Daktronics Inc (DAKT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2011 First Quarter Earnings Results Conference Call.

As a reminder, this conference is being recorded today, Tuesday, August 24, 2010, 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 first quarter fiscal 2011 conference call.

We'll give some brief comments about the quarter to start with, and then we'll open it up to a few questions and answers after that.

I'd like to first offer our disclosure cautioning investors and participants in addition to statements of historical facts, this call and our year-end news -- and our quarter-end news release contain 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 of growth, timing and magnitude of future orders and other risks, as mentioned herein, in our press release and 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'll turn it over to Jim Morgan, our Chief Executive Officer, for some comments.

Thanks, Bill, and good morning, everyone.

Thanks for joining us this morning.

Overall, we were pleased with the results for the quarter.

Our operating margin of 4% is not where we want to be, but it is a significant improvement over the past two quarters.

It is also noteworthy that this is an improvement over the first quarter last year, despite the fact that we had higher sales in the first quarter a year ago.

This is indicative of the positive impact of the cost reduction we have achieved across the organization over the past few quarters.

We were pleased with the order bookings of $117 million for the quarter, and with only $100 million in sales, we built our backlog to $143 million, as noted in the press release.

The summer is typically our busy season and it is a good sign that we are indeed busy this quarter.

Bill will talk a little more about backlog in a minute.

Regarding the outlook, we recognize that there is still uncertainty in the overall economic outlook.

However, as we discussed in the news release, the comparison of orders over the last few quarters is up over the same timeframe last year, despite our domestic sports business lagging somewhat.

We see that as a positive indication.

Just to give a flavor of some of the order activity, in addition to the orders mentioned in our press release, our orders this quarter in the international front included a multimillion dollar order in the Middle East for the Qatar Convention Centre and a baseball venue in Mexico that exceeded $1 million.

University football orders included orders from Marshall University, Southern Methodist, George Washington University and Notre Dame.

We also received an order for video displays for Remington Park Racetrack in Oklahoma City, that's just to name a few orders.

A comment on the overall seasonality of the business, many of you who follow us are aware of this, but I think it's worth reviewing that second quarter is typically our strongest quarter for sales and third quarter is typically our weakest quarter for sales, and that's for a couple reasons.

Third quarter's a slower time for the sports facility business and also there are fewer work days in that quarter.

In line with this, we expect Q3 to be a tough quarter for us, but not to the extent it was last year.

Q4 will be heavily dependent on baseball projects and there are a number of projects that are keyed up for this year and just depends on how many of those actually come to fruition.

The recently announced Brewers project, the Milwaukee Brewers, is a nice start for the baseball season.

Our cost reduction efforts this past quarter have been focused on reducing the cost of producing and delivering our products, while at the same time delivering products with improved performance.

The new products that we have recently introduced, the DVX video displays, the 4000 Series Digital Billboard displays and the redesigned Vanguard display in our transportation business, all of which we are now shipping our key contributors to cost reduction.

Our product development and manufacturing development engineering, along with our ongoing efforts in lean manufacturing will continue to play a key role going forward, as we continue to design costs out of our product value streams.

We also continue to work to take costs out of our business processes across the Company.

Since football season is just getting underway, I might mention that a number of NFL stadiums have started their preseason with a new Daktronics video display system.

These include the Jets and Giants and the new Meadowland stadium, which incorporates over $50 million worth of displays in and outside the stadium.

The New England Patriots, the Baltimore Ravens and the Washington Redskins also will be watching replays on a new Daktronics video display.

A couple other noteworthy projects, we recently completed the installation of a display for Sony and News Corp.

on number One Times Square.

This is a true 10-millimeter outdoor display that we believe sets a new standard for display quality in Times Square.

We are also just finishing up the installation for the supersystem for the Orlando Magic, in their new arena.

So in summary, we are pleased overall with what we've achieved to date in countering the downturn.

