William Retterath - Chief Financial Officer, Principal Accounting Officer and Treasurer James Morgan - Chief Executive Officer, President and Director

Robert Hoffman - Candlewood Capital Stephen Altebrando - Sidoti & Company, LLC Richard Ryan - Dougherty & Company LLC James Ricchiuti - Needham & Company, LLC Steven Dyer - Craig-Hallum Capital Group LLC Unknown Analyst - Morris Ajzenman - Griffin Securities, Inc.

Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2012 First Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded today, Tuesday, August 23, 2011, 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, and Good morning, everyone. We appreciate your participation in our conference call. I'll give some brief updates about the quarter, and then open it up for Q&A, following our prepared comments. I'd like to first offer our disclosure cautioning investors and participants. In addition to statements of historical facts, this call and our news release contain forward-looking statements, reflecting our expectations and beliefs on 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 the economic and market conditions, management of growth, timing and magnitude of future orders and other risks as mentioned during this call, and in our press release and our SEC filings. Forward-looking statements are made in the context 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 comments.

Good morning, everyone, and thanks for joining us this morning. The highlight of the quarter overall was that orders were strong, which positions us for a good second quarter. Maybe to put our typical year in perspective, Q2 is typically our strongest quarter, Q3 is typically our weakest quarter, and that's due both to the business seasonality and the holidays in Q3, which in turn translates to shorter work days in that quarter. The first and fourth quarters typically fall somewhere in between in terms of financial performance. So while we would typically expect to have a strong backlog going into Q2, given the economic news that we're all hearing lately, it was good to see the orders come through. Overall, our story for this quarter is similar to the fourth quarter of 2011. Our 2 business units that were trending up in fourth quarter of 2011, namely Commercial and International, continue to trend up this quarter. Our Live Events and Schools and Theatres business units are a little slower to return to growth. Our Transportation business has remained strong through the downturn. A few comments about areas we are investing in. We continue to invest in product development to deliver improved products at reduced price points, as well as bring new products to market. Our increased product development investments are a reflection of aggressive development schedules, along with more thorough prototyping and design testing, which adds to the initial development cost, but provides a more robust and more cost-effective design over the life of the product. Our focus for the next couple of quarters in the display development area is in tighter pixel pitches for our outdoor video displays and the next generation of our high resolution video products for indoor. We are extending our platform strategy to these products like we did with our larger pixel pitch outdoor products a year or so ago. This strategy increases the commonality of parts for the products that share a platform, which in turn reduces inventory handling, as well as setup cost in manufacturing. At the same time, the new designs take cost out of the building materials. We are also finishing the design for our new architectural lighting product, which we'll ship in second quarter. We also continue to invest in our control systems. And in fact, approximately 1/2 of our product development investment actually is in the control system side of things. We have few platforms there, our Show Control platform for live events applications, such as sporting events, and our Visiconn, that's spelled v-i-s-i-c-o-n-n, for scheduled program and applications, which is typically advertising. We continue to see opportunities for IPTV, that's Internet Protocol Television, in stadiums with the strength of our integrated control systems, controlling and synchronizing displays throughout the stadium. We have now completed several major IPTV installations. And we expect to be able to announce another IPTV contract award for Major League Baseball in the near future. All of these product developments will position us to be more competitive and enable us to improve our gross profit margins. We also continue to invest in expanding our International business, which takes investment both in terms of selling expense and administrative expense. At the same time, the results for our International business in the quarter demonstrate that there is opportunity on that front. And we are very pleased with how our International business is performing. On the cost side, in general, we have opportunities for efficiency gains on all expense line items on the income statement, from the cost of goods sold through SG&A. Some of these improvements will take some time to develop. We continue to be cost conscious in all areas of the business and continue our efforts at streamlining our processes and our procedures to eliminate cost, which typically is time, out of all of our processes throughout the company. So in short, we continue to focus on generating more revenue, while curtailing cost to ultimately get more to the operating income line. We have the opportunity for leverage as we grow the top line. With that, I will turn it over to Bill for a little more insight into the numbers. And then, we'll take your questions.

