Q2 2024 Daktronics Inc Earnings Call
Site at Www dot that Tronox dot com.
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 you will then hear an automated message advisory. 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 a Doctor Onyx for some introductory remarks. Please go ahead Sheila.
Speaker 1: Thank you, Gigi. Good morning, everyone. Thank you for participating in our second 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. These forward looking statements reflect the company's expectations or beliefs concerning future events.
Thank you Gigi good morning, everyone. Thank you for participating in our second 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.
Future business opportunities.
Forward looking statements reflect the company's expectations or beliefs concerning future events.
Speaker 1: 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 and technologies, availability of raw materials, components and shipping services, and other important factors.
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 and technologies availability of raw materials components and shipping services and other important factors.
Speaker 1: These identified factors could cause actual results to differ materially from those discussed in this call in the company's 2024 quarterly earnings release and its most recent annual report on Form 10-K . Our second quarterly 2024 earnings release contains certain non-GAAP financial measures that was furnished to the Securities and Exchange Commission on a Form 8-K this morning.
These identified factors could cause actual results to differ materially from those discussed in this call in the company's 2020 for our quarterly earnings release and its most recent annual report on Form 10-K, our second quarter 2024 earnings release contains certain non-GAAP financial measures that was furnished or the six.
<unk> and exchange Commission on a form 8-K this morning.
Speaker 1: These documents are available on the investor section at Dactronics website at www.dactronics.com.
These documents are available on the investors section at <unk> website at Www Dot <unk> Dot com.
Speaker 1: I'll turn the call over now to our CEO , Reese Kurtenbach.
I'll turn the call over now to our CEO Reece Kurtenbach.
Speaker 2: Good morning. Thank you Sheila. Thanks everybody out there for joining us today. We have had a record start to fiscal year 2024 in both sales and operating income and had robust operating cash generation for the quarter.
Good morning, Thank you Sheila thanks, everybody out there for joining US today, we have had a record start to fiscal year 2024 in both sales and operating income and had robust operating cash generation for the quarter. All of this is the result of strong execution and our strategic strategy.
Speaker 2: All of this is the result of strong execution in our strategic strategies across all our business areas.
It's across all of our business areas.
Speaker 2: We continue to benefit from our past decisive and deliberate actions to improve our customers' experience while increasing our profitability and working capital level.
Continued to benefit from our past decisive and deliberate actions to improve our customers' experience, while increasing our profitability and working capital levels.
Speaker 2: Our performance is also a testimony to the resiliency and strength of our teams within Dectronix as well as our strategy of diversified markets and innovation across technology platforms.
Our performance is also a testimony to the resiliency and strength of our teams within tektronix as well as our strategy of diversifying our markets and innovation across our technology platforms.
Speaker 2: For additional details on the financial results for the quarter, I'll turn it back to Sheila.
For additional details on the financial results for the quarter I will turn it back to Sheila.
Yeah.
Speaker 1: Thank you, Reece. As Reece mentioned, we had a record start for orders and operating income, and strong operating cash flows. Congratulations to the Dactronics team for this great effort.
Thank you Reece as Reece mentioned, we had a record start for orders and operating income and strong operating cash flows congratulations to the <unk> team for this great effort.
Speaker 1: For the quarter and year orders and demand outlook remains strong in live events, high school, park and recreation and transportation as we see customers continue to invest in digital displays to inform entertain and persuade their audiences.
For the quarter and year orders and demand outlook remains strong in live events High School Park, and recreation and transportation as we see customers continue to invest in digital displays.
Inform entertain and persuade their audiences inter.
Speaker 1: International orders have been increasing this year as global economies recover from the pandemic, despite war-related events.
International orders have been increasing this year as global economies recover from the pandemic despite four related events.
Speaker 1: For fiscal 2024, commercial areas have been contracted for orders in out-of-home digital billboard and the military areas. As a reminder, given the impact of large tailored projects across our markets, orders can be bumpy.
For fiscal 2024 commercial areas have been contracted for orders and other home digital Billboard and the military areas. As a reminder, given the impact of large tailor projects across our markets orders can be lumpy.
Speaker 1: We reported sales of 199.4 million for the second quarter of fiscal 2024. This was an increase of 6.4% compared to 187.4 million for the second quarter of fiscal 2023. Sales growth was driven by fulfilling orders and backlog.