But we have work ahead of us to further improve our profitability by continuing to execute on our key strategies.

With that, I will turn it over to Bill Retterath to give a little more perspective on the numbers.

Thanks, Jim.

As Jim mentioned, let me start out on backlog.

As stated in the press release, we have a number of projects in backlog that stretch beyond our second quarter.

This includes, for example, $35 million to $40 million of larger projects over $1 million such as the Florida Marlins, the New Jersey Transit Authority, most of the large billboards, the Clear Channel order, we already mentioned the Milwaukee Brewers, and a commercial project in Minneapolis.

So, although we think that sales could increase from the first quarter to the second quarter, the amount of the increase is somewhat limited.

Hopefully, this base of backlog helps us as we move into the third and fourth quarter to the extent bookings can hold up.

The gross profit percentage increased from the fourth quarter of fiscal 2010.

It's at the same level it was one year ago.

As mentioned on our last quarterly conference call, we thought that warranty and inventory hits were high and if they went down, we could add a few percentage points on margin, and that is the biggest factor that impacted margin.

Hopefully, we can continue keeping those costs in check and lower as we go into future quarters.

We also saw the benefits of reducing our remote service infrastructure, which added about a percentage point.

We saw a slight increase in margin on contracts booked during the quarter, which should help slightly in future quarters.

Assuming that we can keep control of inventory and warranty, and that our raw material supply chain doesn't inhibit sales or increase materials costs, our gross profit should be at similar levels.

It's possible it could go a little bit higher, but, again, our gross margin sometimes is hard to predict on large contracts.

On operating expenses, we suggest in the press release that operating costs could increase slightly.

The largest impact is due to the impact our engineering resources have on product development as opposed to large customer contracts.

This last quarter was weighted more heavily on the contract work.

We decreased our total costs of engineering significantly last quarter.

That's Q4 of 2010, and so it should remain under the $5 million mark.

In addition to that, our professional fees are somewhat less than expected in G&A, we could see a slight increase there.

Overall, we believe our operating expenses are in good shape for now and our current plan is to keep our cost infrastructure at or near its current level, subject to normal variations.

We continue to perform well on the cash flow side.

We now have more than $70 million in cash.

Our CapEx goals remain the same and we should end the fiscal year somewhat less than $13 million.

Final comment on non-operating income, we're no longer recognizing losses on any equity investments which caused the improvement in other income and expense from one year ago, Q1 and Q4 of fiscal 2010.

That difference from the fourth quarter of fiscal 2010 was an improvement of almost $700,000, and $1 million -- I'm sorry, $1 million for the first quarter -- fourth quarter of fiscal 2010 and $700,000 from the first quarter of fiscal 2010.

With that, we'll turn it over to the Operator and open it up for any questions.

(Operator Instructions) Our first question comes from Steve Dyer from Craig-Hallum.

Thank you.

Good morning.

Nice quarter, guys.

Thank you.

I was wondering if you could elaborate a little bit on the digital billboard commentary you made.

Sounds like Clear Channel in fact placed income on an initial order.

Any color on the size of that or maybe the duration or what their indications are to use as what their plans are going forward with the digital boards?

Well, we don't really to get into specifics on customers' orders and sizes.

It's a multimillion dollar order, we'll say that, significant.

Pretty much for delivery through the rest of the calendar year in terms of timeframe, would frame it up more or less.

Okay, and then the other major customer, any new activity there from them in terms of getting back on board, rolling them out in size?

Nothing specific at this point has changed.

We see -- I guess there's -- both (inaudible) and Clear Channel are the two we're talking about here, both of those are public companies and so they're -- they have made some public statements that are positive about digital and so we're encouraged by that and given we've had very good reception of our new 4000 Series digital billboard which has a number of improvements as well as reduced cost, improvements in performance plus reduced costs.

So, I guess we're optimistic on both fronts that things will continue to move forward there.

And then, I'm just wondering how we should think about your market share at either or both of those going forward.

