Q1 2025 Daktronics Inc Earnings Call

Speaker Change: Thank you for standing by, and welcome to Debtronics' first quarter fiscal year 2025 financial results conference call. At this time, all participants are listening only mode. After the speaker's prepared remarks, 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. If your question has been answered, and you'd like to remove yourself from the Q-Supply press star 1-1 again.

Speaker Change: As a reminder, today's program is being recorded, and now I'd like to introduce your host yesterday's program, Carla Gatzke, the company's secretary for Dactronics for some introductory remarks. Please go ahead.

Speaker Change: Thank you Jonathan. Good morning everyone. Thank you for participating in our first quarter earnings call.

Speaker Change: I would like to review our disclosure, cautioning investor 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.

Speaker Change: These forward-looking statements reflect the company's expectations or belief at concerning future events.

Speaker Change: All forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from expectations.

Speaker Change: 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.

Speaker Change: The introduction of new products and technologies, availability of raw material, components, and shipping services, and other important factors.

Speaker Change: These identified factors could cause actual results to different material aid from those discussed in this call in the company's first quarter, 2025 quarterly earnings release, and its most recent annual report on Farm 10K.

Speaker Change: Our first quarter, 2025 earnings release contains certain non-gap financial majors and was furnished to the SEC for security and exchange commission on a form 8K this morning.

Speaker Change: We also made slides available for today's call, and all of these documents are available on the Investors section at dictonictwitzite www.dictonic.com

Speaker Change: I'll turn the call over to our CEO Reece Kurtenbach.

Reece Kurtenbach: Thanks Carla, good morning. Thank you all for joining us today. We're off to a great start to the year against a record prior to your quarter. Demonstrating our continued strong execution towards driving growth and returns above our cost of capital.

Speaker Change: As you can see on our slide presentation on page 3, first quarter, fiscal first quarter, 2025 highlights.

Reece Kurtenbach: We delivered revenue growth as well as gross and operating profit expansion on a sequential basis.

Speaker Change: These continued financial results were primarily earned through study growth in new orders, which increased to 11% from last year, the completion of several large projects and efficient planning and execution throughout our fulfillment teams.

Speaker Change: This orchestration between our production and product teams served our customers well with on-time deliveries, especially for sports installs in our live events and high school parks and wreck HSPR business.

Speaker Change: Our operating environment remains stable with supply chain reliability, adding greater predictability to our production schedules.

Speaker Change: Our more profitable business model generated solid operating cash flow of $19.5 million dollars, a very strong performance against last year's record comparison.

Speaker Change: During the quarter, as several quarters, we have also executed on a number of strategies along our digital transformation, growth and efficiency roadmaps, making progress toward our long-term objectives and enhancing our ability to drive future profitable growth.

Speaker Change: We have specific milestones along this roadmap plan for this fiscal 2025 and 2026, and are on track for these next steps, which I will discuss further later in our call.

Speaker Change: Our backlog of $267 million reflects our year-over-year order of growth and continued return to more normal seasonal trends as we continue to anniversary our resolution of past supply change challenges.

Speaker Change: We enter our second fiscal quarter with good momentum and we expect to drive order growth in fiscal 2025.

Speaker Change: Our mission is to support our customers as they inform, entertain and persuade their audiences.

Speaker Change: Let's look more specifically into our business areas on slide four. Market vertical FQ1 review.

Speaker Change: In Love Events, during the quarter we made progress and recognized revenue on a number of large college and university projects for fall football, including Penn State, University of Texas, LSU and Colorado University.

Speaker Change: The LA Clippers' new home at the Intubate Dome also debuted their double-sided halo and other AV systems, which we have been building and installing over the last two years.

Speaker Change: This installation is a demonstration of our continuous innovation to extend our technology leadership and its strong reception from our customers.

Speaker Change: Looking ahead, we also booked some great projects for University of Connecticut, Alabama, and Auburn. Our outlook remains similar to our last call. We expect live events to manage, remain strong, as venues enhance the facilities to entertain fans and attract athletes.

Speaker Change: We see this trend continuing and more focused being placed on entertainment areas and experiences outside the bowl. In places like the entryway, Hrems, Concourses, and adjacent entertainment areas.

Speaker Change: Our narrow pixel pitch line of products matches the needs of customers for these places and continues to be in demand.

Speaker Change: Our commercial business primarily consists of sales through resellers, primarily signed companies, to many types of customer-sand applications, including military, utility, transportation, national reach.

Speaker Change: Taylor's, quick serve restaurants, casino shopping centers, cruise ships, commercial building owners, petroleum retailers, and other on-premise customers.

