Q1 2024 Daktronics Inc Earnings Call
Okay.
Good day, ladies and gentlemen.
Welcome to the Tektronix fiscal year 2024 first quarter earnings results Conference call.
As a reminder, this conference is being recorded today Wednesday September six and it's available on the company's website at Www Dot Tektronix Dot com.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone.
We'll then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one one again.
I would now like to turn the conference over to MS. Sheila Anderson, Chief Financial Officer for Doctor Onyx for some introductory remarks. Please go ahead Sheila.
Thank you Liz 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.
The opportunity is there.
These forward looking statements reflect the company's expectations or beliefs concerning future events.
All forward looking statements involve risks and uncertainties, which could cause actual results to differ materially from our expectations. Such risks include but are not limited to changes in economic and market conditions management of growth timing and magnitude of future contracts and orders fluctuations in margins the introductions of new products in tech.
Knowledge is availability of raw materials components and shipping services and other important factors.
These identified factors could cause actual results to differ materially from those.
Those discussed on this call and our company's first quarter 2024 earnings release.
Is that annual report on Form 10-K.
Our first quarter 2024 earnings release contains certain non-GAAP financial measures and was furnished to the securities and Exchange Commission on form 8-K. This morning. These documents are available on the investors section at Tektronix website at Www Dot Tektronix dotcom alter.
I'll turn the call over to our CEO recruiting back good morning. Thanks Sheila.
I'd like to thank all of you for joining us today, our record sales and operating income for the quarter as a result of strong execution across all our business areas. We continued to benefit from our past decisive and deliberate actions to improve our customers' experience, while increasing our profitability and working capital levels are.
<unk> is also a testimony to the resiliency and strength of our teams within tektronix as well as our strategy of diversified markets and innovation across technology platforms.
Our teams strategically utilized our capacity to complete the manufacturing and installation for the startup fall football season for our high School Park, and recreation and live events customers.
Morris High schools and colleges turned on tektronix displays as football season.
Several professional sports stadiums also trusted tektronix value and have new installations, including the Green Bay Packers, the Denver Broncos and the New England Patriots.
With our sales performance. We also were able to bring lead times back down towards pre pandemic levels and generate profits.
For additional details on our financial results for the quarter I will turn it over to Sheila.
Thank you Reed as Reece mentioned, we had a record start for orders and operating income in the quarter, we had sales of $232 $5 million for the first quarter of fiscal 2024. This was an increase of 35, 3% compared to $171 9 million for the first quarter of fiscal 2023.
Sales growth was driven by fulfilling orders and backlog, especially in the live events and high School Park and Rec business areas as Reece mentioned.
The increase was attributable to a stable operating environment increased manufacturing capacity and realization of price increases what a difference a year makes as a comparison during the first quarter of fiscal 2023, we experienced multiple material supply chain disruption labor shortages and a pandemic related shutdown in our facilities in.
Shanghai, China for a significant portion of that quarter.
Gross profit as a percentage of net sales increased to 36% for the first quarter of fiscal 2024 as compared to 15% in the first quarter of fiscal 2023. The increase in gross profit percentage is attributable to the record sales volume of our cost structure strategic pricing actions as your supply chain and operational disruption.
During this quarter as compared to last year at the same time.
Operating expenses for the first quarter were 39 million compared to 31 $3 million for the first quarter of fiscal 'twenty 'twenty four.
As a percentage of sales operating expenses for the quarter over prior year quarter declined 13, 3% from the 18, 2%.
Operating income was $40 $2 million or 17, 3% of sales during the first quarter of fiscal 2024 as compared to last year's loss of $5 $5 million.
Tax expense for the first quarter was $8 $9 million with an effective income tax rate of 31 seven per stock.
Absent any major tax changes, we expect our full year effective rate to be in the mid 20th before the non cash non tax impacts of fair value accounting of our convertible debt.
Our balance sheet reflects the changes in business levels and strategies, we pursued in managing our supply chain and growing our capacity to meet customers' commitments all while managing our liquidity at the end of fiscal 2024 first quarter, our working capital ratio was one nine to one.