We reported sales of $199 4 million for the second quarter of fiscal 2024. This was an increase of six 4% compared to $187 4 million for the second quarter of fiscal 2023.
Sales growth was driven by fulfilling orders and backlog.
Speaker 1: gross profit as a percentage of net sales increased to 27.2% for the second quarter of fiscal 2024 as compared to 16.9% in the second quarter of fiscal 2023.
Gross profit as a percentage of net sales increased to 27, 2% for the second quarter of fiscal 2024 as compared to 16, 9% in the second quarter of fiscal 2023.
Speaker 1: The over 10 point increase in gross profit percentage is attributable to the increased sale volume over our relatively fixed cost structure, strategic pricing actions, and a stable supply chain causing fewer operational disruptions during the second quarter of fiscal 2024, as compared to a year earlier.
Over 10 point increase in gross profit percentage is attributable to the increased sales volume over a relatively fixed cost structure.
Strategic pricing actions and a stable supply chain, causing fewer operational disruptions during the second quarter of fiscal 2024 as compared to a year earlier.
Speaker 1: Operating expenses for the second quarter of fiscal 2024 were $34.8 million compared to $30.2 million for the second quarter of fiscal 2023. As the percentages failed, operating expenses for the quarter over prior year was 17.4% as compared to 16.1%. On a year-to-date basis, operating expenses as a percentage of sales was 15.2% as compared to 17.1%. And
Operating expenses for the second quarter of fiscal 2024 were $34 $8 million compared to 34, excuse me $32 million for the second quarter of fiscal 2023 as a percentage of sales operating expenses for the quarter over prior year was 17, 4% as compared to $16.
1% on a year to date basis operating expenses as a percent of sales was 15, 2% as compared to 17, 1%.
Speaker 1: Both gross profit and operating expenses were impacted by $4.8 million of expenses related to the effects of our employee benefit programs. $3.4 million related to the establishment or estimated adjustments for these programs. We believe these programs are valuable and promote higher employee retention.
Both gross profit and operating expenses were impacted by a 4.8.
$4.8 million of expenses related to the effects of our employee benefit programs $3 $4 million related to the establishment of our estimate of John adjustments for these programs. We believe these programs are valuable and promote higher employee retention.
Speaker 1: Operating income was 19.4 million dollars or 9.7% of sales during the second quarter of fiscal 2024 as compared to last year's 1.5 million dollars or 0.8%.
Operating income was $19 $4 million or nine 7% of sales during the second quarter of fiscal 2024, as compared to last year's $1 $5 million or 8%.
Speaker 1: And as a reminder, our business also fluctuates seasonally based on the sports markets and construction cycles, and is dependent on the varied schedules of our customers needs. Generally, the first half of the year, we have stronger quarters. Q3 is softer because of the seasonality and reduced workdays for the holidays. And Q4 starts to ramp back up for the sports and outdoor deliveries.
And as a reminder, our business also fluctuates seasonally based on the sports markets and construction cycles and is dependent on the various schedules of our customers needs generally the first half of the year, we have stronger quarters Q3 is softer because of the seasonality and reduced workdays for the holidays in Q4 starts to ramp back up.
Sports and outdoor deliveries.
Speaker 1: For low operating income, we accounted for our convertible debt at fair value in accordance with U.S. Generally accepted accounting principles.
Below operating income we accounted for our convertible debt at fair value in accordance with U S generally accepted accounting principles.
Speaker 1: For the second quarter, we recorded $10.7 million non-cash charge.
For the second quarter, we recorded $10 $7 million noncash charge.
Speaker 1: This fair value change is primarily caused by the increase in our stock price over the conversion price and the decline in, slight decline in market interest rates.
Fair value change was primarily caused by the increase in our stock price over the conversion price and the decline slight decline in market interest rates.
Speaker 1: Going forward, we will remeasure the fair value of this convertible note until maturity or conversion happens, which will create this non-cash charge below operating income each quarter.
Going forward, we will re measure the fair value of this convertible notes until maturity or conversion happens, which will create this noncash charge below operating income each quarter.
Speaker 1: Tax expenses for the second quarter of fiscal 2024 was $4 million with an effective income tax rate of 64.8%. Absent that a major tax changes we expect are full year effective rates to be in the mid-20s before the non-cash non- tax impact of the fair value accounting for the convertible debt.
