Q3 2025 Daktronics Inc Earnings Call
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Operator: Good day and thank you for standing by.
Good day, and thank you for standing by welcome to the Tektronix third quarter fiscal year 2025 financial results Conference call. At this time, all participants are in listen only mode.
Operator: Welcome to the Daktronics Third Quarter Fiscal Year 2025 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
After the speaker's presentation, there will be a question and answer session to.
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Operator: Please be advised that today's conference is being recorded.
Carla Gatzke: I would now like to hand the conference over to our first speaker today, Carla Gatzke, Corporate Secretary. Please go ahead. Thank you. Good morning, everyone. Thank you for participating in our third quarter earnings conference call.
Please be advised that today's conference being recorded.
Speaker Change: Like to hand, the conference over to your first speaker today Kala Gatzke corporate Terry Corporate Secretary. Please go ahead.
Speaker Change: Thank you good morning, everyone. Thank you for participating in our third quarter earnings.
Carla Gatzke: During today's presentation, we will make 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 and beliefs about future events based on information currently available to us. Of course, actual results could differ. Please refer to Slide 2 of the presentation that accompanies today's call, our press release, and our SEC filings for information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations.
Speaker Change: Yes.
Speaker Change: During today's presentation, we will make 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 beliefs about future events based on information currently available to us.
Speaker Change: Of course actual results could differ please refer to slide two of the presentation that accompanies today's call press release.
Speaker Change: Filings for information on risk factors, uncertainties and exceptions that could cause.
Speaker Change: Actual results could differ materially.
Carla Gatzke: During this presentation, we will also refer to non-GAAP financial measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure in appendix. to the accompanying presentation slides, which may be found in the investor relations page of our website at www.daktronics.com. Our earnings release for the 2025 third quarter, which was furnished to the SEC on a forum 8K this morning, also contains non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as a discussion of certain limitations when using non-GAAP financial measures, are included in the earnings release, which has been posted separately to the investors' relations page of our website.
Speaker Change: Sure.
Speaker Change: During this presentation. We will also refer to non-GAAP financial measures you can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure in appendix.
Speaker Change: To the accompanying presentation slides, which may be found in the Investor Relations page of our website at www Dot Dot dot com.
Speaker Change: Our earnings release for the 2023rd quarter, which was furnished to the SEC form 8-K. This morning also contains non-GAAP financial measures reconcile.
Speaker Change: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as a discussion of certain limitations when using non-GAAP financial measures are included in the earnings release, which has been posted separately to the investors relation page.
Andrew Siegel: I'll turn the call over to our current lead independent director to become chairman of the board, Andrew Siegel. Thanks, Carl. Hi, everyone. I'm Andrew Siegel here in Brookings with the team. First, I'd like to thank the investors who have dialed in today.
Speaker Change: Website.
Speaker Change: I'll turn the call over to our current lead independent director to become chairman of the Board Andrew.
Adam Segal: Thanks, Carl Hi, everyone I'm, Adam Segal here in bookings with a team of course I'd like to thank the investors who have dialed in today and before we move into a review of the results from the quarter I'd like to share some perspective from the board regarding the leadership transition that you would've seen the Companys press release earlier this morning.
Andrew Siegel: And before we move into a review of the results from the quarter, I'd like to share some perspective from the board regarding the leadership transition that you would have seen in the company's press release earlier this morning. After more than 34 years at Daktronics, Reece Kurtenbach is stepping down from his roles as Chairman, President, and CEO. So on behalf of the board, I'd like to thank Reece for his many years of leadership and commitment to Daktronics. This commitment to you, our investors, our employees, our customers, and the communities we serve, and for all that he has accomplished, strengthen and protect.
Adam Segal: For more than 34 years electronics was kurtenbach is stepping down from his role as chairman President and CEO. So on behalf of the board I'd like to thank <unk> for his many years of leadership and commitment to that product.
Adam Segal: This commitment to you our investors our employees customers and the communities, we serve and for all that he has accomplished strengthen and protect.
Andrew Siegel: the company's resilient position as a recognized industry leader with world-class strengths in product design and engineering, manufacturing, and of course, the installation, integration, and services capabilities that allow us to exceed our customers' expectations.
Adam Segal: The company is resilient position as a recognized industry leader with World class strengths in product design and engineering manufacturing and of course, the installation integration and services capabilities.
Adam Segal: But allow us to exceed our customers' expectations.
Andrew Siegel: We're making this change today to move more quickly and demonstrably toward our objective of growing long-term shareholder value. To capitalize on the tremendous opportunity that our end markets represent, we believe the company must accelerate change. to enhance our global competitiveness and drive new levels of commercial success and financial performance. To do this, the board believes we have to add new capabilities around these core strengths I mentioned just a moment ago.
Adam Segal: We're making this change today to move more quickly and demonstrably toward our objective of growing long term shareholder value.
Adam Segal: To capitalize on the tremendous opportunity that our end markets represent.
Adam Segal: We believe the company must accelerate change to enhance our global competitiveness.
Adam Segal: And drive new levels of commercial success and financial performance to do this the board believes we have to add new capabilities around these core strengths I mentioned, just a moment ago.