Thanks, Jim. We went into the quarter with the expectation that sales would rise sequentially from the fourth quarter. We achieved that in spite of the fact that we had some orders delayed, and we had some product development initiatives for our new products that also caused some delays. For the second quarter, we are looking again to rising sequential sales. The current consensus for net sales is likely within the range of outcomes for the quarter. I would refer you to the press release for details by business unit, but I will add, since it comes up frequently in the Q&A, that billboard orders were in the $15 million range, which is likely a higher level than an expected run rate for the fiscal year as a whole, while sales were approximately $10 million. I also would like to add some color on orders for the NFL related to the settlement of the labor situation. We have a handful of products that are in the pipeline now for next year that could help drive sales one year from now. But the key component involves whether or not projects move forward, that comprises of major renovations to the display systems for existing facilities that have had systems in place for a number of years. So at some point, they have to happen. And there have been discussions on that. But in the end, the customer has to decide when to move forward. In March through to April was an example, last calendar year of 2010, we did almost $17 million for the NFL and $8 million for the NBA compared to very little during the same period this year. In the end, it's too early to make an estimate as what it could be next year. But there are a number of projects out there that we're following. Our gross profit percentage did not show the improvement that we expected -- going into the quarter. Gross profit's a tough thing to forecast in our business with the large contracts and especially tough these days as new products are coming to market, and we're winning projects in some cases, prior to the time when we have started to produce significant quantities of them. That, coupled with the delays in sales, caused some pressure on gross profit. With that being said, and subject to what happens on things like warranty expenses, the gross margin should be flat to up next quarter on a sequential basis, given the initial read on contracts, which were up during the quarter on contract orders. The higher sales levels should also help move gross margin a little bit. I'd like to take a few minutes and give some additional details on gross profit for the long term. We think that we can continue to increase gross profit, provided that the competitive landscape does not adversely impact margins any further. One of the most important aspects to achieving this is our exposure on warranty expenses, which last year was almost 4% of sales. That level should be closer to the 2% we experienced this quarter. With the approach to product development that we are utilizing, we believe that we can do this. Secondly, we're focused on driving the manufactured costs of the product down. This involves 3 components: Manufacturing improvement, including capacity leverage, strategic sourcing and product development, all embracing lean concepts. It's difficult to project this, but on the capacity side in the first quarter of fiscal '12 compared to last year's first quarter, we gained almost 1.5% on gross profit as it relates to conversion cost. Some of that was due to flexible work schedules and cost reductions. We think we can go further here, but again, it's dependent on sales volume and the product types. In closing on this point, factoring out the variability on large contract margins and the competitive front, we are gaining and expect to continue to gain on gross profit. As for operating costs, SG&A was a little lower than we thought it would be heading into the quarter, primarily as a result of recoveries of some written-off bad debts of a few hundred thousand. Another factor we have helping us overall is lower-than-expected healthcare costs, which company-wide have run almost some million dollars less than historical levels for the quarter. We did some things to change our plan at the beginning of the calendar year, however, we didn't expect to see the cost savings we've been seeing this year as an outcome of the plan changes. A large part of that obviously shows up at operating expenses. But in part, based on expectations that healthcare costs will rise and also due to higher costs associated with some sweeps that we have in the NFL that we are committed to purchase in connection with some contracts a couple of years ago, increasing international infrastructure, as Jim mentioned, various other items. So we do expect that selling costs will rise somewhat in the second quarter. There could be a minor pullback in the third quarter, but a number of things can change between now and then. G&A is somewhat static on a go-forward basis. We're seeing rising cost in our IT infrastructure and also have elected to go forward with additional international office expansion in various countries, which will carry some higher costs in the second quarter. These items are offsetting the reductions we had previously expected for the second quarter. On the product development side, just a little more color on that, there's primarily 2 cost drivers that impacted the cost during the first quarter and into the future. First, materials cost, as we prototype new products. We're doing a lot more in prototyping that does not result, like in the past, in demo equipment to show our customers. We do a lot more rigorous testing, that includes tests to fail new product. And when you have the quantity of products coming out that we do now, it adds up. And it's difficult to forecast on the materials side. The big items here and we're working on, as Jim alluded to, are architectural lighting, lighting products in addition, and additions to the DVX and DVN product lines. The second factor is the percentage of time and the cost of our payroll and engineering. We're spending a greater percentage of our engineering time and product development versus customer contracts, which is somewhat of a shift to product development out of cost of goods sold. These 2 factors are expected to continue in the second quarter. Cash flow again for the quarter was strong with almost $12 million in cash from operations. CapEx for the fiscal year remains in the $16 million range, and free cash flow for the quarter was almost $9 million. With that, I'll open up the call for questions and answers.

