Daktronics Inc (DAKT) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Daktronics first-quarter fiscal year 2009 earnings results conference call. As a reminder, today's call is being recorded, on Tuesday, August 26, year 2008, and is available on the Company's website at www.Daktronics.com.

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

Thank you, operator. Good morning to everyone. We appreciate your participation in our first-quarter conference call. I would like to make some preliminary comments about the quarter, after which we will open up the line for a limited time frame for questions.

I would like to first offer our disclosure cautioning investors and participants that in addition to statements of historical -- 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 of 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.

To begin the call, two quick introductory comments to emphasize first this quarter included one extra week, which helped us on the top line. Secondly, keep in mind our reorganization of our field service organization that we announced last quarter where we shifted a number of employees out of selling expense and cost of goods sold, and I'll talk a little bit more about that later.

With that, I'd like to turn it over to Jim Morgan, our Chief Executive Officer, for some highlights on the quarter.

Thanks, Bill. It was a great accomplishment to hit $161 million for the quarter, and even if you factor out the extra week in the quarter, we would come in at around $150 million, which is still a notable milestone for us and represents good growth over Q1 of last year.

I would like to start by acknowledging the excellent quarter that our live events and international units had. We served most of the needs for these two units out of the same factory here in Brookings. And things really ran well there for the quarter. Started the quarter with a solid backlog and the factory did a great job of getting things done.

And this is worth noting also. This is a team effort; it also includes project management and project engineering, as well as our installation managers. They all did a great job in achieving what we did there.

We also had better than expected margins on our international sales, which was good to see. In addition this quarter we were able to demonstrate the flexibility we had between our Brookings and Redwood Falls plants, as Redwood Falls built product for the live events unit as well. This flexibility is an important part of our strategy to help us level loads in our plants to best serve our customers and maximize the utilization of our investment in our plants. To further improve the flexibility between these two facilities, we will be breaking ground for a $3 million highway addition to our Redwood Falls facility this quarter. Currently, we just have a lower bay facility there. This high-bay ceiling will allow Redwood Falls to manufacture larger display sections in the future.

I would like to reiterate also that although we announced receiving a verbal on the new Meadowlands stadium project a few weeks ago, it is not in the end of quarter backlog. We expect to finalize this contract anytime now. We did recently receive verbal commitments on two orders for professional sports facilities that will be in the $8 million to $10 million range that will be announced at a later date.

The outlook for live events is at least as strong as we thought it would be going into the year, and with the positive reception of our HD, our high-definition product, and some other factors on the competitive landscape, the outlook remains very positive for the year.

On the product development front, in that area, we will be shipping the first of our new 10 mm outdoor video product in conjunction with a couple of our large Major League baseball projects. And this is the first product to utilize our new common module platform, which is a new platform that we will be rolling out. And this will have a significant impact on our cost overhead structure due to a higher degree of commonality that it will allow us -- afford us, and the parts between the different pixel pitches.

As a point of interest, on the international front, we completed the installation of the $10 million display project for the Beijing rail station a few weeks before the Olympics. This was a project that had a very short fuse, and our people did a great job of getting it manufactured and installed on a tight schedule. It is noteworthy that within three years of having opened our China office, we have completed a project of this magnitude in China.

Although we had a large market presence in the US at the time, we were virtually unknown in China when we first embarked on the China market. And we believe there is much more opportunity there.

Commercial was also up nicely from last year, although its growth rate has slowed. We expect the growth rate in both the reseller market and the digital billboard market to be less than last year. We are being told by our two largest billboard customers that they plan to follow through on their rollout plans, despite the slowness in the advertising sector. They still see digital as providing lift in the markets where they are deployed. It is possible we could see a slowdown from the smaller companies, but we remain very optimistic about the long-term prospects for digital, given the excellent return on investment that they are providing our customers.

We introduced our 12 mm OT Valo product in Q1 to complement our 16 mm OT, which we introduced last year. It has been well received and we have received orders for that product already. We will be introducing our next-generation galaxy display for our reseller niche in Q2, and this will offer larger matrix sizes and other improved features. And we believe this will give us additional advantages versus our competitors.

