William R. Retterath - Chief Financial Officer James. B. Morgan - President and Chief Executive Officer

Steve Altebrando - Sidoti & Company James Ricchiuti - Needham & Company Steve Dyer - Craig-Hallum Dick Ryan - Dougherty & Company, LLC

Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2009 Third Quarter Earnings Results Conference Call. As a reminder this conference is being recorded Tuesday, February 24, 2009, and is available on the company's website at www.daktronics.com. I'll now turn the conference over to Mr. Bill Retterath, Chief Financial Officer for Daktronics for some introductory remarks. Please go ahead, sir. William R. Retterath: Thank you. Good morning, everyone. We appreciate your participation in our third quarter conference call. I'd like to make some preliminary comments about the quarter after which we'll open it up for a limited timeframe for questions. I'd like to first offer our disclosure cautioning investors and participants that in addition the statements or historical facts, this call and our quarterly news release contained 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 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. With that, I'd like to turn it over to Jim Morgan, our Chief Executive Officer, for some highlights on the quarter. James. B. Morgan: Thanks Bill. Good morning and thank you for joining us this morning everyone. We had a good quarter generating sales with a 9% increase over Q3 of fiscal '08, despite the fact that our billboard sales dropped off during the quarter as we had anticipated. We saw orders overall declined about 9% compared to the same quarter of fiscal '08. We attribute the drop-off in orders primarily to the current economic environment, the most significant being in our commercial business where the billboard mix, which we also heard the outdoor advertising in which has seen a greatest decline. We expect orders in our commercial business to remain soft through the economic cycle. (inaudible) events which is in primarily our large sports business were up 17% compared to the third quarter of '08. This included the second portion of the new Meadowlands Stadium projects totaling about 27 million, again the portion in this quarter. We also booked during the quarter. The two large contracts I talked about last quarter mainly for the Minnesota trends and for the Cincinnati Reds and those two combined totaled about 17 million. Year-to-date orders in live events business are up almost 30%. We still have a nice pipeline of opportunities out there and the interest in high definition displays continues to drive interest. There is of course the possibility that these kinds may effect the timing and skills of some of these projects that are in the pipeline and that remains to be seen. Within school and theaters, again which is a high school sports primarily and then also the automated hoist rigging systems for theaters. Orders within the scope of portion were up almost 10% for the quarter but the business here at the whole was down 10%, and this decline was due to the hoist side of our business which we believe was more a factor of timing. Year-to-date, our scoreboard business is up more than 5% in spite of the economy and more importantly we've, in spite of the delivery issues we had in the first half of the year which we now feel are behind us. We think this business can grow but the uncertainty of the economy is still there. Our international business as we have discussed before is typically more difficult to project because of its reliance on large projects which are always lumpy. The current economic environment adds the further degree of unpredictability but we are committed to the long-term opportunities of the international business. There are still nice opportunities out there in the pipeline but at this point it is difficult to forecast. Orders and transportation for the quarter and year-to-date are up approximately 19%, sales are not following, so we're building backlog and this has failed delay is primarily due to customer slight delays. We don't see impacts from the economy here and are optimistic that stimulus spending could have a positive effect on this business. On the product development front, we launched a new product a few months ago which is an outdoor 10 millimeter surface amount video display technology. This provides a very high resolution for an outdoor display, especially applicable to closer viewing distance applications. We installed one in Colts (ph) at the New Yankee Stadium and we sold a modular system using this technology to accompany our ScreenWorks which is a rental company, they're in turn providing that is part of the AC/DC concert