Speaker Change: Also included in this segment our out-of-home advertising companies.

Speaker Change: As compared to last year's first quarter and fourth quarter, commercial orders picked up, gaining strength as we continue to see order flow from resellers for on-premise users at displays, out-of-home companies, and commercial building owners.

Speaker Change: often referred to as spectactiliters. This market is sensitive to overall economic conditions and advertising spend and even with these dependencies at this time, this market is doing well.

Speaker Change: Our strategy, most independent out of home operators, is also driving this increase. Spectacular sales also increased in these comparative periods and we see continued interest going forward.

Speaker Change: Our focus for this market is to continue to grow our core areas and continue to build out our AV integrator network to market our narrow pixel-page product lines, especially in control room applications used by military, utility, and transportation agencies.

Speaker Change: Transportation, orders in this segment grew from both last quarter and last year and our teams are focused on winning projects for intelligent transportation systems, airport projects and other mass transit systems projects.

Speaker Change: We were pleased to have been awarded a contract with Dallas area rapid transit for rollouts using our displays across their systems.

Speaker Change: International continues to be slow as compared to prior years, which we believe is due to economic and geopolitical uncertainty. However, it increased 20% sequentially as a result of our bookings.

Speaker Change: of out-of-home companies for digital billboard rollout.

Speaker Change: Customers continue to administrate interest in projects, but in some cases have been delayed buying decisions.

Speaker Change: Our sales teams continue to be responsive to customers and are actively quoting opportunities and we are starting to see signs of more quotes converted into orders.

Speaker Change: The picture here is an installation in Dubai for a unique advertising marquee.

Speaker Change: High Schools. We had older successes compared to last year and last quarter as the market continues to be.

Speaker Change: and convert it to full video usage.

Speaker Change: We launched a new higher margin product and not only support our customers but further bolster our contribution margin for this segment.

Speaker Change: This past quarter we delivered on two larger display systems, a Kent University project, one in Texas and one in Hawaii, showing the continued usage of digital technologies to advance student and fan experiences.

Speaker Change: On the control system front, our show control solution is undergoing major advancements to enhance the live and retainment experience and improve workflow efficiencies.

Speaker Change: These enhancements will empower our customers to deliver a dynamic presentation using cutting edge scoring and timing software, 3D data visualizations, real-time rendering, and integrated data through sport-specific applications.

Speaker Change: The addressable market for our new solutions abroad, including anyone supporting live events, entertainment and sports, even if they're not using electronic equipment and is

Speaker Change: Additionally, we are introducing cloud access, allowing customers to schedule store and manage their content and data sources from anywhere.

Speaker Change: We continue to focus on our strategic milestones, which I'll cover in a moment, but first, for additional details and the financial results for the quarter and year, I'll turn it over to Sheila.

Sheila: Thank you, Reece. I invite you to turn to slide 5 titled FQ1, the Skull 2021 financial highlight to follow the first quarter's financial outcomes.

Sheila: The quarter over quarter comparisons in this slide and related discussion are as of in for the fiscal quarters and it July 27, 2024, April 27, 2024 and April 29, 2023 unless otherwise stated.

Speaker Change: As the operating and seasonal environments in fiscal Q1-25 with more comparable to our fiscal Q4-24 results in a year ago.

Speaker Change: Results. We are adding in sequential comparisons, which are more meaningful this quarter. As a reminder, fiscal Q124 results reflected record volumes as pent-up backlog was still being fulfilled. Our seasonal order, revenue and profit patterns continue to normalize.

Speaker Change: Order generation for the first quarter was strong and follows the quenchily a Q4 strong order quarter. Sending it up for the higher seasonal revenue generation, typical of the seasonality in our business.

Speaker Change: The man rebounded in all areas of our commercial business unit on premise, spectacular and out of home, especially an independent billboard operators. A reflection of our focus to these customers.

Speaker Change: Based on the strong return to a more seasonal trends, product backlog levels was $267 million at the end of the quarter, and we're seeing higher levels of coding activity.

Speaker Change: In fiscal Q1, we generated sales volumes of 226 million, a 4.7% growth rate from the fourth quarter, and down from the record quarter of a year ago.

Speaker Change: The sequential increase is attributable to production and deliveries ramps up for sports themselves, especially for live events and high school park and recreation business units.

Speaker Change: These levels of sales demonstrate our ability to convert orders into timely revenue generation through our manufacturing and our other fulfillment work streams.

Speaker Change: Gross margin increased sequentially to 26.4% and continue at levels that generate strong financial returns. The solid gross profit level is a reflection of volume, mix and some price improvement.

Speaker Change: We continue to generate operating income consistently through the last four quarters in the high single digits and at 10% of sales into one.