As mentioned, our HSPR or our scoreboard factory here in Brookings had some logistical difficulties at the beginning of the quarter and is still in a catch-up mode. We lost a couple of million of revenue for the quarter due to delays in production. We have the problems corrected for the most part now, but still have lead times longer than our customers would like. As mentioned, higher than expected warranty and inventory write-downs brought down our overall gross profit for the quarter. We do have major initiatives in place to reduce our warranty costs as we go forward. And Bill will talk a little more about the inventory.

Overall, it was a good quarter for us, and we believe we are positioned to achieve a similar performance in Q2. As a point of reference, Q2 is historically our strongest quarter of the year, with Q3 historically being our weakest due to the holidays and the seasonality of our business. But we are off to a good start in Q2.

And like that, I will turn it over to Bill to give a little more color on the numbers.

Thanks, Jim. Starting out, I want to go over our expectations for changes in our growth outlook for each of our business units. We still see sales in the live events business unit growing by more than 20%. Based on some recent events, this number could look a little conservative as we move ahead when you take into account the deals that have been awarded but not yet booked. During last quarter's conference call, we mentioned that there was approximately $80 million of potential orders on the large sports facilities, which would convert to $50 million of sales this year.

As we look at where we are with those orders, we have booked approximately $13 million related to the new Meadowlands stadiums, which will all convert to sales this year. We expect to book the remaining $32 million on that contract soon, and that will add an additional $15 million-plus in revenues this year.

We received a verbal commitment on a Major League baseball facility and an NFL facility that approximates $17 million and should have a significant portion converted into sales. But as usual, until you book the contracts, those are subject to change. So we are getting close to the $50 million mark already that we said at the beginning of the year.

We have also seen better results in the first quarter on the $1 million to $5 million transactions, which have increased by 18% over last year for the first quarter. If you recall, last year the smaller ticket transactions in live events was a concern for us.

Finally, there are new deals for existing facilities that have come up since the beginning of the year that have potential. It is hard to predict how they will turn out, if they will turn out, but we are optimistic on the live events business unit, as Jim mentioned.

Moving on to the commercial, we saw order growth of 29%, but had expected more than this. A big part of the shortfall is our Galaxy line, as we have talked about before. To add some details on Billboard orders, if you recall we booked $33 million in orders in Q4 of last year. And this year quarter we are back down to just under $23 million. That is still 27% over Q1 from one year ago. The net result for commercial is that based primarily on the Galaxy business, we may not quite hit the 20% growth projections, but will be in excess of 15%.

Our international business unit is the most difficult to forecast because of the dependency still on large contracts. The revenue levels are becoming large enough also to be significant to our overall results. We still expect to hit the numbers for the year, but the second quarter should be light on sales. Let me state our goals for the year. We need to book some business soon this quarter and early in the next, and we think that the pipeline is there to do it. But again, large projects can sometimes delay, and this adds to the volatility in this business.

Within our schools and theaters market business unit, as Jim mentioned, we had some logistics problems there, but for the year, we think we have a chance to hit the numbers, maybe a little bit tight, could be down a little bit from our expectations. Finally, transportation seems to be on track for the year.

So in putting all this together, we think taking into account the possibility for sales and live events and the possible softening in commercial, we are still on track for our projected growth for the year. We are comfortable with the current consensus estimates for the top line for the rest of the year.

Moving on to gross margin comments, we are still doing very well on reducing the direct costs of our products, but that benefit is getting eroded by some things that we are investing in, as Jim pointed out, but also by the continuation of additional warranty expenses. We believe that warranty costs will eventually go down because of our investments in quality and product design. We think we will see some improvement there in the second half of the year. In addition, we are working hard at decreasing our inventory levels and have a project team now working at this, along with our materials sourcing, to leverage inventory even more so.

This created some extra write-downs during the quarter, and some process changes down the road could create some losses in the future as we try our best to get to double-digit levels for annual turns, which may take some time. But we are at the point where we are committed now and we can focus on it and move ahead towards progress.

