Bill Retterath - Chief Financial Officer & Treasurer Jim Morgan - President & Chief Executive Officer

Jim Ricchiuti - Needham & Co. Sean Brenckman - Craig-Hallum David Cohen - Midwood Capital Michael Kupinski - Noble Financial

Good day, ladies and gentlemen and welcome to the Daktronics second quarter fiscal year 2010 earnings results conference call. As a reminder this call is being recorded Tuesday, November 24, 2009 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, we appreciate your participation in our second quarter conference call. As usual will start of with some comments about the quarter and the future after which we’ll open it up for short time for some Q-and-A. I’d like to first offer our disclosure cautioning investors and participants that in addition to the statements of historical facts, this call and our year end 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. With that, I’ll turn it over to Jim Morgan, our CEO, for some highlights on the quarter.

Thanks, Bill. Good morning, everyone. Just make a few comments here to maybe highlight and complement what is in our press release. It was a decent quarter for us financially and although we typically strive for greater than 8% operating margin, we are quite happy with that in the current environment. I want to thank all of our employees for their efforts in turning in this good performance for the quarter. These days, we focus heavily on two things, order bookings and cost reduction and I’ll make a few comments on both of those. It’s important to put in context that the second quarter is typically our weakest quarter for orders and that translates to third quarter being the weakest quarter for sales and this is primarily due to the seasonality in our large sports business. As noted in our press release, we’ve experienced a 14% approximate seasonal decline in third quarter revenues on the average over the past five years. In any case, orders remain a challenge in the $90 million backlog is one indicator what we can accomplish in terms of revenue for Q3. The live events part of our business, which again is primarily large sports venues, is the area that’s hardest to project right now. As we said, there are some potential large projects out there for baseball that are still on the bubble as to whether they will happen or not. Our international business is showing an overall increase in activity compared to about 9 months or 10 months ago when it seemed to hit its low point. As mentioned in the news release, we are very pleased to receive the order in China for the new Guangzhau arena, which will be affiliated with the NBA. We also recently installed several displays for major shopping mall in Australia, which we’ve mentioned previously. We mentioned in our press release the upcoming release of our new DVX series outdoor video display product due to start shipping in fourth quarter. This product will have the most significantly impact on our live events and our international business, where we expect it will help us both in winning more orders, as well as regaining some of the margin points that have eroded as of late. It’s an improved product with reduced costs. We are committed to continuing to invest in product development as a percent of revenue. We’re looking at between 4% and 5% going forward probably this rest of this year will be slightly above 5%. In our commercial business, we are seeing some pickup in large projects, helping with order flow. We still see some billboard orders coming from the Tier 3 companies. To provide some perspective here, orders over the past three quarters in our commercial business have been rising slightly, indicating perhaps stabilization with some positive upside potential. As a general comment on the competitive front, we continue to see in most areas of our business extremely aggressive pricing at times from some competitors, some existing, but competitors, but more typically, new competitors trying to break into a market. We believe some of it is not sustainable, but it can be disruptive in the short term. At the same time, we have seen further evidence of some competitors struggling. On a cost reduction side, the fact we were able to deliver 8% operating margin, despite the reduced revenues, is an indication that we are on track. We have cut back in all areas; we are down 15% in the number of full time personnel since our peak in Q2 of fiscal ‘09. Most of this reduction was through attrition, but we did have a couple small reductions in force in our factories. We have also reduced our temporary workforce significantly. We look at cost reduction as a process not an event. We take a long term view in making our cost reduction decisions. In addition to the reductions that we have already realized, we are investing time and efforts into initiatives that will streamline our operations over the long term. Just as we set the objective a few years ago becoming a world class manufacturing organization, we set the objective of becoming a world class service delivery organization. At the beginning of fiscal ‘09, we consolidated our field services activities under one umbrella and we have been making steady progress toward that objective and like manufacturing, the objective is to deliver a better product, or in this case, service for a customer at a reduced cost. We’ve also been aggressively applying the manufacturing philosophy on techniques for more than three years here at Daktronics. Our progress here is very tangible and visible evidence of the power of continuous improvement. We continue to make nice progress in this area, not only in reducing manufacturing operating costs, but in inventory management as well. With that, I’ll turn it over to Bill for a little more insight into our financials before we go to questions.