Tax expenses for the second quarter of fiscal 2024 was $4 million with an effective income tax rate of 64, 8% absent any major tax changes, we expect our full year effective rate to be in the mid twenty's before the non cash non tax impact of the fair value accounting for the convertible debt.
Speaker 1: Our balance sheet reflects the changes in business levels and strategies we pursued in managing our supply chain and growing our capability to meet our customers' commitments while managing our liquidity. At the end of the fiscal 2024 second quarter, our working capital ratio was two to one.
Our balance sheet reflects the changes in business levels and strategies, we pursued in managing our supply chain and growing our capability to meet our customers' commitments, while managing our liquidity at the end of the fiscal 2024 second quarter, our working capital ratio was two to one.
Speaker 1: Inventory levels drop slightly since the end of our fiscal year in April 29th of 2023 and are expected to approach more normalized levels of supply chain disruptions continue to ease and our order back log is fulfilled.
Inventory levels dropped slightly since the end of our fiscal year in April 29th of 2023 and are expected to approach more normalized levels of supply chain disruptions continue to ease and our order backlog gets fulfilled.
Speaker 1: Cash, restricted cash and marketable securities totaled $73.5 million. And we had face value of debt of $39.6 million outstanding. There were no drawdowns on our line of credit.
Cash restricted cash and marketable securities totaled $73 5 million and we had a face value of debt of $39 6 million outstanding there were no draw downs on our line of credits.
Speaker 1: Through higher income from operations and strong working capital management, we drove second quarter of fiscal 2020 for cash generation to $25.1 million from operations, and we used $4.1 million for the purchase of property and equipment.
Through higher income from operations and strong working capital management, we drove second quarter fiscal 'twenty 'twenty four cash generation to $25 $1 million from operations, and we used $4 $7 million for the purchase of property and equipment.
Income from operations and working capital management contributed to that cash generation.
Plans for our plans are to spend approximately $19 million for capital assets, primarily in manufacturing and technology areas in total for fiscal 2024.
We also plan investments in digitalization to improve customer and employee experiences and we'll continue to invest in our affiliates through the year.
Speaker 1: Over the long term, we remain focused on driving profitable growth. Our backlog at the end of the second quarter of fiscal 2024 is $307 million, which provides a nice face that does a system fill in the coming quarters. The reduction in backlog from last year and last quarter reflects our focus to reduce lead times with capacity increases we've made over the past year. And it was also aided by the continued stability in the supply chain. For now.
Over the long term, we remain focused on driving profitable growth our backlog at the end of the second quarter of fiscal 'twenty 'twenty four is $307 million, which provides a nice base of business to fulfill in the coming quarters.
The reduction in backlog from last year and last quarter reflects our focus to reduce lead times with capacity increases we have made over the past year and was also aided by the continued stability in the supply chain.
I will now turn it back over to you read.
Speaker 2: Thank you, Sheila. As we look ahead, industry research predicts the LED market will achieve an estimated 20 to 25% compounded annual growth rate over the coming years, depending on the specific end market and geography considered.
Thank you Sheila as you look ahead industry research predicts the led market will achieve an estimated 20% to 25% compounded annual growth rate over the coming years.
<unk> on the specific end market and geography are considered we are well positioned to continue to capitalize on growth in the global use of audio visual communications systems in.
Speaker 2: We are well positioned to continue to capitalize on growth in the global use of audio-visual communication systems in both traditional and new applications. And we remain focused on engaging 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 service.
Both traditional and new applications and we remain focused on engaging 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.
Speaker 2: Manufacturing a complete line of products from small scoreboards and electronic displays to large multi-million dollar video display systems and the related control and sounds.
Manufacturing a complete line of products from small scoreboard and electronic displays to large multimillion dollar video display systems and the related control and sound systems.
Speaker 2: developing capabilities to design, manufacture, install, and service complete integrated systems, and we are recognized as a technical leader in these areas.
Developing capabilities to design manufacture install and service complete integrated systems and we are recognized as a technical leader in these areas.
Speaker 2: Generating new leads and serve repeat customers based on our performance, reputation and marketing.
Generating new leads and serve repeat customers based on our performance reputation and marketing efforts.
Speaker 2: 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.
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 broadening our leading market position by offering best in class technologies and services to both our traditional customers as well as new and adjacent markets.
