Daktronics Inc (DAKT) 2008 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Daktronics fiscal year 2008 third quarter earnings results conference call. As a reminder this conference is being recorded on Wednesday, February 13, 2008. And is available on the Company's website at www.Daktronics.com.

I would now like to turn the conference over to Mr. Bill Retterath, Chief financial Officer for Daktronics for some introductory remarks. Please go ahead sir.

Thank you. Good morning everyone. We appreciate your participation in our third quarter conference call. We would like to, as is our custom, make some preliminary comments about the quarter after which we will open it up for a limited timeframe for questions.

I would like to start by offering our disclosure cautioning investors and participants that in addition to statements of historical facts this call and our quarterly news release contains forward-looking statements reflecting our expectation 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 growth, timing, and magnitude of future orders 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 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 Chief Executive Officer.

Good morning everyone, thank you for joining us this morning. Maybe just a comment to start to put third quarter in perspective to our other quarters. Third quarter first of all is with holidays has fewer workdays so we tend to have -- so we have fewer days to ship product from the plant. And also with the seasonality of our sports market it tends to be our lightest quarter, especially in the sports area for business. On a relative basis third quarter is lighter, especially lighter than second and fourth quarters.

The results of this quarter were mixed for us overall. Revenues were above our estimates as we were functioning well on the operation side through the quarter. Our investments in lean manufacturing are delivering well for us and there's certainly more opportunity in that regard. At the same time we continue to be challenged on the cost side of the equation for several reasons, which Bill will give more color to that in a bit. Our orders were strong. We announced three large orders for new sports facilities this quarter, the Yankees, the Mets and the Indianapolis Colts. We also received a verbal order, normally we don't comment on orders that aren't gone firm yet, but this information was made public by others and so we did confirm that so that the message was consistent. That was for the University of Minnesota's new football stadium. That was just north of $9 million order.

We're very excited to be working with [JC Dacole], they're based in Paris, France, they are doing their first major rollout of digital billboards actually in the UK. As has been announced they will be installing 20 units in the UK in the next couple months. We're very excited to see activity in the billboard area in Europe. On the cost side, as we have come off the rapid growth of the past two years, again two years ago we grew top line 34%, last year 40%, this year we're so far more typical rate and we have been challenged to adjust our cost structure growth rate as we have come into this year. However, we have been and we continue to scrutinize hiring very carefully to contain our payroll growth which is the main driver of SG&A, which is the big focus for us. One other thing we are doing is making significant investments in systems, which we need to more effectively handle our increased level of business. This will help us further on the cost side as we can streamline some business processes and just operate more efficiently with that. So again we have a strong focus on the cost side of the equation, even as we work to grow the business. With that I'll turn it over to Bill for a few comments on our numbers.

Thanks Jim. As you'll note in the press release we added in some details on sales and orders by business unit. Just a word of caution I would strongly discourage investors from projecting each business units orders and sales on a quarterly basis. It's generally a discussion that we don't think necessarily has value given the current marketplace we operate in, the timing of some of these large orders, how customers schedules can change and not only that but our own flexibility in terms of manufacturing, how we move large projects around and get them through the plant. We would encourage focus more so on the total sales and order numbers corporate-wide, and then over the long term look at the business units.

Some background on orders and sales, in the live events market we thought going into the year we could be up 10% plus on orders. Timing here will ultimately tell that, but for the year our growth in orders could still range in the live events area between 0 and 20% due to timing of some of the big orders that are out there potentially and whether we win them or not and whether they, if we are fortunate to earn that business whether they book in this quarter or the first, going into the first quarter of next fiscal year. Sales for the year are likely to be flat. But again a lot can happen. We still don't have our schedule and manufacturing locked in completely on the timing of some of these mega contracts from the last quarter. But I don't think changes there will affect the numbers materially regardless.

Also on the last conference call we talked about the potential of 14 million of orders between two contracts in this segment. One of those orders was the Indianapolis Colts, the other order that comprised was obviously less than 3 million has been put off for this season. And so we will look for that next year. I mention this only as part of the understanding the nature of changes in our top line estimates and what can affect things going into a quarter.

Also last quarter I mentioned we thought we may recognize 2 million to 3 million in revenue in the third quarter on these large mega projects. Turns out we did recognize in that range and are expecting on these mega projects somewhere in the range of 15 million to 17 million in the fourth quarter with the rest falling into fiscal '09. And beyond.