Subject to the volatility of the large contracts and other factors we talk about, we see gross profit margins staying near their current level for the second quarter, which is lower than we desired and lower than where we expect to be for the long term. On operating margins, I think we did well on controlling operating expenses for the quarter. But we continue to work really hard on that, and it is a challenge, especially with regards to personnel staffing needs. We think that we are overall on track to meet our goals for the year on SG&A, but we will see a little bit of increase in the second quarter. And when I talk about increase for the second quarter, that would be assuming that we are at 13 to 13 week periods.

I will mention briefly the sale of our building in Tampa. That was roughly $0.015 per share after tax. The gain on that was $1 million. We purchased the building a number of years ago and its primary purpose was to give us access to a production studio. Since we acquired it, we found that more of the work was taking place on-site at our customers or electronically, and we could part with the ownership of the building without it impacting our business. So we sold the building and we rent back a relatively small staff space for our staff down there.

One final note on earnings, within the last two weeks, we made a decision to cease manufacturing in our Montreal Canadian facility, where we make portable trailers for roadside construction sites. That was a very small operation. But we determined that this business has limited potential for both margin as well as growth. So during the second and third quarter, we should see some costs associated with closing that down, including inventory disposal and severance costs. It is hard now to get a good estimate, as we are just in the planning phase. But our best guess is between $0.5 million and $0.75 million, with much of that coming in the second quarter. We're looking at other products like this, but I don't think we will see this level of (technical difficulty) impact.

On the cash flow side, we didn't do so well, but a few things happened that hurt us. First we had a significant customer that requested a payment delay of approximately $4 million, and we are okay working with them on that; came in right at the end after the end of the quarter. So that added three or four days to our DSOs. Also with the heavy influence of some of these large projects and the success in the live events area, that tends to tie up more cash.

On the growth in inventory, our major LED supplier shuts down for a couple of weeks in early August and we get forced into taking on inventory early to accommodate that time frame.

So for the quarter, we feel as though we took a step backwards on cash and expect better performance, and we've shown that over the long term we can do that.

We seem to be doing well on our CapEx spending. Jim mentioned the Redwood Falls building. That was in our plans. We are currently retaining our annual guidance, but we are going to work hard to beat our annual guidance in that regard.

With that, I would turn it over to the operator to open it up for questions.

(Operator Instructions). Jim Boyle, CL King.

The $8 million to $10 million in two orders that you perceive should be arriving, is that in your guidance for revenue for the year?

Yes.

Okay. And when you were talking about your gross margins in fiscal Q2 being similar to where they were before, was that reported gross margins or excluding the asset sale?

That is including the asset sale. Now, keep in mind when we talk gross margins, they do vary significantly. We have always said for many years, if we were to say, for example, 28%, there is a range of plus or minus a percentage point. And in our business on large contracts, you can still have swings outside of that range.

And where do you see gross margins for the full year, if you include the asset sale, plus or minus 100 bips? Are you going to be 30% or be below?

For the year as a whole?

Yes.

At this point I don't think that we'll be over 30%, but it is too hard right now to -- in short, you've got to make up for the 28% this quarter, Jim. And if we are saying we are going to be at the same level, you would have to -- in effect, the second half of the year be significantly above 30% to average 30%. I don't see that as happening.

Okay. And with the digital billboard orders, are you seeing a longer turnaround time in delivery or where are you at now roughly?

Again, it depends on what kind of a relationship we have with -- if we have visibility with our customers' needs and some of our larger customers, we work very closely with them. So basically we get their schedules because we have that visibility. If we have an order come in that has no visibility, then we are probably out in that closer to 10-week timeframe.

But the schedules are typically closer to eight weeks?

Again, anywhere from six to 10, depending on the visibility we have had before with the customer. This we try to, if there are special situations, we try to accommodate customers' needs. Typically in the billboard business, there is a lot of site work that goes with each of those installations. So typically, it takes them a while to turn around the site work, too. They have to maybe do some work with the structures. They have to get maybe possibly different electrical and they have to get the signal there. So that can take some time. So that eight to 10 weeks is a good time frame to be in, typically.