I think historically it's been right around 50%.

Is that the assumption going forward as well?

Or is it too early to tell?

As it was back before the downturn and then we're not supplying to Clear Channel here for about the last year, so certainly we would we hope to get back to that point.

Okay.

You mentioned a little bit about parts shortages in the press release and it potentially impacting sales going forward.

Can you elaborate on that a little bit more, maybe what the part is and how you see that playing out?

So, there is a global thing right now with electronics supply in general.

It's not necessarily one part.

You read about this actually quite a bit in the press.

Some of the consumer electronics has taken off, obviously Apple's had great success with their iPod and so there's some real demand on the, in the electronics side of things from the consumer side.

Many of the manufacturers of electronics had to scale back going into the downturn, and so they just aren't ramping up fast enough to address the demand that's coming up.

So, there are some, some parts that from time to time come up that the lead times are going way out on.

And so, depending on what one has forecasted and what suppliers have in the pipeline coming in for a customer, it can affect the ability to deliver.

So, it's fairly widespread.

Our approach is to do our best to forecast and we have very close relationships with our key vendors and that's how we work to manage that situation, but it is challenging and there's always a chance of a surprise coming up here or there.

Okay.

And then a final question and I'll hop back in the queue.

OpEx, I think you kind of broke out each line item, engineering should stay under five, G&A up maybe a little bit.

Would you expect selling to fluctuate on a percentage basis with the overall revenue number?

In the short-term, selling expenses aren't generally fixed.

Our model does not include a commission component.

And so, in the short-term, I think look for similar levels, but there is a little bit of fluctuation.

It's not necessarily associated with revenues.

It's more associated with the order volume.

Okay, okay.

Thanks, guys.

Thank you.

Our next question comes from Jim Ricchiuti from Needham & Company.

Hi, good morning.

Good morning, Jim.

Just some follow-up questions on the commercial business.

I wondered if you could comment on the billboard business, excluding the large order you saw.

How would you characterize the billboard business in general, just from some of the smaller players?

Are you seeing a pickup in activity as well from them?

Yes, we've seen -- we're seeing a very strong interest from the Tier 3 and smaller companies.

They report to us.

They're seeing good return on their investment.

And so, yes, we're -- it's very positive.

Looking at the commercial business in general, you showed a very good order strength the last couple of quarters.

If we just look at that July bookings number and maybe break out the large Billboard order, can you give us some sense of the magnitude of the year-over-year increase?

Yes, maybe -- this is Bill, I'll just give you some indication.

Our orders for product orders within the Billboard business increased sequentially from Q4 maybe roughly 10%.

From a year ago, Billboard orders, excluding the big order we mentioned was Clear Channel, it's up 50% from a year ago.

Now, the orders a year ago were, were -- I think that might have been our low point for orders one year ago.

And I'm sorry, Jim, what was the rest of your question?

Well, I was also just curious about the commercial business in general, excluding this large piece of business.

And what I'm getting to is just are you seeing some signs of a pickup perhaps in some of the other areas of your commercial business?

The national retail accounts, the QSRs and whatnot?

I think compared to -- it's stronger than it was.

We're seeing that it's picking up.

It's, I'd say, a gradual pickup.

It's not been a jump-up, but there seems to be more, more strength there and a little more positive outlook going forward on more of the standard order business.

I might add that we're seeing on -- part of our commercial business is the large projects, like the Times Square kind of things.

And we're seeing some -- there's some opportunities in our pipeline out there, too.

There's some big projects that are potentials to happen out there.

Yes.

And I wanted to follow up on a couple of comments you made in the press release.

Jim, just about the architectural lighting part of the business and the activity you're seeing there.

Maybe you could expand a little bit about what's happening there.

I think you alluded to a large order that I guess you booked in the current quarter in Hong Kong.

But maybe you could talk a little bit about what you're seeing in that part of the business?