In the commercial business unit we saw sales of our Galaxy product come back as mentioned. When you combine the impact of catching up on orders from the second quarter that we had accomplished on a sequential basis from Q3 to Q4, there may not be much growth in that area and in addition when you look at what we did for the billboard business last year in the fourth quarter, may be up 10% or so year over year for the quarter. And then overall excuse me, the commercial market overall is intended to be somewhat flat to up slightly sequentially third quarter to fourth quarter.

On the international side of our business, we have got some very interesting things going on. Right now we have got a couple pending projects that we believe stand a high likelihood of booking and will contribute to revenues in the fourth quarter. These are not from orders and are actually some nice business in China and it's a holiday period over there with Chinese New Year and that's impacting it. So we have got some revenue potential there, but I would characterize it as tight right now given the timing and we still have to book the contract. But we feel pretty good whether it falls into this quarter or into Q1. We're fairly optimistic on the business.

With that covered let me move into a little bit on gross profits. Going into the third quarter we felt optimistic on gross margins as we had mentioned. They're not quite at the level we had thought. In addition the warranty issues we mentioned in the press release, we also had some inventory writedowns and some other costs that we think should help us in the fourth quarter to the extent they're not repeated obviously. Keep in mind however the impact of the large projects tend to have a downward pressure on gross margin, but our expectation is is that they help drive operating margins over the long term, which when you put the numbers together we're not at the operating margin level for the fourth quarter that we want to be at and we believe the business can over the long term operate at.

On operating expenses I wanted to go through a few items here that I think are important. Healthcare costs hit us fairly hard in the quarter and there were some other payroll related costs that were higher than expected related to bonus accruals and things like that which we adjusted. Finally, we had some impact of some sales tax, audits and higher professional fees. One thing that we're very happy with is that in the third quarter we had our lowest rate of growth of nonmanufacturing personnel and we have reduced now our rate of employee growth in the operating expense area in each of the last three quarters. So we're definitely headed in the right direction. We will start seeing more tangible progress in that area. We're going to work hard on the fourth quarter and we need to keep in mind our growth opportunities. But we think there's a chance that some of those operating expenses could stay flat sequentially and so we're excited about that.

Want to point out also that we took a hit for stock compensation expense. November is typically when we grant options and that affected the numbers for the quarter. And so we're pretty optimistic actually that we're seeing some tangible results on controlling operating expenses.

Finally, just as a wrap up, our decline in CapEx has been good to see. I'm optimistic that for the year we will finish below our expectations for CapEx that we set forth at the beginning of the year. With that I would like to turn it over to the operator for questions.

Thank you very much sir. (OPERATOR INSTRUCTIONS) We will take our first question from Mr. Jim Boyle with CL King, please go ahead.

Good morning. Bill, I'm a little confused. I'm not sure I heard the digital billboard color correctly. If you could give us that detail again on how it was in fiscal Q3 and fiscal Q4 year on year?

Sure. In Q3 last year if you remember our sales actually went down because of the winter months. It was a little bit of a surprise a year ago at this time. So it was at about oh, roughly at about 9 million. This current past quarter was just over 20 million in sales.

Okay. And how about fiscal Q4 expectations.

Q4 expectations are to be up just slightly sequentially from Q3. Okay. And from Q4 a year ago it should be up over what it was Q4 a year ago.

What was it a year ago?

Just slightly from Q4 a year ago, it was roughly about 19 million a year ago. I'm sorry, Jim, I said 9 million for Q3 last year, it was a little bit higher than that actually in Q3, it was about 15 million in Q3 last year.

And is the JC Dacole likely to be in fiscal Q4 of this year.

JC Dacole, we're not putting that, it is in Q4, but we put that in our international business unit and it's not in these billboard numbers when we talk billboard we generally talk about it as part of our commercial business unit. But I should also clarify that. I've gotten some questions since that release went out. The size of that deal was actually north of 6 million. It was, it's not our typical available billboard product, I'll just throw that in. Higher resolution product. Than we typically sold in the U.S..

Okay. And on that front Jim, your two biggest digital customers CCR and Lamar have about 150,000, 155,000 domestic billboards. JC Dacole appears to have about 200,000 billboards in Europe. So it seems like your newest client has some decent potential. Given your chats with them do you think they're as he enamored with digital as the very agressive Lamar or are they closer to Clear Channel after a somewhat slower digital ramp?

Well, I think this is kind of a pilot project for them and they're, I'm sure evaluating it as far as how it works for them as a business and as an investment. So that will be a decision they will make, it's probably a question you need to ask them. But we're certainly hopeful and we're encouraged to see their interest in digital billboards and we're certainly hopeful that it will be something that will move forward.

