Bill Retterath – CFO Jim Morgan – CEO

Jim Ricchiuti – Needham & Company Analyst for Steve Dyer – Craig-Hallum Capital Group Dick Ryan – Dougherty & Company

Welcome to the Daktronics fourth quarter and fiscal year 2010 earnings results conference call. As a reminder this conference is being recorded today, Wednesday, June 2, 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 on our fourth quarter year-end conference call. We will do our usual thing of giving some comments about the quarter and the future and open it up for a limited time for Q&A. : 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 will turn it over to Jim Morgan, our Chief Executive Officer, for some comments.

Thanks Bill, and good morning everyone. First of all, it was great to see a pickup in orders for the quarter. Just the fact the orders were back-end loaded in the quarter and due to the nature of some of the orders our backlog increased by approximately $27 million over the beginning quarter backlog. Bill will give a little more insight into our backlog in a bit. As noted in the news release our commercial business is showing signs of recovery although the price pressure in the marketplace remains keen. We have seen great interest in our new 4000 series billboard product which we are just starting to ship. This product as we have discussed previously offers improved performance, life cycle cost and reduced price point. We are also getting some positive indications from the marketplace that deployment rates may start to pick up gradually starting this summer. While we are seeing some Chinese competitor activity in the commercial market it tends to be more focused on the national accounts business and it has been a bit sporadic. Orders in both our live events and our schools and theaters business units both of which are heavily dependent on sports venues were down over the same quarter the previous year but up sequentially over Q3. Regarding trends, the sports dependent businesses didn’t turn down as fast as the commercial business going into the downturn and it appears they will lag commercial coming back as well. We attribute this to the long-term nature of many of the projects related to sports. However, we do see opportunities for upgrades and retrofits that can sometimes materialize in a matter of months. We have seen much more aggressive efforts by the Chinese competitors in the live events business. Their approach into the market is to come in with low pricing. We started shipping our new DVX video product in Q4. We are excited about that. As we didn’t discuss that previously it offers an improved functionality at a reduced price point. This product has been very well received in the marketplace. Also as noted in the release our transportation market had a great year in both orders and sales. To put that in perspective that was about 10% of our total revenue in the transportation business. The transportation business unit situation was a bit different than our other businesses going into the downturn as they hadn’t previously seen the high rate of growth between FY05 and FY08 that we had seen in the other businesses so our cost structure there was more contained. While FY09 sales were down slightly over FY08, fiscal 2010 sales were up more than 15% over fiscal 2009 to achieve a record high. We are just beginning to ship our new Vanguard product and we will be phasing that in. That is again our over the roadway motorist information product. We will be phasing that in over the next couple of quarters so that should help us remain competitive and maintain margins in the transportation business. One of the new products we have been working on is for computer controlled architectural lighting applications. While we did some custom jobs for this application, we have done over the past 3-4 years, we have been developing products for this application over the past few years as we explored the needs of the marketplace. We are now offering product in both the linear stick form, as we refer to it, and a round pixel form similar to a hockey puck. We ended the quarter with two orders for products of this application which combined totaled about $7 million. In both cases this was for the stick type product element. In one case the elements will be arranged in a flat, rectangular pattern and operate similar to a typical video display with commercial advertising. The other order of the product is being incorporated into the building exterior in a large property development in China. It will be used more for effect as these are high rise buildings and they will be visible for several miles across an open body of water. So we believe there is significant opportunity in this and we are excited about these two projects as references going forward. We did achieve some significant cost reductions this past quarter. Again, as noted in the release our cost reduction efforts continue with a focus on reducing cost of sales which is where we see the biggest opportunity for savings. We will continue to tighten up our operations to reduce the [work] and inventory costs we have been experiencing. With that I will turn it over to Bill to give a little more color on the numbers.