[Operator Instructions] And our first question comes from Steve Dyer with Craig-Hallum. Steven Dyer - Craig-Hallum Capital Group LLC: A couple of quick questions. What's your CapEx expectation for this year, Bill?

$16 million, approximately. Steven Dyer - Craig-Hallum Capital Group LLC: Okay. And is that primarily equipment? Or how should we think about that? I mean, you guys spent a fair amount a couple of years ago, I think, on some land, and new facilities and so forth, what's the bulk of the $16 million going for?

There's various things. A large, large percentage of it is maintenance related. To the extent that's not maintenance related, we are expanding our manufacturing capabilities in China. There's some equipment needs there. That facility will primarily focus on worldwide sales of the architectural lighting products. Secondly, we've got some, I'll phrase it as, isolated expansion of certain types of equipment in our various South Dakota and Minnesota plans to increase flexibility between the plants tied into the new product development we've been doing. And the last thing I'd touch on, there are some initiatives in IT that are more about growth and the things Jim mentioned on process and systems to improve for the long term. Does that help? Steven Dyer - Craig-Hallum Capital Group LLC: Yes, thank you. In the cash in the balance sheet, I think is higher than it’s ever been, at least higher than I can remember it. Do you have any specific thoughts for deploying that or returning it to shareholders, I don't know, if you've looked at a one-time dividend or increasing the dividend or how you think about that. It's a good amount. It would certainly appear to be more than, than you need to run the business. What's the thought process there?

We don't have anything at this point to specifically announce. I'll just maybe refer you to what we've done in the past. Last year, we did have a special dividend. And certainly the board considers all the potential options with the cash. And expect that we'll -- they'll continue to consider those same options going forward. Steven Dyer - Craig-Hallum Capital Group LLC: Are there any acquisition opportunities that you see routinely that you think may help broaden the business going forward?

We certainly have opportunities that come by fairly regularly. And we do look at them, consider them. But we -- I guess, we've done a number of small acquisitions, I think, we understand the risk versus reward on these kind of undertakings. And so we do give them consideration. We're not -- it's not our strategy to go through acquisitions. That's not a strategy we've set out. So we're, I'd say relatively cautious in terms of acquisitions. But we certainly do look at them, consider them. Our criteria there is, either you're complementary in terms of products or complementary in terms of markets for existing products. So those are kind of the basic criteria we would look at in considering any acquisitions. But possibly, technology, if there's some technology that we could acquire. Steven Dyer - Craig-Hallum Capital Group LLC: Okay. And then one last question for me. Are the Lamars and the Clear Channels, are they kind of back on the run rate that they were several years ago when it first kind of -- when they were running so fast ahead of the downturn? And if so, is their ability to grow that or are they kind of at the pace that's comfortable for them going forward in terms of deployments at digital, and is there any opportunity international or with a potentially any of the other billboard companies?

So in terms of the Lamar and Clear Channel, they're both public companies, and our visibility to their plans really is -- really the same as what's made public. So they both announced some intents in terms of number of units that they're rolling out. We're participating in both of those, and they -- budget by calendar year. So that's really our visibility at this point is really through our Q3. We know that the economy tends to affect the advertising world although the thing we're also seeing in their public comments is that they're seeing good ROI on their digital. And that's actually one of their stronger areas. So that's encouraging for us. So we're hopeful that they'll continue to invest in the years going forward here. We're very pleased with our level of participation with both of them. Our new products, our 4100 series of billboard products have been very well received. So I think we're feeling certainly very good about it from that regard. In terms of International, there is opportunity in the international market. The difference we see internationally is, tends to be interest in closer viewing situations for outdoor advertising internationally, which means that you need a tighter pixel pitch. So whereas Lamar and Clear Channel's maybe a 16-millimeter or 20-millimeter perhaps, along a highway or a freeway. In Europe, that's more as more along a -- either more of an arterial type street application. And so, they'll be looking more at 10-millimeter application over there. So it's a different product. And that's one of the areas that we're currently putting a fair amount of product development investment into to improve product again, at a lower price point for that application. Did that answer your question?

