Daktronics Inc (DAKT) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Daktronics fourth quarter and fiscal year 2008 earnings results conference call. As a reminder, this conference is being recorded Wednesday, May 28, 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 fiscal year-end conference call. We'd like to, as is our custom make some preliminary comments about the quarter and the fiscal year and forward-looking statements, after which we will open it for a limited time frame for questions. I'd like to start by offering our disclosure, cautioning investors and participants that in addition to statements of historical facts, this call and our 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. Market 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'd like to turn it over to Jim Morgan our Chief Executive Officer.

Thanks, Bill. Good morning, everyone. Thank you for joining us this morning. As we wrap up fiscal 2008 and embark on 2009, I'd like the take a minute to provide some perspective on what we've accomplished here in the last few years and where we are heading. It's note worthy, that in the last three years, we have more than doubled our sales and to maybe put that another way, since the end of fiscal 2005 we have grown more additional revenues then we have grown in all of our 36 year history up to that point. These have been three years of dramatic change for us as a company.

As we looked ahead three years ago, we realize that we had to make some significant changes in how we were going about some things, especially on the operations side. The needed changes revolved around Manufacturing but product development is intricately involved in with the ability of Manufacturing to perform and to get Manufacturing to perform we also needed to enhance the support capabilities from our information systems and finance as well. As we look back today, the changes in our Manufacturing and our product development, from then until now are indeed, dramatic. We made great progress on our lean Manufacturing journey and this is a journey that is ongoing as we know we can always find more ways to improve.

We invested in consultants; we have brought on key people in our Quality engineering or Manufacturing engineering and Materials management functions to improve our Manufacturing processes, and we continue to add in a few key roles that we still need to fill. We also made significant CapEx investments in buildings and equipment to increase our capacity. Over that time, we have opened two factories outside Brookings, both happening to be at our commercial business, and we took initial steps towards the manufacturer in China. So this off-loaded work out of our Brookings facility so we can handle more of our other business here so this was a necessary step for us to keep growing, and with bringing on two new plants like this, utilization is initially lower.

So this year we expect to see better utilization in all of our plans as we grow our revenues in our existing facilities and this should have a positive effect on our margin, offsetting some anticipated price declines and Bill will talk a little more about gross margins. However, the results of this kind of effort don't significantly boost the bottom line right away. These are long-term investments. These are investments in our future and like I said, will add to our fixed costs. These costs will be offset as we go forward by increased efficiencies and overall throughput in Manufacturing in the existing facilities. One of our goals is to spend proportionately less on [V motor] going forward by better utilization of our facilities which we are already seeing.

We kicked off another important initiative this last quarter to substantially enhance our sales and operations planning systems. This is the next significant step in the development of our capabilities to better understand and to better manage the correlation between the unit capabilities of Manufacturing and the corresponding financial performance and to implement more sophisticated tools that can help us manage the peaks and valleys of Manufacturing which are inherent in our business, as well as improve planning for future growth. Again, we are investing in consulting to help us accomplish this. This effort will be complimentary to our other efforts that we maintain to our lean Manufacturing initiative and we expect it will bring even more visibility to opportunities for efficiencies in our Manufacturing operations.

A relatively new area of focus for efficiency is our Field Service organization, as well as the corporate functions that support the Field Service efforts. As we announced yesterday, we will be consolidating our Field Services staffing to one organization and that will allow us to develop more flexibility in our Field Technicians and serve our customers more cost effectively. People who were in dual sales and service roles will now focus in one role or the other and we will also be reviewing our network of offices and consolidating where appropriate. During the last few months, we did, in fact, close a couple of offices and we did consolidate those activities with other offices.

In addition to the restructuring, we are phasing in a new enterprisewise softer system, exclusively for managing our services business and will start phasing that in this quarter. And this will help us better manage all aspects of our service business including personal, utilization, and inventory. It's a quite comprehensive system and it will be phased-in in stages over the course of the year, but we hope to be seeing some of the financial benefits of this in the second half of the year.

Bill will talk a little more about the effects of these changes on our cost structure. With that I will turn it over to Bill to discuss the financials.

Thanks Jim, I want to run through a few things with more of a focus on the future. As Jim noted, we made great strides in both capacity and efficiency over the past couple of years. We are starting to see improvements in our Manufacturing direct labor efficiencies and overall the fixed costs including facility and indirect labor continue to offset these savings. We expect to see it turnaround more as we move into the second half of fiscal 2009. Over the long-term as revenues grow this investment in indirect labor will drive down our direct labor, our inventory and other costs for net savings, we think it will be significant.