Speaker Change: Operating expenses have increased primarily due to sales and wage increases, followed by additional hiring to support sales, expansions, digital transformation and other consulting services to help us implement and accelerate our strategies to grow and drive efficiencies and consistent profitability levels.

Speaker Change: We further strengthen the company's balance sheet this quarter.

Speaker Change: Cash Restrictive Cash and Marketable Securities total $97.2 million at July 27, 2024.

Speaker Change: which generated $19.5 million with cash from operations, and their working capital has grown to $231 million. And the working capital ratio was $2.2 to 1.

Speaker Change: Management's focus remains on managing, working capital through expected growth of the company.

Speaker Change: Given our strong start to this year in the momentum in our order flow, we feel good about our positioning to drive profitable growth and cash flow generation through the remainder of this fiscal 2025 and beyond.

Speaker Change: Excluding its change in the fair value of our convertible note relating to our higher stack price, adjusted net income with $16.6 million.

Speaker Change: Now I'll turn it back to you, Reece. Thank you, Sheila. Turn it to slide six titled FY 2025's Strategic Priorities.

Speaker Change: Overall, we have a unique leadership position in our target markets, which are large, growing and enjoy resilient demand driven by our customers desire to improve their audience experience in sports, commercial and transportation environments.

Speaker Change: To capitalize on this decision, we are focused on digital and business transformation, improving our cost structure and further growing our markets.

Speaker Change: On the digital transformation front, we are investing in foundational enterprise performance management tools that will strengthen our management systems and improve data available to guide capital allocation decisions and focus our investments in the most profitable business segments.

Speaker Change: During fiscal 2025, we're also planned to launch modernized service and systems management tools, which will improve both internal operations and customer experiences.

Speaker Change: Another focused effort will be planning automation in our front end quoting and sales processes which we planned to launch in phases beginning in fiscal 2026.

Speaker Change: We're also making investments to improve profitable growth and accelerate the lowering of our overall structural and product costs to increase market competitiveness.

Operator: 5 Financial Results Conference Call. At this time, all participants are listening only mode. After the speaker's brief pair of remarks, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded.

Speaker Change: That only do we see the digital transformation efforts as foundational to lowering our structural costs, who are also investing in people capabilities.

Speaker Change: and working with consultants to establish strategies expected to increase operational efficiencies to lower overall costs and increase market competitiveness.

Carla Gatzke: And now I'd like to introduce your host for today's program, Carla Gatzke, the company secretary for Daktronics for some introductory remarks. Please go ahead. Thank you, Jonathan. Good morning, everyone. Thank you for participating in our first quarter earnings call.

Speaker Change: Finally, we continue to execute on strategies to both grow and capture a greater share of our Sam.

Speaker Change: These strategies include the advancing of our control system capabilities I previously mentioned and adding professional services and other content to drive MRR. Ensuring we are delivering enhanced returns as we help our customers achieve success in their investment in our offerings.

Carla Gatzke: I would like to review our disclosure of cautioning investors and participants, then 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 belief concerning future events. All forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from expectations. Such risks include, but are not limited to changes in economic and market conditions, management of roads, timing and magnitude of future contracts and orders, fluctuations in margins, the introduction of new products and technologies, availability of raw material components and shipping services, and other important factors.

Speaker Change: To accelerate these credits for teaching plans in fiscal 2025 and beyond, we are investing in transformation resources, both in road plan consulting support and in information technology capabilities.

Speaker Change: While these costs will impact fiscal year 2025's operating margins between $8 and $10 million, we expect these investments to accelerate our generation or returns meaningfully in excess of this investment as we structure our business for expected growth on a higher profit base.

Speaker Change: 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.

Carla Gatzke: These identified factors could cause actual results to differ materially from those discussed in this call in the company's first quarter, 2025 quarterly earnings release, and its most recent annual report on form 10K. Our first quarter, 2025 earnings release contains certain non-GAP financial majors and was furnished to the SEC the Securities and Exchange Commission on a form 8K this morning. We also made slides available for today's call, and all of these documents are available on the investors section at Dectonics with sites www.dectonics.com.

Speaker Change: Our key investments in control systems and our unique culture of lifetime service to our customers.

Speaker Change: To visualize the milestones along our roadmap map, please turn to slide seven titled FY 2025's strategic priority priorities.

Speaker Change: Highlight in the Roadmap into FY2026.

Speaker Change: This shows the plan timing of our business and digital transformation deliverables and investments.

Speaker Change: This year we are investing in growth through product and sales development and in back-end digitization. Then, leveraging our fiscal 2025 upgrades, we plan to develop automated front-end sales in quoting tools for launch during fiscal 2026.