Okay. And is the larger sports projects that you continue to very successfully win, how are their margins on that? Is it a very competitive price bidding situation still, or has it improved in the last year?

It is still very competitive on the large projects. And again, typically the larger the project, the tighter the -- the more aggressive the bidding is. And again, the gross profit dollars are still there, but the margins tend to be a little tighter as a percent on the larger projects.

Michael Friedman, Noble Financial.

As far as the SG&A expenses in the quarter, you gave us a little bit of color there. You said it might ramp up a little in the second quarter, if I remember right. But is that a decent run rate for the year, do you think? For the first quarter?

We are really keeping those in line as much as much as possible, for example, our biggest cost structure is people. And that will follow generally our growth in staff. And we are doing everything possible to keep our staffing levels down. There's areas that are increasing a little bit, so I think sequentially every quarter you will see some increases. But I think as we announced at the end of the year, for example, G&A, we wanted to keep it 10% for the year growth year over year as a whole. And we are still in line to do that, taking into account that extra week, of course.

And what about the selling?

The selling was somewhere around the same area for the year as a whole. Might have been a little bit higher. I would have to refer back to the call, Michael. I apologize.

No problem. Have you experienced an unusual number of cancellations that you had booked in the backlog recently? Is there an uptick there over the last, say, six to nine months?

No. We hardly ever have cancellations. It is tends to be more just the process of delays in getting decisions is a factor. And again, in a commercial area we think there is some of just the general economic climate right now is delaying some decisions or affecting some decisions in that area. But that is more of a factor than cancellations.

Okay. So most of the backlog historically has come through as revenue within a year, I would say?

Yes. Cancellations was not an issue for us.

Okay. All righty. And as far as the digital billboard business goes, are you sensing an increased enthusiasm for that product? Has it cooled off a little bit? And what is Daktronics' competitive advantage in that regard?

As I mentioned, our two largest customers are saying they are planning to continue on with their rollouts and they are seeing lift in the markets where they are deploying digital. So that is what we have for visibility in that area. Again, we are thinking maybe some of the smaller companies might again maybe delay some decisions. That's I guess to be determined, kind of how they will perform going forward.

In terms of competitive advantage, there's a couple things. First of all, we've continued to work to provide a very cost effective product. Price is important because the customers are looking for ROI. Performance of the product is important. Service and support is critical. These again are 24/7 operations, for the most part, maybe in some cases it isn't 24 hours a day but it is certainly every day of the week. And they are generating revenue every minute they are operating. So we have got a very extensive effort on service and support for these customers. And that, just our capacity to deliver product at a level that is required for this market is -- I think all those things together are not really easily duplicated.

And are you seeing more competitors entering that digital billboard space?

I don't know that we are seeing more. There is a number of smaller competitors, and of course every competitor wants to have a bigger slice of that pie. But I don't think there is any change here in the last quarter or two in terms of who is trying to get into it.

(Operator Instructions). Steve Altebrando, Sidoti & Company.

Can you put a rough dollar figure on the impact of the gross margin from the warranty issue you mentioned and write-down as well?

Yes.

Maybe in percent?

You know, it was roughly 1% plus on gross profit margin.

Okay. And some of the warranty issues, about, you mentioned you are working to clear them up. Do you know roughly I guess how long you are expecting that to persist?

Again, as I think was mentioned, we have a number of initiatives underway to improve that over time. There's really two factors there. One is just we focus on the design and the design testing, and the robustness of the testing of the design, and then of course the manufacturing side and the quality side. And we believe that we are doing better in terms of what we are shipping out of the plant every quarter. And so we would expect -- some of the warranty hits we have taken were for -- it could be from back a ways, actually, in some cases were product that we have stood behind even, that could even technically have been a little past the warranty -- typical warranty date. So we feel that what we are doing today and what we are delivering we are on track already to have a lower warranty cost. But there is a lot of -- there will be an ongoing effort. And the goal there of course is to continue to reduce that over time. It's never -- until you get to zero, we are working to reduce it.