Inventory levels dropped slightly since the end of the year and are expected to approach more normalized levels of supply chain disruptions continue to ease in the order backlog is fulfilled.
Cash restricted cash and marketable securities totaled $54 $9 million and we have to face value of debt of $40 million outstanding there were no draw downs on our line of credit.
As a reminder, we closed on our financing in May 2023, as a result of the comprehensive review of financing alternatives led by the Board's strategy in financing Review Committee. This new debt structure provides us the financial resources to serve our customers and build long term value for our shareholders.
The interest expense created by this that also includes the debt issuance costs of the convertible debt.
<unk> is recorded at fair value and we recorded a $7 $3 million noncash charge in there because of the change in the fair value.
And that's fair value was primarily caused by the increase in our stock price and decline in market interest rates.
Going forward, we will re measure the fair value of this convertible notes until maturity, our conversion, which will create this noncash charge below operating income each quarter.
During the first quarter of fiscal 2024, we generated $19 $3 million of cash from operations and used $4 $5 million for purchases of property and equipment. We continue to focus on optimizing our working capital for investment.
And for investments into working capital assets are.
Our plans are to spend approximately $19 million for capital assets, primarily in manufacturing and technology areas.
Also planning investments in digital digitization to improve customer and employee experiences and we'll continue to invest in our affiliates through this year.
Over the long term, we expect to grow revenues unprofitable and profitably.
Backlog at the end of the first quarter of fiscal 'twenty 'twenty four what was that $324 million, which provides a nice base of business to fulfill in the coming quarters and the reduction of backlog reflects the stabilization of our supply chain and our ability to return to more customer anticipated lead times.
I'll now turn it back over to Juris <unk> for more comments.
But as we look at.
We expect growth in the global use of audio visual communications systems in both traditional and new applications industry.
Industry research predicts the led market will achieve an estimated 20% compounded annual growth rate over the coming years, depending on the specific end market and geography.
We are poised to capitalize on this growth by continuing to do things, we do well, including how we engage in a full range of activities to serve our customers by providing high quality standard display products as well as custom designed integrated systems, both with ongoing services and support.
We manufacture a complete line of products from small score board and electronic displays to large multimillion dollar video display systems and the related control and sound systems.
We develop capabilities to design manufacture install and service complete integrated systems and we are recognized as a technical leader in these areas.
We generate new leads and serve repeat customers based on our performance reputation and marketing efforts.
As we look ahead to the remainder of the current fiscal year, our attention remains focused on our multiyear journey to capture the market as expected growth and broaden our leading market position by offering best in class technologies and services to both our traditional customers as well as new and adjacent markets.
We have applied the experience of the preceding two fiscal years to closely monitor the ever evolving geopolitical and global economic environment and as necessary quickly adjust our resources and market approaches. So that we can maintain profitability and cash generation throughout various cycles.
As we evaluate our business areas. We continue to expect the following over the long term with some natural volatility in size and timing of orders across fiscal periods.
We expect our high School Park and Recreation business unit to grow through adoption of video displays for sporting and educational use. These customers are deploying more electronics professional grade technology and sophisticated content, increasing the total addressable market.
In the commercial area, we are focused on increasing sales channels with audio visual integrators for end use in government military health care and corporate applications, which will create growth in this business area.
In addition customers depending on out of home advertising or self promotion use our products and services as an effective medium for both indoor and outdoor applications, we expect existing and new customers to purchase displays to install the new locations as well as replacement displays for existing.
<unk> to capitalize on the effectiveness of digital technologies.
Transportation demand as strong as project planning and approval activities resumed to more pre pandemic levels and our customers move forward and purchasing displays used for intelligent transportation systems and for mass transit venues.
Infrastructure spending should continue to benefit this segment as digital signage is often used in these projects and we're qualified to do business in all U S States.
In the international business unit, we continue to experience a softer market due to macroeconomic and geopolitical factors. We expect to see these factors to continue to impact sales in the coming year.
We are watching developments closely and have and can adjust resources and commitments accordingly.