Reece Kurtenbach: I'll turn the call over to our CEO Reeves Courtenbex. Thanks, Carla. Good morning. Thank you all for joining us today. We're off to a great start to the year against a record prior year quarter, demonstrating our continued strong execution towards driving growth and returns above our cost of capital. As you can see on our slide presentation on page three, first quarter, fiscal first quarter, 2025 highlights, we delivered revenue growth as well as growth and operating profit expansion on a sequential basis.

Speaker Change: To affect seamless transitions, we have planned this year's implementation to take place during our seasonally quieter FQ3 and through year end.

Speaker Change: We will keep you a prize of our progress as we implement our strategies and move through the year.

Speaker Change: In conclusion, our summary on Friday recaps our key highlights.

Speaker Change: Our consistent performance serves as evidence of we are an sustainable trajectory of growth and increasing profitability. Our multi-year strategies and near-term progress on these goals demonstrates our commitment to improve and consistently earned returns above the cost of capital.

Reece Kurtenbach: These continued financial results were primarily earned through steady growth in new orders which increased 11% from last year, the completion of several large projects, and efficient planning and execution throughout our fulfillment teams. This orchestration between our production and product teams served our customers well with on-time deliveries, especially for sports installs in our live events and high school parks and rec HSPR business. Our operating environment remains stable with supply chain reliability adding greater predictability to our production schedule.

Speaker Change: We are focused on the right allocation of resources and capturing growth in existing profitable Sam and developing growth in additional areas.

Speaker Change: We're focused on accelerating digital transformations and other initiatives to lower structural and product costs.

Speaker Change: We are a global industry leader in best-in-class video communication displays and control systems and we continue to focus on bringing value to our customers.

Reece Kurtenbach: Our more profitable business model generated solid operating cash flow of $19.5 million, a very strong performance against last year's record comparison. During the quarter, as throughout the past several quarters, we have also executed on a number of strategies along our digital transformation, growth, and efficiency roadmamps, making progress toward our long-term objectives and enhancing our ability to drive future profitable growth. We have specific milestones along this roadmap plan for this fiscal 2025 and 2026, and are on track for these next steps, which I will discuss further later in our call.

Speaker Change: We are the only US manufacturer of scale with a global footprint and service seen by a geographic market.

Speaker Change: and extending technology leadership, high-quality solutions, and world-class service.

Speaker Change: With that, I would ask the operator to please open the line for questions. Certainly, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1 1 on your phone. Our first question comes to the line of Anchev Schroedestrum from Sedoti, your question please.

Speaker Change: Thank you for taking my questions and congratulations on the great application of the four-archs. Please talk a little bit about the fact that I wouldn't expect that to normalize.

Reece Kurtenbach: Our backlog of $267 million reflects our year-over-year order growth and continued return to more normal seasonal trends as we continue to anniversary our resolution of past supply change challenges. We enter our second fiscal quarter with good momentum, and we expect to drive order growth in fiscal 2025. Our mission is to support our customers as they inform, entertain, and persuade their audiences.

Speaker Change: Good question, Angela. Backlock we think we'll start to see more of a seasonal cycle represented in our results where

Speaker Change: Q1 and Q2 tend to be higher sales revenue month.

Speaker Change: Q3 tends to be lower, and Q4 starts to build into our busy or summer.

Speaker Change: So we would expect our backlog to grow as we move through a Q3 and then tend to trend down in our summer months.

Reece Kurtenbach: Let's look more specifically into our business areas on slide four, market vertical FQ1 review. In live events, during the quarter, we made progress and recognized revenue on a number of large college and university projects for fall football, including Penn State, University of Texas, LSU, and Colorado University. The LA Clippers new home at the Intuit Dom also debuted their double-sided halo and other AV systems, which we have been building and installing over the last two years. This installation is a demonstration of our continuous innovation to extend our technology leadership and its strong reception from our customers. Looking ahead, we also booked some great projects for University of Connecticut, Alabama, and Auburn.

Speaker Change: and so we would expect that to continue on through through FY-25 and into FY-26.

Speaker Change: But I think our backlog that was really high as we entered our last quarter, excuse me, Q1 of 2024, most of that has been resolved as far as a, unusually high backlog based on

Speaker Change: you know that the supply chain issues and things that we're going on into that last fiscal year.

Speaker Change: and maybe just a few final comments on BackLogs.

Speaker Change: Markets Lucky's large projects, a lot of their business sits in backlog for a quarter or maybe more depending on whether it's a new construction project.