They haven't indicated anything, it's early.

I'm sorry?

So they really haven't indicated a future potential, it's early, you said they're still evaluating.

This is a project to be evaluated, right, correct. So we're not making any presumptions of what's beyond this. We're obviously going to work very hard to support them and do everything from our point of view to make it a success.

Looking at your segment breakout it appears orders are up over 20% year on year for the first nine months of the fiscal year. Is that trend expected to continue in this potentially tough economic times?

Due to the quarter or?

Jim, we missed the first part of your question. You're asking is the 20% year-to-date?

Yes, apparently orders are up over 20% year over year fiscal year-to-date, is that trend expected to continue?

So for how long into the future. We haven't put together our numbers for next fiscal year yet. We're in the planning process right now. By next quarter we will have some more visibility into the next year, but we're just going through that process now. I think as we mentioned in the release there's, I think we could be up 20% at the end of the year for the year, but there's the uncertainty of when some orders might book. So, we could be up 20% for the year, that's certainly within the realm of possibility. Next year we don't really have numbers for that at this point.

Jim, also, to clarify, historically what we have said is the commercial market we believe as we look from a broad based view that that can be a 20% plus growth marketplace. We look at our schools and theaters and our transportation, we have said long term that's a 15% plus business. International has actually got some nice opportunities up there. I think there's a little bit more volatility in projecting what that will be, but that could be some very nice growth, it's hard to pick a number. Finally on the live events business unit, we have got to, that's the one area for growth next year that I'd rather get our planning process completed before I make estimates on that only because of these impact of these big deals where we think those would shake up. So that would be the one market I'd just reserve comment on until we get a planning process done with.

Okay. But prior to that planning process finishing, given the tough economic times have you been seeing any cancellations of size?

At this point we don't have anything, that's a question we get quite a bit actually, once the word recession is out there a lot. We don't, we haven't seen any real evidence that that's affecting our business at this point. Now, to say that it could never, depending on what happened to the economy, to say never is -- but we have always felt our business is somewhat at least recession resistant. Obviously large sports facilities are in planning for many years and people aren't going to change their mind on finishing out that plan just because the economy takes a dip. So advertising I think with our Galaxy displays even when the economy is down a little bit people still have to advertise. We think the -- looking at our displays as an advertising media it's a very cost effective way to advertise and there are alternatives if a business, say mainstream business or any business that's doing on premise advertising, the alternatives for them to reduce their advertising budget and still have a display out there. It's an alternative to newspaper and radio and television and other things. So I think it may be a very attractive solution during a little tougher times is how I look at it.

Okay. Finally Jim, you had mentioned in the past on the focus on cost control that you had wanted to get back towards 10% operating income margins in the fiscal year not apparently hit it, but get close to it.

Right.

At this point would you say you're going to be above or below 9% operating income margins for the year?

Oh, I think Jim if you put this through our operating margin or our earnings guidance here it's going to be below. For the year as a whole.

Okay.

Unless some upside happens.

Okay, thank you.

We're working hard on that and I tell you the real positive thing is to see our employment growth numbers shrinking each quarter, this is third quarter in a row and that will long term help us drive that.

Well, prior to your results and guidance the Street consensus had you at 8.6% operating income margins for the year.

Yes.

Okay, thank you.

(OPERATOR INSTRUCTIONS) We will take our next question from Michael Friedman with Noble Financial, please go ahead.

Hi guys. Bill, housekeeping issue, for the quarter when you, what kind of tax rate should we have used when you take out the one time gain, what would the EPS look like?

That one time gain on a random media, it has the same effective rate so it doesn't change what our year-to-date effective rate is. So I think you look at year-to-date and extrapolate that into the next quarter.

But if you were to factor that out in the third quarter what would your EPS look like on a normalized basis minus the gain?

Oh, ask another question. I'd have to compute that Michael, you just add back the $2.8 million after tax, so I can compute that if you go on to the next question.

Okay. What about the backlog, do you have a sense for the fourth quarter, whether you would be up sequentially over the third? You seemed to hedge on that, but given where we are in the quarter any sense, can you give us a little more clarity?

Yes, I think if things go as well as we can expect and timing holds true backlog could grow. There's a few deals out there. Looking at backlog Michael, the exact date at the end of the year I'd rather focus in have we verbally won these deals. Timing is mentioned with these other big contracts we had originally thought these big contracts would actually be booked in our second quarter, it wasn't, gosh, until January that one of them actually got booked. So it's so hard to predict timing. If everything went perfectly I'd like to see it up but I think we have a good chance for it to be up. But I can't control the timing, I just want to know we're going to get the business. If it falls into May we're just fine with that. But we will add color with that whether backlog is real high or low at the time.