Our next question comes from Morris Ajzenman with Griffin Securities. Morris Ajzenman - Griffin Securities, Inc.: Question back on the gross margins again. First quarter, it came in at 24.9%. And basically, you stated there were some orders that were delayed, and that impacted it, pricing. But one thing you touched on was the warranty expense that was running approximately 4% last year. I presume that's also in the first quarter last year. And now, we're running about 2%. I'm just trying to get some further clarity because if that's correct, and tell me if I'm reading into that wrongly. That 24.9% was down from last year 26.5%, but you had a pickup in maintenance expense moderating as a percent of sales. First of all, am I reading all those statements correctly tying them together? And secondly, does that just talk about the price competitive of the industry just not alleviating?

A couple of things, Morris, if I followed everything you were saying, and correct me if I'm not. As I recall, and I'd have to check this, the first quarter of last year, I think our warranty expenses were low. That 4% was not a consistent rate throughout the year. The second point that you hit on, which I think is valid, compared to the first quarter a year ago, the competitive environment probably is tougher. With that being said, I'm not sure we'd attribute it that way to the last 2 quarters sequentially. Morris Ajzenman - Griffin Securities, Inc.: Okay. And basically, what you're telling us though looking into the second quarter, you expect gross margins to be flat to up? I guess that's the way you described it. With the orders that have been pushed into the second quarter and again, last year's gross margins of 25.9%, which I presume in a higher warranty expenses, should we be more hopeful for gross margins to rise? Again, I don't know what you mean when you say flat to up, can it be up much more or is it still the pressures despite warranty expense moderating on the pricing environment not allowing gross margins to rise materially.

Let me give a shot at answering that, Morris. Our gross profit expectations can vary a fair amount because we're involved in large contracts that at times too can include significant subcontracting. For example, we're in the midst of a very large project at L.A. Coliseum, and I'm recalling that was $5-plus million of which there's a couple of million built into that for contracting work, for example. And you can, when you're involved in those types of projects, have some significant fluctuations in your costs. In addition, as we're coming out with new product, like many businesses, we're projecting what the margins are. And when we actually get into production, you can run into some issues when you're first building the product and getting it out in the field and whatnot. We experienced some issues like that in the first quarter, where there's some higher costs on the initial production of some of these products. Now all that being said, if everything had gone according to plan this last quarter, our gross profit would have been higher, and we expected it to be higher. As it relates to comparison to last year, it's a little bit more difficult to do comparisons last year versus this year because the products are so different. The competitive environment has changed. We think it's more appropriate to look at gross profit on a sequential basis from a comparison standpoint as opposed to one year ago. I hope I answered part of what you're asking. Morris Ajzenman - Griffin Securities, Inc.: I guess I'm going to go ask in a little different manner then. And again, you're seeing year-over-year might not be the best comparative judgment. But last year, overall gross margins were 25.2%. Based with the warranty expense under control and the competitive environment, can we expect to see gross margins for the full year fiscal '12 to rise versus fiscal 2011?

You know, it's hard to predict for the whole year. But certainly, our planning is focused around that rising year-over-year. There are some great things that we have going for us. And so, I hesitate to give guidance for the whole year because it can change. But we're certainly driving for that, and we're in the business of improving that year-over-year. And so, that is our goal. And do we think it's achievable, yes. But there are other issues that could impact that.