that's part of the staging backdrop for that concert. We have recently received a second order from ScreenWork for this product to be used at another high profile to work in and that will -- product will be delivered at this quarter. So we're excited about the response that product has received and this gives us a nice entry into that transportable market, the staging and the rigging market. Given the overall outlook, which includes reduced overall order levels and sales, we are very focused on cost reduction. Our strategic goal is to reduce cost but at the same time retain our core strengths that differentiate us in the marketplace. We are continuing our strategic initiatives and restructuring our service organization and streamlining our engineering processes, and we've initiated string of hiring controls and have reduced head count primarily through attrition to date. During the third quarter, we didn't achieve the reductions we had desired, and so we are continuing as we go forward to focus on cost reduction. And we -- just to emphasize, we look at cost reduction as the process, not an event and we'll continue to focus on this as we work through the economic downturn. And with that, I'll turn it over to Bill for some comments on the numbers. William R. Retterath: Thanks Jim. I'd like to start with a few comments on gross profit which was less than what we had expected for the quarter. We took approximately $1 million head on the finishing issue mentioned in our press release. We also did not get quite the personnel attrition, as Jim mentioned, we expected to achieve within manufacturing. So our costs were little bit higher than expected. Finally, we took some cost estimate changes and contracts which were really unusual and dealt with obligations primarily with sales and used tax. The warranty hits which exceeded our expectations including the finishing issue was approximately 2% on the margin. The contracts cost sort of less half a percent and the lack of personnel attrition was a little bit hard to quantify, it was likely cost to another margin point. We also completed the restructuring of our inventory within manufacturing. That in the process we became aggressive on identifying inventory to transfer primarily for our field service use. This had two effects, one was to increase our finished goods by about 2 million. And secondly, increase in write-downs at about three quarters a million as we determine some of this inventory was in higher quantity than what we needed in service. This overall was approximately half a point hit to margin. Given where we are today with attrition on warranty cost, its hard to project gross margins for the fourth quarter. But I expect we could see them rise sequentially. Moving on the manufacturing cost. Like manufacturing wouldn't see a quite the attrition we wanted to, so we have a ways to go. But we are still able to see a decline in total operating expenses. Part of the decline was adjusting, a various accruals to reflect the change in business, which occurred in the third quarter, things like backing down on profit sharing accruals and other cost reductions of other benefit types of things. While this benefit reduces on a go forward basis, so OpEx would likely rise where -- we think that there are the cost saving opportunities that we can take advantage over to get to more appropriate levels of OpEx as we go forward. The adjustment of accruals is approximately $400,000. So that's where we have to make up to. Again our focus on things like attrition, like professional fees, IT cost, bad debt expense, sort of things that could inhibit the ultimate decline that we see. We like good cash flow for the quarter and our cash position remains strong at 18 million cash in the bank. Generating free cash flow and preserving our cash remains our high priority. We're not doing anything that isn't mandatory in terms of CapEx and some of what we've get currently planned, couldn't get put off for delaying. With spending -- we represents primarily maintenance CapEx and things that have been committed too. We also have some assets, we expect to dispose of the free off some cash during the quarter could be somewhere in the $2 million range. All right, two quick comments on items below operating income. We expect that our losses and equity investments will increase a little bit in the fourth quarter. Keep in mind that's a non-cash impact. And on the income tax side, our effective rate rose slightly primarily based on our assessment of the mix of business at the state level, where we have a higher level of projects and higher tax states. With that, I'd like turn it over to the operator, and open it up for question.

