Q4 2024 Daktronics Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Doctor or the next fiscal year 2020 for fourth quarter earnings results Conference call. As a reminder, this conference is being recorded today Wednesday June 12, 2024 and is available on the company's website at <unk>.
Www Dot Tektronix dot com.
I would now like to turn the conference over to MS. Karla Gatzke Company Secretary for Doctor Onyx for some introductory remarks. Please go ahead Carlos.
Thank you Savannah.
Morning, everyone.
Thank you for participating in our fourth quarter earnings Conference call.
I would like to review a few 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 but aren't limited to changes in economic and market conditions management up growth.
And magnitude of future contracts and orders fluctuations in margins the introduction of new products and technology available availability of raw materials components and shipping services and other important factors.
These identified factors could cause actual results to differ materially from those discussed in this call and.
In the company's fourth quarter 2024 quarterly earnings release and in mode.
And its most recent annual report on Form 10-K.
Our fourth quarter 2024 earnings release contains certain non-GAAP financial measures and was furnished to the SEC on a form 8-K. This morning.
We will also make slides available for today's call. All of these documents are available on the investors section of the iconic website www dot dot dot com.
I'll turn the call over to our CEO, we used to coach them back. Thank you. Good morning, everyone. Thank you all for joining US today I would like to start by saying congratulations to the tektronix team for an amazing year, we began and finished fiscal 'twenty 'twenty four strong demonstrating the increased power of our more profitable.
<unk> business model, resulting from the operating improvements we've made over the past few years, we achieved record revenue and solid expansion in our operating profitability and cash flow generation.
As you can see on our slide presentation on page three fiscal 'twenty 'twenty four it was a year of terrific accomplishment as we executed on a number of strategies and made progress toward our long term objectives. Some highlights of our here.
We refinanced the company to ensure we have the resources available to serve our customers and build long term value for our shareholders.
We executed consistently to incrementally raise the base profitability of the business by allocating resources to growing business segment and the most profitable projects.
We generated substantially higher cash flow through our increased profitability and our management of working capital and through efforts such as infant as reduction in inventory levels post supply chain correction.
On the product front, we continue to innovate to maintain our technology leadership as seen in releases like additional narrow pixel pitch product lines used primarily in indoor applications.
With respect to our end market penetration our teams deepened our relationship with AP integrators, and new customer areas to reach growing markets.
As an example, we delivered displays to a number of military sites this past year.
We laid the central ground work for our digital transformation strategy, making progress in our services systems area and investing in enterprise performance management software.
In our facilities, we further optimize our operations and manufacturing and site fulfillment processes as we can as we returned to serving customers within market lead times.
These are complemented accomplishments serve as evidence of the success of the actions taken over the last 18 months to capture and leverage lessons learned from challenging business conditions to improve our customers experiences to increase our profitability and to optimize working capital levels there.
Results also testified to the resiliency and strength of tektronix teams to execute our strategy of capturing demand in diverse markets and creating differentiation by innovating across technology platforms.
I invite you to turn to slide four titled fiscal fourth quarter 2024 highlights to follow the fourth quarter's financial outcomes.
Our quarterly performance was terrific, particularly in comparison to last year's growth and was a great end to a great year.
Our teams continued with strong performance and we exceeded the outlook. We described last quarter and the fourth quarter, we were able to fulfill multiple sports related projects as teams readied for summer and fall sports.
In fiscal Q4, we generated sales volume of $216 million or two 9% growth from last year full year sales grew eight 5% for the year the.
The robust increases are attributable both to our drive to capture a greater share of our Sam.
Operating income was up over four times fiscal 2023, and we generated over $63 million in cash flow from operations.
We continue to efficiently decreased backlog from last year has built up levels as we recognize the anniversary of the resolution of many supply chain challenges and utilized our capacity to deliver customer orders at market expected lead times.
As we primarily compete with companies that obtain their products from China and compete on price, we continue to evaluate our price position in the market and carefully consider pricing adjustments to achieve our order attainment goals at profitable levels.
Given our results to date this year and the momentum in order flow, we feel good about our positioning to drive profitable growth and cash flow generation into fiscal 2025 and beyond.
For additional details on our financial results for the quarter and year I'll now turn it over to Sheila.
Thank you Chris Please turn your attention to slide number five F Q4, FY 2024 financial highlights for the quarterly overview.
The quarter over quarter comparisons on the slide and related discussion our outflows and for fiscal quarters ended April 27, 2024, and April 29, 2023, unless stated otherwise.