Next, I want to focus on the rates of growth for our different business units. As announced, we expect overall sales growth to be in excess of 20%. We think that we could grow backlog for the year, meaning that order growth should out pace sales. We think that our live events business unit could see sales growth in excess of 20%. It's important to note; however, there's approximately $80 million of potential orders out there in the large professional and college sports business that are exceeding-- each of which would exceed $80 million that could convert to somewhere around $50 million plus of sales this year. We are obviously not counting on the whole amount in our assumptions as that would not be realistic. So like last year, these large orders are very important to us in that business unit. This estimate for sales includes 20 plus million in sales on a recently awarded large order in the professional sports venue that we would rather not name that we still need to execute the contract on. This overall order volume and sales volume for next-- for fiscal year '09 compares to approximately $50 million of orders that is were in excess of the $8 million mark which converted to $15 million of sales for fiscal '08. So the big contract business is certainly a large driver of sales in our plans and we are well under way with projects including the Yankees, the Mets, and the Colts, among others. And you can also conclude from these estimates that we think that business and contracts less than $8 million level will also be growing.

Moving on to forecast for our commercial business unit. We are expecting sales growth there, also of more than 20%, again, with orders growing slightly more. Over the past year there's been considerable interest on the part of competitors to enter the digital billboard marketplace. In addition, the volumes, as most of you know have been growing with some of our larger customers, some of who are willing to commit to volume levels in exchange for pricing considerations. As a result of these factors, we expect that in future quarters our gross profit levels will decrease in the digital billboard marketplace. Overall; however, we are still in good shape and are satisfied with our current position. I think we are at gross professional levels that will be sustained over the long-term, but the end result of that is that the percentage increase in gross profit dollars in fiscal '09 compared to fiscal '08, will be less than the percentage increase in sales which does have an impact on your operating margins.

The Galaxy business within the commercial market, although growing at rates less than we expected is still a growth area and one we continue to be optimistic on over the long-term, just not at the levels we were thinking three-plus months ago. In our Transportation, and Schools and Theaters business we continue to expect that our long-term growth will total more than 15% per year. We have got some nice innovative initiatives going on with video products in High Schools and we could see some upside from this product offering over the next few months.

In our International business unit, keep in mind, because of its dependence on large contracts and a small base, performance results can vary a lot. We booked almost $27 million in orders in Q4, which is half the business, over half the business for the year. Over the entire fiscal year '09, we see sales increasing by more than 20% and we think it can go higher than that given some of the key relationships we've developed overseas over the last fiscal year.

Moving on to gross profit, we expect gross profit declining in fiscal '09. slightly due to the things I mentioned the large sports projects, the decline in billboard margins, the investments we are making in efficiencies and Manufacturing quality and other areas, but as most of you know, gross margin is difficult to project on the large projects. Partially offsetting the decline in margins we expect lower warranty costs as a percent of sales improvements in our Field Service organizations as well as some of the other benefits in Manufacturing. So we see them declining slightly from the '08 levels. I want to talk next about the restructuring of the Field Service organization and how that affects our cost structure. As Jim mentioned, the immediate changes that those people who have been in sales and service were charging some of their costs and payroll to selling expense. That expense is going to shift out of selling expense due to the change in role, in the cost of goods sold. We don't expect this to impact net sales overall, as the people remaining in selling will focus on selling as opposed to service.

But the short story of this is approximately $800,000 of quarterly selling expenses from Q4 will transfer out of selling expense in the cost of goods sold. So all things being equal, you would see and with no increase in spending, you'd see selling expense decline $800,000, but margin-- gross profit margin picking up the difference. Our plan then over the fiscal year is to drive a lot of efficiencies in the Field Services area so that the service needs increase we can leverage the resources better and gain a lot of operating margin out of it. Should start seeing this happen in the second half of the fiscal year, potentially even into the second quarter.

Looking at SG&A for the year, we are working very hard to keep total SG&A, after the adjustment I mentioned, that 12% or less growth year-over-year and we've set obviously more aggressive target internally for our management team. On operating margins then we announced 8 to 9.5% range for the year. I want to caution you on the range for the year, with our business there is a great deal of factors that can impact this. We are in the large contract business, and lots of things, primarily in the gross profit margin that can impact that. I expect that we'll continue to talk about our range for the year as we move forward each quarter. Ultimately, our goal is to increase that and, but of more importance is evidenced by last year's free cash flow, historically has been a key driver for us and ultimately that is the main key driver in our minds.

