Good day, ladies and gentlemen and welcome to the Daktronics First Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Sheila Anderson, Chief Financial Officer. Ms. Anderson, you may begin.

Thank you, operator. Good morning, everyone. Thank you for participating in our first quarter earnings conference call. I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities. All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially. Such risks include changes in economic condition, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margins, the introduction of new products and technology, and other important factors as noted and detailed in our 10-K and 10-Q SEC filings. With that let me highlight some of the financials. Orders were $175 million compared to $153 million for the first quarter of fiscal 2018 as compared to fiscal first quarter of 2017. Most of the order fluctuation this quarter is attributable to the volatility in our large project and account-based business in the commercial, spectacular and billboard niches and in the international business unit. Orders were also impacted by a softer demand in commercial on-premise displays this quarter. As a reminder, both orders and net sales fluctuate due to the impact of the large project-based business and account-based business that we are in, including displays for professional sports facilities, colleges and universities, spectacular projects and national or global accounts, primarily in our out-of-home advertising space. Our business also fluctuates seasonally based on the sports markets and construction cycles and is dependent on various schedules -- by the various schedules based on our customer's needs. Sales for the first quarter of fiscal 2018 increased to $173 million as compared to $157 million last year. Sales…

Thank you, Sheila. Good morning, everyone. We had a positive start to fiscal 2018. Our teams across the company worked hard to serve our customers, which translated into financial performance for the first quarter. We are historically busy at this time as the first half of our fiscal year has many of our sports customers installing facility upgrades or enhancements. This is also the construction season in the Northern Hemisphere and much of the world uses this time to install outdoor applications before the winter months. The higher sales levels improved performance in our large project business through improved manufacturing and productivity, increasing our gross profit. Operating expenses increased as we invested more in our product development area to accelerate the creation or enhancement of customer solutions, including investments in both display and controlled technologies. Orders lagged a bit from last year on a first quarter to first quarter basis, but overall reporting levels across businesses remained strong. We expect continued success in growing our business over the long-term for the following reasons. We continue to be confident in the expanding global digital marketplace through digital adoption and available market growth across the sectors we serve. We continue to enhance and develop product lines and comprehensive solutions for our broad market base and specific customer needs. This allows for success in markets during natural ups and downs of each segment. In addition to our comprehensive product lines, we are committed to earning customers for life, driving continued investments in quality, reliability and other performance enhancements to meet our customer's needs today and over the long term. Active support from initial project planning throughout the intended use of the system leads to satisfied customers and repeat business during the natural replacement cycle. While we are optimistic about our long-term future, various…

[Operator instructions] Our first question comes from the line of Morris Ajzenman from Griffin Securities. Your line is now open.

Hi Reece. Hi Sheila.

Good morning.

Live events, clearly, you're starting to make some good traction here, up modestly to previous quarter and up about 20% this quarter, and then you have on the international side is kind of flip-flopping Q4 was up very strong I think like 34% to top line with orders down modestly, but yet in Q1, international sales down 90% and the orders are down 41%. I understand it's kind of lumpy there, but just playing out live events and international, obviously there is other additions, things happen there too, but what trend should we expect over the next handful of quarters? Will they continue to be lumpy or will we have some sort of progression at least for those two divisions?

Morris, both of those two divisions are really our large project-based business. So, it's multimillion dollar projects that you win or lose. What we book in one quarter, we tend to deliver in the next quarter or two and so we expect those businesses will continue to remain lumpy throughout their -- as long as we're in them I would say. We do have a much longer track record base and so we see maybe even though we know it's lumpy, you've seen it more consistent over the past few years. We believe that if we had 30 years in the international business, we would see an installed base there drive maybe more predictable or more consistency in that business.

And switching gears and then I get back in queue here, gross margins north of 25%, which I think is trying to get some traction 25.8%, yet surprisingly, you're able to reach that level of warranty expense then still being 3%. How sustainable are those gross margins over the ensuing quarters? You're looking at flattish revenues I think again for Q2, can we -- gross margins above 25% going forward?

Based on a project-by-project basis, the gross margins have been stable. We haven't seen that being constricted. What we do see is if the volume goes up in any one quarter, our operating expenses don't go up at the same level. So, we get some traction there. So, it will depend somewhat on volume, but the gross profit has been relatively stable.

And then we also have the historical Q3 that's like Reece mentioned that really highlights the volume difference, but…

I am sorry, any comments on warranty expense being 3%.

It was a little bit of mix of our projects this quarter. So, I think it was a little bit higher, but we are still maintaining and working on our quality and reliability throughout our organization and hope that comes down over time as we’ve talked.

Thank you.

Thank you. Our next question comes from the line of Jayant Ishwar of Singular Research. Your line is now open.

Thank you. Great quarter. I have a question on your pipeline. I see in the order on the bookings compared to last year are down, but how strong is the pipeline at this point as compared to the same time last year?

The quoting activity is very strong and we feel we have a very active pipeline. As far as the quarter-over-quarter, I'm not sure if we have those numbers available for you today, but I would say, it's comparable.

Okay. And the gross margin, is that sustainable over the rest of the year, except for Q3?

It depends on mix, like Reece mentioned as well as the volume. So, it all goes together.

Okay. Thank you.

Thank you. I'm showing no further questions at this time.

I would like to thank everybody for attending today's call. As a reminder, our Shareholders Meeting is August 30, next Wednesday and details of the meeting can be located in the proxy. I hope you have a happy rest of your summer and fall and we'll talk to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.