Yes, Morris, this is Jim Morgan. Just say -- the thing we control of is we will reduce the cost of our product. We'll have an improved product, that we know. The thing you alluded to is the competitive environment out there is harder to predict. We believe that we are cost effective in how we're operating. And certainly we see opportunities where we can continue to reduce costs. And so that's, perhaps I guess, a positive thing is there -- there are more opportunities to reduce cost. But it really depends if a competitor wants to buy a project, that gets -- the environment gets a little tough at times. But that can only go on so long. So the competitive environment is the -- is more of the unknown for us. But we feel we're positioning ourselves well with the developments that we have underway.

Our next question comes from the line from Jim Ricchiuti with Needham & Company. James Ricchiuti - Needham & Company, LLC: Maybe just continuing on that being -- just as you look at your backlog, which I guess is around $154 million, what is your view of the backlog just relative to the gross margins that you're targeting?

Our backlog from the beginning of Q1 to the beginning of Q2, the margin in that backlog has increased slightly.

Projected margin.

Projected margin has increased on a sequential basis going into the quarter. James Ricchiuti - Needham & Company, LLC: And is that, Bill, just a function of the mix of the orders? It sounds like you had a -- well, you did, you had a good strong quarter in Commercial, even excluding billboards.

That's true. We did. James Ricchiuti - Needham & Company, LLC: So in terms of the backlog, are you seeing the -- is it a combination of improvements in mix, and in just absorption that you're getting to better backlog -- margins on the backlog?

No. Those margins that I said on backlog do not take into account the standard cost absorption type issues. I think you're referring to that, that is -- should help us as sales rise as well. James Ricchiuti - Needham & Company, LLC: Okay. What was the increase in Commercial orders if we take billboards out from this quarter, which I guess what you said was, Bill, was around $15 million versus last year? And Jim, maybe you can comment on this, what appears to be driving the demand in the Commercial business. In the past, you talked about some of the national account business not really coming back all that strongly. Are you starting to see that come back?

This last quarter, the area that was particularly strong in Commercial was large contracts, large display contracts, like the Times Square type of activity, for example. So that was a nice boost for us there. On national accounts, we have some of our long-term customers are still moving forward although their deployment of new stores isn't as fast as it was back in the -- a few years ago. And that is a driver of the rate of business that they have with us. So, we've got some of that kind of steady business going with some long time customers. In some of the other areas of the national accounts, we're seeing that it seems like there's -- some people are just slow to pull the trigger there yet, and maybe it has a little to do with the economy, the uncertainty of the economy yet, certainly the -- some of the quick-service restaurants or fast food type businesses, they seem to be moving a little slower. So that is kind of just -- I'd say moving kind of steady forward as opposed to picking up. James Ricchiuti - Needham & Company, LLC: Okay. And then Bill, do you happen to have that number handy in terms of what billboard orders were in the year ago quarter?

In the year ago quarter, they were about $8 million. But remember in the first quarter a year ago, we had one very large order as we earned back the business of 1 of the 2 big players. And that player tends to be lumpy in terms of orders. The following quarter, Q2, for example, orders for billboard were in about the $5 million range as I recall. James Ricchiuti - Needham & Company, LLC: Okay. And a question on the International business where again, you're showing what looks to be fairly strong orders. Can you maybe elaborate on where you're seeing the strength in International? And to what extent do you have visibility into that portion of the business continuing?

Jim, International, really it's a little bit on both sides of the ocean, and we have, as we announced in the news release, a nice arena project in China. Westfield, a mall operator, they've been a nice customer of ours. And they've actually have some installations in Australia and also in Europe, as well as the U.S. So it kind of spreads around. We mentioned this theater installation in Madrid. That was really a nice highlight project for the -- installation for the quarter. So it's really a little bit all over, we've had some sports installations over in the Eastern Europe area. So it's kind of spread all over. James Ricchiuti - Needham & Company, LLC: And your pipeline for International?

Our pipeline for International is, it's as strong as it's ever been, and we're optimistic about it. James Ricchiuti - Needham & Company, LLC: And in the -- just a final question for me. As you talk about the NFL business, it sounds like there is a pipeline for next year. And presumably, we'd expect to see some investment coming back now that the labor issue's behind the league. At what point would you begin to potentially see these orders being placed for what I guess would be somewhat larger orders just given the way the trend in the market.