Okay. And can you give us an estimate as to the size of the addressable market in dollars? Do you guys have an idea what you're really going after?

On these mega projects?

Just all your addressable markets, everything, or if you could break it out by segment that would be fine.

We don't really have a number for that. I think we continue to be pleasantly surprised with the sports world, the interest in a larger, more capable systems, adding more pizzazz to the entertainment experience and the acceptance of color displays for our advertising at the retail level as well as the outdoor third party advertising level. So as part of our planning process we're going to try to calibrate that a little better at least in some areas. But I guess what we have tried to zero in more is what do we feel the growth rate is and that's kind of what we've -- that's a challenge in itself to get that number calibrated. But we are trying to do some work more along the line of your original question as we have an idea of that we can share it, but it would be a rough estimate in any case, because it's tough to get it measured and project out into the future of an industry that is as dynamic as ours is right now. I can see a lot of people who make attempts at that, but I question the validity of a lot of their assumptions.

You mentioned growth for the industry, what kind of growth do you expect for the industry over the next five years, do you have a sense?

Well, again as Bill mentioned earlier, this is as much based on kind of our historical trends, and we ask is there anything fundamentally, a fundamental reason this would be different and that is at this point we see that commercial could have maybe a little longer term, a little higher growth rate longer term and maybe up in that 20% range. Sports at this point maybe it's more in the 15% range. That's just an estimate at this point kind of as much of probably a gut feel as anything based on experience and just the interest we see in our products out there.

Okay. And lastly, is there any new players on the HD display market, as you see more competition in that area?

Nothing really materially different, no. There's nothing significantly different there.

Okay, great, thank you.

Michael, the random rate again, after tax is about $0.045.

Great, thanks.

Moving on we will take our next question from Jim Ricchiuti with Needham & Co., please go ahead.

Hi, thank you, good morning.

Hi Jim.

Bill, a question on gross margins, you talk a little bit about Q4 gross margins given the mix of business seeing some limited pressure and I'm not sure if, are you using your gross margin in Q3 ex the warranty cost, because ex warranty cost it looks like your gross margins were around 30.5, 30.6%. I'm not sure how we should think about gross margins in Q4, whether we should use the actual reported gross margin or back out some of this stuff?

Good question. I think that you should take the Q3 reported margin and just, we think we could be down slightly, not a full point.

Okay.

It's just down a little, but we have been down actually, our business and our gross margins have been really doing well to the extent we can control things like warranty expense and that kind of stuff. So right now I'd say where we are with our margin expectations, we have always said it could be that number plus or minus 1 percentage point. I don't want to get too optimistic. The other thing that's going on is our manufacturing schedule when I was talking about that, depending on some of these international projects I mentioned, we may bring in some projects and move out some others. And we will know that here with the next month. And that can impact some of these big projects, can really impact your margins. So overall, again to answer your question is, down from the reported one slightly. But we at the same time remain optimistic on them.

Now you talked about some operating expense items lines maybe being flat sequentially. I'm still frankly trying to get my arms around your selling expense. It was up it looks like 8% sequentially, your revenue down 10%, should we begin to see the selling expense begin to level off or is that just a function of you guys spending more to pursue some of these larger deals?

No, I'll tell you my internal goal here is that we can take SG&A going sequentially Q3 to Q4 and hold it flat. That would, that to me is my goal and maybe even down to some degree. But there are things like these health care costs, we're self insured, man I wish -- it cost us a lot more over the long term to get fixed price, over the long term it makes no sense to change it to make it more predictable. But I think now, and the clear evidence of this is if you look at our rate of employee growth the last three quarters, in the third quarter it is half the level as a percent growth of nonmanufacturing employees as it was in the first quarter. It's at half the level. And so we have done a lot to scale it back. I can just say in the selling part of SG&A our payroll costs there did mirror the head count growth. So we're headed, I know we're headed in the right direct. I really felt good when I saw that Q3 was down from Q2 and previously Q2 was down from Q1, we just got to keep headed that direction.

Okay. Bill, it looks like orders, by my calculation are around 137 million in the quarter, is that--?

Yes. They're in the press release the orders for the quarter.

Okay, great, that's right. Were there any large deals that fell after the quarter end that were not in the bookings backlog number?