Yes, so the application for architectural lighting it is very large because potentially any large building could be outfitted with some of this kind of lighting.

And again, the application for architectural lighting that we are involved in is where there's actually a control, it has a control system on it and it can -- it's a controlled image type of application.

But that has been quite popular in Asia for a number of years already and we're starting to see that, starting to get a foothold in the US and some more interest in it here.

We actually are installing some of that type of display technology as part of the Orlando Magic project on the exterior of the arena down in Orlando.

And we're seeing some other -- we've had a few other projects in the US that we've done over the years, but we're seeing some more opportunities for that both internationally and starting to view a little more activity in the US as well.

So, we're excited about it.

Again, it's the kind of thing that can be adapted to most any high-rise building.

The Target Center in Minneapolis is -- I'm sorry, not the Target Center, but the Target headquarters building, is the project we talked about in the news release and that'll be -- it's a multimillion dollar project and it'll be very high profile.

Again, I think it'll be a reference point for the use of this technology.

And just turning to the live events business, you mentioned as you look out to Q4, there's still some uncertainty as it relates to the baseball portion of the business.

When would you anticipate a better -- when would you anticipate having a better feel for how Q4's going to look?

Typically, is this quarter an important quarter and for baseball bookings or is it the fiscal third quarter for you now?

Certainly some of those potentially could book in second quarter, but it's not unusual for some of those to book in the third quarter as well.

So, it's a little of both.

So we'll know more at the end of the second quarter, but we'll have better, a better sense of where that is, of course, because we'll be three months closer to it.

But it's a little of both quarters.

Okay, and then two final questions.

I wonder if you'd just comment on LED pricing and how you see that playing out with margins.

And then, Bill, if you could just give us a better sense on the tax rate going forward, if there's any update there.

On the LED pricing, just probably just two general things going on in the industry.

Number one, as I mentioned, there's a lot of demand in the electronics industry today, so I think on the one hand, that might be a tendency to not have the price drop so much.

On the other hand, there is a fair amount of competition coming online in producing LEDs, so that's the other side of it and particularly in China, there's some significant ramp up going on with -- for LED production.

And these people have access to the same equipment -- production-type equipment and the same technology to manufacture LEDs that anybody else does, anywhere else in the world.

So, that is a factor.

So I think long-term, we still expect LED pricing to continue to come down.

Comment to your second part, Jim, is on the tax rate, hopefully I can make this straightforward.

We're looking at roughly 40% to 45% tax rate.

What's really challenging for us right now with the pipeline opportunities that we have internationally and forecasting where those projects will occur and which country is presenting a challenge.

If, for example, we get a number of the right kind of projects in Dubai, or it's tax there, there's no tax rate on those, or in China we're still under a tax holiday there, where we're paying a rate of 12%.

So to the extent they're in China, the Middle East, it helps us to the extent projects come up in Germany or the UK, doesn't help us as much.

And when you're in our business forecasting where they end up, it gets to be tough.

And so all that aside, we're looking at 40% to 45%, as I said.

Okay, thank you.

And Jim, if I could just come back, you asked a little bit about commercial, I think there's some interesting factors there.

Over the last six months, if you compare the last two quarters, if you look at it excess large billboard order, we're up in the mid 30% of orders and this last quarter, as Jim has talked about, we did exceptionally well on the large contract business within the commercial area.

So, we're seeing great growth in that area, but the current economic environment is something to watch to see if that has any adverse impacts on us, especially our standard order business.

Okay.

That's helpful.

Thank you, Bill.

Our next question comes from Dick Ryan from Dougherty & Company.

Good morning, guys.

On the Clear Channel business that came back your way, what got you there?

Was it price, obviously was the new 4000 Series, but was it price generated, or are they just looking to split out that business again after it went away from you a year ago?

I think probably a little of both.

Certainly the new product offers very excellent performance at very attractive price points.

I'd say that's a key.