Over the longer term, we expect similar growth trends in the commercial and transportation areas transportation areas outside the U S. We also expect continued interest in sports venue projects and these will be a focus in our marketing efforts.
The live events segment outlook remains strong due to large stadium renovations continued replacement cycles and expansion of sales efforts beyond sports efforts areas. We are the acknowledged market leader in this segment.
Which allows us to be strategic in our pricing and contract terms, while being very mindful about the profitability of this business.
In FY 'twenty four we will make investments in high return projects and technologies to support long term profitability our experience in engineering process design service design and product development capabilities and investments made in affiliated companies are very important factors and continue.
<unk> to develop produce and offer the most up to date digital displays and control system solutions desired by the market.
We will continue to invest in our development efforts and our affiliated companies to release differentiated product platforms software offerings and support services. We will also advance critical architecture and design and new competitive narrow pixel pitch and micro OLED technologies sustain.
<unk> technologies software architecture and other related areas.
We also plan to grow our operational efficiency by focusing on retention of our highest performing team members and capitalization on automation capabilities added over the last years.
We will invest in digital transformation project automation that will support improved customer and employee experiences and lower cost to operate.
We believe the stage is set for a strong fiscal 2024 and look forward to continued growth of sales and expansion of operating income.
With that I would ask the operator to please open the line for questions.
As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Vijay Cook with singular research.
Okay.
Yes.
Hello can you hear me.
Yes, we can.
Awesome, Thanks for taking the call.
A nice quarter it looks like gross margins.
Really great from a historical perspective.
Can we attribute that to continued improved.
Pricing actions on your backlog.
And it seems like inflation his team to get here in the short term, our new orders going to reflect a more historical lower gross margin I.
I guess another.
In other words is your higher gross margin sustainable.
Yes, I think the.
Well first of all we're very pleased with the gross profit margin in the last quarter and as you alluded to we believe a lot of that is due to the current pricing structure, but also in the.
Smoothness of operations as the supply chain has.
Really become more predictable this year over last year at this time.
As far as inflationary pressures are it still seems like there is deflation inflationary pressures out there, but not as dynamic or may be as extreme.
And certainly the stabilization of the supply chain makes all of this more predictable.
As we complete the bulge of work that was available after the pandemic I suspect we will see some.
Returned to a more competitive environment, but as a company we're very sensitive to these.
These inflationary pressures and really the dynamics in the marketplaces today and so we're very carefully evaluating each opportunity in each market to understand what the competitive nature of that business might be.
Got it awesome. Thanks.
Jim.
Operations are up.
<unk> margin was.
<unk>.
I know.
Just one quarter, but we're looking at some of that was.
Due to the gross margin.
But it seemed like you were supported a notably higher amount of revenue with similar.
Our operating expenses compared to <unk>.
First quarter last year.
So I guess a similar question is this reflective of your operational improvements filtering through the P&L.
Again.
<unk> cost structure going forward.
We believe that we were able to ship that much product first of all because we've.
Invested in installed and put into place a lot of.
Automation equipment in the past 18 months and the teams that are.
Responsible for those systems have had ample of time two to improve and understand the operations of those we've also increased our staffing levels are greatly over the past 12.
12 to 18 months and also have a more stable workforce that understands how to two.
The products and what their expected or what we would like them to do.
So I think we have an understanding of what we can deliver.
Now can we keep a stable backlog in place into the future quarters and consistently keep all of those fulfillment areas running at a high level will be the management team's focus over the coming quarters.
Okay. Thanks, guys.
Couple of questions.
On your.
On the debt structure.
There's been more can you pay the mortgage without prepayment penalty.
So is that your intention.
The long term.
Sure It comes with the caveat that working capital and Capex.
Cure.
We are able.
We pay that mortgage at any time and as a management team and our board reviews, the outlook will be evaluating.
The use of that cash in and working to put it to use for different opportunities to invest it back in the company or like you mentioned, we could prepay.
Okay. Okay. Thanks, so more on that so.
Can you remind us what would trigger the conversion of the debt it looks like the stock has been over the conversion price for a while but hasnt converted yet.