Well, Jim mentioned the University of Minnesota.

Right. Besides that $9 million.

You're asking did orders slip compared to what we thought going into the quarter.

Yes, just wondering if after the quarter ended, besides the University of Minnesota were there any other large orders that came in?

Not really at this point.

And I wonder if you could -- last question, but I wonder if you could just spend a little bit of time talking about the pipeline. It sounds like you have some opportunities on the international front, I wonder if you could add a little bit more color to what types of deals you're talking about in China. Then maybe a broader question with respect to the live events business and the sports market in particular, we have seen the awards of a number of large projects and I think people are still trying to get a sense as to what's out there. Is there a healthy upgrade business that you see, was there still a fair amount of new construction both at the professional and college level? Thank you.

International, first question, there's -- without getting too specific about it, there's -- in addition to the actual Olympic venues in China there's some other things being done just kind of ancillary improvements. So there's some projects going on there. And there's one in particular that's a significant project that we essentially have a verbal on and things are a little different in China, so we're not taking that one to the bank yet. But it has, we expect to find actually Chinese New Year holiday is officially over, they're back in work and we're back engaging discussions with them. If we're successful it has to happen here fairly quickly because actually the delivery on it is fairly quick, which is a good thing because it would become revenue fairly quick. Maybe a little in Q4, part in Q4 and part in Q1.

So one significant project in particular there, there are some other projects, and we're seeing some interest in the outdoor and the billboard side of things. It looks like some things could come there. But time will tell and I think certainly a few months from now we will know more about that, and have more specifics. But on the sports side, there certainly is a lot of interest in upgrading, interesting going to high definition is that's for me it's -- certainly all the division one level universities as well as professional sports. So there's, we see a lot of opportunity there. One of the things we're working on through the planning process is to get a little better handle on what the status is of the sports universe out there and that will be helpful to us as well as we try to calibrate that a little better. Certainly there's a lot of interest out there. The fact that it's big projects it makes it a little, as you know a little bit lumpy. There are a lot, there are a number of new construction projects coming down the pike yet. The sports business journal actually has whose listed. I guess that's a list we could provide.

Off the internet, they just reupdated their whole facilities construction renovation study and so.

There are quite a few in the pipeline. In other words, those -- the companies that are involved in the stadium design and construction management, they're booked here for the next few years pretty heavy.

So still even with the number of awards that we have seen it sounds like there's still a very strong pipeline of new construction as well as upgrade business out there which if things play in your favor potentially the sports growth rate could be in excess of 15%.

It's possible. Again that's not unreasonable that it could happen, it's just the way these things flow it can be a little jerky.

Thank you.

Moving on ladies and gentlemen, we will take our next question from Steve Dyer with Craig-Hallum.

Morning guys.

Morning.

I may have missed the last question. Is the University of Minnesota in your backlog, I know normally you wait for a deal to be official before putting it--?

It was not in our backlog at the end of the quarter.

Okay. When would you expect something official with that, is that something you expect within this next quarter?

Yes.

Okay.

Imminently is what our expectation is.

Okay.

But keep in mind Steve, that, -- just keep in mind that we believe that on some of these other big projects as well and the point is we're in a good position. If it books now this quarter that's great. There's some things that work out that go into next quarter. We're not as concerned about that as long as we know it's our business and it doesn't represent declines in the likelihood of us booking it.

And the revenue for that is out a ways anyway, so even if it, for some reason, which we don't expect, it didn't book until the beginning of next quarter it wouldn't affect when we would get the revenue coming in on it since it's new construction.

Okay. Then jumping over to the digital billboard side, is your expectation that you maintained market share at both Clear Channel and Lamar in the quarter?

Yes, to the best of our knowledge.

Okay. Any color you can give as to sort of the rate of growth for both of those customers? It seems a little bit like Lamar kind of hit the 325 to 350 a year and that seems to be a comfortable run rate for them. Do you -- I mean is it your expectation that that grows beyond that or is that kind of what we should expect?

I don't know that I can add any color to that. I think that's probably a good question to ask them actually what their expectation is. Again, honestly I just don't have an answer on that. Part of our planning process we're going through is to gather that kind of information going forward here, what the expectations might be. But for the most part we like to let them comment to the world about what their expectations are.

Okay. And then looking out beyond this next quarter where you think margins will be down a little bit, what's a -- how should we think about gross margins in a time when you have a higher degree of sports business? It's always kind of hung right in that 30% area, does that feel too aggressive given the larger mix of these mega deals?