Orders for NFL would typically come in probably late winter after the season's over. Probably after the Super Bowl, then they'll start refocusing on going forward.

Our next question comes from the line of Dick Ryan with Dougherty & Company. Richard Ryan - Dougherty & Company LLC: Say, Bill, on the billboard business, were there's Tier 2 and Tier 3 customers in that mix? Or just the 2 larger?

They're always are -- we have a good strong base on those Tier 2 and Tier 3. What those numbers were, Dick, I don't recall, but we have a strong base to those types of players. Richard Ryan - Dougherty & Company LLC: With the lower price points you're bringing in, is that expanding the opportunities with these various customers?

Absolutely. It certainly makes the ROI formula workout a lot easier. Richard Ryan - Dougherty & Company LLC: Good. On the Live Events, a couple of questions there. What was your -- can you give us a sense, college, university, football kind of this year versus last year? What kind of strength you've seen in that segment?

Well, first of all, this year as much as there was, essentially no NFL activity. So this year was pretty much all college, university activity compared to last year. So now, what the actual numbers were this year compared to last year, I don't know if we have that per se.

That was one of the reasons for me pointing out the NFL numbers last year. So during that 3-quarter period, we did $17 million in NFL, if I remember that right. And we offset that this year through growth to keep the Live Events flat. So the college and university market has been good this year.

Our next question comes from the line of Steve Altebrando with Sidoti & Company. Stephen Altebrando - Sidoti & Company, LLC: Just to be clear, the better gross margins that you're projecting, is it stemming from better pricing? And then generally, if you can compare the competitive environment versus say, what it was like six months ago?

Yes, so as I mentioned earlier, the thing -- we will be reducing the cost of our product, our per point cost, so to speak. The thing that's hard to predict is what the price points in the marketplace will be doing here. But we are expecting that we will not have to give up all the savings that we realized in our product in the pricing. But it's very competitive. I'd say that it's not to say it's more or less competitive than it was a year ago. I think there's a limit to how far the price can go down, if everybody has to have something that's sustainable for a business plan in the long term. So that's the hard part to predict, is what the marketplace is going to do. But we will be reducing the cost of our products and the cost of production and installation, and hope to maintain more of that. Stephen Altebrando - Sidoti & Company, LLC: Okay. That's helpful. And I mean, it's probably too early, but are you seeing any change in order trends over the last few weeks? Just given the market turmoil?

In a few weeks -- our orders through the quarter, of course, we look at them every week. But it's very noisy, put it that way, it's very lumpy. So in 2 weeks, 3 weeks isn't even a trend for us. Our quarters are somewhat noisy. And so 2 weeks or 3 weeks doesn't tell us much. Stephen Altebrando - Sidoti & Company, LLC: Okay. And then, just last one and kind of a longer-term type picture, you used to be, a few years back, at around $500 million in revenue. Your company was kind of a 30% gross margin business. Is that a level -- and that was with I believe capacity built out like it is now. If you assume pricing were to eventually alleviate, is that something you guys think's a realistic level? And I'm thinking years out.

Well, certainly that's our goal, to get back to that and then keep moving beyond that. Stephen Altebrando - Sidoti & Company, LLC: Is there anything structurally in the business that you think's changed that, why that can't be the case?

Well, first of all, in terms of top line, I don't think there's anything that limits us from getting to that and pass. Of course, the headwind in terms of getting the top line up is the fact that the price points are coming down. So we have to deliver more product today for $1 million than we did 1 year ago and 5 years ago. But people are also still spending money. People, basically the customers are getting a lot more for what they spend. So the spend is -- levels still are -- the opportunities in general are there in many cases. So I think top line, there's certainly opportunity there. And again, as we've talked about, bringing new products to market is really a key to our strategy in terms of getting the gross profit levels back to where we are -- where we have been. And also, just taking cost out of all our processes. We know we grew very fast there for a few years. And we have some catch-up work to do on our internal processes, and we've made progress in that the last few years. But there's more opportunities for us.