Right. But I guess -- well, you said gross margins you are expecting to be flat sequentially. So I guess could we kind of assume the gross margins we are at right now are not really a normalized level? They are a bit depressed, whereas there should be room for some upside and a normalized environment?

We think there is a little room for some upside there. And as Bill mentioned, there is a lot of variability in gross profit margins on our different projects and different sizes of projects. But just in terms of the general outlook there, we feel there is room for some upside.

Okay. In terms of international demand for billboards, anything new on that front, particularly Europe?

No, nothing -- no new developments there. We gave of course installed the displays for JCDecaux in the spring, and they are up and running, so nothing -- no new developments there.

Okay. And then the two sports projects you mentioned, are they upgrades or new construction? Is there one of each?

Yes, one major upgrade and one new construction.

Okay. And then I think you had mentioned during your opening address something about some positives on the competitive front in the sports market. Can you elaborate on that a bit?

Well, I think we just feel -- first of all, the reception of our HD product and two of our big installations there we did last spring, the HD 16 or product; in particular both of these was the Kansas City Royals; and this was a display that's about 100 feet tall and 80 feet wide. It is just a phenomenal display. And then down in the Diamondback Stadium in Phoenix also, there's a -- we have a large display there. These are true high-definition displays.

And the feedback we've gotten from -- first of all, the feedback just from spectators and fans has been extremely positive and a lot of good press out of that. But there is also consultants in the industry, and they were -- have been very impressed with our technology there. And the display itself and then the video processing that drives the displays is a big factor in the quality of the image. And we have introduced our new V-Link 4500 as our model name for that.

And I think just the perception in the industry with those is, I think it's stepped up, and I think some of our competitors have had a couple little hiccups, and I think those things all taken into account, we believe we are maybe a little -- we have been in a strong position. We believe maybe our position has solidified even a bit more perhaps.

Steve Dyer, Craig-Hallum.

Kind of circling back to the competitive landscape surrounding the digital billboards, is it still you and YESCO to your knowledge at Lamar and Clear Channel? I have heard some chatter about a potential third entrant at Lamar.

To our knowledge, the vast majority of the business for both those is still split between Daktronics and YESCO. And I believe that there's some other companies may be given a trial here or there, but at this point we've not seen any change based on that.

Okay. And then jumping over to the big stadium business, there is a lot going on and it is obviously a very cyclical industry. I guess can you quantify sort of the percentage of your business, your revenue that will come from big stadiums this year, versus, say, last year or next year, ballpark?

Steve, just give me a minute. It could be up in the upper 30 percents from live events. the actual percent last year, I'd refer you just to the segment reporting in the annual report to get that number.

Does that break out the so-called mega deals, though?

Oh, I'm sorry -- what?

I'm trying to get a sense for how much of these mega deals are replaceable next year I guess.

Yes, I think a better way to state your question I understand is given the fact that -- it's kind of an interesting thing going on. I alluded to this in my comments. The interesting thing is, there are new, large projects that are coming up in our radar screen recently that weren't on our radar screen three and four months ago.

And maybe it's one of the exciting things going on in that business now. But we've always said though that replacing contract like the Jets/Giants contract, it's going to be tough next year to do that. And it's probably too early to understand and really have visibility on the impact that it will have next year.

The positive side more deals are appearing over a short period of time and there's no certainty that those deals will happen, but there is momentum out there in these sports facilities that are -- that's exciting to see.

And certainly just the fact the bar keeps getting raised, the fact that the new Meadowlands stadium is a project on the order of $45 million is indicative of how the bar keeps getting raised. And that tends to (technical difficulty) the smaller venues as well. So that is one of the underlying things that is driving the business.

Sure, okay.