Do you have forced conversion rates I think so could you remind us about that situation.
We do we do have a term of course conversion, but that doesn't come into effect until 18 months from the <unk>.
For me a 2023 and then it's a certain tranches, we can force conversion.
And the stock price, that's also be over 150% of that that $6 31.
Conversion price.
Awesome. Thank you.
One last quick one.
Probably too early for guidance or too soon.
Is there anything you can share about how you guys your outlook for the remainder of the fiscal year.
Sure.
Small reduction in orders year over year.
The press release noticed.
That was it.
The big Bugaboo as commercial segment.
Anything you can share there.
Yeah.
We don't typically give guidance so that is a.
We're still on that track and in the commercial business area. The out of home business tends to be the most sensitive to economic factors.
As as you might recall in the next last nine months. There is this are we going to have a recession or are we going to have a soft landing it seems like the.
The press or the pool of experts out there are getting more optimistic that this might be.
A soft landing, which would bode well for that business segment typically.
And just to highlight two Vijay there there is some variability and our larger project business in the commercial market, what we call. The spectacular business area. So there can be ups and downs in that and when you compare one quarter to the other.
And that just causes some variability in that.
This level of sales or excuse me a level of orders.
Okay, Alright, that's it for me Thanks, guys I appreciate your time.
Thank you thanks P J.
As a reminder, if you'd like to ask a question at this time that is star one one.
I'm showing no further questions in queue at this time I would like to turn the call back to Reece Kurtenbach for closing remarks.
Well I appreciate everybody attending todays conference call.
The questions and any other feedback we will receive we will host our next conference call. When our second quarter results are released and I look forward to talking to you. All again, then thanks, everyone have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
[music].
Okay.
Yes.
Operator: Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2024 first-quarter earnings results conference call. As a reminder, this conference is being recorded today Wednesday, September 6, and is available on the company's website at www.daktronics.com. At this time, all participants are in a listen-only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. He will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Sheila Anderson: I would now like to turn the conference over to Ms. Sheila Anderson, Chief Financial Officer for Daktronics for some introductory remarks. Please go ahead, Sheila. Thank you, Liz. Good morning, everyone. Thank you for participating in our first quarter earnings conference call.
Sheila Anderson: 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. These forward-looking statements reflect the company's expectations or beliefs concerning future events. All forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from our expectations. Such risks include that are not limited to changes in economic and market conditions, management of growth, timing and magnitude of future contracts and orders, fluctuations in margins, the introductions of new projects and technologies, availability of raw materials, components and shipping services, and other important factors. These identified factors could cause actual results to different materially from the discussed on this call.
Sheila Anderson: In our company's first quarter, 2024 earnings released and its most recent annual report on Form 10K. Our first quarter, 2024 earnings released contains certain non-gaft financial measures and was furnished to the Securities and Exchange Commission on Form 8K this morning. These documents are available on the investor section at Daktronics websites at www.daktronics.com.
Reece Kurtenbach: I'll turn the call over to our CEO, Reese Curtinbach. Good morning. Thanks, Sheila. I'd like to thank all of you for joining us today. Our record sales and operating income for the quarter are the result of strong execution across all our business areas. We continue to benefit from our past decisive and deliberate actions to improve our customer's experience while increasing our profitability and working capital levels. Our performance is also a testimony to the resiliency and strength of our teams within Daktronics as well as our strategy of diversified markets and innovation across technology platforms.
Reece Kurtenbach: Our teams strategically utilized our capacity to complete the manufacturing and installation for the start of fall football season for our high school park and recreation and live events customers. Numerous high schools and colleges turned on Daktronics displays this football season. Several professional sports stadiums also trusted Daktronics value and have new installations including the Green Bay Packers, the Denver Broncos, and the New England Patriots. With our sales performance, we also were able to bring lead times back down towards pre-pandemic levels and generate profits.