Thanks, Jim. I’ll start with a few comments on gross profit, which was better than expected for the quarter. Previously at the end of the first quarter, we had said that we thought gross profit could approach the level of the first quarter. There are three things going on there that have the biggest impact on the variability we experienced. These include the installation costs on large contracts, our manufacturing costs and how much we can decline those sequentially and finally, warranty expense. With regard to warranty costs, we saw them decline on a sequential basis from the first quarter of the current year. They are down now over $4 million from the second quarter of last fiscal year. So, we’re seeing some stabilization there, which we hope continues, but we need a longer track record to call it a trend. During the quarter, we saw manufacturing costs decline by almost $1 million from the first quarter of 2010 and are down $4 million from the second quarter of last fiscal year. Part of the decline from the first quarter, which actually affects all areas of the company were lower benefit costs, as we had unusually light quarter for Health Insurance claims, which are self funded, plus we had a full quarter’s impact of other benefit cost reductions that we implemented during the first quarter. So, we expect that decline to partially turnaround in the third quarter, as we don’t think the healthcare cost decline will continue. We also continue to reduce labor costs where appropriate, as Jim mentioned and we’ve actually implemented some schedules that allow for more variable costs in manufacturing labor. During the third quarter, we’re taking additional steps to adjust to lower sequential sales by closing down most of the manufacturing area this week and also reduced hours in a number of the plants. So, we continue to work away at matching the lower revenues with the lower costs. On the large contracts item that I noted, a review of our percent complete accounting process might be a little bit relevant as a refresher. At the outset of many of these large contracts that are subject to percent complete accounting, we estimate costs such as design manufacturing subcontracting and various other costs. As the project progresses, we adjusts once for confident as adjustment is necessary and can be relied. During the quarter, we were able to gain that confidence in some costs that we thought would be incurred in one of our larger contracts and as a result, we realized a significant improvement in margin, which added in excess of $1 million of gross margin dollars for the quarter. So, that should be considered somewhat of an unusual onetime type event during the quarter, just given the size of the contract. As we look forward, we believe that gross margin percent will go down in the third quarter by a noticeable amount, primarily due to the much lower margins on large contracts we’ve booked over the last few months due to the competitive factors we’ve talked about. We also expect them to be handed by the lower sales levels on the same fixed cost base. We expect that we won’t have the benefit of up ticks in margins on large contracts due to these cost savings that I mentioned before. So again, we expect significantly lower gross profit percentages for next quarter and all represents obviously consistent warranty performance. On operating expenses, we continue to find areas of reduction. I can say right now, we don’t know all the areas of results in savings for the third quarter, but I know as long as we continue to examine our business, we’ll continue to find areas that we can reduce. On a sequential basis, such Q1 or Q2 versus Q1, selling expenses were lower due to the payroll and benefits, convention costs, and bad debt expense. On the G&A, we saw lower payroll and professional fees. CapEx is still mostly above maintenance with some strategic purchases and we still think will be in the $15 million plus range for the fiscal year. With that, I’ll turn it over to the operator and open it up for questions.

(Operator Instructions) Your first question comes from Jim Ricchiuti - Needham & Co. Jim Ricchiuti - Needham & Co.: I wonder if you can comment a little bit more about the outlook for some of the baseball projects. Are we talking about three or four projects? How different is this shift that you’re seeing, that you appear to be seeing versus prior years?