I think there's some interest from the, from Clear Channel in having more than one vendor.

Okay.

Jim, you mentioned baseball projects in the pipeline.

Can you give us an early sense of the, maybe the number qualitatively the projects that are in the pipeline that you're looking at, maybe versus a year ago?

Oh, I'd say the number we had early on last year in the pipeline was, I think five or six and we've got a few more maybe even in the potential pipeline this year.

And I would say that given the activity and what's taken place on some of those projects, I think we're a little more optimistic that there will be things happening with certainly more of them than last year.

Okay, and just a couple of the other divisions, are you seeing any federal funding coming through in helping the transportation side?

And then there was a nice -- it looks like nice orders in the schools and theaters.

Can you talk a little bit about that as well?

So, transportation -- first of all, right now they have a very healthy backlog, so they've got a lot queued up.

We have the project with the New Jersey turnpike, which is a potential $25 million project that we've announced.

And we've only booked about eight of that actually in the backlog, so we expect more of that to come in over the next -- that's really over the next couple of years that that'll come to pass we expect.

So, that's a positive out there.

There's -- I mean just general uncertainty of what the federal government will do for spending.

It's kind of hard to predict.

I guess on the one hand, there's a lot of debate on what the economy's going to do.

I think if the economy would tend to slow down, that's incentive for the government to maybe do some more.

So, it's a hard one to read out there right now.

We believe we're well-positioned in the industry to take advantage of the projects that are there.

So, that's our approach, is just make sure we're ready to respond and participate.

Okay.

You asked about schools and theaters.

Schools as well, yes.

Schools in particular, we had -- in general the trend, and this has been a trend over the last few years really that we're seeing, maybe in terms of the unit volume is not really growing or maybe even in some cases it's declined a little bit.

But the average dollar per order has been going up as there's more interest in investing centers and matrix displays along with scoreboards.

And we had a couple nice projects that we delivered here in this quarter for schools down -- both that come to mind -- the biggest two were down in Texas anyway.

And they are both in excess of $0.5 million with a nice video display.

So, there's still interest there.

Sports is still an important part of our culture here and so that's generally strong now.

The offset to that is certainly with the economy there's -- school budgets are tight and so the new construction, the rate of new construction could be affected by that.

And there's some correlation between new construction and scoreboard opportunities as well.

So, that's a little bit of an offset.

So, at this point, we're seeing that maybe flat to maybe slightly down here going forward with schools and theaters.

Is there an add revenue model working into the school side as yet?

So, again, an important to understand that these larger systems are not paid for through school funds.

They're through sponsorships, local sponsorships for the most part.

Okay, and one last for me, Jim you mentioned the increase in the operating margin, the 4%, not where you wanted to get to.

Is there any kind of metrics you can talk about looking out, where you'd like to get, what your goal is for operating margins over the next couple of years?

Well, we'd like to be back in double digits obviously.

How fast we can get there, that remains to be seen, but certainly that's where we want to get to.

Good, thank you.

Our next question comes from Steve Altebrando from Sidoti & Company.

Hi, guys.

How are you?

Hi.

Good.

Can you talk a little bit about the pricing environment, any changes as of late?

I'm sorry.

Could you repeat that, please?

Can you talk a little bit about the pricing environment, if there's been any changes as of late?

Well, certainly the pricing environment is very competitive.

Whether that's really a change or not, I guess I wouldn't say it's a change.

It's -- I think as we went into the downturn, everybody's -- gets a little hungrier and so that's reflected in the pricing environment.

So, I'd say nothing, nothing that's changed in the past quarter, but it's competitive.

Okay, any smaller suppliers, are you seeing any capacity coming off?

Our suppliers?

No, competitors really.

Competitors.

In terms of anyone shutting the doors, not making it through the downturn?

Yes, we have -- we are seeing -- hearing of some competitors.

Again, the ones that are having those kind of problems haven't been that much of a factor for us recently.

So, whether that changes the environment for us or not is probably pretty debatable.

But certainly there are some that are struggling and not -- uncertain how long they will be around.

Okay, and then on gross margins, this is actually maybe a ways away, but when would you start to expect to benefit from shifting towards your more modular process of manufacturing?

I think, Steve, I'm not quite sure what you're asking.

We've gone through great lengths and have done a great job of implementing lean manufacturing techniques and I think we're seeing significant benefits of the efforts our manufacturing people have gone through and had it not been for that, margins would be hurt a lot more than they already are.

Is that what you're getting at or?

No, you guys have mentioned in the past about shifting to product development essentially, towards a more modular approach for your displays.

I think maybe you're talking about our whole DVX and we don't refer to that necessarily as modular, but a common module platform and related components, and we're seeing the benefit of that.

When I mentioned earlier that our order bookings for large contracts went up a little bit, one quarter doesn't say anything.

But certainly our margins are being helped by our new product introductions, primarily the DVX.

Okay.

So that is, that is a key component.

And it's helping us this quarter, as we deploy more or we sell more of this product.

And is that, that's just on the Billboards?

I thought that was something you were moving towards, just productwide.

Generally when we've been working on since we embarked upon lean manufacturing a number of years ago, any component of that or key part of that is standardization and increased standardization, so the trick for us is that we're delivering a custom solution, again on our large products, we're delivering a custom solution to the customer.

We truly can build a display to fit any need and any size that the customer needs.

But at the manufacturing level, the more that that's made up of standard subsystems, the better the manufacturing goes.

So that's what we've been working on here and continue to work on.

And as Bill said, we have made a lot of progress along that direction and it's an ongoing thing.

There's always -- product is almost an ongoing thing and there's always ways you can improve and add efficiencies and improve products.

So, it's an ongoing thing, and will continue to be.

Okay.

Not to get too specific, but is there, is there an ending that you view yourselves as being in, in terms of that process?

Is this -- you just are just under way here, or you look a couple years out and see that being a more material benefit to you guys?

No, we think about it as continuous improvements.

If you think of it in terms of innings, you'd say, well, the game's going to be over at some point and we don't see that the game ever gets over.

So, I guess we don't think about it as analogous to having an inning.

It's just a continuous improvement.

I think we made huge strides from where we started in terms of, and compared to where we were.

Because we were very oriented with this custom job shop approach.

And so to continue to be able to be flexible from a customer's perspective, but have much more control and standardization in the manufacturing process, I would just say we've made huge progress and it's been very beneficial.

It is very beneficial to us at this time and -- but there's always more opportunities.

Okay.

Thanks, guys.

Thanks, Steve.

Our next question comes from Steve Dyer from Craig-Hallum.

Yes, thanks, just one last follow-up, guys.

Through the whole downturn, you've maintained a very strong balance sheet.

You continue to add cash to it.

Is there a level where you'd consider potentially buying back stock or deploying it in another manner, a cash level that you feel like you want to have on hand?

Well, certainly from time to time, we'll consider those various alternatives and we did have the dividend payment again this year.

That's one way to give cash back to the shareholders.

So, I guess all options are on the table, but we, on the one hand we have a lot of cash.

On the other hand, it's all relative how much cash we have.

Compared to some companies, we don't have so much.

And I think having some cash on hand is good.

It gives us some cushion, and it allows us to be flexible when opportunities come up.

All right, thanks, guys.

Thank you.

Our next question comes from Jim Ricchiuti from Needham & Company.

The strength you're seeing in international, looks like you're looking at 20% plus growth in orders.

Is that sustainable?

Do you see some good opportunities as you look out over the next couple of quarters?

And in general, where would you like that international business -- what would you like to see it represent of your total revenues longer term?

Just in general, Jim, the international pipeline right now is strong and it's international growth, we put all -- look at all our applications, whereas in the domestic market, we sort of outlet different markets.

But if you think about the different applications in international, we're seeing, as I mentioned, the Qatar Convention Centre is a big order we got from the Middle East this last quarter.

Those type of applications are out there.

We're seeing interest in the outdoor advertising starting to pick up in Europe and in the Middle East as well.

So, there's some potential there.

On the Asian side, there's displays.

We've got this Phoenix Island project that we're working on, this large architectural lighting.

So, we see good opportunities in international at this point.

It appears strong.

Do you see this being longer term, Jim, potentially 20% of the business?

Is that -- I'm just wondering, as you look out over the next few years, do you have a goal in mind for that business?

So, that's something we've pondered over the years and has something to do with how fast does the domestic grow, too.

So that, what percent it ends up being.

So, to say exactly what percent it would end up or should be as part of our overall mix, that's a number hard for me to get my head around just because you got the two moving parts there, domestic and international.

Certainly to see it continue to grow, we see opportunity there.

It's been typically more or less around that 10% range in part of our business.

I think there's a potential for it to get to be bigger than that.

And we're certainly working to continue to grow the business internationally.

Fair enough.

And, Bill, this is a question for you.

It appears that you've turned the corner on the warranty costs.

Is that a fair way to characterize it, or do you still feel that there's still some issues you need to work through?

Well, I think one quarter -- if you look at the last five sequential quarters, if I'm remembering right, three out of the five performed acceptable, but not up to where we want to be yet.

Two of them were really rough.

And two of the last three were rough in terms of warranty.

So, we've been through this.

I think we need a longer track record.

We're doing the right things.

We've invested a lot.

It's got to turn around, I believe.

Are we there yet?

It's too early to tell.

I think that's probably a safe way to state it.

We are -- we have done a lot of things to reduce warranty going forward.

We do expect it to go down.

Okay, thank you.

Our next question comes from Dick Ryan from Doherty & Company.

Bill, just a clarification.

The tax you indicated 40% to 45%.

Is that what we should be looking at for the year, or were you talking about the next quarter?

For the fiscal year as a whole.

Okay, great.

Thank you.

I should mention, too, to the extent there is a lot of variables as to where it sits right now.

If we would have a great deal of success on Major League Baseball opportunities, it would improve.

So, lot of variables in seeing how it actually turns out at this point.

Following up on that baseball, the pipeline question, are there new builds in there, or is it retrofits and upgrades to HD?

And if it's the retrofit and upgrade to HD, where are we in that kind of movement?

Are we still early in the game, if you will, to get scoreboards to the HD?

Yes, these are mostly upgrades.

In fact, I think they're all upgrades.

No new construction.

There is no new construction actually happening through this spring.

Because the new construction is predictable.

We know they're going to happen.

We've got the Marlins, which we already have in our backlog.

So, that's not an additional opportunity.

And that's for a ways out here yet.

But these are -- so these are all upgrades.

And yes, going to higher definition is a driving factor there and in some cases, just adding more displays into the facilities.

And it's an ongoing thing.

And if you look at the new Meadowlands stadium and just the amount of displays that have been deployed there, that sets a new benchmark really in terms of the deployment of displays.

So, what's the level and where's the end point, is, it's been -- it's continuing.

There's a continuing raising bar here that, in the industry.

So, again, where are we along the way?

It's kind of hard to say because the bar keeps raising.

Okay, thank you.

I would now like to turn the program back over to Mr.

Jim Morgan for his final comments.

Well, thanks for the questions, gentlemen.

Appreciate that.

In closing, I would like to thank all Daktronics employees for their diligent efforts, again, over the past quarter.

Tomorrow evening is our annual shareholders meeting and we will have an open house starting at 5.30 with the shareholder meeting at 7.00.

Thank you for being with us this morning.

Have a good day.

Operator, that concludes the call.

Thanks.

Thank you.

Ladies and gentlemen, that does conclude today's program.

You may now disconnect, and have a wonderful day.