Reece Kurtenbach: Our outlook remains similar to our last call. We expect live events to demand to remain strong as venues enhance facilities to entertain fans and attract athletes. We see this trend continuing and more focused being placed on entertainment areas and experiences outside the ball. In places like the entryways, atrium, concourses, and adjacent entertainment areas. Our narrow pixel-pitch line of products matches the needs of customers for these places and continues to be in demand.

Speaker Change: But some of our markets like our commercial on premise and our standard high school business.

Speaker Change: That runs on a much shorter lead time and so maybe a 10-week lead order could book and ship within a quarter and never be seen in our backlog figures.

Speaker Change: Okay, thank you and that's again. They're revenue in the first quarter was quite strong as sequentially. Well, if anything then it was pulled in from the second quarter or how should we think about the second quarter.

Reece Kurtenbach: Our commercial business primarily consists of sales through resellers, primarily sign companies, to many types of customers and applications, including military utilities, transportation, national retailers, quick serve restaurants, casino shopping centers, cruise ships, commercial building owners, petroleum retailers, and other on-premise customers. Also included in this segment are out-of-home advertising companies. As compared to last year's first quarter and fourth quarter, commercial orders picked up, gaining strength as we continue to see order flow from resellers for on-premise users of displays, out-of-home companies, and commercial building owners.

Speaker Change: In our summer months, there's a lot of projects in flight, as many of our customers are sports driven and getting ready for the fall sports.

Speaker Change: So, it's sometimes difficult to predict what's going to happen right at a quarter of boundary, but there wasn't, I'd say, unusual amount of movement, and so I don't think much was pulled in from Q2 and Q1.

Speaker Change: Okay, and in terms of your targeted operating margin, you're there already, and you have...

Speaker Change: You're taking a lot of the initiatives with the digital transformation. Do you think maybe there would be room to expand that target?

Reece Kurtenbach: Partners, often referred to as Spectaculars. This market is sensitive to overall economic conditions and advertising spend, and even with these dependencies at this time, this market is doing well. Our strategies to promote independent out-of-home operators is also driving this increase. Spectacular sales also increased in these comparative periods and we see continued interest going forward.

Speaker Change: I have a great question and that's our management team is looking at that today or now. We believe there's room for growth and we believe there's room for margin growth, operating margin growth.

Speaker Change: How do we balance those two is really the opportunity we have in front of us, but we believe there's room for top-line growth and operating margin growth.

Reece Kurtenbach: Our focus for this market is to continue to grow our core areas and continue to build out our AV integrator network to market our narrow pixel-page product lines, especially in control room applications used by military utility and transportation agencies. Transportation, orders in this segment grew from both last quarter and last year, and our teams are focused on winning projects for intelligent transportation systems, airport projects, and other mass transit systems projects. We were pleased to have been awarded a contract with Dallas area rapid transit for rollouts using artist plays across their systems.

Speaker Change: Okay, thank you. And you also mentioned pricing as a driver for margin expansion. Can you just talk about the competitive environment and your value proposition compared to competitors and how you win.

Speaker Change: Yes, thank you.

Speaker Change: Continues to be a competitive environment and most of our competition comes out of Southeast Asia with some kind of product.

Reece Kurtenbach: International continues to be slow as compared to prior years, which we believe is due to economic and geopolitical uncertainty. However, it increased 20 percent sequentially as a result of our bookings of out-of-home companies for digital billboard rollouts. Customers continue to demonstrate interest in projects, but in some cases have been delaying by decisions. Our sales teams continue to be responsive to customers and are actively quoting opportunities and we are starting to see signs of more quotes converted into orders.

Speaker Change: and then maybe it's sold more closer to an end user or maybe there's a reseller or two in between that product and the end user.

Speaker Change: are value proposition of...

Speaker Change: has been very strong and in remains consistent that we have.

Speaker Change: Strong Control of the displays and how those AV systems are made.

Speaker Change: We have strong capability in the control systems and can offer features and...

Speaker Change: Workflows that may be our harder for competitors to offer.

Speaker Change: and we are a full service organization, both technically.

Speaker Change: Keeping the equipment looking and working, it's best.

Reece Kurtenbach: The picture here is an installation in Dubai for a unique advertising marquee.

Speaker Change: as well as what I might call professional services using the equipment in a manner that helps our customers achieve their overall objectives. And by balancing all those three things together is what's made Dechronic Strong.

Reece Kurtenbach: High schools, we had order successes compared to last year and last quarter as the market continues to be converted to full video usage.

Reece Kurtenbach: We launched a new higher margin product to not only support our customers, but further bolster our contribution margin for this segment. This past quarter we delivered on two larger display systems, a Kind of University projects, one in Texas and one in Hawaii, showing the continued usage of digital technologies to advance student and fan experiences.