Our next question comes from Steve Henry [ph] with Quality Growth. Unknown Analyst -: On the L.A. Coliseum order, how would the price on the display like that compare to the price of the ones you mentioned in China and London at $5 million a piece?

How is our product pricing?

What is the amount of that contract, is that what you're asking? Unknown Analyst -: Yes.

I don't remember exactly. Several million, but I don't remember. You don't remember the exact number.

Are you asking though how our pricing compares to let's say some of the Asian competition we see? Unknown Analyst -: I'd be interested in that too. I was just asking the magnitude of the order. But I'm also wondering how your pricing compares.

It's really a question of how much are they spending, then certainly, that's multimillion dollar project that, I don't remember the exact amount. But these -- in terms of the scope of these projects, they can be apples and oranges in terms of what's involved and how much video product's included in them and that sort of thing. So they're all very unique. Unknown Analyst -: Okay. But they'd all be -- you'd use percentage of completion accounting for all of them, right?

That is correct for those large ones, right. Unknown Analyst -: Okay. In regards to the operating expenses, as a percentage of sales, are the first quarter levels for each of the 3 of the operating expenses you break out representative of where we might end up for the year? In other words, like selling expenses is lower as a percentage than last year and product design is higher?

I think the way to look at our business is we don't have significant amounts of variable expenses within the operating expense. It tends to be more fixed, then it becomes an issue of how much we're ramping up the dollars, which is why I added some of that color about the next quarter. You had selling expense could be up. And so, as a percentage, you can factor that, I think you'll see slightly rising cost of G&A and product development might be from this level flat, maybe a little bit of rise throughout the year. And selling expense may be a little bit of a rise. And so, look at it as an absolute dollar, and you can do the math on the percents based on your sales assumptions. Unknown Analyst -: Okay. And one sort of nonfinancial question, when do you think the coliseum will be finished? I go to games there. It's nice to have a decent display.

It'll be finished before the first game, that's for sure.

We don't miss opening days in our business.

Our next question comes from Robert Hoffman with Princeton. Robert Hoffman - Candlewood Capital: Two different questions. Have you ever contemplated going into joint ventures on the billboard side? It seems like you have the financial wherewithal to do that. It's an easy accounting to figure out what the revenue stream would be. Have you ever thought about that?

You mean joint ventures in the sense compete with our customers or partner with one of our customers and compete with the others? Robert Hoffman - Candlewood Capital: No, well, partner with anybody who wants. If they are reluctant to put up whatever the cost of the billboard is and instead of them putting up 100% and buying it from you, they actually put up less. And you provide the product, and then, you both share the revenue stream. So you're not competing with -- go ahead.

We've certainly had people ask about those things. We've certainly looked at different things to do, looked at different opportunities to do things similar to what you're saying. What I'd say is the overwhelming opportunities that come up with that are people that want us to deploy our capital, but get treated like a secured lender. So it's making an equity investment and a joint venture, but getting secured debt rates of returns. And you know what, generally speaking, they are not viable opportunities for us to get into that. Years ago, we did do a couple of things along those lines. But for the most part, opportunities to do that are -- don't have the financial viability that we would want. Robert Hoffman - Candlewood Capital: I was just thinking in terms of -- I know IMAX did that a couple of years ago, and they were able to do a multi-theater deal with AMC, which enabled them to get their cost down because they had a big order coming in. And then it was one provider. But anyway, I won't belabor it. And then there's the second question, I do know that the Packers chose, I guess it was Mitsubishi. I'm assuming you guys were bidding on that. If you could just give us some color on why you think you didn't win that?

It was a typical -- it was just a very competitive bidding. That was the only project there, and Mitsubishi had a -- took a higher run at it, and was successful. Robert Hoffman - Candlewood Capital: So you think it was more price than features?

I think price was a big part of it. Price is always a big part of it. And Mitsubishi, of course, they've been a player in the industry for a long time. And so they're a viable competitor. Robert Hoffman - Candlewood Capital: Were they an incumbent there? Does that ever matter?

We we're actually the incumbent there, so it was disappointing. And that does matter, but it wasn't enough to -- in that case to give us a win on it. So it was disappointing.