Oh, you know what, I tell you that's a very tough question because of where the sports are going and, that's part of our planning process. One of the things that is key to understanding that is what is the volume in the sports business for that we will see Q1 and Q2 that I call more our routine that our sub $2 million projects and how big that is. If you look at the last two years there was a great deal of volatility. In fiscal '07 it was a tremendous volume and haven't had quite that volume if you remember in '07 I think through the first half of the year somewhere up 40% in that area. So right now in terms of going through our planning process, our goal is to lock that in and I just, it's too hard to, for us to make comment on that at this point. If gross margins do go down maybe that lower business will not be as great as we would expect. So it's just too hard to foresee at this point.

Okay. And then how should we think about operating expense growth going forward? I mean, your revenue was up this quarter 10% year over year and your operating expenses were up 25% year over year. Is that a number that should go up kind of a small amount each quarter? I know it's been a continued theme that we're going to stop hiring and so forth, but it sort of keeps I think growing faster than anybody has expected. How should we think about that next year.

Oh, I think next year we have got to see significant leverage. We have got to--.

We're committed to getting that, long term the cost line has to grow slower than the revenue line. So that's, that's a big focus for us, to get that to happen.

Okay. Then last question Bill you had mentioned stock comp was abnormally high in the quarter. What was that amount and how big is it relative to the other quarters?

Yes, not that it was abnormally high, it's just we granted options during the quarter. And so our expense went up. I think the impact in selling was about 100,000. I'll look up the total. It is in our 10-Q that we should file quickly. Let me get the total number here and I'll take the next question and answer it Steve when I get in between questions.

Okay, thanks.

Ladies and gentlemen, moving on, we will take our next question from [Craig Lattner] with Elm Ridge Capital Management, please go ahead.

Hi guys. Could you just talk about the competitive environment at Lamar. Has anything changed, have they split the businesses by posters and billboards, is there anything going on there?

Nothing has really changed here in the last -- just recently. Still two major vendors, Daktronics and YESCO and it's kind of been sorted out as the smaller units are done by YESCO, and the larger units being done by Daktronics is kind of how it's evolved. So I think that's at least the direction for the time being.

Has the order flow between the large and the small shifted at all?

I don't know how to answer that. I think, we're still seeing order flow from Lamar and I don't have a sense of what the ratio is I guess, so I can't say how -- if it's shifted, I can just say that we're still seeing nice order flow from Lamar.

Okay. But the competitive pricing that went on in the poster business, that hasn't spilled over to the large boards yet?

Pricing is very competitive and will remain competitive in the future. I mean, it's a competitive, competitive situation, obviously Lamar has given us a nice amount of business, they expect us to give them pricing that reflects the level of business they're given, them. We are continually working to take cost out of our product and also the cost out of the installation process for them. And we have made great progress along that line. So that's an ongoing effort So yes, it's a very competitive pricing situation.

Sure. My understanding was that that poster business got a little out of hand, I was just wondering if it localized.

Yes, I think there was probably some real aggressive pricing there on the poster size. We will take one more question here.

Thank you very much sir.

Thank you.

Our next question comes from Steve Altebrando with Sidoti & Company, please go ahead.

Hi guys, how are you.

Good.

Hi Steve.

You sound pretty optimistic that you're reigning costs in here, yet on the other hand the guidance you're providing for the fourth quarter it just looks like the margin problems actually kind of getting worse through this quarter and next quarter as well. I guess what kind of conviction do you have that you're going to be able to improve that going forward?

Well, one thing as mentioned we are working on some systems. There are some areas that we have, that we're not operating as efficiently as we need to. And so there are some underlying factors that are -- we have to address to get really where we want to be on that. But it's kind of a shifted gears, after two years of growing the rate we did to kind of shift down to the growth rate we have and I think we have accomplished that. We have to do it, it's as simple as that, we're committed to doing it. We don't really have a choice.

Then Bill I think you had previously said CapEx would be somewhere around $50 million. Is it realistic now to be more like $40 million?

I think it will be a little bit higher than $40 million, somewhere in that range ultimately it depends on when some projects fall in during this quarter. There are some things out there. I think it should be in excess of 40 though.

Okay. Then do you have a break down of revenue by segment in the quarter?

That is in the last page of the press release.

Okay. I think that's generally it, okay, thanks guys.

Thanks. Well, thank you everyone for your question this morning and operator, thank you for your service today. We will close it off.

You're very welcome sir. Ladies and gentlemen that does conclude our presentation for this morning. We thank you very much for your participation. You may now disconnect. Have a great day.