Thanks Jim. First, some comments on gross profit. The gross profit margin increased from the third quarter primarily due to the higher sales level and that has to do with plant utilization. That in and of itself accounted for more than 4 percentage points in margin. We did in gross profit have greater than expected warranty and inventory costs during the quarter. However, as a percent of sales it actually was less than the third quarter. The warranty costs were actually flat compared to the fourth quarter of last year and just up a hair from the third quarter. So it is generally not worse from a dollars perspective but it needs to be better and we expected better results. As Jim mentioned it is a focus area for us. During the fourth quarter our domestic manufacturing costs increased slightly. We have been decreasing those costs rapidly over the last 8 quarters or so. But as mentioned in our last third quarter earnings release our manufacturing schedule was back-end loaded which mean we couldn’t entirely capitalize on a smooth schedule. That was coupled with some new product introductions which increased the efforts expended in production. Overall, I think we are doing a great job at improving our manufacturing cost structure against the sales volume. In terms of backlog it is important to put some perspective on it. There is very little revenue opportunity in the first quarter of fiscal 2011 for three of our large orders in the backlog; that being the Florida Marlins, the New Jersey Transit Authority and Virginia Department of Transportation contract. That makes about $20 million that is not workable this quarter. While it is typical some of our backlog isn’t workable for a quarter due to project schedules, this is on the high side. With that being said I think we have a very good chance at higher sequential revenues and also based on our backlog our contract gross profit margin has a good chance of increasing sequentially. So I think we showed some signs of improvement on margin and sales but as Jim mentioned with the competitive environment margin is still a tough thing to predict. Overall on cost reduction we did a lot of things this quarter including personnel reductions and office consolidating, netting us approximately $6 million in annual savings as stated in the release. We have a lot of areas to focus on in the next two quarters and beyond and as such we are not planning any additional reductions in payroll over the next two quarters but we will work diligently on these other items most of which are reflected in gross profit such as warranty, inventory and service costs. The impact in the fourth quarter of the office consolidations, most of which was included in cost of goods sold, was a little over $500,000. Other severance obligations related to payroll reductions expressed throughout the income statement were more than $300,000. We mentioned some bad debt expense in the release that was approximately $700,000 and we are still pursuing collections so we are crossing our fingers we will see some of that come back. There are a few other added expenses for the quarter in operating expense that aren’t expected to be recurring that exceeded $400,000. Based on that we expect that we will see a good decrease in operating expenses in the first quarter of fiscal 2011. We also completed some restructuring activities that will have an impact on our non-operating income and expense. During the quarter we restructured a couple of our investments in that area and the losses recognized for the fiscal year were approximately $2.5 million and we expect that to go away for fiscal 2011 in its entirety. The effective tax rate turned out a little bit different than expected but with yearly losses and the implications that larger items have on the effective tax rate, it makes sense how it turns out. We also lost the benefit of certain deductions when you are in a loss situation. The research and development tax credit has gone away for us effective January 1st so we started to see that hit us. Cash remains good with us and we expect it to grow over the next fiscal year with some ups and downs in the amount as we go through due to the nature of our business. With that we will turn it over to the operator and open it up for questions.

(Operator Instructions) The first question comes from the line of Jim Ricchiuti – Needham & Company. Jim Ricchiuti – Needham & Company: That $700,000 in bad debt expense, that was in the selling expense line?

I’m sorry. I didn’t hear that. Jim Ricchiuti – Needham & Company: Sorry about that. The bad debt expense that you alluded to at $700,000 was that in selling expense?

Yes. Jim Ricchiuti – Needham & Company: You mentioned some additional added expense, I apologize I missed it. I wasn’t sure what the dollar amount was. I wasn’t sure if it was $100,000 or $400,000.

$400,000. Jim Ricchiuti – Needham & Company: So if we look at the office consolidation, the bad debt expense and this other expense it is somewhere around $1.6 million of expense that you don’t see recurring in Q1?

Yes. Jim Ricchiuti – Needham & Company: I was surprised at the order activity in transportation. Maybe you could just talk a little bit about that. Clearly I guess you did have some big orders in that area but it looks like it was a record quarter. At the same time, you sound a little bit cautious just with respect to funding going forward and the impact on that business.