Speaker 2: As we look into the second half of fiscal 2024, we are applying the experience we gained over the last two fiscal years and intend 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 sites.
<unk>.
As we look into the second half of fiscal 2024, we are applying the experience we gained over the last two fiscal years and intend 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.
<unk> profitability and cash generation throughout various cycles.
Speaker 2: In our business areas, we are focused on growth opportunities over the long term. These include our high school, park, and recreation business unit to grow through the 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 mark.
And our business areas, we are focused on growth opportunities over the long term.
These include our high School Park, and Recreation business unit to grow through the adoption of video displays for sporting and educational use. These customers are deploying more tektronix pressure professional great technology and sophisticated content, increasing the total addressable market.
Speaker 2: In the commercial area, while then FY24, our orders were down because of market conditions, we expect growth over the long term. We are focused on increasing sales channels with audio-visual integrators for end use in government, military, healthcare, and corporate applications, which will create growth-
In the commercial area, while the in FY 'twenty for our orders were down because of market conditions, we expect growth over the long term. We are focused on increasing sales channels with audio visual integrators for end use in government military healthcare and corporate applications.
Each will create growth in this business area.
Speaker 2: In addition, customers depending on out of home advertising for or self-promotioned, use our products and services as an effective medium for both indoor and outdoor applications.
In addition customers depending on out of home advertising for or self promotion use our products and services as an effective medium for both indoor and outdoor applications, we expect existing or new customers to purchase displays to install the new locations as well as replacement displays for <unk>.
Speaker 2: We expect existing and new customers to purchase displays to install the new locations, as well as replacement displays for existing locations, to capitalize on the effectiveness of digital technology.
Existing locations to capitalize on the effectiveness of digital technologies.
Speaker 2: Transportation demand is strong as project planning and approval activities resume to more pre-pandemic levels. And our customers move forward in purchasing displays, use for intelligent transportation systems, and for mass trans-adventure.
Transportation demand as strong as project planning and approval activities resumed to more pre pandemic levels and our customers move forward to purchasing displays used for intelligent transportation systems and for mass transit revenues.
Speaker 2: 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 US states.
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.
Speaker 2: In the International Business Unit, we continue to experience a software market due to macroeconomic and geopolitical facts.
In the international business unit, we continued 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 closely watching developments and have and can adjust resources and commitments accordingly over.
Speaker 2: We expect to see these factors to continue to impact sales in the coming year. We're closely watching developments and have and can adjust resources and commitments according.
Speaker 2: Over the longer term, we expect similar growth trends in the commercial and transportation areas outside the U.S. We also expect sports venue projects to continue to be a focus in our marketing efforts.
Over the longer term, we expect similar growth trends in the commercial and transportation transportation areas outside the U S. We also expect sports venue projects to continue to be a focus in our marketing efforts.
Speaker 2: The live events segment outlook remains strong due to large stadium renovations, continued replacement cycles, and expansion of sales efforts beyond the sports competition areas, which we would call in the bull. 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 segment.
The live events segment outlook remained strong due to large stadium renovations continued replacement cycles and expansion of sales efforts beyond the sports competition areas, which we would call in the ball. We are the acknowledged market leader in this segment, which allows us to be strategic in our pricing and con.
Tract terms, while being very mindful about the profitability of this segment.
In FY 'twenty four.
Speaker 2: We are making 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 customers 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 Marks.
We are making investments in high return projects and technologies to support long term profitability, our experienced an engineering process design service design and product development capabilities and investments made in affiliated customers 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.
Speaker 2: We will continue to invest in our development efforts and our affiliated customers to release differentiated product platforms, software offerings, and support services.
We will continue to invest in our development efforts and our affiliated customers to release differentiated product platforms software offerings and support services.
Speaker 2: We will also advance critical architecture and design in the new competitive narrow pixel pitch and micro LED technologies, sustainable technologies, software architecture and other related areas.
We will also advance critical architecture and design and the new competitive narrow pixel pitch and micro OLED technologies sustainable technologies software architecture and other related areas.
Speaker 2: We also plan to expand our operational efficiency by focusing on retention of our highest performing team members and capitalizing on automation capabilities added over the last year.
We also plan to expand our operational efficiency by focusing on retention of our highest performing team members and capitalizing on automation capabilities added over the last year.
Speaker 2: We will invest in digital transformation projects and other automation that will support improved customer and employee experiences and lower cost operate.