Sheila Anderson: For additional details on the financial results for the quarter, I'll turn it over to Sheila. Thank you, Reece. As Reece mentioned, we had a record start for orders and operating income in the quarter. We had sales of $232.5 million for the first quarter of fiscal 2024. This was an increase of 35.3% compared to $171.9 million for the first quarter of fiscal 2023. Sales growth was driven by fulfilling orders and backlog, especially in the live events and high school park and rec business areas as Reece mentioned. The increase was attributable to a stable operating environment, increased manufacturing capacity, and realization of price increases.
Sheila Anderson: What a difference a year makes, as in comparison during the first quarter of fiscal 2023, we experienced multiple material supply chain disruptions, labor shortages, and a pandemic related shutdown in our facilities in Shanghai, China for a significant portion of that quarter. Gross profit as a percentage of net sales increased the 30.6% for the first quarter of fiscal 2024 as compared to 15% in the first quarter of fiscal 2023. The increase in gross profit percentage is attributable to the record sales volume over our cost structure, strategic pricing actions, and fewer supply chain and operational disruptions during this quarter as compared to last year at the same time.
Sheila Anderson: Operating expenses for the first quarter were 30.9 million compared to 31.3 million for the first quarter of fiscal 2024. As a percentage of sales operating expenses for the quarter over prior year quarter declines 13.3% from the 18.2%. Operating income was 40.2 million dollars or 17.3% of sales during the first quarter of fiscal 2024 as compared to last year's loss of 5.5 million dollars. Tax expense for the first quarter was 8.9 million dollars with an effective income tax rate of 31.7%.
Sheila Anderson: As since any major tax changes, we expect our full year effective rates to be in the mid-20s before the non-cash non-tax impacts the fair value accounting of our convertible debts. Our balance sheet reflects the changes in business levels and strategies we pursued in managing our supply chain and growing our capacity to meet customers' commitments all while managing our liquidity. At the end of fiscal 2024 first quarter, our working capital ratio was 1.91.
Sheila Anderson: In the Tory levels dropped slightly since the end of the year and are expected to approach more normalized levels so supply chain disruptions continue to ease and order backlog as fulfilled. Cash restricted cash and marketable securities totaled $54.9 million and we have a face value of debt of $40 million outstanding. There were no drawdowns on our line of credit.
Sheila Anderson: As a reminder, we closed on our financing in May 2023 as a result of the comprehensive review of financing alternatives led by the board's strategy and financing review committee. This new debt structure provides us the financial resources to serve our customers and build long-term value for our shareholders. The interest expense created by the set also includes the debt issuance class of the convertible debt. The convertible debt is recorded at fair value and we recorded a $7.3 million non-cash charge because of the change in the fair value, and that fair value was primarily caused by the increase in our stock price and decline in market interest rates.
Sheila Anderson: Going forward, we will re-measure the fair value of this convertible note until maturity or conversion, which will create this non-cash charge below operating income each quarter. During the first quarter of fiscal 2024, we generated $19.3 million of cash from operations and used $4.5 million for purchases of property and equipment. We continue to focus on optimizing our working capital for investments and for investments into working capital assets. Our plans are to spend approximately $19 million for capital assets, primarily in manufacturing and technology areas.
Sheila Anderson: We also plan investments in digital digitization to improve customer and employee experiences and will continue to invest in our affiliates through this year. Over the long term, we expect to grow revenues and profitable and profitably. Our backlog at the end of the first quarter of fiscal 2024 was at $324 million, which provides a nice basis of business to fulfill in the coming quarters and the reduction of backlog reflects the stabilization of our supply chain and our ability to return to more customer-anticipated lead times.
Reece Kurtenbach: I'll now turn it back over to you, Reese, for more comments. Thanks, Shira. As we look ahead, we expect growth and the global use of audio-visual communication systems in both traditional and new applications. Industry research predicts the LED market will achieve an estimated 20 percent compounded annual growth rate over the coming years, depending on the specific end market and geography. We are poised to capitalize on this growth by continuing to do things we do well, including how we engage in a full range of activities to serve our customers by providing high-quality, standard display products, as well as custom-designed integrated systems, both with ongoing services and support.