Thank you Mr. Morgan. The question-and-answer session will be conducted electronically. (Operators instruction). And our first question comes from Steve Altebrando with Sidoti & Company. Please go ahead. Your line is open. Steve Altebrando - Sidoti & Company: Hi, guys. How are you?

Hi Steve, it's good. Steve Altebrando - Sidoti & Company: I think, it's a previously top-line guidance of 585, I believe it was, is that something that's still reasonable ahead?

Yeah, that's in the ballpark, Steve. Steve Altebrando - Sidoti & Company: Okay. Do you have number revenue for billboards in the quarter, revenue wise?

Revenue wise was approximately $10 million on billboard. Steve Altebrando - Sidoti & Company: Okay. And was that sort of a run-off from previous orders or is that?

Yes it was a big set of order, there little less than 4 million for orders. So yes, there was a line-up for bookings in the second quarter. Steve Altebrando - Sidoti & Company: Okay. And in terms of the margin issue, you spoke of the warranty. Is that something that you think is largely resolved as of the end of the January quarter another -- in other words there are couple 100 basis points impact, how long should we suspect that to continue? James. Morgan: So, Steve the we're trying to finally quantify that, we've expected, we believe it's a limited scope as we say, up to this quarter we're continuing to evaluate that. So, there could be some more there and we think it's contained. Steve Altebrando - Sidoti & Company: Okay. And then just a couple quick more, the Jets and Giants. Any color just for modeling purposes in terms of when you'll see revenue recognition, is there a certain quarter where you see a bulk of that?

Well, over the next two quarter, the remaining most of the -- we have about 27 million that's whole left the backlog for that contract. And now it's roughly 10 to 12 million in each of the next two quarters, what's the remaining going into the Q2 of fiscal 2010. Steve Altebrando - Sidoti & Company: Okay. James. Morgan: Keep in mind Steve that, that can change the timing on assets, normal in our business. But that's our current plan somewhere around that level.

That might accelerate a little. Steve Altebrando - Sidoti & Company: Okay. And then the last one. Last time, I think you had -- you were continuing to see nice interest in some HD sign, it's from the large sports venues. Are you seeing less of it or you just given the economy, it just seems that visibility is a little bit less? James. Morgan: Well, HD, our definition is still a big driver for the projects that are going forward. I think the question is, the projects that have been teed up there, will they slide out or will they be partially scale down, I think it remains to be seen. But certainly given the economic environment out there, those are I think the possibilities we have to recognize exist. Steve Altebrando - Sidoti & Company: Okay. But nothing -- you're not seeing orders being cancelled that are again pushed back. Just a sense that it's possible given the outlook here? James. Morgan: (inaudible) That can happen anytime, the projects get pushed back. That happens even in more normal times. So to say, to quantify it is different right now. It is difficult but I just say the potential is there. Steve Altebrando - Sidoti & Company: Okay.

That happens. Steve Altebrando - Sidoti & Company: Okay. Thanks guys.

Thank you.

Our next question comes from James Ricchiuti with Needham & Company. Please go ahead. Your line is open. James Ricchiuti - Needham & Company: Thank you, good morning. I was wondering if you could comment on what you're seeing in live events in the professional market versus say the university small college market. Again, I think what we're trying to get a sense of is looking at the upgrade business out there. Are you seeing some more caution on the part of the university college market as opposed to the professional market? James. Morgan: I think the larger projects tend to be more at this point, tend to be more on the professional side. These are projects that are in the 5 to 10 million range but then the -- and I don't have the visibility below that so much build...

Yes, I'd add something below the interest thing, a couple of things. Except to economy effects the business, we'll probably if it does effective, we'll probably start to seeing late in the fourth quarter as we start getting into the sales cycle of the falls parts seasonal. But HD one thing that we've seen is on a transaction less than 5 million which is fairly large degree, our bread and butter and our foundation through the third quarter our sales on projects below 5 million have exceeded what it was for the entire last fiscal year, on projects under 5 million or about 100 million something within that ballpark -- last year I think we're in the $90 to $95 million range. So, there are -- it's interesting to see the projects that are out there for renovations in the relative size of those compared to what they would have been two years ago. But to know our roles turn out is being uncertainly that we have at this point. James Ricchiuti - Needham & Company: Jim or Bill, can you comment -- you talked a little about the pipeline. I wonder if you could elaborate on -- if you touched on some of the activity but the pipeline going forward in mostly the activity it sounds like it centered in the U.S. market or you still targeting projects international that potentially could come attrition of the next couple of quarters.

The domestic market is a more visible and more predictable. There are some opportunities internationally. I'd say the uncertainty of the timing more uncertain now that typically is and it's always a little uncertain with big projects over there. So, whether it's Europe or Asia, like there is that uncertainty. So maybe a little less visibility on timing and some of the things that are over there but their projects we have -- and bids (ph) on, interactively working. James Ricchiuti - Needham & Company: The activity, the pipeline you see in domestic really that's mostly focused in the live events area?

