what we did here. Again, I appreciate that. I would mention that the -- we did make the Forbes 200 list of small cap companies. That's in the October 15th issue of Forbes, if you haven't seen that. So we're pleased to get that recognition. That takes into account five-year -- and looks at a five-year performance on earnings per share growth, sales growth, return on equity, and some other things. So it was nice to be acknowledged in that regard. And again, I would like to thank all of you for being with us today. And thank all our employees for the great effort in making this happen. With that, operator, I think we'll bring her to a close.

Okay. Once again, ladies and gentlemen, this will conclude today's conference. We thank you for your participation. You may now disconnect .