Speaker Change: Okay, thank you, I'll get back in.

Speaker Change: Thank you for sharing your questions today.

Speaker Change: Thank you, and our next question comes from the line, the Mac, from singular research, your question, please.

Speaker Change: Yeah, this is Macros, with singular research. Congratulations on the quarter.

Speaker Change: Well, thank you. Welcome to the call.

Macros: Thank you. I wanted to ask you about a market share. How has that developed in the last couple of years, and specifically in last say three or four quarters? Can you comment on that or do you not follow that very closely?

Reece Kurtenbach: On the control system front, our show control solution is undergoing major advancements to enhance the live entertainment experience and improve workflow efficiencies. These enhancements will empower our customers to deliver a dynamic presentation using cutting edge scoring and timing software, 3D data visualizations, real-time rendering and integrated data through sports-specific applications. The addressable market for our new solution is broad including anyone supporting live events, entertainment and sports, even if they're not using dectronous equipment and is slated for released by fiscal year end. Additionally, we are introducing cloud access allowing customers to schedule store and manage their content and data sources from anywhere.

Speaker Change: Jose, Jose, the hard to come by.

Speaker Change: It's more that data is hard to come by. We do track when loss on our opportunities and so we do track our overall market share.

Speaker Change: But I would say one thing as we've gone through the COVID and in our current times, we spend much less time with customers that are really twice focused. They really want their lowest dollar.

Speaker Change: It is the highest priority thing that they're looking at. And so...

Speaker Change: We are focused on customers that see the value proposition that Dektronic has.

Sheila Anderson: We continue to focus on our strategic milestones which I'll cover in a moment, but first for additional details on the financial results for the quarter and year, I'll turn it over to sheath.

Speaker Change: and are interested in pursuing a solution like that and in this.

Sheila Anderson: Thank you, Reece.

Speaker Change: Price Sensitivity Market, I suspect we don't have as high a market share as we had previously going into COVID.

Sheila Anderson: I invite you to turn to slide five titled, FQ-1, fiscal 2025 financial highlights to follow the first quarter's financial outcomes. The quarter over quarter comparisons in this slide and related discussion are as of and for the fiscal quarters ended July 27, 2024, April 27, 2024, and April 29, 2023 unless otherwise stated. As the operating and seasonal environments in fiscal Q-1, 25, was more comparable to our fiscal Q-4, 24 results than a year ago results.

Speaker Change: I understand.

Speaker Change: In other areas, I believe we've been able to maintain our market share quite well.

Speaker Change: Ok.

Speaker Change: Can you comment at all about the credit position of the company?

Speaker Change: and how has that developed in last couple of quarters? Let's say three to four quarters, please.

Speaker Change: As a credit position, we have a very strong balance sheet today, high levels of cash and are not pulled any on our line of credit.

Sheila Anderson: We are adding in sequential comparisons, which are more meaningful this quarter. As a reminder, fiscal Q-1, 24 results reflected record volumes as pent-up backlog was still being fulfilled. Our seasonal order, revenue and profit patterns continued to normalize. Order generation for the first quarter was strong, and follows sequentially a Q-4 strong order quarter, setting it up for the higher seasonal revenue generation, typical of the seasonality in our business. Demand, rebounded in all areas of our commercial business unit on premise, spectacular, and out-of-home, especially an independent billboard operators, a reflection of our focus to these customers.

Speaker Change: Did I hit the right spot there, Mac? Or was there another point to your question? Yes, yes, yes it did. What kind of credit you said you were to suppose at this point in time if you needed it? Maybe you don't need it, but if you needed it.

Sheila Anderson: Based on the strong return to a more seasonal trends, product backlog levels was $267 million at the end of the quarter, and we're seeing higher levels of quoting activity. In fiscal Q-1, we generated sales volumes of $226 million, a 4.7% growth rate from the fourth quarter, and down from the record quarter of a year ago. The sequential increase is attributable to production and deliveries ramped up for sports installs, especially for live events and high school park and recreation business units.

Sheila Anderson: These levels of sales demonstrate our ability to convert orders into timely revenue generation through our manufacturing and our other fulfillment work streams. Growth margin increased sequentially to 26.4% and continue at levels that generate strong financial returns. The solid growth profit level is a reflection of volume, mix, and some price improvement. We continue to generate operating income consistently through the last four quarters in the high single digits and at 10% of sales in Q-1.

Speaker Change: Okay.

Speaker Change: [music].