<unk> increased by 14, 6%, primarily driven by strengthening in live events and international business unit orders strong demand in our live events business unit. What the result of success in capturing Sam from projects for colleges and universities International orders are starting to rebound as some stability in that.
Economic improvement has increased customers' desire to move forward on projects.
Our commercial business unit continues to see softness in large projects and there was some slowing in the high School Park and recreation and transportation business units in the quarterly comparison we.
We generated sales of $216 million for the fourth quarter of fiscal 2024 as compared to $210 million last year. This two 9% increase in sales volume is the result of fulfilling college and University orders in live events transportation order deliveries a solid win rate and on time.
Deliveries. This is this was somewhat offset by a sales decline in international.
Gross margin as a percent of net sales increased to 25, 7% as compared to 24, 8% in the fourth quarter of fiscal 2023.
The increase in gross profit percentage is attributable to our strategic focus unprofitable markets and projects manufacturing efficiencies and stability in our diversified supply chain.
Operating margin was 9% of sales as compared to last year's eight 7% fiscal 2020 for its fourth quarter positive operating margin rate is attributable to our continued careful management of operating expenses, while investing in our digital transformation and product innovation.
Please turn to slide six of the highlights year to date performance.
Year over year comparisons in this slide and related discussion are as of and for fiscal years ended April 27, 2024, and April 29, 2023, unless otherwise stated.
For the year orders were up $59 million or eight 7% as compared to the prior year order volume growth is attributable to a stable macroeconomic environment in North America. So the continued use and market adoption of digital display technology and to our success in capturing exist.
And new customers orders for larger project based sports and transportation business as.
As we are a project based business large sized project orders can impact levels of orders during.
During fiscal 2024 fewer large sized projects for booked two orders in commercial and international as there were fewer larger projects available in the market place. This past year. However, we believe our market share held.
For the year sales increased $64 million or eight 5% due to the stable operating environments and supply chain combined with our past investments in capacity.
We continue to invest in operating improvements to offer sustainable utilization of our capacity.
These conditions resulted in more efficient fulfillment processes and a return to market expected lead times.
<unk> paired with the strong order volume resulted in growth of net sales.
For the year gross margins improved to 27, 2% as compared to 21%. This gross margin percentage increase is attributable to continuing strategic pricing actions. The record sales volume over fixed manufacturing cost structure stabilization of input cost and fewer supply.
Speaker Change: The chain and operational disruptions during fiscal 2024 as compared to during fiscal 2023.
Please note that all expense lines increase for executive variable compensation and employee profit sharing achieved because of our operating margin level attainments during fiscal 2024.
These expenses totaled $6 $4 million of which $3 million was recorded in cost of sales $1 $2 million and selling one $4 million in general and administrative expenses and $8 million in product design and development.
After investing in operational areas margin based compensation related expenses and organic growth. The resulting operating margin was 10, 6% of sales in fiscal 2024 as compared to last year's two 8% or three 4% of goodwill impairment.
And the calculation it is a non-GAAP metric, but helpful to compare the improvements.
We strengthened the company's balance sheet during the year and quarter, our cash position at year end was $81 $7 million compared to $24 $7 million with the increase of $63 million due to cash flow generation from the profitable year and efficient management of working capital.
And $15 million from debts net.
We used $21 million for investments in property and equipment and our investments in affiliates.
Cash restricted cash and marketable securities totaled $81 $7 million at the end of the year.
That's S fair value was $53 million.
Our working capital ratio improved during the year at fourth quarter and the ratio was $2 one to one as compared to one six to one last year.
Now I'll turn it over to Ray Thanks, Sheila.
Please reference slide seven titled market verticals update.
Our mission is to support our customers as they inform entertain and persuade their customers and audiences, let us look more specifically into our business areas.
In light of events during the quarter, we completed the Detroit Tigers project, along with a number of other college and University projects.
We expect live events demand to remain strong as venues enhanced facilities to entertain fans and attract athletes. We see this trend continuing and more focus being placed on entertainment areas and the experience outside the ball and places like Entryways Atriums concourses and adjacent entertainment areas.
Our narrow pixel pitch line of products match the needs of customers for these places.
Commercial orders, especially from customers in the out of home advertising space can be sensitive to economic conditions and they can rebound quickly as conditions improve.
This market is also sensitive to the large national advertisers spending decisions, which is why we also focus on winning other independent Billboard sales and have seen important increases in this market vertical over the last year.
We continue to innovate and provide competitive differentiation in the marketplace to reach the needs of our customers.
We continue to build out our AAV integrator network to market, our narrow pixel pitch product lines, especially in control room applications used by military utility and transportation agencies to date, we have installed 131 displays on 43 different basis globally.