We have to quantify how many, I would say there was somewhere on the order of four or five larger projects that were out there and it looks like at least a couple of those are unlikely to happen. The others are still somewhat on the bubble yet. So I think that the economic environment is a factor in delaying the decision to go forward or delaying pulling the trigger there. So I guess that’s kind of our read on it at the moment. Jim Ricchiuti - Needham & Co.: Jim, it also looks like you’re making some decent headway internationally. I wonder to what extent you’re being helped at all from the lower dollar or do you feel you’re just gaining some market share for other reasons?

Certainly the exchange rate is positive for us. That helps. It’s very competitive internationally and certainly selling in China, you can imagine it’s extremely competitive. It also gives us a good sense of some of the things that some of the opportunities and how things we need to do in terms of reducing costs. So obviously, we’re very excited about getting the Guangzhau arena and that was a nice win for us. We’ve done some other things internationally. I was actually just over in China a few weeks ago and one of the things that we haven’t talked much about is we’re involved with architectural lighting as how we describe it and that’s we refer to it as Pure Pixel and ProStick, actually. This is where you can cover a very large surface area with much less costly and then they’re using these in the exterior of buildings. The one installation I saw over there that we just completed was a very upscale shopping center in China, and very large surface area and very cost effective. Just for example, that was about a three quarter of $1 million project for us. So that’s a new area that we haven’t talked much about yet that we’ve done a fair amount of development in that area and we’re seeing some real interest in that internationally. We’ve installed some of that same product over in Europe as well. So there’s opportunities there, again we have to be competitive to win. Jim Ricchiuti - Needham & Co.: Is there an active pipeline of larger projects internationally going forward?

We have a nice pipeline. The difference is compared to our domestic pipeline. The horizon is tends to be shorter, because in the U.S., certainly we understand the markets. We’ve been in the markets for many years and certainly the large projects they have visibility out there. In some cases, it can be for several years. Our horizon internationally probably doesn’t get much past 120 days. An example, about three months ago or so, we installed about $1 million marquee project in Paris. I think we knew about that about a month before we actually got the order. So being able to react quickly and be responsive is certainly a key to international for us right now. Jim Ricchiuti - Needham & Co.: Then last question, I’ll jump back into queue. On the commercial portion of the business, it looks like you had the first up tick sequentially in orders in over a year. I wonder what you’re seeing there, maybe you can just characterize. I know it’s pretty small right now, but the digital billboard portion of that business, as well as what you’re seeing in the remainder of the commercial?

Again in the digital billboard business, obviously it’s a fraction of what it was at its peak, but we are seeing some interest there from some of the smaller billboard companies. We’ve had some of that going into the Caribbean even, some billboards and so we’re seeing a slight up tick there. What was the other part of your question, Jim? Jim Ricchiuti - Needham & Co.: I was just wondering, putting aside the billboard area, which I guess is still very challenging, but are you seeing any signs of life in either some of the national account business or some other parts of that commercial business?

We see good opportunities in the national account business. The accounts that we’re working with tend to be nice, steady business typically, but there’s opportunities out there for some new business, some new accounts that we certainly have, that we’re working with and time will tell on that, but there are definitely an interest in electronic displays for some of the national franchises.

Your next question comes from Sean Brenckman - Craig-Hallum. Sean Brenckman - Craig-Hallum: This is Sean Brenckman for Steve Dyer. I just have a couple of questions here. I know Live Events pipeline aside from the baseball fields, what does that look like in the next couple of quarters?

This is kind of the baseball season. So that’s what we have the best visibility on it and certainly we have a pipeline of that goes out into the summer and next fall. The uncertainty of course increases the further out we get. Our pipeline has a lot of projects in it. So there’s plenty of opportunities out there. I think customers in fact pull the trigger and how these will go forward. There certainly is a lot of projects out in the pipeline. I think one thing that it seems that if there is real project and there’s even some of these baseball that we’re talking about, they’re going to do something sometime. It just sounds like maybe they’re not going to do it this year. So there’s some pent up demand I think that will build if these are put off. So it’s not that they’re not ever going to do these.