I think there is always some uncertainty about how funding will continue going forward. I guess generally we are optimistic about transportation. You just never know for sure. First of all we feel we are very well positioned in that marketplace. We have a very good track record. It is the kind of a business where you have to bid to specifications and so having your product specifications accepted ahead of time is key there. We are well positioned in that regard with many states. Typically we are selling to states and in some cases to city governments, city DOTs. Generally we are very optimistic about that business. It is just it is dependent on ongoing funding which is always a discussion point on the news these days. On the other hand we believe the government has incentivized to keep these projects going. Jim Ricchiuti – Needham & Company: I was intrigued to hear your discussion and your commentary around the architectural lighting opportunity. Can you talk a little bit more about that? Is this an opportunity you see more in Asia or do you see this having some applications here in the domestic market?

Certainly there is applications in the domestic market. I think this is one of those things that I guess from an architectural lighting perspective has to be picked up by an architect as something they are interested in doing. I would say we see that it is more common in Asia at this point where it is actually incorporated into buildings and into the façade of the buildings but again the one application actually that we talked about here in South Africa. That is really more for an advertising application and that could be used anywhere. We talk about those as two separate things. Where it is just part of the building design so to speak, architecturally in that regard, we see more of that in Asia. We are actually incorporating some of this product in for example the Orlando Magic project which we are building now and there again it is a special application of where it will be used to convey messages, animations and those sort of things. Using this stick approach one of the things that is different about this compared to a typical video display is the sticks are actually spaced apart. The sticks are a little over an inch wide and they can be spaced anywhere from an inch to more than that. That is variable depending on the installation. They can be put on a different spacing. Depending on what type of brightness they want out of the display and what the application is. One of the things you can do is you actually can see through the display from the rear because there is spaces between the sticks. In the case of the Orlando Magic that is one of the requirements that they want to be able to see through from the back side. So there are applications domestically. It is a very adaptable product. It is very configurable so it is really kind of up to the limits of the imagination as to where and how it can be used. Jim Ricchiuti – Needham & Company: You feel pretty good about other opportunities in this area as you look out over this year?

A lot of the projects we had in China, that is one we have been working on for about a year. This project that is going to South Africa, that came up in about a month. Sometimes we have longer term visibility on these and sometimes we don’t. We do believe there is a lot of opportunities for this. Some are in our pipeline now and some that could happen this year we probably don’t have visibility to yet.

The next question comes from the line of Analyst for Steve Dyer – Craig-Hallum Capital Group. Analyst for Steve Dyer – Craig-Hallum Capital Group: Again on this OpEx expense, what can we expect directionally going forward? Are there any other one-time items that will be nonrecurring but will happen in the coming quarters here?

Typically with one-time charges in most cases I believe they are things you don’t expect. I can’t think of any items off the top of my head that I would expect for one-time charges. We took big steps to reduce the operating expenses and I think that and cost of goods sold and we are going to continue to work on cost reduction. It is hard to say how you can predict necessarily a bad debt expense. Analyst for Steve Dyer – Craig-Hallum Capital Group: On digital billboards it looks like there is a new cycle brewing there. How will that look for you this time around?

Well, how fast it would ramp up is a question. I guess what we sort of see now is that maybe a slow ramp up for the rest of the calendar year and then a lot of the larger companies tend to do their budgets on a calendar year basis and based on some of the public statements indications are in calendar 2011 there will be a higher rate of deployment. That, again, we don’t have anything firm on that. That is just kind of the indication out there. Analyst for Steve Dyer – Craig-Hallum Capital Group: What kind of share would you expect if that ramp up does happen in 2011?