Well the big projects are that, yes that's typically where big project work is anyway. So that's where we see the big projects side of things. There is a few commercial projects in the pipeline as well. But that's much smaller dollar wise but our projects here is much smaller dollar wise than in the sport side. James Ricchiuti - Needham & Company: Sure. Then one final question from me, turning to the manufacturing side, the cost side, you guys have added capacity over the last couple of years to really support the growth in the company and I wonder if you could talk a little bit about, I know utilization is always a tough thing to get your arms around. But can you talk a little bit about where you are relative to capacity utilization to the extent you can?

The answer is, two parts of that. So one of the text in the variable side of things and of course the variable side we can adjust as we go forward. Certainly we've made some investments in capacity equipments that sort of depreciation side of things is about something that's readily adjustable. So some of those well affect our utilization here going forward in the near-term. But we're looking for all the ways we can cut cost and drop down. James Ricchiuti - Needham & Company: And on the fixed side of the equation. Do you anticipate if business remains at these levels, potentially looking at some other options? James. Morgan: Well, again if we look at this whole thing as a process. And I guess as those economic situation plays out we have to adjust those things developed at this point we're still expecting that will turnaround at some point that we want to be positioned to in order to move forward at that stage and still maintain our capability -- some of our capability, the core capabilities at that point, so we're ready to go. So that's going -- where we'll add up the moment and its something we monitor on our ongoing basis.

Jim, if I could add. There is a couple of things where we've done nice, I think you might be touching a little bit on this. Well, we have some real estate that we thought would be long-term growth. During this quarter, we expect and if we had a transaction on this table to sell that real estate, that -- much primarily last or doesn't effect down operating as it stated long. But then also we had and in fact we had start started just initial steps that's starting to build out $2 million addition at revenue falls, top-line there we've put that on hold. So at this point that's more about liquidating assets that we don't need along those lines, but keeping our core fixed infrastructure in place under the assumption that we can carry that for a reasonable amount of time. Now, with things were to go beyond. Fiscal year 2010 we might think differently about it. We'll be at 2010, but for right now we're just putting things on hold but not doing them. And getting rid of some selected assets that really weren't core to our existing capacity prior to this downturn. James Ricchiuti - Needham & Company: Okay, that's helpful. Thanks Bill.

Our next question comes from Steve Dyer with Craig-Hallum. Please go ahead. Your line is open. Steve Dyer - Craig-Hallum: Good morning, guys. Several of mine have been answered. I'm just wondering how we should think about the absolute spending going forward on the operating lines?

You mean spending growing forward on like operating expenses. Steve Dyer - Craig-Hallum: I mean that was down -- it was down about $1 million sequentially is kind of 272ish, a decent run rate to you or you are going to get more aggressive in chopping that?

Hey, we're doing everything possible that reduce. Again, primarily its personnel in our case through attrition. And we are working hard on that. Our senior management team meets on a weekly basis for the sole purpose of going through that and we've got a long ways to go and we'll continue to focus on it, and same thing happens primarily in gross margin. We'll focus on it and do we think that we can reduce operating expenses on a go forward basis? Absolutely, the timing of how we see it is the somewhat uncertain part of it. We put in place some internal goals of where we like to see us be at the end of the quarter. But we have to workout the process as Jim described earlier. So there is room to go down. Steve Dyer - Craig-Hallum: Okay. And I know it's obviously very early to start thinking about fiscal '010, especially with the lack of visibility but what you're kind of what are your initial thoughts, is it possible to grow the business that would seem to be a challenge right now. How do you think about next year, or is it just too early to tell? James. Morgan: It's not too early to start thinking about it. We've been doing a lot of thinking about it. I think as we've discussed in the past our light events business had a really a phenomenal is have been really phenomenal year and so it will be tough for that to probably grow and we're expecting commercial to be down. So generally, we don't see -- we're not expecting it to grow next year given the current economic situation. Although, we haven't gotten number for that and we're in the process of going through a planning at this time for next year. I'm trying to get a little better sense of where that will go. Steve Dyer - Craig-Hallum: Okay. And then just any color you can give us on a digital billboard marketplace, obviously sales down quite a bit. What do you hearing from your customers, are they kind of still on a standstill basis with you in terms of, not only with you but moving forward and rolling that out?