Reece Kurtenbach: We manufacture a complete line of products from small scoreboards and electronic displays to large multi-million dollar video display systems and the related control and sound systems. We develop capabilities to design, manufacture, install and service, complete integrated systems, and we are recognized as a technical leader in these areas. We generate new leads and serve repeat customers based on our performance, reputation, and marketing efforts.
Reece Kurtenbach: As we look ahead to the remainder of the current fiscal year, our attention remains focused on our multi-year journey to capture the market's expected growth and broaden our leading market position by offering best-in-class technologies and services to both our traditional customers as well as new and adjacent markets. We have applied the experience of the preceding two fiscal years to closely monitor the ever-evolving geopolitical and global economic environment and as necessary, quickly adjust our resources and market approaches so that we can maintain profitability and cash generation throughout various cycles.
Reece Kurtenbach: As we evaluate our business areas, we continue to expect the following over the long-term with some natural volatility in size and timing of orders across fiscal periods. We expect our high school, park, and recreation business unit to grow through adoption of video displays for sporting and educational use. These customers are deploying more Dectronics Professional Grade technology and sophisticated content, increasing the total addressable market. In the commercial area, we are focused on increasing sales channels with audiovisual integrators for end use in government, military, healthcare, and corporate applications, which will create growth in this business area.
Reece Kurtenbach: In addition, customers depending on out-of-home advertising or self-promotion use our products and services as an effective medium for both indoor and outdoor applications. We expect existing and new customers to purchase displays to install in new locations, as well as replacement displays for existing locations to capitalize on the effectiveness of digital technologies. Transportation demand is strong as project planning and approval activities resume to more pre-pandemic levels, and our customers move forward in purchasing displays used for intelligent transportation systems and for mass transit venues. Infrastructure spending should continue to benefit this segment as digital signage is often used in these projects, and we are qualified to do business in all U.S, states.
Reece Kurtenbach: In the international business unit, we continue to experience a software market due to macroeconomic and geopolitical factors. We expect to see these factors to continue to impact sales in the coming year. We are watching developments closely and have and can adjust resources and commitments accordingly. Over the longer term, we expect similar growth trends in the commercial and transportation areas outside the U.S. We also expect continued interest in sports venue projects, and these will be a focus in our marketing numbers.
Reece Kurtenbach: The live-of-this segment outlook remains strong due to large stadium renovations, continued replacement cycles, and expansion of sales efforts beyond sports efforts areas. We are the acknowledged market leader in this segment, which allows us to be strategic in our pricing and contract terms while being very mindful about the profitability of this business.
Reece Kurtenbach: In FY24, we will make investments in high-return projects and technologies to support long-term profitability. Our experience in engineering, process design, service design, and product development capabilities, and investments made in affiliated companies are very important factors in continuing to develop, produce, and offer the most up-to-date digital displays and control system solutions desired by the market. We will continue to invest in our development efforts and our affiliated companies to release differentiated product platforms, software offerings, and support services.
Reece Kurtenbach: We will also advance critical architecture and design in new competitive narrow pixel pitch and micro-LED technologies, sustainable technologies, software architecture, and other related areas. We also plan to grow our operational efficiency by focusing on retention of our highest performing team members and capitalization on automation capabilities added over the last years. We will invest in digital transformation project automation that will support improved customer and employee experiences and lower cost to operate.
Reece Kurtenbach: We believe the stage is set for a strong fiscal 2024 and look forward to continued growth of sales and expansion of operating income.
Operator: With that, I would ask the operator to please open the line for questions. As a reminder, if you'd like to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. Do withdraw your question, please press star 11 again. Please stand by when we compile the Q&A roster.
BJ Cook: Our first question comes from a line of BJ Cook with singular research. Hello, can you hear me? Yes, we can. Awesome. Thanks. Thanks for your call. Nice quarter looks like gross margins. Turn out really great for my historical perspective. Can we talk about that? It seems like inflation has tamed a bit here in the short term. Our new order is going to reflect a more historical lower gross margin. In other words, is your higher gross margin sustainable?