Regarding some non-operating expenses, interest, if you note, we paid down all of our debt this last quarter which is wonderful to be back in that position. So interest expense should be declining and, also, the losses that we've incurred in equity method investments should decline. Our main equity investment right now is FuelCast, which has got some exciting things going on right now including a pending merger with another organization called [Bu Tan], which is -- manages digital networks in retail establishments and fast food networks, and we are excited about that, and, in fact, the management of FuelCast is looking to raise additional capital for the next round of deployment of displays around the contract.

Just a quick comment on taxes for the fourth quarter. Our expected rate was much better than we expected. Realized some benefits on the international side because of the level of income there, and then we ended up with lower than expected effective tax rate and some other adjustments we made in connection with our year-end analyst. Going forward we expected the 35 to 36% range. Our cash flow for the year was strong. We are pleased. We were able to pay down the bank debt, as I mentioned and expand our cash. For those of you that go back with us, three-plus years, you know how important cash has been historically for us. We are continuing to focus on CapEx and for fiscal '09 we are looking for something less than $42 million for CapEx. In addition, we think that we can liquidate a few asset that we've got, that we can monetize and potentially generate up to $5 million, so on a net basis, fixed assets look to be about the $37 million range.

As you can see in the release we did not provide quarterly guidance but has continued our practice of annual guidance. We've been evaluating this for quite sometime and given the events of this last fiscal year and quarter we felt it was the appropriate thing to do. As you know our business has volatility, do it in short of periods of time, but over the long-term the swings tend to average out and provide a smoother long-term result. Two final housekeeping items, fiscal year 2009 will be a 53-week year and therefore, in our first quarter instead of the usual 13-week period it will be a 14-week period. So in understanding the results of the first quarter, understand we have an extra week in that quarter. Generally speaking, our operating expenses therefore expand by that extra week, but we get the higher sales and gross profit dollars as well.

Finally, Jim Morgan is scheduled to present in an upcoming investor conference in Nantucket, sponsored by Wachovia and also, we are arranging a couple of investor trips over the next few weeks so we'll be out there on the road, hopefully, talking to a lot of investors about the exciting things we have going on for fiscal year '09. With that I will turn it back to the operator and open it a for questions.

(OPERATOR INSTRUCTIONS). We'll go first to Michael Friedman with Noble Financial.

Can you give us a little bit more color on what caused the year-over-year sales increase in the international business? Was there something in particular that helped out there?

A couple of things. We look at this at two fronts. We have the European front and then the Asian front. In the Europe, we have the JCDecaux project. It was a nice project that we didn't anticipate at the beginning of the year and of course we didn't have anything in that area the year before. Also we are doing some nice work with the London Organizing Committee, which is putting displays out in the city center around the U.K. And that's -- that was some nice revenue. And on the Asian side, China we had a couple of big projects that came in there -- a number of big projects. Toward the end of the year, we had a couple that came in and the $27 million that we booked in the last quarter, not all of that of course went into revenue. The CCTV, which is the China television network, they are building a rather -- it's very unique actually, building, landmark in Beijing and we are doing a display for that project, and then also a very large project for the Beijing -- one of the new Beijing rail way stations that will be completed in time for the Olympics. In fact, we are finalizing the manufacturing and shipment of that project as we speak. So those are a couple of nice big projects. But as Bill mentioned they tend to be big projects, and so there's some swings from quarter to quarter and what we see there, and we expect that there will be some swing going forward.

Can you give us a little bit more of a sense for what type of jobs are in the backlog? Bill mentioned some of the large professional sports teams. Is there anything else on the large side and can you give us any visibility on what the electronic billboard backlog looks like?

The backlog in billboard at the end of the year looks great. Our orders vastly exceeded the sales. But overall we expect that business to grow somewhere north of 20%. So I think in terms of order volume, there was a spike up in the fourth quarter. I don't think that 30-plus million should equate to 30-plus million every quarter throughout fiscal year '09. It's part of the volatility of order. Sales tend to be smoother, but we look for 20% plus in that business unit on sales for the year.

Okay. And are there other large orders that are part of that backlog? I'm trying to get a sense of the timing of some of that coming off the backlog into revenue.