We will invest in digital transformation projects and other automation that will support improved customer and employee experiences and lower cost to operate.
Speaker 2: Our goal is to sustain the improved results and continue to drive profitable growth over the long term.
Our goal is to sustain the improved results and continue to drive profitable growth over the long term.
Speaker 3: With that, I would ask the operator to please open the line for any questions. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
With that I would ask the operator to please open the line for any questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker 3: To withdraw your question, please press star 11 again. Please stand by what we compiled.
To withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Speaker 3: Our first question comes from the line of B.J. Cook from Singular Research.
Our first question comes from the line of Vijay Cook from singular research.
Hey, guys nice quarter.
A few quick questions here.
Speaker 4: Looks like gross margin was down slightly from Q1. It gets still working through some inflationary cost pressures, or this can more of a return to normalized gross.
It looks like gross margin was down slightly from Q1.
It was working through some inflationary cost pressures.
More of a return to normalized gross margin.
Speaker 2: Yeah, BJ, first of all, thanks for joining us this morning. As Sheila mentioned in her comments, we do have a fixed cost infrastructure with our factories and other areas. So as revenue might fluctuate through the quarter to quarter, you might see a change in the measured gross profit even though our pricing and other cost structures have remained similar.
Yes P J.
First of all thanks for joining us this morning.
As.
Sheila mentioned in her comments, we do have.
Our fixed cost infrastructure with our factories and other areas so as.
Revenue might fluctuate through the.
Quarter to quarter, you might see a change in the.
Measured gross profit, even though our pricing and other cost structures have remained similar.
Speaker 2: And so we think we still have a strong backlog of good orders. And we believe that we were set up for success for the rest of the fiscal year over the long term and for the long term with both our backlog as well as the ordering activity that we're seeing. So we're not thinking that's a
And so we think we still have.
Our strong backlog of good orders and we believe that we were set up for success for the rest of the fiscal year over the long term and for the long term with both our backlog as well as the ordering activity that we're seeing so we're not thinking that along.
Speaker 2: We're thinking that's part of our business over the long term. That's not some sort of change in how our market, the pricing or order taking is going.
Thinking that as part of our business over the long term, that's not some sort of.
Change in how our market pricing.
Order taking is going.
Speaker 4: All right, entries one more. You mentioned that great quarter in terms of cash generation.
Alright, thank you.
One more you mentioned.
Great quarter in terms of cash generation.
We've got a healthy amount of cash on the balance sheet.
Speaker 4: Just wondering if paying down the mortgages on your radar or if there's other Uses for that cast that you guys are considering
Just wondering if paying down the mortgage is on your radar or if there's other uses for that cash that you guys are considering.
Speaker 2: Yes, certainly that's always a discussion with our board, but there's different ways that we could choose to use that cash and paying down debt is one of those. I think we'll see that those strategies become visible here in the coming quarters.
Yes, certainly that's always a discussion with our board, but theres different ways that we can choose to use that cash and paying down debt is one of those.
We'll see that those strategies become visible here in the coming quarters.
Okay cool.
I appreciate it.
Speaker 2: Thank you. Appreciate the questions and the participation.
Thank you I appreciate the questions and the participation.
Speaker 3: Thank you. As a reminder to ask a question, please press star 11 on your telephone. To withdraw your question, please press star 11 again. Please.
Sure.
Thank you as a reminder to ask a question. Please press star one one on your telephone to withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Speaker 3: I would now like to turn the conference back over to Reese, Curtin Bach for closing remarks.
I would now like to turn the conference back over to Reece Kurtenbach for closing remarks.
Speaker 2: Thank you everybody for attending our conference call today. We are appearing in the noble capital and singular conferences over the next few days. And we'll host the next conference call when our third quarter results are released later this spring.
Thank you everybody for attending our conference call today, we are appearing in the noble capital and singularly conferences over the next few days.
And we will host the next conference call when our third quarter results are released.
Later this spring.
Speaker 2: I hope you all have a wonderful holiday season. Participate or appreciate your participation in today's call and we'll talk to you in a quarter. Thanks everyone.
I hope you all have.
A wonderful holiday season participate or appreciate your participation in today's call and we'll talk to you in a quarter. Thanks, everyone.
Speaker 3: This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Speaker 5: a
Okay.
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