Reece Kurtenbach: Operating expenses have increased primarily due to sales and wage increases, followed by additional hiring to support sales expansion, digital transformation, and other consulting services to help us implement and accelerate our strategies to grow and drive efficiencies and consistent profitability levels. We further strengthen the company's balance sheet this quarter. Cash restricted cash and marketable securities totaled $97.2 million at July 27th, 2024, which generated $19.5 million of cash from operations and their working capital has grown to $231 million and the working capital ratio was $2.2 to $1.

Reece Kurtenbach: Management's focus remains on managing working capital through expected growth of the company. Given our strong start to this year and the momentum in our order flow, we feel good about our positioning to drive profitable growth and cash flow generation through the remainder of fiscal 2025 and beyond, and excluding its change in the fair value of our convertible note relating to our higher stack price, adjusted net income was $16.6 million. Now I'll turn it back to you, Reece. Thank you, Sheila.

Reece Kurtenbach: Turn into slide six titled FY 2025 Strategic Priorities. Overall, we have a unique leadership position in our target markets, which are large, growing and enjoy resilient demand driven by our customers desire to improve their audience experience in sports, commercial and transportation environments. To capitalize on this position, we are focused on digital and business transformation, improving our cost structure and further growing our markets.

Reece Kurtenbach: On the digital transformation front, we are investing in foundational enterprise performance management tools that will strengthen our management systems and improve data available to guide capital allocation decisions and focus our investments in the most profitable business segments. During fiscal 2025, we are also planning to launch modernized service and systems management tools, which will improve both internal operations and customer experiences. Another focused effort will be planning automation in our front end quoting and sales processes, which we plan to launch in phases, beginning in fiscal 2026.

Reece Kurtenbach: We are also making investments to improve profitable growth and accelerate the lowering of our overall structural and product costs to increase market competitiveness. Not only do we see the digital transformation efforts as foundational to lowering our structural costs, but we are also investing in people capabilities and working with consultants to accelerate strategies expected to increase operational efficiencies to lower overall costs and increase market competitiveness.

Reece Kurtenbach: Finally, we continue to execute on strategies to both grow and capture greater share of our SAM. These strategies include the advancing of our control system capabilities I previously mentioned, and adding professional services and other content to drive MRR, ensuring we are delivering enhanced returns as we help our customers achieve success in their investment in our offerings.

Reece Kurtenbach: To accelerate these strategic plans in fiscal 2025 and beyond, we are investing in transformation resources, both in rural class and consulting support and in information technology capabilities. While these costs will impact fiscal year 2025's operating margins between $8 and $10 million, we expect these investments to accelerate our generation of returns meaningfully in excess of this investment as we structure our business for expected growth on a higher profit base. 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 in control systems, and our unique culture of lifetime service to our customers.

Reece Kurtenbach: To visualize the milestones along our roadmap, please turn to slide 7 titled FY 2025 strategic Highlighting the Roadmap into FY 2026 This shows the planned timing of our business and digital transformation deliverables and investments. This year we are investing in growth through product and sales development and in backend digitization. Then leveraging our fiscal 2025 upgrades, we plan to develop automated front end sales and quoting tools for launch during fiscal 2026.

Reece Kurtenbach: To affect seamless transitions, we have planned this year's implementations to take place during our seasonably quieter FQ3 and through year end. We will keep you a prize of our progress as we implement our strategies and move through the year.

Reece Kurtenbach: In conclusion, our summary on slide 8 recaps our key highlights. Our consistent performance serves as evidence that we are on a sustainable trajectory of growth and increasing profitability. Our multi-year strategies and near-term progress on these goals demonstrates our commitment to improve and consistently earn returns above the cost of capital.

Reece Kurtenbach: We are focused on the right allocation of resources and capturing growth in existing profitable SAM and developing growth in additional areas. We are focused on a separating digital transformations and other initiatives to lower structural and product costs. We are a global industry leader, invest in class video communication displays and control systems and we continue to focus on bringing value to our customers.

Reece Kurtenbach: We are the only U.S, manufacturer of scale with a global footprint and service seen by geographic market and extending technology leadership, high quality solutions and world class service.

Operator: With that, I would ask the operator to please open the line for questions. Certainly, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your phone.

Anja Söderström: Our first question comes to the line of Ancestrata Strum from Sadowdy.

Reece Kurtenbach: Your question, please. Thank you for taking my questions and congratulations on that great presentation in the quarter. I'm a little bit about the backlog. When do you expect that to normalize? Good question, Anja. The backlog, we think, will start to see more of a seasonal cycle represented in our results where Q1 and Q2 tend to be higher sales revenue months. Q3 tends to be lower and Q4 starts to build into our busy or summer.