Just to add something additional to what Jim is saying. Our pipeline in Live Events, aside from those big contracts, is getting stronger, but what I would suggest is maybe there’s more uncertainty than there has been in past years within that. So it’s hard to equate that into a meaningful conclusion, but the pipeline is growing. Sean Brenckman - Craig-Hallum: Then on the Meadowlands stadium, how much revenue has been recognized from that?

We’re about done with that. I don’t have what’s left, if any. There’s not a whole lot left on that project. It is interesting, I will throw out. As you can see this on the balance sheet, it’s kind of a nice trend that we’ve got going on. Our book of maintenance business is deferred revenue is growing and a big part of that is deferred maintenance. We have to take care of that system for future years and so I believe it was a multimillion dollar maintenance agreement going forward. Our Group, Jim mentioned world class service as part of that is to grow that maintenance portfolio. I think our people are doing a good job of doing that. Sean Brenckman - Craig-Hallum: One last question, are there any updates to the Digital Billboard rollout with Lamar and Clear Channel?

No, real updates there I think, they’re still in kind of a slower, much slower approach than they were and, we see that any upturn is at least a year out on that of any significance.

Your next question comes from David Cohen - Midwood Capital. David Cohen - Midwood Capital: With regard to the project with the Amway Center, have you guys provided a sense of the size of that project and the timing of when it gets, sort of hits your backlog, when it starts to revenue?

It hits our backlog now. It’s included in backlog and as I, to the best of my recollection, that’s Q4 as when it starts to hit and goes on into Q1. David Cohen - Midwood Capital: So it’s in the backlog that you just reported?

Yes. David Cohen - Midwood Capital: Can you tell us how much is in there from that?

Yes, I believe it was north of $9 million, something like that.

Somewhere in that range. David Cohen - Midwood Capital: Can you repeat the comment you made about Q4?

In terms of starting to recognize the revenue for that project, we’ll start to occur in Q4, some of it.

Again, realizing we will account for that on a percent complete basis. So it will be recognized over a period of time as we incur the costs for the project. David Cohen - Midwood Capital: How many, how many quarters is it likely to last?

I don’t recall how far, but keep in mind when you’re dealing with kind of construction projects, you can see variability, so it can move.

The bulk of that will be over a period of about two quarters. It will trail off a little probably beyond that just because of the project schedule, but the bulk of it will be en capsulated in two quarters.

Your next question comes from Jim Ricchiuti - Needham & Co. Jim Ricchiuti - Needham & Co.: Wondering, if you look out a couple of quarters at the pipeline, what are you seeing in the college/university market? Are you seeing some concerns there on the part of those customers to perhaps pull the trigger, or is this similar to what you normally see over as you look out over a few months?

Certainly, like I said there’s a lot of projects in our pipeline. A lot of those are college/university projects. College/universities are still moving forward on projects. In some cases, we’re seeing them downsize just because of the economy, sometimes just not, they don’t have the money, but just maybe the perception as maybe go a little easier or a little more conservative right now, but there’s certainly opportunities out there yet. Jim Ricchiuti - Needham & Co.: Jim, are you at all disappointed by what’s happening in the transportation market? I thought you guys might see a little benefit from perhaps this stimulus spending, but it seems like the market has been somewhat sluggish for you.

As they were a little disappointed in how things have, how orders have commenced so far this year on the transportation side. Again, that’s one area we’ve seen some pricing from a new competitor in particular, a couple of new competitors maybe, that we really question whether it’s sustainable, but, if they come in low enough, people will give them a shot. So we’re seeing some of that in transportation. On the other side of that, we have some product development projects underway here. Of course, always in all of our areas, but we have a new product we’ll be introducing here in the next couple quarters that will take some significant cost out of our walk-in, that we call the walk-in overhead cabinet. So we have some strategies there. We’re not sitting still, but it’s very competitive. We haven’t seen a big up tick from the stimulus, I’ll say that. I think it maybe let some projects that were keyed up go forward, because there were states, settle more confidence, so they had some access to some funds, but I don’t think we’ve saw what you would call it up tick from that. Jim Ricchiuti - Needham & Co.: Bill, I wonder if you could just talk a little bit about how we should think of the tax rate in the second half of the year.