The big orders in the backlog are the largest ones are still the Mets and the Yankees and some still left on the Colts. University of Minnesota, which moves to the third quarter. Beijing project still has got 5 or so million left in backlog. So there's a number of projects in backlog, Michael.

And then as far as the gross profit margin, can you delve a little bit further on that? Is there a sales mix or was there another issue?

The fiscal '07 versus '08?

The fourth quarter.

Yes. Overall in the fourth quarter we had announced that we thought marginal would go down a little bit. That's influenced a lot by these large projects, number one, number two, we still have some warranty expenses in the Q4, and then the third item that impacted us and we alluded to this earlier in our April release, that we didn't get the sales we had expected earlier in the quarter in our live events and international business unit. So we didn't get quite the absorption that we wanted which hurt us in terms of variance and things like that and manufacturing. So we had ramped up in preparation to do more in sales, and we just weren't able to get those sales at the levels we had thought. Those are the three main things.

Okay. And then lastly you sort of alluded to the fact that you expect to continue to get more operating leverage. Can you give us a sense, do you think you can get to grow that and get to the top-end of the range for this fiscal year? Do you think you can a approach 10% operating margin in fiscal 2010?

Yes, our goal and what we are all about is to drive to that Michael. Now, a lot of it is going to -- our ability to execute on that will be dependent on the ultimate sales level. Fortunately we are in a market opportunity here that has a lot of opportunities out there. They are just large projects and are always hard to predict. There's a lot of business out there and growing the top line, while keeping SG&A -- not including this year, we are also going to focus on our product development as well. Yes. If we can get those incremental sales and keep SG&A in line, we can do it. So there's plenty of opportunity and we are not at all diminished in our goal to achieve that level plus.

Great. Okay. Thank you very much.

We'll go to our next question from Jim Ricchiuti with Needham & Company.

Good morning. Regarding the $80 million of potential orders in the large project portion of the business, does that include the football stadium deal which most people are anticipating will be one of the biggest out there to date. So is that a big part of that $80 million? Can you comment on the timing of when that could be awarded formally?

Yes. It does. That $80 million does include that project. And all these projects, most of you know when we are going through the -- getting the Mets and Yankees orders, take on a life on their own. So it needs to be fairly soon because the construction project is moving right along. So I hesitate to give timing because if I would, it would be like the end of the second quarter where I thought we'd book them in October and then end up going to December or January. So I do expect in the short-term, though, because there are constraints -- instruction out on site.

Okay. I think you alluded to in the digital billboard business some long-term supply agreements that some customers have been agreed to enter into. Have you entered into any of those agreements with one or more of your customers?

Yes. We have some longer-term -- basically a buy-in type of agreement.

Okay. And just with respect to the international business, the growth that you are talking about, how significant a growth driver do you anticipate the European billboard business to be in the current fiscal year?

Well, certainly the potential is there, Jim, and I guess it's based on how things are going in the U.S. And the fact that people are seeing a good ROI on the deployment of digital billboards. We are certainly optimistic about what the opportunity is over there, and of course in the end it depends on what customers decide to do and how fast they decide to deploy. So I guess we are cautiously optimistic about the opportunity there. We think it could be significant.

And Jim, to date or at least in the past quarter it's been concentrated with one customer. Do you anticipate adding any potential any other customers in Europe?

Certainly. There are other players over there, and, yes, the short answer is yes.

Okay. Thanks very much.

Thanks Jim.

Our next question comes from Stephen Altebrando with Sidoti & Company.

Hi guys. Can you talk a little bit about how lead times are within the billboard segment?

Yes. Right now our lead times are out there. Probably a little more than we would like them to be and we are working to -- we are in the process of adding more capacity there and that's primarily our Sioux Falls operations. In fact, we are bringing on another module down there. We are moving a module line from Brookings that we were fully deploying here because we can -- we plan to deploy it more fully down in Sioux Falls. We have gone to a full-shift structure on our first module line which we operate 24 hours a day for six days a week on that and we are bringing this other module line up, and that will be operating by mid June, and then we start ramping up our shifts on that so we are in the process of ramping our capacity there and our attempt is to bring our lead time down. We are out there beyond the two-month time frame right now. Having said that, we are trying to reserve some flexibility in our schedule so we can handle urgent situation once in a while too, but generally that is where we are at.

Okay. Do you have a digital revenue number in the quarter?

Digital billboard?

Yes.