Reece Kurtenbach: So we would expect our backlog to grow as we move through Q3 and then tend to trend down in our summer months. So we would expect that to continue on through FY25 and into FY2026. But I think our backlog that was really high as we entered our last Q1 of 2024. Most of that has been resolved as far as unusually high backlog based on the supply chain issues and things that we're going on into that last fiscal year, and maybe just a few final comments on backlog the markets like these large projects, a lot of their business sits in backlog for a quarter or two, or maybe more depending on whether it's a new construction project, but some of our markets like our commercial on premise and our standard high school business, that runs on a much shorter lead time.

Reece Kurtenbach: And so maybe a 10-week lead order could book and ship within a quarter and never be seen in our backlog figures. Okay, thank you and that's what the revenue in the first quarter was quite strong sequentially. Was anything that it was pulled in from the second quarter or how should we think about the second quarter? In our summer months there's a lot of projects in flight as many of our customers are sports driven and getting ready for the fall sports.

Reece Kurtenbach: So it's sometimes difficult to predict what's going to happen right at a quarter boundary, but there wasn't I'd say an usual amount of movement and so I don't think much was pulled in from Q2 and Q1. Okay, and in terms of your targeted operating margin, you're there already and you have, you're taking a lot of the initiative to do the transformation. Do you think maybe they would be room to expand that target?

Reece Kurtenbach: Great question and that's our management team is looking at that today or now. We believe there's room for growth and we believe there's room for margin growth, operating margin growth. How do we balance those two is really the opportunity we have in front of us, but we believe there's room for top line growth and operating margin growth. Okay, thank you and you also mentioned pricing as a driver for margin expansion. Can you just talk about the competitive environment and your value of proposition compared to competitors and how you win?

Reece Kurtenbach: Thank you. Continue to be a competitive environment and most of our competition comes out of Southeast Asia with some kind of product and then maybe it's sold more closer to an end user or maybe there's a reseller or two in the in between that product and the end user. Our value proposition has been very strong and remains consistent that we have a strong control of the displays and how those AV systems are made.

Reece Kurtenbach: We have strong capability in the control systems and can offer features and workflows that maybe are harder for our competitors to offer and we are a full service organization both technically keeping the equipment looking and working its best as well as what I might call professional services using the equipment in a manner that helps our customers achieve their overall objectives and by balancing all those three things together is what's made Dectronics strong. Thank you. I'll get back in here. Thank you. Appreciate your questions there. Thank you.

McGrace: And our next question comes from the line, the McGrace, from Singular Research. Your question please. Yeah, this is McGrace, the Singular Research.

Reece Kurtenbach: Come to relations on the corner. Thank you. Welcome to the call. Thank you. I wanted to ask you about market share. How has that developed in the last couple of years, and specifically in the last three, four quarters? Can you comment on that or do you not follow that very closely? Or is that data how to come by? It's more of that data is hard to come by. We do track win loss on our opportunities.

Reece Kurtenbach: And so we do track our overall market share. But I would say one thing, as we've gone through the COVID and in our current times, we spend much less time with customers that are really price focused. They really want their lowest dollar. If the highest priority thing that they're looking at. And so we are focused on customers that see the value proposition that Daktronics has and are interested in pursuing a solution like that.

Reece Kurtenbach: And in this price sensitivity, highly priced sensitivity market, I suspect we don't have as high a market share as we had previously going into COVID. I understand. In other areas, I believe we've been able to maintain our market share quite well. Okay.

Reece Kurtenbach: Can you comment at all about the credit position of the company and how has that developed in the last couple of quarters? Let's say three to four quarters, please. As a credit position, we have a very strong balance sheet today, high levels of cash and are not pulled on any, you know, on our line of credit. Did I hit the right spot there, Mac, or was there another point to your question?

Reece Kurtenbach: Yes, yes, yes, it did. What kind of credit, you said you're disposed at this point in time. If you needed it, maybe you don't need it, but if you needed it. So we have an asset-based lending line and it roughly runs around $35 million of availability on that line.

McGrace: Thank you. Thank you for that. Thank you.

McGrace: That's all I have. Thank you very much. Thank you.

Operator: This does conclude the question and answer session of today's program.

Reece Kurtenbach: I'd like to hand the program back to Reese Kuttenbach for any further remarks. Thank you, everybody, for joining us on today's call. Look forward to seeing you at our Q2 earnings release. And between now and then we do have some investor marketing activities planned, including the September Siddoti conference. So maybe we'll see you out there in those types of activities.

Reece Kurtenbach: Have a great fall season and we'll see you in about three months. Thanks, everyone.

Operator: Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day. [inaudible]