And in FY 2020 for the American transmission company in Wisconsin purchased two large screens, one eight and a half feet high by 86 feet wide and another six and a half feet high by 52 feet wide.
In transportation our teams are focused on winning projects for intelligent transportation systems Airport projects and other mass transit systems projects.
Other highlights of our Q4 performance include orders from Texas, and North Carolina Department of transportation as well as an order from southwest Airlines.
International during the quarter, we want a stadium project for orders for and orders for transportation areas, a stronger finish to a year in which orders were slow, which we believe is due to economic and geopolitical uncertainty.
Customers continue to demonstrate interest in projects, but had been delayed buying decisions are.
Our sales teams continue to be responsive to customers and are actively quoting opportunities and we are starting to see signs of more quotes converting into orders.
High schools the trend going forward in this end market continues to be a conversion to full video in fiscal 2022, our sales were $112 million in this market and have grown to $170 million in fiscal 2024, we are well positioned to meet this demand and believe we are in the early stage.
<unk> of that transition, we're looking to speed up and simplify the sales processes and increase our market reach by deploying sales strategies to make certain items able to be purchased online.
We also continue to develop our E sales channel and these efforts are going well, we are continuing to offer more products through these online and partner channels and have improved systems to make them buying process more efficient.
Our customers use our control capabilities to create manage and schedule content for engagement with fans and audiences.
We continue to make progress in our multi year strategy to create more capabilities to aid in the service and maintenance of our systems and plan to upgrade our solutions by the end of the calendar year as well as continually add to the future set of our cloud based and locally hosted systems.
For example, we recently launched a four output media player that is compatible with our venous control suite of cloud based software our displays use which improves our control features.
These capabilities are increasingly offered through software as a service.
And we are investing in people and capabilities to grow these higher margin and less capital intensive opportunities.
Turning to slide eight titled FY, 2025 strategic priorities.
Overall, we have a unique leadership position in our target markets, which are growing which are large growing and enjoyed resilient demand driven by our customers' desire to improve their audience experience in sports commercial and transportation environments.
Based on our accomplishments in fiscal 2024, we are implementing a set of initiatives in fiscal 'twenty five to continue to drive future revenue growth and returns.
We are not done with our efforts to enhance the return on invested capital that our business can deliver as highlighted in our press release, we are focused on different initiatives and priorities on our backbone of commitment to improve our return on capital and consistently earn returns above our cost of capital.
These priorities include.
Taking the next steps in our digital transformation to enhance our internal systems. These include modernizing our field service systems Enterprise performance management tools, and automating quoting and sales processes.
Our digital transformation will provide greater insights into our business and end markets, allowing us to continue to guide our investments to our most profitable business segments and to pursue growth through expanding our share of these customer spend.
Our second initiative is to continue to further penetrate our addressable markets through innovation allocating resources and capital to our most profitable opportunities and adding professional services control systems and other content to drive M. R. R.
Ensuring we are driving returns as we help our customers achieve success on their investment in our offerings.
Third we are taking steps in parallel to lower our overall cost to operate the business and increase market competitiveness. This includes increasing the flexibility of our capacity and our plant manufacturing allocation and utilization.
Adjusting our production and capabilities to smoothly manage order flow.
And boost operational effectiveness.
With these initiatives, we will continue to advance many existing elements of our strategy and our competitive differentiation, including our premium value proposition our U S design fulfillment and high touch services.
Our key investments and control systems, and our unique culture of lifetime service to our customers. We will keep you apprised of our progress as we implement our strategies and move through the year.
In conclusion, our summaries on slide nine recaps, our key highlights fiscal 2024, it was a terrific year and our results demonstrate that our teams have built the foundation for a resilient business model and overcame the challenges caused by the constrained supply chain and other impacts from the pandemic.
Speaker Change: We are focused on a multi year journey to drive our profitable growth and are committed to consistently earning returns above our cost of capital.
These strategies include focus on allocating resources to capture the growth in our existing Sam and develop growth in other areas and are opposed or poised for durable revenue earnings and cash flow generation.
We seek to utilize our position as a global industry leader and best in class video communication systems to grow profitably.
We are differentiated from our competitors by our U S base, our global footprint, our technology leadership, the high quality of our solutions are large entrenched customer base and our services.
We are extending our technology leadership in high quality high touch solutions, serving our large demand resilient growing markets.
We are very proud of our results and grateful to our teams who work together to deliver them and we look forward to a solid end to our year.
With that I would ask the operator to please open the line for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby while we compile the Q&A.
Wash there.
Okay.
Our first question comes from the line of BJ Cook from singular research. Your line is open.