It was approximately $22 million for the quarter of revenue.

Okay. And then can you talk a little bit of some large sports projects, Mets, Yankees, the economics. I know you guys have mentioned a long-term strategic plan to kind of build a recurrent revenue and maintenance revenue. Is there any component that goes with this, a hardware type maintenance or support or anything?

Typically in our all of our business we offer service agreements and in some cases these service or requirements, there is a certain amounts of service required, but maybe a couple of three years, depends on the contract or part of the original deal so that varies as to how they are structured, but service is just a few percent of our total revenue. I don't want to, I guess, get that out of our perspective, but it's important certainly for maintaining good customer relationships and we do believe it is an area that we can grow over time and we can also as we mentioned that's an area that we can become much more cost effective and how we go about it.

Okay then this last one. In terms of the general lumpiness you see from quarter to quarter, is there any sense as to how the revenue will flow out over the next few quarters? In other words is it likely to be in the next upcoming quarter would be in the lighter side in comparisons to the next three?

Q2 is typically our biggest quarter, and as I mentioned we are doing some ramp-up and we are bringing two module lines this quarter and they both will be coming up in mid-June. So we are a little more of a ramp-up mode, yet in Q1. We have both of those functioning, not at a full around the clock mode, in terms of shifts but they will both be functioning in all of Q2, so at this point we expect Q2 to be a real strong quarter in terms of revenues.

But a little constrained in the first quarter?

Yes, just to clarify, though, remember it's a 14-week versus 13- weeks so factor that in if you would, but otherwise, yes, what Jim was saying.

The third quarter -- the challenge is we basically -- first quarter we have an extra week. The third quarter because of the holidays, essentially we have less one week. So that's the fact you have to plug in on Q3. At this point it looks like we should have -- we are expecting to have a good backlog of work to do going into Q3. It gets a little less sure as we get that far but we are optimistic about having good work to do in Q3.

One more just comes to mind. The other income loss from FuelCast, I know you said that segment is improving some, but can we assume the next couple of quarters should be the run rate or are you expecting a quicker improvement?

It's a quicker improvement actually. There's been some exciting things going on with FuelCast, with the revenue generation and the partnerships that we have there with NBC so we haven't compiled -- complete estimates. It's a relatively new business, but it wouldn't surprise me if our losses were cut in half going into the next quarter. But that might be aggressive because we are trying to deploy a lot of digital displays in that business, and there's a lot of good things going on let me leave it at that.

Do you think it's possible to break even by the end of fiscal 2009, sort of at a break even rate?

Oh, yes. Certainly from a cash flow perspective which is more of our focus. As I recall, we get there relatively .

Okay. All right. Thanks guys.

Thank you.

We'll go to our next question from Jim Boyle with CL King & Associates.

Good morning. You mentioned with the backlog on digital billboard delivers have been pushing back deliveries a bit, has it gone from 60 to 90, 60 to 120 days and how is it compared to client expectations?

We tried to maintain some flexibility and interestingly enough even though -- our lead time is probably -- it's north of eight weeks and we have it down under eight weeks prior to that. But not the same time we have a lot of finished digital billboards ready to ship and waiting for site preparation. One of the challenges in that area is the synchronization of the work on site and site work is the least predictable of all of the process of putting a digital billboard up. That is not something that we do. The customer does that. None the less, we have to coordinate closely with them on that and they give us their best estimate and we try to have the product ready to go. And if things are delayed on site, then we end up with some unfinished goods and that can be significant at times because we are running these off the line at a couple of days. So it adds up in a hurry if we have some delays there. And that is one of the reasons -- it adds to the uncertainty of how revenue hits our bottom line because we are doing a lot of those now and standard order where the revenue upon shipment as opposed to a percent complete on cost. So as far as the lead time, basically I'd say we've gone out a couple of three weeks over the last few months.

And is that within expectations of clients or are they starting to get nervous?

We have our major customers all covered. The challenge might be in some new client to make sure we can accommodate them. But we maintain some flexibility in there -- sometimes it might take 12 or more weeks for a customer to get a site ready. So it just -- we try to maintain a little flexibility so we can link up our performance to what the actual site schedule will be. So generally we are able to meet a customer expectation. That is near our focus.

Bill, the press release noted this new $30 million post digital billboard, record level versus previous $22 million. Is that all inside of the commercial orders, the $46 million, fiscal Q4 or is part of that the JCDecaux orders which are still perhaps in the international $20 million?