Our next question is a follow-up from Jim Ricchiuti. James Ricchiuti - Needham & Company, LLC: Just want to ask about the architectural lighting opportunity, I don't know if you were able to break it out in the quarter. But I wondering what kind of revenues you're seeing in that area. And is that both coming out of Asia and now the U.S.? And a follow-up to that is with the investment you're making in China in that area, you seem to suggest that it's going to be a bigger part of the business going forward, and I wonder if you could just expand on what you see in that portion of the business?

So the run rate for that, we're still -- projects are typically in the million to a couple million, maybe in some cases $3 million, I mean there are really a wide variety of scope those projects can take. It's relatively new -- we're actually installing, let's see, maybe it's our third one in the U.S., will be installed here in second quarter. A couple of others come to mind that we've done. The more recent was the Target headquarters building up in Minneapolis, which we did here in the last couple of quarters. And that was -- I think that was about a $3 million project, if I remember right, somewhere plus or minus. So we're just sort of getting started, and I think people are just, and especially in the U.S. are beginning to understand what the opportunities are. We have some again, I think, rather exciting developments going there and in terms of the product and some relationships that we're developing in that area that I think will give us some good opportunities going forward. But this opportunity in Q2 actually is an installation here in the U.S. James Ricchiuti - Needham & Company, LLC: Okay. And Jim, the decision to expand your manufacturing footprint in China, in this business?

Yes, maybe I'll add a little clarity to that. I think, Bill, mentioned that there was heavy focus on architectural lighting. We also will be to -- and we're adding investment so we can build our through hole outdoor, when I say through hole, that's the lamp-style LED modules, which is primarily for outdoor. We'll be able to build those modules over there as well. That's actually part of the investment that we're doing at the moment here. So it's not just for architectural lighting although that's part of it. James Ricchiuti - Needham & Company, LLC: And then capacity is in place when?

That is just coming online here, more or less as we speak here in the next month or 2. We'll be ramping it up.

Our next question is a follow-up from Dick Ryan. Richard Ryan - Dougherty & Company LLC: Yes, Bill, in my earlier question, I was looking at the Live Events side. Is it too early yet to get a kind of a preliminary view of what might be going on in Major League Baseball? You talked about football kind of developing a pipeline with the delays this year, but any sense of what the baseball pipeline might look like?

Certainly, there's opportunities in our pipeline. There's typically somewhat like football -- as the season winds down, that's typically when the teams start thinking about what they want to do for next year. So knowing when they'll actually pull the trigger. It's a little hard to know that yet. And so a quarter from now, we'll have a better sense of kind of how that will shape up. Richard Ryan - Dougherty & Company LLC: Okay. And just one quick one on the transportation side, Jim, can you talk a little bit about what you're seeing there and for funding opportunities with those projects?

The federal funding is a key part of most of these projects. And so, we keep an eye on that. We expect that there'll be continued funding although we all know things have been a little jerky in Washington lately. But they do keep funding going for these -- the infrastructure. One of the things that our product actually is a way to get more utility out of existing infrastructure. So compared to a new roadway, electronic displays are quite inexpensive. So we believe there's a -- the fact that it is difficult to build more roadways. And widen existing roadways is actually a driver for our displays. And so, that's a positive in that regard. But we're seeing really a mix of opportunities there, really around the country. And with the DOTs, as well as some of the mass transit and some of those type of applications. Richard Ryan - Dougherty & Company LLC: Okay. And one last one, with the commentary on the gross margin side. If you kind of get back up to or start driving towards historical levels, could you see the operating margins move into the low double-digit range?

Well, that's certainly our goal. Our target has been and will remain to get 10%. And getting that bump on gross margins certainly would go a long ways to help us get to that level. That probably is the single biggest factor to get us to that level.

At this time, I'd like to turn the call back over to Jim Morgan for any closing comment.

Well, thanks to everyone here for your time this morning. Thanks for the questions, gentlemen. Just note that our annual shareholder meeting is tomorrow evening at 7:00 here in Brookings. And we'll have an open house starting at 5:30 preceding that. So I hope to see some of you here. Thanks, again.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.