I can tell you that previously we felt we had a 50% plus share in the market. It certainly would be our objective to maintain that level of share. Now we didn’t have that here through the past year. We actually were less than that due to the way some of the bidding took place in the marketplace. But we expect to have an opportunity to get back to that level and that certainly is our goal. No guarantees of course. Analyst for Steve Dyer – Craig-Hallum Capital Group: About that bidding, do you know if Lamar went back out to bid with their business?

Not really per se. But I think they are always keeping an eye on what is going on in the marketplace. Analyst for Steve Dyer – Craig-Hallum Capital Group: What do the economics look like this time around with pricing and the competition factor and that sort of thing?

Pricing has come down significantly over the past couple of years and the past even six months. The way we are addressing that is we have redesigned our product. The 4000 series product is a more streamlined product for us to build. It actually has improved functionality and improved reliability at a lower price point. The competition is keen. No doubt about that.

The next question comes from the line of Dick Ryan – Dougherty & Company. Dick Ryan – Dougherty & Company: Is it too early to get a sense of the upcoming football season and what that looks like from an upgrade and retrofit standpoint?

We did just book at the end of Q4 we booked an order for an upgrade of one of the NFL stadiums. That came in right at the end of the year. We have already upgraded the Redskins. That has been done so there are a few that have happened already. I guess in terms of what is going to book here we will know within the next two months for sure we will know because if we are going to hit the season the orders have to be booked by the end of July if not sooner than that. Dick Ryan – Dougherty & Company: How does that pipeline look versus maybe where it was a year ago?

I would say a year ago it was stronger. We are seeing the dollar value of projects tends to be a little bit less on the retrofits. Part of that is just price points for the product itself has gone down. The buyers are getting a good deal these days. Again, that is not a new thing. The price point for LED displays has been coming down since LED displays were introduced in the late 90’s. I would say this past year they have reduced at a faster rate. So that is one of the things we have to overcome in terms of growing revenue is the price reduction of the product. Generally there certainly are products or opportunities in the pipeline. There is always a little bit of uncertainty. There could be some of these projects that could get put off. You never know for sure until they pull the trigger. That is one thing that happened in baseball season; some of the projects just didn’t happen. It seems like there is a general sense the economy is coming back and we are seeing a little more confidence in terms of people moving forward. Dick Ryan – Dougherty & Company: A couple of earlier references on the commercial side and live events where you said the Chinese are coming in with some price pressure. Are they just lowering the points or are they actually winning the jobs? Are we at the point where we are just getting down to a pure price or is it beyond that for decision making?

If a company has a low enough price they will get consideration. Typically again in live events business with sports venues they are coming in with some domestic partner who acts like an integrator so that is the approach. So price becomes a factor and typically we will have to react to that to some degree to be successful to win a project. It is both things. It can affect the price in which we win the project and in some cases they have won some projects doing that. Dick Ryan – Dougherty & Company: With the recent product introductions do you see the ability to bring down product development at all in the fiscal 2011 timeframe?

I think I will defer to Jim to talk a little bit on that if you don’t mind.

One of the things that is key to our future here is continuing to develop products and bring new products to market. As we mentioned we are taking costs out of our products and streamlining the way the products are manufactured is key. We have reduced our engineering costs overall somewhat here in the last couple of quarters but we are not planning to take a big chunk out of our product development investment at this point. We believe it is critical to our future. I would say it may be slightly down but not very much.

The next question comes from the line of Jim Ricchiuti – Needham & Company. Jim Ricchiuti – Needham & Company: Normally the next 1-2 quarter are bigger quarters for the school theater business. Can you talk a little bit about the outlook there?

Could you repeat the question?

The school and theaters business is looking a little rough at this point. The first and second quarters.

Yes, we are seeing there is a little bit of a pullback it seems in that area. The general funding for schools, and again a lot of the displays that are purchased typically don’t come out of school budgets but just the general tightening on budgets and maybe the pull back to some degree on new construction I think can affect that as well. We are seeing I would say we see the near-term that is down a little bit. Jim Ricchiuti – Needham & Company: As we begin to see your revenues improved hopefully as we go through the year can you give us maybe a range of where we might see your gross margins? I know mix clearly plays a role in this but if we see your revenues begin to approach $100-105 million can we see gross margins get back into the mid to upper 20’s?