Hey, guys great quarter. Thanks for taking my call just a couple of questions.
Yeah. The attorneys are.
Recurring revenue opportunities.
And control systems and content.
I just kind of curious.
Are you marketing these services to new orders going out existing company existing customers and projects that are on the market now.
And would you expect that over time to be a meaningful part of the business.
P. J thanks for joining us on today's call and I appreciate the question.
Yes to all of that I guess is the answer.
The services, we offer are especially important as a new customer it takes on a system and grow as their capability too.
Operate program understand what they are trying to accomplish with their systems and that is in sports that is in commercial that is in transportation and then.
As they get through their first year in subsequent years, they often benefit from refreshing and Theres, a changeover and staffing.
Staffing often and so the future years as a continual opportunity to sell different services.
The displays themselves are often <unk>.
<unk>, the last 10 years or sometimes more but the control capability computers run at a different cycle. So theres often a desire to refresh the software capabilities and systems, where we are.
Provide dedicated.
Onsite processing, the computer systems, sometimes in year, three and sometimes in year five as they go through the approach the system lifecycle.
Hi, guys.
You highlighted a couple of times.
New military.
Shipments.
Products there.
I guess typically using military.
It's a big deal to get in there you have certifications yet.
<unk>.
I was just wondering if these are kind.
Kind of went through that process of the new customers.
Speaker Change: Sure.
And would you expect that to be kind of the opportunity to expand into more military business.
We see the military business is very good we have a.
A differentiated product line with.
Made in America.
Control system and control path as well as modules and displays.
And we partner with AAV system integrators that are focused on that market and provide.
What you described.
These kind of special requirements to even get on our base plus many of the other elements that go around the display to make one of these spaces successful and this product we have the narrow pixel pitch product is increasingly what they go to to replace LCD or projections.
<unk> of technologies and it unlocks uses that they previously maybe desire to have something but the technology was just not quite right and so we see that all of those are potentials.
This kind of narrow pixel pitch products for military and really other applications and control centers and elsewhere.
Yeah.
Okay. Thanks, a lot guys I appreciate it.
Thank you BJ.
Thank you.
And our next question comes from the line of Andrew Sutor strong from Sidoti. Your line is now open.
Thank you for taking my question and Congratulation Assembly.
Uh huh.
Thank you Keith.
Has that been received them.
Do we expect any potential contribution at the revenue and margin from that.
Speaker Change: Hum.
Thank you Andre for attending the call we are very excited about.
This chip on board.
Enabled partially through this flip chip technology and it provides.
Really a lot of enhancements in our NPP product line oftentimes, we use that as a at a higher pixel picture.
Tighter resolution.
We will use it its more rugged and durable so it's more friendly if somebody can reach out and touch the face.
It has a very high contrast, so it responds well in high brightness sorts of situations. So we've seen a high receptivity to this product line.
Our customer base and our partner channels as far as our prediction on.
The impact on profitability or revenue.
Maybe it's too soon for us to estimate that.
Okay. Thank you.
Following up on <unk>.
From a revenue question.
Yep.
In our higher margin.
Then youll go wrong.
It is at a higher margin in it.
Add significantly to our customer satisfaction, which we think it.
Increases the likelihood they'll buy from us again.
As of today, it's a smaller portion of our overall revenue, but we think it's an exciting area and there is room to grow in the future.
Okay, and what are you seeing in the international markets.
Speaker Change: It seems like the orders were increasing that.
We're hopeful that the.
The.
Oh, the geopolitical situation are cross the world will be less dynamic in the coming years and it appears that the market is picking up we still and we've had considerable interest during these times, but as described it.
It's hard to get that interest to convert into orders, but in the last few months, we've been seeing increasing indications that thats easier and easier. So we're hopeful that the international market will continue to to pull out of the.
The situation that its in overall, we're very excited about our international markets.
A lot of this.
Buying.
Thinking from those customers is similar to what we have in the U S and our market share is relatively small.
Internationally, allowing us room to grow in those areas as well as we've invested a lot in the sales service and fulfillment teams and we believe we can we can handle growth with our current footprint.
Okay. Thank you that will come from me.
Speaker Change: Thank you.
Thank you I'm showing no further questions at this time I would now like to turn the call back over to Reece Kurtenbach for any closing remarks.
Okay.
Yes. Thank you everyone for attending today's conference.
Great questions and we will see you in a few months when we have our first quarter earnings call.
You all have a great summer and we'll see you later in the early fall Bye bye.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Yeah.
Okay.
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Speaker Change: Okay.
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Okay.
Okay.