Good question. Thanks for asking that. That is all in the commercial business unit. It would not include European orders which is in the international unit. That being said, there weren't material orders in the billboard component of our international unit business during the quarter as I recall.

That $30 million versus the prior $22 million was that a record just in fiscal Q4 or any quarter?

Any quarter.

Okay. And as you may know, Lamar is forecasting about 40, 50% billboard installs in '08 and Clear Channel Outdoor is doing about 40% more target for this year. Do you see any acceleration in the digital billboard momentum lately, given what your clients are doing?

I guess our view is that -- the major clients have been -- they are continuing to move forward with the plans, and I don't know that there's a change in the rate of deployment, a rate of growth in the area, but certainly they continue to be quite aggressive about rolling out digital displays.

It helps when the entire state of Texas opens up on June first.

That doesn't hurt. That doesn't hurt.

No, it probably doesn't. What is typically the margin range on some of these big sports stadium projects, let's say anything north of 5, 10 million, either on gross or operating income margins?

Gross margin, Jim, they vary pretty widely, but they average is less than our corporate average. There's a great deal of range to those. When you get into those big projects, there's -- how should I say this? There's really no expectation that say, well, we average X amounts so we should be in that area. Each one is unique, in and of itself and independent animal.

And when you are doing some of these retail and fast-food digital displays, who is your two or three big competitors in that sector?

There's a number of competitors. We call our Galaxy business, which is the smaller retail on premise displays. There's a company called Watchfire. It's a domestic company. Optotec which is an Asian company. HighTec is another domestic company. All these are -- domestic companies are privately owned. These are three of the major competitors there.

Okay. And finally, as you look forward during these recessionary times which of your divisions is most economically sensitive to those challenge times, domestically?

I guess the one area that we think may be affected a little bit is what we call -- it's our Galaxy business or our reseller business, where we sell through sign companies. What we are getting from feedback from our sales people is that there's -- they don't see the business going away but decisions are being delayed. People aren't pulling the trigger quite as fast so that's delaying something. So that's one area we think may have some effect. Again it's hard to quantify because we don't hear people saying because of the economy, we are not going to do this. We haven't had those specific feed backs.

And the Galaxy/Reselling is roughly what percentage of your business?

Well, reseller business was roughly -- I think it was around $50, $55 million last fiscal year. We have one more question to take. Maybe I'll follow up and get you the exact number on how it turned out, Jim, but it was in that area.

Okay. Thank you.

Operator, we'll take one more question.

All right, and that question will come from Steve Dyer with Craig-Hallum.

Hi guys most of mine have been asked already. One question I have, just domestically on the digital billboard front, are you seeing any changes in the dynamics of competitors, anybody new, do you still feel like your market share is what it has been?

I'd say if there's anything we are seeing increased aggressiveness. Obviously, there's a number of competitors that would like to have a part of the business and they are being very aggressive to find a way to get their foot in the door. So that's probably the biggest change we see. We are still -- obviously, we work very hard to take care of our customers and we have, and we are continuing to improve our products and have a product that continues to perform and adds new features and functions. So we are aggressive as to how we move forward.

Is there anyone specific that you feel is legitimate?

I think any of those that I mentioned are all -- everybody thinks they are legitimate. So going after it. I guess it depends what they have to offer. And again sometimes -- the Tier one billboard company, there's a lot of smaller billboard companies as well as. And people make decisions for different reasons, price, low price will get an order, and so there are a lot of reasons people might decide to buy. I expect that these competitors that are going after that we'll get some business.

And then in Europe it sounds like the initial order from JCDecaux is going well. There hasn't necessarily been a follow-up order yet; is that right?

That is correct in both counts. From our perspective we believe it has gone very well. Things installed over there well, turned out well and are operating well. We are optimistic -- cautiously optimistic on what could happen there.

And then you talked a little bit about the sensitivity in the Galaxy business to the economy. Have you seen any softness in the schools and theater business given what is going on with municipal budget right now?

It's important to keep in mind -- it's a good question. High School scoreboards, for the most part are not paid for through government funds. They are typically paid for through sponsorships and advertising or maybe booster club, that sort of thing. They are not really tied to the government budget. I think it's a safe statement that almost every state in the union unless they have a lot of money coming in which is not so common in the U.S., has budget constraints as far as the education system. That's a good question.