This quarter we were roughly 22%. When you factor in, I think the biggest jump we are going to get is going to result from warranty costs and better plant utilization and inventory costs. We are focused on those areas in a big way. So I think as they get north of $100-105 million if things competitive wise would stay status quo we should be above the 25% margin. Again on that, that is controlling warranty and inventory. Jim Ricchiuti – Needham & Company: Are you seeing headwinds at all on the LED pricing side whether just we keep seeing reports of tight supplies. Is that impacting your costs at all?

Actually I think there are some additional suppliers coming on line. I think there is availability and I think there is also competition in that area. At this point we see the LED price cost to us will continue to decline. That is our expectation. Jim Ricchiuti – Needham & Company: You talked a little bit about the national accounts business. Maybe you could just elaborate on what you are seeing in that market. It is also a market I guess where you are seeing a little bit more competition from the Asian suppliers. Maybe you could talk a little bit about how you see the next couple of quarters and just in general if you are seeing some of the customer base beginning to pick up spending.

What we have seen is we have gotten positioned with a number of companies who are considering rolling out some corporate programs but we are seeing they haven’t pulled the trigger. A number of these just haven’t pulled the trigger yet. Some of our customers we have been working with for a number of years are continuing but maybe at a slower pace. I would say at this point it is kind of hanging steady. I believe there is great opportunity there if some of these companies would decide to move forward. The quick service restaurants or fast food areas is one area we are seeing a lot of potential interest in particular. Also convenience stores is a growing opportunity. Jim Ricchiuti – Needham & Company: Are you more optimistic over the near-term? Call the near-term the next 2-3 quarters. Are you more optimistic about the potential recovery in the national accounts business or the billboard business? Which do you see coming on a little faster? I think you are assuming the billboard business may be calendar 2011. I am just trying to get a sense as you look at those two pieces of your commercial business which you might see some recovery sooner.

We are actually seeing some uptick in billboard already quite frankly. We are expecting a gradual ramp up in billboard here the rest of this calendar year. So right now I would say we have better visibility in the billboard ramp up than we do in national account ramp up but certainly there is opportunity in the national account side if that would break loose. Jim Ricchiuti – Needham & Company: Would you be willing to say what you think, I don’t know what the billboard business was this quarter, but can you give us a sense as to how you might see that ramping up this year?

I think right now it is a situation that is kind of unfolding on a week by week basis as we get more information. I don’t know if I have a number in mind.

Our orders under billboard for the quarter were up to the highest level of what I am looking at going back through a year ago. So it is the highest the last five quarters. In terms of how it ramps up, there are a lot of variables. There is optimism out there but when companies will place orders and if they place them with us it is hard to say. So there is optimism. We expect it to ramp up. I think if we throw out something if we are successful in quarter two for example our order volume may double from what it was last quarter. That to us I think would be a successful deal. So maybe you are talking an incremental $3-6 million of orders over what we are experiencing now. Somewhere in there. But it is really hard to predict what that will be. Jim Ricchiuti – Needham & Company: The pickup you are seeing, are these from your traditional, existing, larger customers? Or is this coming from the tier two and tier three billboard companies?

We have seen increased activity from the tier three companies. We are seeing some pickup from the larger customers we have had in the past. Some that has taken place already. Again, just starting to take place and we believe there is more ahead there to still unfold. It is just kind of starting to get going again is kind of how we see it.

There are no further questions at this time. I will turn the conference back over to Mr. Morgan for any additional or closing remarks.

Thanks for all the questions gentlemen. Again, just in closing I want to thank all the Daktronics employees for their efforts over this past year. It has been a challenging year. A lot of hard work and we appreciate the commitment and the effort of all of the employees at Daktronics. Again, thanks for being with us today.

That concludes today’s conference. We thank you for your participation.