Yes, there's nothing really change there. The larger customers are definitely have pulled back the Tier 2, Tier 3 level customers. One of the challenges there is that they may have interest but there is the challenge of getting credit to make investments. So there is definitely a pullback in that but we see -- at this point, we expect it to go through this calendar year anyway. Steve Dyer - Craig-Hallum: Okay. I'll jump back in the queue. Thanks, guys.

Thanks Steve.

(Operator Instructions) Our next question comes from Dick Ryan with Dougherty & Company. Please go ahead, sir. Your mike is open. Dick Ryan - Dougherty & Company, LLC: Thank you. Good morning. Bill, you talked about the uptick in tax rate in Q3, what do you see going forward for Q4 and may be into next year?

Well the annual, there is a year-to-date rate, it's about 35.5% and I think that that will hold into the fourth quarter, somewhere in that close to that range. I think going into next year, one of the things we've got going out, I mentioned the state rate, we're doing a lot of business this year in Minnesota and New York and also in that cheap (ph) states when it comes to tax. And so generally our history would suggest that it could go back down here, but we're talking maybe a quarter of a point or something like that. Now, the big thing that helps our tax rate is to extend Asia and really takes off because there are taxes there, and most jurisdictions and Europe have lower tax rates. So the driver is long-term to lower tax or business outside the U.S. Dick Ryan - Dougherty & Company, LLC: Okay. You mentioned service, I'm not sure you said restructuring or focusing on the service side. I think that was about 5% of business. What are you doing there and are you seeing any margin uptick on the service side?

At this point, I'd say we're investing as much as anything there, because we're evolved in the having (ph). So the number of independent field service entities and we saw a need to pull that together and get more of a cohesive effort out there. And, so that's we make good progress on that. And the major restructuring is done, we're working on lot of the processes and the procedures and that's really where our focus is right now. We've introduced some new system software, systems to help with that process. And that's the effort to do. So, we've deployed part of that capability, that system, but there is more to do yet. So, that's really where the big focus is at this time as the processes and the systems to support all of that. Dick Ryan - Dougherty & Company, LLC: Okay. Thanks. James. Morgan: We'll take one more question?

And our final question comes from Jim Ricchiuti with Needham & Company. Please go ahead, sir. Your mike is open. James Ricchiuti - Needham & Company: Yes, I was wondering if you could characterize the pricing environment just in light of the economy. Are you guys seeing more pricing pressure in some of your markets? And on the competitive side, do you see potentially some of the smaller players struggling a little bit more than you normally would be competing against?

I certainly have seen some real aggressive pricing from some other competitors that we'd say maybe unusually aggressive, maybe to the extent of question whether it's even sustainable, that's why it's hard judgment to make the course. But, so there is some of that. James Ricchiuti - Needham & Company: So, is that in the, any specific market?

We've seen some of that in live events and we've seen some of that in commercial both. James Ricchiuti - Needham & Company: Okay. James. Morgan: You have a follow-up Jim? James Ricchiuti - Needham & Company: Well, I was curious if some of the smaller players. It's this price competition coming from the more traditional competitors. I assume it is if it's in light of them. And I was wondering in some areas of the commercial market if you seeing maybe some of the smaller players doing this and longer-term do you see potentially that competition, the competitive field changing in the commercial market amongst some of the smaller players that you can be with?

Yes, I'd say it's very, its kind of -- I don't know that's -- in some cases it's companies that are trying to get into the business. And I'd say from our perspective trying to buy their way in, its going to what it looks like to us, that we don't describe differently. But that's -- so in some cases that some players that haven't been playing so much in the past. James Ricchiuti - Needham & Company: Okay. Thank you.

Well, thank you for your questions, for being with us today. We'll continue to again focus on containing cost and working hard to generate orders, that's going to be our priorities here. So, thank you for being with us today. And operator you can close it up. Thanks, operator.

Thank you. At this time, this concludes today's presentation. Thank you for your participation. You may now disconnect your line.