Okay. And then it sounds like a little over $40 million in CapEx this fiscal year. Is that what you view as a maintenance number or are there still some build up going on?

There is some build out in that, and of course some of these things we have in the budget will be reviewed yet. This year -- in FY '08 we didn't spend everything we initially had in the budget and it's possible that will happen in '09 as well. For example, we are looking at a small addition to our Red Wood factory to allow us to have more flexibility over there, give us a little more height, ceiling height in the final assembly area so we can build larger displays over there. That's one thing we have. And then we have new electronics assembly equipment that will come on line through the years. So some of it is for adding capacity and then there is the maintenance mode. IT, of course, is I'd say maybe not quite a fourth of our budget but it's close to 25% of the budget. Some of that is just maintaining status quo with technology, which is a big ticket item.

Sure. And then I guess looking beyond the fiscal year, anecdotally, how do you see the new major stadium pipeline shaping up? As I'm looking around it seams that a lot of the big projects that we have had on our radar here for the last two to three years are coming to fruition. What are you seeing beyond this year?

Well, we are hearing that the guys that design stadiums are real busy. We are hearing that. And certainly there's been a number of big ones that have come down here. We are seeing again bigger systems going in what we think of smaller facilities. The University of Minnesota is an example, that's an $8 million project at an University. So we are seeing kind of seeing this a trickle down effect where there is higher expectation at these other sports facilities. So at this point we see that there's opportunities out there, and these really large projects just kind of raise -- they really raised the bar for other facilities.

Okay. And then my last question, this quarter for the second time in the last four, five quarters you've guided down only to end up posting results that have been pretty much in line with your prior guidance. I am wondering what happened in that last week of the quarter that 5 to $0.09 all of sudden turned into $0.14. Is there that much flurry of activity in the final days or any color there would be helpful.

Yes. I think it goes to the point where our business has grown a lot as I mentioned, and it's very complex. We have five assembly factories. We have another factory, our electronic assembly factory that feeds those, we have each of our factories serves--- we think of them being owned by one of our business unit but they provide product into other business unit. So it's a rather complex matrix. In addition to that, we have some business that has taken the revenue as percent complete. Some goes to revenue upon shipment. And the billboard business, we have evolution there as we standardized that product. We have gone from the percent complete to the revenue on shipment. So we have a lot of moving parts and as we mentioned one of our initiatives here is sales and operations planning, and we need to find better ways to model this and what we have demonstrated here over the last six weeks is that we don't have a perfect model, seeing exactly the timing of how things things will hit the revenue line. We know it's out there, we are working on we know what's in the plans, but exactly how these things hit the revenue line is a challenge for us to model real well right now. And we are going to do better at that but having said that that's where we are going away from this trying to so precise withe our quarterly guidance because it's a real challenge. The one variable that won't change, will always be an uncertainty will be the customers decision timing, and so even if we get everything nailed down tight and predicting exactly what's going on operationally, that will still be a factor that will always be there. So bottom line, the summary of that is we just need to find better ways to model the timing and how things are happening.

Okay. Great. Thanks guys.

If I could follow up on Jim Boyle's question, Jim Boyle had asked our sales for the year in the reseller market, focusing on Galaxy displays That was under $50 million. So $50 million is the number there.

Okay. Well thank all for your questions. In closing, this year in retrospect it was a great opportunity for us, with the somewhat slower growth rate after the prior two years we are extremely fast for us. It gave us a chance to give more attention to operational efficiency, not only in manufacturing but in the office as well as we look at many of our business processes and we continue to do that. As we enter 2009, we have a very solid base to work from, based on the investments and improvements we have made over the past few years and we have an excellent backlog to start the year. We are in a good position to handle the growth we are projecting and we will continue a strong emphasis on the efficiencies that we need to bring along with our growth. Our top priorities going forward are from a financial perspective are to improve the operating margin and to drive free cash flow. So we are much able to quantify what our capabilities are in each of our plants, given that we are still challenged with the precise timing on some of these things but overall we have a much better handle on what our capabilities are there. We are in a better positioned than ever before to serve our customers and we are looking forward to an exciting fiscal 2009. I might add that there's -- we've been told that there is going to be a show on the Discovery Channel tonight at 7 o'clock and that the Discovery Channel was in and filmed the manufacturing of the Kansas City Royales video display. Check-out at 7o'clock. That's what we have been told it will be playing at that time. With that, we'll bring the call to a close. Thank you for joining us this morning.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may disconnect at this time.