BJ Cook: I think the first of all, we're very pleased with the gross profit margin in the last quarter. As you alluded to, we believe a lot of that is due to the current pricing structure, but also in the smoothness of operations as the supply chain has really become more predictable this year over last year at this time. As far as inflationary pressures, it still seems like there's inflationary pressures out there, but not as dynamic or maybe as extreme, and certainly the stabilization of the supply chain makes all of this more predictable.
BJ Cook: As we complete the bulge of work that was available after the pandemic, I suspect we will see some return to the more competitive environment, but as a company, we're very sensitive to these inflationary pressures and really the dynamics in the market places today. We're very carefully evaluating each opportunity in each market to understand what the competitive nature of that business might be. Awesome. Thanks. Similarly, the operating margin was fantastic, too. I know it's just one quarter that we're looking at and some of that was due to the gross margin, but it seemed like you supported a notably higher amount of revenue with similar, of similar operating expenses compared to first quarter last year.
BJ Cook: So I guess a similar question is this reflective of your operational improvements filtering through the P&L? Again, is this a cannibal cost structure going forward? Yeah, we believe that we were able to ship that much product first of all because we've invested and installed and put into place a lot of automation equipment in the past 18 months. And the teams that are responsible for those systems have had ample of time to improve and understand the operations of those.
BJ Cook: We've also increased our staffing levels greatly over the past 12 to 18 months and also have a more stable workforce that understands how to the products and what they're expected or what we would like them to do. So I think we have an understanding of what we can deliver. Now can we keep a stable backlog in place into the future quarters and consistently keep all of those fulfillment areas running at a high level will be the management team's focus over the coming quarters? Okay, thanks.
BJ Cook: A couple of questions on the debt structure.
BJ Cook: Can you pay the mortgage without prepayment penalty? If so, is that your intention in the long term is, I mean, I'm sure that comes with the caveat that working capital and capital is secure? We are able to repay that mortgage at any time and as the management team and our board reviews the outlook will be evaluating the use of that cash and working to put it to use for different opportunities to invest it back in the company or like you mentioned, we could prepay. Okay, okay, thanks. I'm more on that.
BJ Cook: So can you remind us of what we triggered the conversion of the debt? It looks like the stock has been over the conversion price for a while but hasn't converted yet. Do you have forced conversion rights? I think so.
Sheila Anderson: Can you remind us about that situation? We do have a term of forced conversion but that doesn't come into effect until 18 months from May of 2023 and then it's at certain tranches we can force conversion. In the stock frame, that's also be over 150% of that $6.31 conversion price.
BJ Cook: Awesome, thanks Sheila.
BJ Cook: I was one last quick one.
Sheila Anderson: It's been probably too early for guidance or too soon. Is there anything you can share about all you guys? Your outlook for the remainder of the fiscal year seems like there's a small reduction in orders year over year. The press really noticed that that was in the big bugaboo was commercial segment. Is anything you can share in there? We don't typically give guidance, so that is, we're still on that track. And in the commercial business area, the out-of-home business tends to be the most sensitive to economic factors.
Sheila Anderson: As you might recall in the next last nine months, there's this, are we going to have a recession and are we going to have a soft landing? It seems like the press or the pool of experts out there are getting more optimistic that this might be a soft landing, which would both well for that business segment typically. And just to highlight to BJ, there is some variability in our larger project business in the commercial market, what we call the spectacular business area, so there can be ups and downs in that and when you compare one quarter to the other. And that just causes some variability in the level of sales or excuse me, level of orders. Yeah. Okay. Seems like it's involved really. That's fine.
BJ Cook: All right.
BJ Cook: That's it for me. Thanks, guys. I appreciate your time. Thank you. Thanks, BJ.
Operator: As a reminder, if you'd like to ask a question at this time, that is star 1-1. I'm showing no further questions in queue at this time.
Reece Kurtenbach: I'd like to turn the call back to Reese Curtinbach for closing the mark. Well, I appreciate everybody attending today's conference call and the questions and any of the feedback we will receive.
Reece Kurtenbach: We will host the next conference call when our second quarter results are released. And I look forward to talking to you all again then. Thanks, everyone. Have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.