Andrew Siegel: Today's announcement reflects our commitment to ensuring that we have the right leadership for long-term growth, profitability, and balance sheet efficiency goals.
Adam Segal: Today's announcement reflects our commitment to ensuring that we have the right leadership for long term growth profitability and balance sheet efficiency goals.
Andrew Siegel: The board will engage a nationally recognized executive search firm to help identify a permanent CEO who will lead Daktronics on this mission.
Adam Segal: The board will engaged a nationally recognized executive search firm to help identify a permanent CEO, who will lead that products on this mission.
Andrew Siegel: While this process continues, the board has appointed Brad Wieman, the company's executive vice president, as interim president and CEO. Brad has been with Daktronics since 1993. Earlier in his career, he served the company across manufacturing, engineering, product development, and other functions. In his current role, he oversees the company's commercial and high school and parks and recreation business. which makes them responsible for about 35% of the company's revenue.
Adam Segal: This process continues the board has appointed Brad women.
Adam Segal: He is executive Vice President.
Adam Segal: As interim President and CEO Brotzman with electronics. Its 1993 earlier in his career. He served the company across manufacturing engineering product development and other functions in his current role he oversees the company's commercial and high school at parks and recreation business.
Adam Segal: Which makes them responsible for about 35% of the company's revenue.
Andrew Siegel: Additionally, the board has asked board member Howard Atkins to serve as acting CEO until a permanent CFO is named, allowing Sheila Anderson to fully dedicate herself to her previously announced new role of Chief Data and Analytics Officer. Howard will also continue to serve as the Chief Transformation Officer, in both cases partnering closely with Brad.
Speaker Change: Additionally, the board has asked board member Howard Atkins to serve as acting CEO until a permanent CFO is named allowing Sheila Anderson to fully dedicate herself to a previously announced the role of chief data and analytics officer.
Howard will also continue to serve as the Chief transformation officer, and both cases partnering closely with Brad.
Reece Kurtenbach: So with that, I will turn it over to Reece to walk through the highlights from the third quarter. Thank you, Andrew. Good morning, everyone, and thank you for joining us today. Turning to our slide presentation on page three, fiscal second quarter 2025 highlights, we drove sequential order growth in the third quarter. Orders in our commercial segment increased nicely with further out-of-home bookings, international rebounding driven by the out-of-home business, and in live events we secured an order for a major NFL stadium. As we have discussed in the past, the third quarter is historically a seasonally lower-volume quarter because fall sports installations have been completed, there is a natural slowdown of outdoor construction projects, and we have two major holidays in the period, reducing the overall days of production.
Speaker Change: So with that I will turn it over to race to walk through the highlights from the third quarter Reis. Thank you Andrew and good morning, everyone and thank you for joining us today.
Speaker Change: Turning to our slide presentation on page three fiscal second quarter 2025 highlights we drove sequential order growth in the third quarter orders in our commercial segment increased nicely with further out of home bookings international rebounded rebounding driven by the out of home business and the.
Speaker Change: Live events events, we secured an order for a major NFL stadium.
Speaker Change: As we have discussed in the past the third quarter is historically, a seasonally lower volume quarter, because fall sports installations have been completed there is a natural slowdown of outdoor construction projects and we have two major holidays in the period, reducing the overall days of production.
Reece Kurtenbach: To offset these nearer-term dynamics and the reality of deleverage of fixed costs, we successfully activated mitigation strategies to preserve margins, such as cost reductions, reduction in shifts, and utilized capacity to focus teams on revenue generation and overall improvement activity. We also had a more favorable mix of business with higher portions of sales for product versus last year's higher level of contractor type installation work in the third quarter. These actions resulted in a steady gross profit margin compared to last year's third quarter, despite a 12% decrease in sales volume. Managing the business for profitability and effectively managing our working capital drove Growth in cash flow from operations, again, despite lower volume.
Speaker Change: To offset these nearer term dynamics.
Speaker Change: And the reality of deleverage of fixed costs, we successfully activated mitigation strategies to preserve margins such as cost reductions reductions in shifts and utilized capacity to focus teams on revenue generation and overall improvement activities.
Speaker Change: We also had a more favorable mix of business with higher portions of sales for product versus last year's higher level of contractor type installation work in the third quarter.
Speaker Change: These actions resulted in a steady gross profit margin compared to last year's third quarter. Despite a 12% decrease in sales volume.
Managing the business for profitability and effectively managing our working capital drove.
Speaker Change: Growth in cash flow from operations again, despite lower volumes.
Reece Kurtenbach: During the third quarter, our Business Transformation Office completed the rigorous analysis and planning phase of our transformation plan and launched a number of initiatives designed to create additional sustainability in our operating margins. We also made strides in testing and training for launches of our updated service systems and enterprise performance management tools under our digital transformation program. Additionally, the analytical work completed allowed for a refinement of ambitious financial targets, especially the achievement of growing revenue faster than our addressable market, which is currently estimated between 7 to 10 percent. operating margins at a sustainable 10 to 12 percent and 17 to 20 percent in return on capital by fiscal 2028.