The tax rate, it’s being influenced to-date, losses in China, which have a very low tax benefit associated with them. So, if we can ramp up the income over there, which there are some transactions, but we’ve got to book some more, it should go down, but it’s hard to foresee because of that international influence. So my hope is that would go down, but where it ends up is probably dependent more on China than anything else. All of the countries that we operate and have lower tax rates than the U.S. and so, they extent our international business does well, our overall rate should go down. Jim Ricchiuti - Needham & Co.: Just with respect to gross margins in the quarter, given the mix of business that you have and you guys have, it sounds like there was a little bit more competition on some of the larger deals. Would you expect your gross margins to be below the levels that you saw in Q1 of this year?

It’s hard to say when you get down to that level, Jim, there. I think, if I recall right, 23.5, and that’s too close to say whether it’s lower or higher. We have too much volatility to narrow it and to say yes, it will be lower or yes, it will be higher. So hard to say is how I would answer that. Jim Ricchiuti - Needham & Co.: In terms of some of the warranty expense issues you’ve experienced, how do you see that going forward?

I hope we’ve had two quarters now where we haven’t had issues and like we’ve said for a number of quarters, we have invested a lot in quality and testing and changes in how we approach product development, some great things we’ve talked about. We know that those efforts have to pay off. It’s a matter of, is two quarters enough to say we’ve got it in check. I’d rather not say that, but I’m optimistic.

Your final question comes from Michael Kupinski - Noble Financial. Michael Kupinski - Noble Financial: I have a couple of quick questions here. Just want to flush out a little bit of your comments about the expenses. Your G&A expense as a percent of revenues was down and obviously showed some quarterly sequential decline. You indicated that, you thought that maybe that might go up a little bit. What should we use as a run rate when looking at the G&A line? Should we look at it from more of the perspective of what it was in the first quarter that you think that should be more like the run rate for the balance of the year, or can you just give us a little more color there?

Yes, if you take G&A, the way we’re approaching cost reductions, just under a hair under $6 million. Our goal is we don’t want to see that increase. Now, we got the benefit this last quarter of lower healthcare costs that we’ve done some things with renegotiating our, our healthcare plan, but we’re self funded. So we could see a little upward pressure in G&A, but I wouldn’t think it approaches Q1 levels, because we’re still focused on cost reduction. We’re still trying to find some areas and included in that is more attrition. So it’s been difficult in terms of going through this cost reduction of actually forecasting how the numbers turn out, because we’ve got employees everyday working on cost reduction, but for planning purposes, I don’t see a significant decline, nor do I see it getting to the levels of first quarter. I don’t see that at all. Michael Kupinski - Noble Financial: The selling expenses that we go forward, how should we look at that line item? Is the 12.8 more like a good run rate, do you think, for the balance of the year, maybe a little slight up tick there?

The same story applies to healthcare costs there as well. So, yes, I wouldn’t forecast a significant decline sequentially. Michael Kupinski - Noble Financial: In the product design and development expenses, you indicated that will probably be closer to 6% for the balance of the year, is that right?

For the whole year, it will be between 5% and 5.5%. We don’t see that dollar amount declining. We’ve got a lot of good things going on, and we’re working on ways where we can cut it. It’s possible it could decrease, but I wouldn’t count on it.

Mr. Morgan, we have no other questions remaining. I’d like to turn the conference back over to you for any additional or closing remarks.

Well, thank you. We appreciate all of your time this morning and thank you for the questions, and we wish all of you a happy and safe Thanksgiving holiday.

Again, that does conclude today’s conference call. Thank you for your participation.