Actually, Steve, go on. I know I have actually those numbers. It turns out I do have, just to give you an indicator, that is kind of interesting. On my prepared comments, I mentioned that these small deals are up 18%. I've just got the first quarter. All of last year, the deals in excess of $10 million was roughly 33% of that business, 30% to 35%, for deals in excess of $10 million. For this year, I expect that could be a higher percentage. That is what you are asking, correct?

Yes, yes. And then any thoughts on next year, which I am hearing you say it looks -- it is a little bit too difficult to say at this point.

Yes, it is hard. But I will just say this -- those mega projects, when you factor in the Jets and Giants, boy, it is just a gut feel says they'd go down.

Okay, okay. And then I --

(Operator Instructions).

Thank you. Sorry about that. As it relates to the digital billboards, again, I guess what has the pricing environment been like there?

It is competitive. Again, we work hard to continue to take the direct costs out of our product and while we improve the performance of the product. And then also one of the things we have focused on is reducing the cost for the customer in terms of installation and that side of things as well, so to minimize their overall costs of using the product.

And also with our Valo product, we have reduced the power consumption, so that reduces their operating cost. So all of those things together are important, but we have continued to bring our price down over the last few years, and in fact we are bringing the price down, it actually helps expand the market because it means they can get an ROI in more locations, basically. So it is competitive and we have to continue to keep really honing our designs and our manufacturing processes as well.

Do you have a sense for I guess how pricing has come down, understanding that you are taking costs out as well, but how pricing has come down year over year, for example?

What percent -- I would say if you look back over a number of years, it is probably 15%-plus a year probably, if you go back a ways.

Okay. And then just to clarify, Bill, gross margins for this next quarter you expect to be reasonably flat with the reported number of 27.5, or excluding the write-down?

Gross profit levels, I am seeing being flat. The gross profit percentage as reported.

Okay. And then just a couple of -- the other thing that I wasn't sure that I heard was you had indicated that revenue levels could be similar to this quarter. Is that right? Did I hear that?

Yes, right, for Q2, right.

Okay. Any currency impact in the quarter?

No, nothing significant. That gets below the line.

Okay. And then just finally --

We try to avoid currency risk. To the extent we have it, it is only because of maybe some short-term loans of funding operations overseas.

Sure. Okay. And then just lastly, Bill, you had expressed comfort in the street's top-line levels. Any thoughts on bottom-line consensus right now?

Yes, well, we are sticking with our operating margin range of 8% to 9.5%.

Jim Ricchiuti, Needham.

I was wondering if you are seeing any pressure from rising commodity prices in any areas of the business?

That is a good question, Jim. Over time, the electronics has been a bigger percentage of our total cost of the parts costs in our product. And our product is primarily parts intensive in terms of cost. And so the reduction in the electronics has been a big driver in our ability to reduce our cost and reduce our pricing. And as the electronics comes down and becomes a smaller percent of the total, and there are some -- the parts and materials that go into our product that are in fact increasing in price, aluminum being notable in that area; certainly, transportation is not a big percent of our costs, but certainly transportation costs are going up. So yes, there are some offsetting costs, and the rate of our ability to reduce costs probably will decrease as we go forward because of the fact that the electronics has become the smaller percent of the total.

Okay, but at this point, it hasn't been -- it doesn't sound like it has been a major issue for you, Jim.

Has not been a major issue up to this point.

Okay. And just with respect to, Bill, the comment you made about seeing more large projects on the radar screen, is this new construction or are you seeing a pipeline building for upgrades that you weren't aware of before?

It is upgrades. If there were new construction we wouldn't have been aware of it.

Okay. And Bill, just with respect to some of the large project business, as well as maybe some of the smaller deals in the school and even the college/university market, are you sensing -- are you guys sensing any kind of anxiety on the part of customers with respect to funding issues? Just given the situation in the credit markets and whatnot?

Not in those particular markets. Again, for the most part those are a lot of advertising and sponsorships, which given the advertising sector in general is a little bit soft, but that hasn't seemed to have affected those markets. Again, you've got there -- you've got the school, the school loyalty, school pride and all of those things that factor in, and I think that offsets maybe the softness in the economy.