Speaker Change: During the third quarter, our business transformation office completed the rigorous analysis and planning phase of our transformation plan and launched a number of initiatives designed to create additional sustainability in our operating margins.
Speaker Change: We also made strides in testing and training for launches of our updated service systems and enterprise performance management tools under our digital transformation program.
Speaker Change: Additionally, the analytical work completed allowed for a refinement of ambitious financial targets, especially the achievement of growing revenue faster than our addressable market, which is currently estimated at between 7% to 10%.
Speaker Change: Operating margins at a sustainable 10% to 12% and 17% to 20% in return on capital by fiscal 2028.
Reece Kurtenbach: I'll give a more complete update on the business and digital transformation program shortly. We remain overall optimistic about the long-term potential in our end markets and we believe our strategic initiatives will position us well for future growth.
Speaker Change: I'll give a more complete update on the business and digital transformation program shortly.
Speaker Change: We remain overall optimistic about the long term potential in our end markets and we believe our strategic initiatives will position us well for future growth.
Reece Kurtenbach: I invite you to turn to slide 4, market vertical, fiscal third quarter review for more details. Our focus is to drive profitable revenue growth in markets that achieve a rate of return higher than our cost of capital. Our approach in each market is based on our future views of these subsegments, including growth and profitability, alignment with our product portfolio and development roadmap, and market penetration to leverage long-lasting customer relationships. We benefit from our value propositions being best in class in the industry for providing valuable products and services, driving ongoing customer satisfaction.
Speaker Change: I invite you to turn to slide four market vertical fiscal third quarter review for more details.
Speaker Change: Our focus is to drive profitable revenue growth in markets that achieve a rate of return higher than our cost of capital our.
Speaker Change: Our approach in each market is based on our future views of these sub segments, including growth and profitability alignment with our product portfolio and development roadmap and market penetration to leverage long lasting customer relationships.
Speaker Change: We benefit from our value propositions being best in class in the industry for providing valuable products and services driving ongoing customer satisfaction.
Reece Kurtenbach: Let's discuss how our segments performed in Q3. In live events, the demand for Major League Baseball this season was smaller as a number of potential upgrades moved out into future seasons. We won one of the few large projects available, and this office was offset by securing a major project for a new customer and for a new NFL stadium. This project is planned to be converted to revenue late in our fiscal 26 and into fiscal 27. Our outlook for this segment remains similar to our last call. We expect live events demand to remain strong as venues enhance facilities to entertain fans and attract athletes.
Speaker Change: Let's discuss how our segments performed in Q3.
Speaker Change: It might be events the demand for our major League baseball. The season was smaller as a number of potential upgrades moved out into future seasons. We won one of the few large projects available and the softness was offset by securing a major project for a new customer and for our new NFL Stadium. This is this.
Speaker Change: As planned to be converted to revenue late in our fiscal 'twenty six and into fiscal 'twenty seven.
Speaker Change: Our outlook for this segment remains similar to our last call. We expect live events demand to remain strong as the venues enhanced facilities to entertain fans and attract athletes.
Reece Kurtenbach: Orders in this market are large and installation can be lengthy and complex, creating variability in period-to-period order and sales volumes. Our teams are focused on winning business with an attractive return on capital.
Speaker Change: Orders in this market are large and installation can be likely in complex, creating variability in period to period order and sales volumes. Our teams are focused on winning business with an attractive return on capital.
Reece Kurtenbach: Pictured here is an example of a video used in a minor league baseball stadium in Akron, Ohio. The rubber ducks are a recurring customer and highlight the use of digital display technology to enhance their venue to attract and entertain fans. Looking ahead, we continue to expect healthy secular demand for the in-bowl applications and expansion outside the bowl as more focus is placed on entertainment areas such as entryways, atriums, concourses, and adjacent entertainment zones. Our narrow pixel pitch line of products matches the needs of customers for many of those locations and continues to be in demand.
Speaker Change: Pictured here is an example of a video used in a minor League baseball stadium in Akron, Ohio, the rubber Ducks are a recurring customer and highlights the use of digital display technology to enhance their venue to attract and entertain fans.
Speaker Change: Looking ahead, we continue to expect healthy secular demand for the in both applications and expansion outside the ball as more focus is placed on entertainment areas such as entry ways Atriums concourses and adjacent entertainment zones.
Speaker Change: Our narrow pixel pitch line of products matches the needs of customers for many of those locations and continues to be in demand.
Reece Kurtenbach: Our commercial business primarily consists of sales through resellers, we call those sign companies, to many types of customers and applications, including military, utilities, transportation, national retailers, quick serve restaurants, casinos, 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 and larger advertising displays we call spectaculars, and orders can vary in this market also because of larger size orders in these two segments. Out-of-home activity was strong for our long-time national customers as we continued to drive orders from independent billboards. Spectacular order wins included an upgraded display for the rooftop of the Target Building in Minneapolis.
Speaker Change: Our commercial business primarily consists of sales through resellers, we call those signed companies too many types of customers and applications, including military utilities transportation national retailers quick serve restaurants casinos shopping centers cruise ships commercial.
Speaker Change: Building owners petroleum retailers and other on premise customers.
Speaker Change: Also included in this segment of our out of home advertising companies and larger advertising displays we call spectacular.
Speaker Change: And orders can vary in this market also because of larger size orders in these two segments.
Speaker Change: Out of home activity was strong for a long time national customers as we continue to drive orders from independent Billboards spectacular order wins included an upgraded display for the rooftop of the target building in Minneapolis.
Reece Kurtenbach: We continue to build out our AV integrator network and marketing to government and military customers to sell our narrow pixel pitch displays. Our efforts are paying off as we have received orders from a number of new AV integrators and are seeing repeat business from this developing channel.
Speaker Change: We continue to build out our AAV integrator network and marketing into government and military customers to sell our narrow pixel pitch displays.
Speaker Change: Our efforts are paying off as we have received orders from a number of new Avi integrators and are seeing repeat business from this developing channel.
Reece Kurtenbach: Pictured here is an example of a narrow pixel pitch product utilized in an e-gaming facility at a university. We have made progress on manufacturing the displays for the center, the order in Atlanta we mentioned last quarter. We expect the remaining revenue and installation to be complete late Q4. Our focus for this market is to grow our core areas, like spectacular, on-premise, and out-of-home, and continue to develop the AV integrator channel to market our narrow pixel pitch product lines, especially in control room applications used by military, utilities, and transportation agencies.
Speaker Change: Pictured here is an example of a narrow pixel pitch product utilized in an E gaming facility at a university. We have made progress on manufacturing the displays for the center. The order in Atlanta, We mentioned last quarter, we expect the remaining revenue and installation to be complete late Q4.
Speaker Change: Our focus for this market is to grow our core areas like spectacular on premise and out of home and continue to develop the AAV integrator channel to market, our narrow pixel pitch product lines, especially in control room applications used by military utilities and transportation agencies.
Reece Kurtenbach: Transportation. Variability in orders versus prior periods is natural in this segment, which is a large project business and therefore lumpy. Despite the down order comparison, our financial performance for this segment was solid as we fulfilled a backlog of orders from long-term repeat customers. We continue to see a trend in upgrades and in and around airports for digital signage. Our teams are focused on winning projects for intelligent transportation systems, including traffic management centers, airport projects, and other mass transit systems projects. The outlook for this segment remains solid and is poised to take advantage of selling our full line of video display systems from our NPP products to our pre-qualified and trusted ITS systems used by state and city governments.
Speaker Change: Okay.
Speaker Change: Transportation.
Speaker Change: Variability in orders versus prior periods is natural in this segment, which is a large project business and therefore lumpy.
Speaker Change: Despite the down order comparison, our financial performance for this segment was solid as we fulfill the backlog of orders for long time repeat customers. We continue to see a trend in upgrades and in there.
Speaker Change: In and around airports for digital signage.
Speaker Change: Our teams are focused on winning projects for intelligent transportation systems, including traffic management centers Airport projects and other mass transit systems projects. The outlook for this segment remains solid and is poised to take advantage of selling our full line of video display systems from our NPP products to our prequalified.
Speaker Change: Entrusted <unk> systems used by state and city governments.
Reece Kurtenbach: Pictured here is the Intuit Dome parking ramp that was installed last summer. This highlights the use of digital outside of sports and the interdependencies between our business units.
Speaker Change: Pictured here is the Intuit dome parking ramp that was installed last summer. This highlights the use of digital.
Speaker Change: Digital outside of sports and the interdependencies between our business units.
Reece Kurtenbach: International. During the quarter, a high number of bids were converted to purchases, especially in the out-of-home space. We are actively quoting opportunities to additional out-of-home customers and for several mid-sized sports projects, and continue to see signs of converting more quotes into orders.
Speaker Change: International during the quarter, a high number of bids were converted to purchases, especially in the out of home space. We are actively quoting opportunities to additional out of home customers and for several mid sized sports projects and continue to see signs of converting more quotes into orders.
Reece Kurtenbach: With our existing customer base and a focus on these types of new orders from a broad array of customers, we are laying the groundwork for future repeat and upgrade types of orders in the future. Pictured here is a digital display at Gaddafi Stadium in Pakistan.
Speaker Change: With our existing customer base and our focus on these types of new orders from our broad array of customers. We are laying the groundwork for future repeat and upgrade types of orders in the in the future.
Speaker Change: Pictured here is a digital display at Gaddafi Stadium in Pakistan.
Reece Kurtenbach: High School. The market continues to convert to full video usage, while orders were down slightly within the quarter due to varied timing in order placement. We are booking orders at a record pace on a year-to-date basis. Quoting activity is outpacing last year's record performance. We began deliveries of our new higher margin product not only to support our customers, but further bolster our contribution margin in this segment.
Speaker Change: High schools.
Speaker Change: The market continues to convert to full video usage, while orders were down slightly within the quarter due to very timing in order placement.
Speaker Change: We are booking orders at a record pace on a year to date basis.
Speaker Change: Quoting activity is outpacing last year's record performance.
Speaker Change: Gan deliveries of our new higher margin product not only to support our customers, but further bolster our contribution margin in this segment.
Reece Kurtenbach: the pictured installation at Hayward High School in Wisconsin, highlighting the conversion to LED video being a durable market trend. Our teams continue building, testing, and implementing capabilities as we continue to advance our control systems to enhance the live event entertainment experience and improve workflow efficiency. These enhancements will empower our customers to deliver dynamic presentations using cutting-edge scoring and timing software, 3D data visualizations, real-time rendering, and integrated data through sport-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 Daktronics displays, and is slated for a release this summer.
Speaker Change: Pictured installation at Hayward High school in Wisconsin, highlighting the conversion to led video being a durable market trend.
Speaker Change: Our teams continue building testing and implementing capabilities as we continue to advance our control systems to enhance the live event entertainment experience and improve workflow efficiencies. These enhancements will empower our customers to deliver dynamic presentations using cutting edge, scoring and timing software.
Speaker Change: Three D data Visualizations real time, rendering and integrated data through sports specific applications.
Speaker Change: The addressable market for our new solution has broad, including anyone supporting might've events Entertainment and sports, even if theyre not using tektronix displays and is slated for release this summer.
Reece Kurtenbach: Additionally, we are introducing cloud access, allowing customers to schedule, store, and manage their content and data sources from anywhere.
Speaker Change: Additionally, we are introducing cloud access, allowing customers to schedule store and manage their content and data sources from anywhere.
Reece Kurtenbach: The work that we are doing here sets us up nicely to increase our recurring revenue streams, which we intend to be a driver for gross margin expansion over time. Over the coming months, our teams will continue to test and refine features and develop the marketing and launch plan. Overall, long-term demand for digital displays is expected to continue growing, driven by new indoor LED product availability and our customers' desire to inform, entertain and persuade their audiences using dynamic media.
Speaker Change: The work that we're doing here sets us up nicely to increase our recurring revenue streams, which we intend to be a driver for gross margin expansion over time.
Speaker Change: Over the coming months, our teams will continue to test and refine features and develop the marketing and launch plans.
Speaker Change: Overall long term demand for digital displays is expected to continue growing driven by new indoor led product availability and our customers' desire to inform entertain and persuade their audiences using dynamic mediums.
Sheila Anderson: We will get into more of that, but first, for additional details on the financial results of the quarter and year, I'll now turn it over to Sheila. Thank you, Reece. I invite you to turn to slide 5 and 6, titled Fiscal Q3 and Year-to-Date Fiscal 2025 Financial Highlights, to follow the third quarter and year-to-date financial outcome. The quarter-over-quarter comparisons in this slide and related discussion are as of and for the fiscal quarters ended January 25, 2025, October 26, 2024, and January 26, 2024, excuse me, January 27, 2024, unless otherwise stated. Orders for the third quarter of fiscal 2025 decreased by 2.7% from the third quarter of fiscal 2024.
Speaker Change: We will get into more of that but first for additional details on the financial results of the quarter and year I'll now turn it over to Sheila.
I invite you to turn to slide five and six titles in fiscal Q3 and year to date, that's about 2025 financial highlights followed the third quarter and year to date financial outcome.
Speaker Change: Quarter over quarter comparison, and that's five and related discussion our outlook for the fiscal quarters ended January 22025 October 26, 2024, and January 2020, 'twenty Bar excuse me January 27, 2024, unless otherwise stated.
Speaker Change: Orders for the third quarter of fiscal 2025 decreased by two 7% from the third quarter of fiscal 'twenty four.
Sheila Anderson: This decline was primarily due to reduced orders in the live events, high school park and recreation, and transportation business units. As Reece highlighted, variability in our order rates between periods is natural in the large project business areas, influenced by the time of year for sports projects and due to some delayed buying behavior. In live events, we booked a large project for an NFL stadium, and this will convert into revenue late in fiscal 26 and primarily realized in FY 27. These declines were offset by order bookings in commercial and international business units. Those increases both led by the strength of the out-of-home net.
Klein was primarily due to reduced orders in the live events High School Park, and recreation and transportation business unit.
Speaker Change: <unk> highlighted variable ability in our order rates between periods is natural in the large project business area influenced by the time of year for sports projects and due to some delayed buying behaviors.
Speaker Change: In live events, we booked a large project and for an NFL Stadium and this will convert into revenue later in fiscal 2016, primarily realized in FY 'twenty.
Speaker Change: These declines were offset by order bookings and commercial and international business units those increases both led by the strength of the out of home niche.
Sheila Anderson: Orders for the first nine months of the year increased by 1.2 percent. Third quarter fiscal 2025 orders increased by 5.2 percent from the second quarter of fiscal 2025. We haven't seen delays in U.S.-based project bookings across markets, likely due to recent actions by the U.S. government, including global tariff policy and federal funding priority uncertainties. We anticipate these conditions may impact the timing of expected orders in the near term, especially in our transportation system. To date, orders for the first nine months of the year increased by 1.2 percent. Based on a strong return to more normal seasonal trends compared to prior years and the large NFL project bookings, the project backlog was $273 million at the end of the quarter.
Speaker Change: Well I guess for the first nine months of the year increased by one 2% third quarter fiscal 2025 orders increased by five 2% from the second quarter of fiscal 2025.
Speaker Change: We haven't seen the latest in U S based project bookings that craft market likely due to recent actions by the U S government, including global tariff policy and federal funding priority uncertainties.
Speaker Change: We anticipate these conditions may impact the timing of expected orders in the near term, especially in our transportation business.
Speaker Change: Orders for the first nine months of the year increased by one 2% based on our strong return to more normal seasonal trends compared to prior years and the large NFL project booking.
Speaker Change: Backlog was $273 million at the end of the quarter quoting.
Sheila Anderson: Quoting activity remains active across all segments despite macroeconomic uncertainty. Net sales for the third quarter of Fiscal 25 decreased by 12.2% compared to the third quarter of Fiscal 24. The third quarter of every fiscal year is characterized by seasonally lower volumes. The sales decrease is driven by comparatively lower volumes in live events, particularly offset by increased fulfillment in the commercial, international, and high school park and recreation business units. On a year-to-day basis, sales levels are 3% lower compared to last year's record sales. Gross profit as a percentage of net sales was 24.6%, similar to the 24.5% for the third quarter of fiscal 24.
Speaker Change: Quoting activity remains active across all segments, despite macroeconomic uncertainties.
Speaker Change: Net sales for the third quarter of fiscal 'twenty five decreased by 12, 2% compared to the third quarter fiscal 'twenty for the third quarter of every fiscal year is characterized by seasonally lower volume. The sales decrease was driven by comparatively lower volumes in Miami that particularly offset by increased fulfillment the commercial international.
Speaker Change: And high School Park and Recreation business unit.
Speaker Change: On a year to date basis sales level by 3% lower compared to last year's record sale.
Speaker Change: Gross profit as a percentage.
Speaker Change: Net sales were 24, 6% similar to the 24, 5% for the third quarter of fiscal 'twenty four maintaining gross profit at a 12% volume reduction highlights the solid performance and adjusting and managing costs as demand fluctuates on a seasonal basis.
Sheila Anderson: Maintaining gross profit on a 12% volume reduction highlights the solid performance in adjusting and managing costs as demand fluctuates on a seasonal basis. Our teams utilize several tactics, including reduced Shifts and Workload Schedules to Adjust for Lower Volumes and Preserve Growth Profit Margins. On a year-to-day basis, gross profit was 26.1% compared to 27.7%, attributable to sales mixed differences between periods. During the quarter, we incurred additional costs for our business and digital transformation, domiciliation change, and corporate governance matters. These costs, combined with lower gross margin dollars due to lower volume, resulted in an operating loss of 2.4% of sales in Q3.
Speaker Change: Our teams utilized several tactics, including reducing shifts and workload schedule to adjust for lower volumes at preserve gross profit margin.
Speaker Change: Year to date basis gross profit was 26, 1% compared to 27, 7% attributable to sales mix differences between periods.
Speaker Change: During the quarter, we incurred additional cost for our business and digital transformation Domiciliation change in corporate governance matters. These costs combined with lower gross margin dollars due to lower volume resulted in an operating loss of two 4% of sales in Q3, adjusted for onetime consulting and corporate governance related.
Sheila Anderson: Adjusted for one-time consulting and corporate governance-related expenses, operating margin was positive at 1%. On a year-to-date basis, the operating margin was 6%, or 7.7% as adjusted. Increased operating expenses reflect investments in staffing resources to support information technology and digital transformation plans, as well as some sales team expansion to support opportunities for future growth. During the third quarter, we incurred $2.1 million in consulting services to support the implementation and acceleration of our strategies to grow and drive efficiency and consistent profitability levels. We expect to invest $1 to $2 million more in the fourth quarter of fiscal 2025 for the business and digital transfer.
Speaker Change: Expenses operating margin was positive at 1%.
Speaker Change: Year to date basis, the operating margin was 6% or seven 7% as adjusted.
Speaker Change: Increased operating expenses reflect investments in staffing resources to support information technology and digital transformation plan as well as some sales team expansion our opportunities for future growth.
Speaker Change: During the third quarter, we incurred $2 $1 million and consulting services to support the implementation and acceleration of our strategy to grow and drive efficient. Please.
Speaker Change: Consistent profitability levels, we expect to invest $1 million to $2 million more in the fourth quarter fiscal 2025 for the business and digital transformation.
Sheila Anderson: Additionally, we incurred $2.7 million in advisory-related expenses for corporate governance matters and expect some costs related to this work in the fourth quarter. Our careful working capital management and business profitability, adjusting operating loss for non-cash expenses like depreciation and loan fair value change, drove cash flows from operations of $12 million for the fiscal quarter and $75 million on a year-to-date basis. Cash, restricted cash, and marketable securities totaled $132.2 million at the end of the quarter. Our working capital grew to $232 million with a ratio of 2.4 to 1. Management's focus remains on maintaining a strong balance sheet and managing working capital levels through the expected growth of the company.
Speaker Change: Additionally, we incurred $2 $7 million in advisory related expenses for corporate governance matters and expect some costs related to this work in the fourth quarter.
Speaker Change: Our careful working capital management and business profitability, its just being operating loss for noncash depreciation and loan fair value change drove cash flows from operations of $12 million for the fiscal quarter and $75 million on a year to date basis cash restricted cash and marketable securities totaled 130.
Speaker Change: The $2 2 million at the end of the quarter, our working capital grew to $232 million with a ratio of two four to one <unk>.
Speaker Change: Management's focus remains on maintaining a strong balance sheet and managing working capital levels due to the expected growth of the company.
Sheila Anderson: During the third quarter, we converted $13.9 million of base value of the $25 million Senior Second Line Secured Promissory Note and have delivered these shares. Additionally, subsequent to the end of the quarter, we converted the remaining balance of the note and expected to deliver shares early in March, which will pay off the convertible note in full, saving the company approximately $5 million in interest over the remaining term. Note that these shares were included in the waiting for the full quarter because of the anti-dilutive nature of the fair value impact to income. But in future quarters, these shares will be fully included in EPS.
Speaker Change: During the third quarter, we converted $13 $9 million of face value of the $25 million senior.
Speaker Change: <unk> secured promissory note.
Speaker Change: And have delivered the shares.
Speaker Change: Additionally, subsequent to the end of the quarter, we converted the remaining balance of the note and expect to deliver shares early in March which will pay off the convertible note and Paul saving the company approximately $5 million in interest over the remaining term.
Speaker Change: Note that these shares were included in the waiting for the fourth quarter because of the anti dilutive nature of the fair value impact to income.
Speaker Change: But in future quarters. These shares will begin fully fully included in EPS.
Sheila Anderson: To offset a portion of share dilution resulting from the convertible note into common stock, we began executing on our existing share repurchase authorization, and during the quarter we purchased $9 million worth of shares for approximately 535,000 shares. As we enter Q4, hoarding activity is strong, and we continue to anticipate year-over-year growth in order bookings. However, we acknowledge that we are currently seeing some delays in order placements as companies evaluate the dynamic trade environment. Additionally, we recognize that spring baseball orders were smaller this year compared to last, and we have adjusted our capacity in the near term of hoarding late.
Speaker Change: To offset a portion of share dilution, resulting from the convertible note and a common stack, we began executing on our existing share repurchase authorization and during the quarter, we purchased $9 million worth of shares for approximately for approximately 535000 shares.
Speaker Change: As we enter Q4, our quoting activity is strong and we continue to anticipate year over year growth in order bookings. However, we acknowledged that we are currently seeing some delays in order placement with companies evaluate the dynamic trade environment.
Speaker Change: Additionally, we recognized that spring baseball orders were smaller this year compared to last and we have adjusted our capacity in the near term accordingly.
Sheila Anderson: Over the long term, given our continued financial performance, the underlying health, healthy fundamental drivers of growth persisting in our end markets, our strong leading position in the markets, along with the strategic initiatives we're undertaking. We are well-positioned for long-term profitable growth and return.
Speaker Change: Over the long term given our continued financial performance the underlying health healthy fundamental drivers of growth for assisting in our end markets are strong leading position in the market along with the strategic initiatives we are undertaking.
Speaker Change: We are well positioned for long term profitable growth and return.
Howard Atkins: Now, board member Howard Atkins will provide more details on our transformation. Thank you, Sheila. This is Howard Atkins, also here in Brookings. You'll note that the, I'm going to talk about the business transformation in the company that's underway. There's a lot of detail in the press release and the deck that accompanies our remarks here today that speak to the specific initiatives that are underway.
Speaker Change: Now remember Howard at Caf will provide more details on our transformation.
Speaker Change: Thank you Sheila this is Howard Atkins also here in bookings.
Speaker Change: You'll note that the I'm going to talk about the business transformation in the company that's underway.
Speaker Change: There's a lot of detail in the press release and the deck that accompanies our remarks here today.
Speaker Change: Speak to the specific initiatives that are underway when I'd like to do is to try to provide some additional perspective.
Howard Atkins: What I'd like to do is to try to provide some additional perspective on what the company is trying to accomplish and what this business transformation is all about. Uh, many years ago, I worked for a, uh, enlightened CEO who used to tell his team... that companies don't get better by being bigger, they get bigger by being better. Daktronics is already better, but in a nutshell, completing the journey from better to best is what the Daktronics business transformation is really all about. Being best for our shareholders, by being best for our customers, with the best team in the business.
Speaker Change: On what the company is trying to accomplish and what this business transformation.
Speaker Change: Is all about.
Speaker Change: Many years ago I worked for a enlightened CEO, who used to tell his team.
Speaker Change: Companies don't get better by being bigger they get bigger by being better.
Speaker Change: Dr. <unk> is already better.
Speaker Change: But in a nutshell completing the journey from better to best is what the <unk> business transformation is really all about being best for our shareholders by being best for our customers with the best team in the business.
Howard Atkins: So let me describe what being best will look like at Daktronics. It's about providing great value to customers at economic returns that are well above the company's cost of capital. It's about continually developing and building durable client relationships. Nurturing relationships helps reduce customer acquisition costs over time, which in turn helps us provide a better deal for our customers and a better return for our shareholders. Staying ahead of the competition by continuing to innovate products and services that set performance and reliability standards in our industry. It means operating our businesses at maximum efficiency and lowest cost across the supply chain from procurement through inventory management, manufacturing, fulfillment, and aftermarket service.
Speaker Change: So let me describe what being best will look like at that Tronox.
Speaker Change: It's about providing great value to customers at economic returns that are well above the company's cost of capital it's.
Speaker Change: It's about continuing to continually developing and building durable client relationships nurturing relationships helps reduce customer acquisition costs over time, which in turn helps us provide a better deal for our customers and a better return for our shareholders.
Speaker Change: Staying ahead of the competition, but continuing to innovate products and services that set performance and reliability standards in our industry.
Speaker Change: It means operating our businesses at maximum efficiency and lowest cost across the supply chain from procurement through inventory management manufacturing fulfillment and aftermarket service.
Howard Atkins: And finally, based on all of the above, delivering superior returns to our shareholders.
Speaker Change: And finally based on all of the above delivering superior returns to our shareholders.
Howard Atkins: The company's transformation from better to best in class can be expressed in a few key business and financial targets and objectives. First, from a shareholder perspective, we're aiming for ROIC, Return On Invested Capital, in the top quartile of top-performing publicly traded manufacturing companies, which we believe is in the 17 to 20 percent range based on all available market data, and we're aiming to accomplish that by no later than 2028. We're also looking for top-line growth, as Reece mentioned, above our particular addressable market. In other words, verticals and geographies where we can compete on value and earn an adequate return on capital.
Speaker Change: The company's transformation from better to best in class can be expressed in a few key business and financial targets and objectives.
Speaker Change: First from a shareholder perspective.
Speaker Change: We're aiming for ROIC return on invested capital in the top quartile of top performing publicly traded manufacturing companies, which.
Speaker Change: Which we believe is in the 17% to 20% range based on all available market data.
Speaker Change: We're aiming to accomplish that.
Speaker Change: By no later than 2028.
Reece: We're also looking for topline growth as Reece mentioned above our particular addressable market.
Reece: In other words verticals and geographies, where we can compete on value and earn an adequate return on capital.
Howard Atkins: We're currently setting seven to nine percent compounded annual growth over the next three fiscal years as our revenue target. Our market knowledge, complemented by extensive global market surveys conducted recently with our consultant, are being employed to strengthen the way in which our sales teams are engaged with their customers so that we can win more business by delivering value at a fair price. Another target, improving the consistency and reliability of a company's revenue growth. Historically, live events has accounted for a large share of the company's top line growth and some periods as much as 75% of that growth.
Were currently setting 7% to 9% compounded annual growth over the next three fiscal years and as our revenue target.
Reece: Our market knowledge complemented by extensive global market surveys conducted recently with our consultants are being employed to strengthen the way in which our sales teams are engaged with their customers. So that we can win more business by delivering value at a fair price.
Reece: Another target improving the consistency and reliability of our company's revenue growth.
Reece: Historically live events accounted for a large share of the company's topline growth in some periods as much as 75% of that growth.
Howard Atkins: Now live events is a really important segment for the company and we'll continue we will continue to allocate capital to it. But all the other reportable business segments are now developing plans to grow at a combined compound annual growth rate above the total corporate As the revenue mix in the company is diversified, the quality of the company's revenue will improve, not just the total growth rate. A deep portfolio review across each of our reportable segments, which was conducted with our consultant last fall, has helped the company identify verticals with the longest growth runway and or best margin capture potential and which verticals need to be improved to have margins improved before additional strategic capital is allocated.
Reece: Now live events is a really important segments of the company and will continue we will continue to allocate capital to it.
Reece: But all the other reportable business segments are now developing plans to grow at a combined compound annual growth rate above the total corporate objectives.
As the revenue mix and the company has diversified our quality of the company's revenue will improve not just the total growth rate.
Reece: Our deep portfolio review across each of our reportable segments, which was conducted with our consultant last fall has helped the company identified verticals with the longest growth runway and or our best margin capture potential and which verticals need to be improved.
Reece: <unk> improved before additional strategic capital is allocated.
Howard Atkins: Now, portfolio reviews, such as the one that was recently conducted, will become a regular aspect of the company's capital allocation process. We will continue to invest in leading edge product development while simplifying the development process. Annual product development spend will be about $40 million this fiscal year and will continue at around that same annual level, although we're currently reviewing the specifics within that $40 million to make sure that investment of resources is exclusively focused on just the mission-critical highest return initiatives. Another target, achieving operating margins in the 10 to 12 percent range through structural cost reduction.
Reece: Net portfolio reviews, such as the one that was recently conducted will become a regular aspect of the company's capital allocation process.
Reece: We will continue to invest in leading edge product development, while simplifying the development process.
Reece: Annual product development spend will be about $40 million. This fiscal year and will continue at around that same annual level. