Sheila Anderson - CFO Reece Kurtenbach - President and CEO

Morris Ajzenman - Griffin Securities Jim Ricchiuti - Needham & Company Steve Altebrando - Sidoti & Company

Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2015 First Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded today, Tuesday, August 26, 2014, and is available on the Company's website at www.daktronics.com. At this time, all participants are in a listen-only mode. Late we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I'd now like to turn the conference over to Ms. Sheila Anderson, Chief Financial Officer, for some introductory remarks. Please go ahead, ma’am.

Thank you, Operator. Good morning, everyone. Thank you for participating in our first quarter earnings conference call. I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements, reflecting our expectations and plans about our future financial performance and future business opportunities. All forward-looking statements involve risks and uncertainties which may be out of our control and may cause actual results to differ materially. Such risks include changes in economic condition, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations on margins, the introduction of new products and technology and other important factors as noted in details in our 10-K and 10-Q SEC filings. As a reminder, fiscal 2015 is a 53-week year and fiscal 2014 was a 52-week year. The extra week of fiscal 2015 fell within the first quarter resulting in a 14-week quarter versus a 13-week quarter comparison. At this time, I would like to introduce Reece Kurtenbach, our President and CEO, for a few comments.

Thank you, Sheila. Good morning, everyone. We had a positive first quarter with significant increases in revenues even with the extra week factored in. Orders were also strong and we’re entering the second quarter with a solid backlog and pipeline of opportunities. Overall we’re projecting reasonable growth during the remainder of the fiscal 2015. While we are pleased with our performance during the first quarter of fiscal 2015, we continue to strive to increase gross profit and operating income through continued focus on process improvements across the entire value stream. As we have mentioned before, our business is cyclical with the summer months tending to be our busiest, large projects in our various business segments can also have a significant impact as these tend to be more competitive and can have significant general contracting, which tends to be of lower margins. Many of our customers that invest in these systems have purchased this type of product before from either Daktronics or one of our competitors. We're successful in winning when our customers have a positive experience with our people and our products in individual interactions which accumulate over time. This has created a positive brand for Daktronics in the marketplace. I would like to thank the entire Daktronics team for their hard work over the years, which has driven much of our success during the first quarter of fiscal 2015 and this puts us in a favorable position as we enter the remainder of fiscal 2015. We continue to see strong activity in our different market segments in North America as well as our other regions of the world. Our large sports business has done well over the last six months both in new venue construction and refurbishment of existing facilities. We have seen significant projects at professional, college and…

Thank you, Reece. Sales increased by 20.1% from last year’s first quarter to $166.6 million, which is an $11.9 million run rate per week as compared to $10.7 million for the first quarter of fiscal 2014. This sales level is the highest first quarter revenue in the company’s history. Live event sales contributed to the increase for the quarter as we produced and began installation on the NFL stadium orders that previously discussed. Commercial sales were up due to increased digital billboards, large customer video contract and national account orders offset by a decrease in the on-premise advertising sales as compared to the same period last year. High schools, park and rec, formerly our schools and theaters business unit sales increased primarily due to a higher order volume of larger system, which has larger selling value and sales increase due to a change in the timing of order placement. Many projects booked later this spring as compared to last year, moving more orders and sales into the first quarter. Transportation sales were relatively flat. However, we were able to maintain sales volume comparable to last year even without the non-recurring LAX international projects we worked on that contributed 2.3 million of sales last year. International sales decreased as compared to the same quarter last year primarily due to projects continuing to move out or by delayed into fiscal 2015. With our current backlog and estimated customer delivery schedule, we predict sales in second quarter will be up slightly compared to last year’s second quarter. Gross profit was 26% in the first quarter as compared to 25.6% in the first quarter of last year. This increase is primarily due to a decrease in warranty as a percent of sales again on the sale of our leading division assets of $1.3 million…

Thanks Sheila. Looking forward, we are seeing increased activity in our major segments of Sports, Commercial and Transportation business worldwide and we are optimistic on our future business. Some comments about some specific segments. In our commercial business which is on premise or third party advertising. We are seeing orders in billboard and spectaculars continue to perform well as digital displays are increasingly accepted in the industry and even expected in many markets. We also have the strong pipeline in the large projects area of our commercial business and see this as a continued area to grow as well, as well as an increase in our third party advertising applications as we continue into the next quarters of our fiscal year. We’re expecting reasonable year-over-year growth in commercial in FY 2015 overall. In live events, we continue to see ongoing interest from venues at all levels to increase the size and capability of their display systems. The ongoing trend is to install larger systems capable of high definition video as well as dynamic digital advertising. The larger systems are for the major league stadiums and arenas in the U.S., but this drives interest in video through all other areas of sports and entertainment, both in the U.S. and international. Our largest growth during the first quarter of fiscal 2015 was in our live events business segment and we believe this business will sustain in fiscal 2014 sales level in this fiscal year due to the continued interest in large video systems in this marketplace. The trends in commercial and live events drive our high school business, as these customer purchase systems to place outside of their schools as well as in their sports venues. The desire for larger systems is seen in this market as well. Both sales and orders…

(Operator Instructions) And our first question comes from Morris Ajzenman from Griffin Securities. Your line is now open. Please go ahead.

First question on live events, clearly very strong first quarter. And I understand the lumpiness of the business, with the orders we have gotten $10 million year-over-year, but just looking at optimistic outlook. Can you just put a little more clarity to that, following through the orders? Have any different comparison, but nonetheless the positive outlook for the remainder of the year?

We have a strong fiscal 2014 in live events a lot of growth in that business unit. And as we move into 2015 we are seeing a continued interest in the refurbishment, as well as when there are new systems being -- new facilities being built.

And it goes back, Morris, to the timing of orders. We had a large order last first quarter multimillion dollars just reoccurred this quarter but we still see both type of projects out there to fill up this fiscal year.

Okay and this question for you, Sheila, looking at the -- this quarter you had revenues of $167 million; and selling expense was $15 million; G&A was $8 million. Looking back last year, the second quarter last year, revenues were not that far away -- $162 million. But selling was $13.3 million, $1.7 million less; and G&A was $6.8 million, about $1.2 million less. Just trying to get a handle of the run rate. Looks like it picked up over the last three quarters, from the second quarter last year to first quarter this year. Again, it's not the same quarter within the same year, but are we running at a higher spending ratio for selling than G&A expense? Is that stepping up?

For each of those units or areas, we do have a bit higher run rate as not more people just a little more pace races over the year. We also implemented new system inter-selling department to exist with the opportunity pipeline attracting those pipeline projects, which is increased our overall run rate for the year. And G&A is primarily just a little bit of increase for payroll and then take into account we just spend a little bit more this quarter for the acquisition and divestiture.

I think Morris you’d need to apply the 14 weeks of this quarter versus the 13 weeks of our Q2 last year and that will have a significant impact as well.

Thank you and our next question comes from Jim Ricchiuti from Needham & Company. Your line is now open. Please go ahead Jim Ricchiuti - Needham & Company: Maybe just following up on that question. Last year, we also saw -- it looks like sequential declines in both selling and G&A from Q1 to Q2. So, I'm just wondering, is there any kind of seasonality also, as it relates to OpEx that we need to think about in Q2?

Some of the season tickets, season tickets revolve for the sporting events for our meeting with our clients. But I think what we pointed out is just remember to take out the 14 weeks factor as well and that will help get to a better rate. Jim Ricchiuti - Needham & Company: Sure. Sheila, would you anticipate that live events revenues would be up year-over-year in the current quarter, just based on where you stand in terms of project work?

We’re really estimating that live event we’ll say even to last year. There may be some small vagaries from quarter-to-quarter based on project timing, but relatively flat year-over-year. Jim Ricchiuti - Needham & Company: And that’s with respect to the full year?

The full fiscal year, yes. Jim Ricchiuti - Needham & Company: Got it. And if I may, just on Data Display, can you talk a little bit about them? You are acquiring some manufacturing capacity in Ireland. Can you give us a sense as to what additional benefits that might bring you, over and above the access to some of the transportation business in Europe and elsewhere?

We do not have the transportation business in Europe today and so Data Display has got an active business with historical customer list within that area. It has some activity in the U.S. but relatively complementary to what Daktronics has done. Their focus in the U.S. has been primarily in mass transit platform displays and stations. The major part of our transportation business in the U.S. is over the road signage and EOT sort of work, so we see that our areas are quite complementary. Also as our business in Europe continues to grow, they have electronic assembly business that we believe would help us deliver projects in the Europe. Jim Ricchiuti - Needham & Company: Reece, is there any sense as to whether you can provide any color on the revenues for this business?

Sure, historically Data Display has done $15 million to $20 million or so for year. We’re thinking for this fiscal will start up maybe around $10 million as we get started and work through the transitions. Jim Ricchiuti - Needham & Company: Got it. And one final question, I will jump back in the queue. You clearly had a nice quarter in the high school and recreation market from a shipment standpoint, but I was a little confused. It seemed -- you seem to be suggesting that there was also some orders that you saw in fiscal Q4 that allowed you to ship in fiscal Q1. But on the other hand, you had a very strong -- it looks like a very strong bookings quarter as well. So, it would appear that that business is running at a higher level, and I'm just wondering what might be going on there.

We were a standard business there, we’re still very strong and we were successful of booking at a number of large video projects large for the high school market and more of those than we actually had anticipated coming into the quarter. So that really helped the high school business in this fiscal quarter but that tends to be seasonal business and to say that that’s going to continue over the year we wouldn’t say that that’s the right model. Jim Ricchiuti - Needham & Company: Got it and that will shift largely in the current quarter for seasonal business?

Yes, we would say that most of those systems by the end of Q2 would have shipped and then possibly in Q4 we might see more activity there.

Thank you. And our next question comes from Steve Altebrando from Sidoti & Company. Your line is now open. Please go ahead. Steve Altebrando - Sidoti & Company: Could you just clarify a little bit how the rigging asset sales ramped through the P&L?

There is a gain on the sale included as a deduction of cost of goods sold or another way to say there is increase in gross margin. Steve Altebrando - Sidoti & Company: Okay, so there is no revenue attributed to it?

Correct. Steve Altebrando - Sidoti & Company: And the $1.3 million is that pretax or after-tax?

That is pretax. Steve Altebrando - Sidoti & Company: Okay. And then just getting back to the Data Display acquisition is there any recurring revenue as part of that business? And if you could give just a little bit of color on the thought process of buying versus building, knowing that you are historically not that acquisitive of a company.

And I think Sheila mentioned the revenue that we think somewhere in this $15 million U.S. but this year we’re more in this $10 million to $11 million range three quarters, and we’re going through a number of integration activities. As far as the methodology behind why we would purchase Data Display. Certainly the products that shift into Europe are different than the products that we would have in the U.S. And so that product mix as well as the factors that exist over there will help us deliver to those customers. But I think also with that is the customer list and the fact that they have an ongoing relationships and customers. That can be a hard thing to replace as you try to break into a market. Steve Altebrando - Sidoti & Company: Okay, that's very helpful. The $15 million to $20 million in revenue; and you are saying, looking forward, $10 million, is that -- is there something specific that is going on that is causing that decline? Or is that just the -- in terms of when it closes -- when the deal closes for you guys?

Yes, that 10 million is really about this fiscal year because it closed at the start of our 2Q we have that activity.

Thank you (Operator Instructions). And our next question comes from Miles Henderson, Private Investor. Your line is now open. Please go ahead.

Good morning. Congratulations on the quarter. I really I just can’t get a comment I noticed that sales for the quarter came in about well nearly 10% greater than consensus estimates. And I know last quarterly report when on the conference call there was some discussion about concern about the overall growth rate of sales especially over the last two fiscal years whereas like 6% or 7% per annum. And what frustrated me and I guess my comment to everyone is during that last four quarters ending the fourth quarter of 2014 during that period there was a big growth in orders and sales did not keep up as a result backlog increased so there is lot of catch up this last quarter. And so although sales for trailing 12 months for the fiscal year ending 2014 was only 6% of 7%. If we now look at trailing 12 month sales growth year-over-year sales growth now is 11% year-over-year. So that backlog got cut off on and now it’s more imparity and I think the my comment is that the sales growth 11% and the trailing 12 months growth in orders of 12% I think is more indicative of where the company is at today and your comments about your good sense as to potential orders down the road is pretty encouraging to me. So, I’ll just leave at that and say congratulations to you and your team.

Thank you. And our next question comes from Morris Ajzenman from Griffin Securities. Your line is now open. Please go ahead.

Reece, just on the previous question, I want to make sure I heard it correctly. Did you say live events for fiscal 2015 will be unchanged, or was that for the second quarter of fiscal 2015?

We’re saying for fiscal ’15 we believe we will have similar revenues as in fiscal 14. What happens on a quarter-to-quarter basis or maybe small I mean some very recent project work has done.

I guess I’m asking about the first quarter you’re up 20 million, 55 million, 75 million since that’s – it would -- asset it would be down 20 million over next nine quarters year-over-year, I mean over next coming quarters.

Strong end of our fiscal ’14 as we shipped some of these large football scoreboards. And baseball is yet to weigh in with how many of those teams will replace systems in this spring and how the win rate goes on those systems.

Okay. And one last follow-up. Not a follow-up, but, Sheila, can you give us a handle on warranty expense this quarter, because that's always been an issue in the past? I think in the previous quarter was better under control. Where was it this quarter and what's the outlook?

Sure, we ran at 2.9% of sales growth to warranty expense for the first quarter and as mentioned we worked on -- we're working on product reliability and we feel like we’re shipping more reliable products today than we were a year ago even further beyond that so, we continue to --

And what is that compared to last year, the 2.9%?

Last year it was at 3.4%.

Thank you and our next question comes from Jim Ricchiuti form Needham & Company, your line is now open, please go ahead. Jim Ricchiuti - Needham & Company: Sheila, could you give the bookings and revenues in the quarter for the billboard business?

Sure, our revenue for the quarter in billboard was 15 million for the first quarter compared to 9 million. Jim Ricchiuti - Needham & Company: Did you say 16? I’m sorry.

That’s right 15. Jim Ricchiuti - Needham & Company: 15, sorry.

And then 9 million last year same quarter. Bookings, we were at about 10 million for the first quarter. Jim Ricchiuti - Needham & Company: Got it and -- what was a year ago bookings?

9 million. Jim Ricchiuti - Needham & Company: $9 million. And I guess with respect to the billboard business, we have talked a lot about the upgrade business potential in that business. And I wonder, Reece, maybe you can comment a little bit on that, and maybe more broadly, because it seems to really touch on your business in the other market segments. Maybe the level of upgrade business that you are seeing -- I don't know if you guys measure that, but it seems like it really plays into all of your markets.

I think you’re right Jim, the product that we ship has a lifetime of about 10 years and we see almost all of our customers at that point replacing their product at that 10 year time frame sometimes it’s a few more years sometimes it’s a few last depending on the customer and what’s going on at that point in time. In the sport and spectacular markets they’re almost always replacing that was something larger more pixels, better quality measured in some way. In the billboard business they have a standard size often permitted at that size and so going larger isn’t always an option in that area or is much frequently an option in that area and so they typically replace with the similar product. Is that helpful? Jim Ricchiuti - Needham & Company: It’s helpful, I’m just curious I don’t know if you have this the things that you may not but I mean if we look at your say bookings number for this quarter. Do you have any sense what, how much of that is represented by this upgrade business?

In the large forces it’s almost all of those customers have a type of product that they use today that we’re replacing in some way in the household market that might be new business. In the billboard business I don’t know Sheila, if you have a ratio of –

I don’t have it available.

So, I’m sorry Jim we don’t have it specifically. Jim Ricchiuti - Needham & Company: That's fine. But I would say, it's clearly something that it sounds like it's growing, just given the big influx of equipment you've put into the market over the last 5 to 10 years.

Yes, once the system has gone digital, it rarely goes back to static and we see a more and more static installations going to digital as almost expected in many of our markets.

Thank you, and I’m not showing any further questions. I would now like to turn the call back to Reece Kurtenbach for any further remarks.

Thank you, we appreciate everybody’s time and attention on the call today. We like the comments and feedback and so we wish you a happy fall and look forward to talking to you again in three months. Thank you everyone.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect, everyone have a great day.