Okay. And just a question regarding your operating expense in the area of product design development, the levels there seem a little higher than at least what I was looking for. Where do you see the engineering expense going forward over the next couple of quarters, Bill?

I tell you, I would leave that question for Jim.

Okay, sorry, Jim. Go ahead.

I would say historically we have stayed really close to that 4% level, plus or minus a few tenths of a point. I would say if anything, one of the things that has been a change here in the last few years, we have really put a big -- with part of this lean manufacturing, which we've had great success in involving our manufacturing. Part of that, a key part of that success is how we design our products.

And so to the extent we can take some of our engineering resources that were maybe in the past spending time on a contract basis on a one-off type of design, to the extent we can shift those resources over onto a standard, more standardized product development and then get reuse out of that design, so to speak, that is a good thing.

So I think there is some of that going on. Certainly, there is some of that going on. We are getting more focus. And our ability to do what we did in our live events factory this last quarter, the product design itself is a key part of that because we design it to roll through manufacturing easier than it was a few years ago. So I think if we could accomplish that and if it is a few tenths of a point up from the 4%, I think that is still a good thing.

Okay, but at least over the next couple of quarters it is not unreasonable to assume that that is around that 4% area, Jim?

Yes. We are still targeting to keep it in that 4% area, again maybe a couple points above.

Okay. And I may have -- I just want to be clear on something you mentioned I think on G&A expense. You are assuming -- could you just go over again what you think your G&A expense could be up for the year as a whole? I thought I heard 10%; I just wanted to make sure.

Yes, I think we'll be around the $30 million range. Sorry for maybe sounding a little confused on that. But we should be around the $30 million, hopefully maybe a little bit south of that.

Okay, so that really implies that expense coming down over the next couple of quarters. Is there anything that was unusual in Q1?

It stays flat, Jim, if you look at it; just do some quick math. You've got to factor out the extra week. And we are trying to hold G&A especially really flat. But factor out the extra week. And let me just do on that quickly. My calculator doesn't seem to be -- you can figure that out, Jim.

But we really trying to -- and during the quarter, just in terms, it was a little bit higher in the quarter than we thought it was. And we just set it up with a little bit higher IT costs, primarily some consulting and some infrastructure. To the extent we have problems in G&A, it probably would be in something in the IT area, only because there is so much great initiatives going on here that if we learn that we have to do something to support, for example, something in product development or in our quality systems or something like that, IT just has to partner along. And we've got a lot of good initiatives going on.

Okay, that's it for me. Thanks very much. Congratulations on the quarter.

[Bill Lennon], [Encana].

Just a clarification first. I wasn't sure if your answer on the FX related to expenses or revenue, so could you tell us again what the FX impact was on revenue in the quarter?

For the most part, we don't track for example the decline if -- the decline on the dollar in constant currency type metrics like that. What we do is these are custom projects, and so when you ask about the revenue, we just don't track it that way.

Okay. And then two real fast once. You said during the prepared remarks, Q2 will be light on sales. Was that referring to the consolidated revenue or were you still talking only internationally on that comment?

Just international; I was talking about the sales internationally will be down sequentially.

Okay. And then the final one, the $4 million customer, the delayed payment, does that signal that any receivables or future revenue might be at risk from that particular customer?

No, this was a very unusual circumstance that we were fine working with the customer. There wasn't any risk as we saw it. It was something very unusual. I just would rather not get into what the details were, though.

That would conclude our question and answer session. At this time, I would like to turn the program back to our speakers for any additional or closing comments.

Thank you for your questions. We appreciate your time this morning. Just to remind everyone, tomorrow evening, Daktronics has an open house and tour starting at five o'clock before our shareholder meeting, which starts at seven o'clock. So we certainly look forward to seeing some of you there if you can make it. I would like to thank all the Daktronics employees for their efforts this past quarter. It was a good quarter for us, and we are off and running for Q2. And with that, I'll, again, thank you for your time this morning.

Thank you, everyone, for your participation in today's conference, and you may disconnect at this time.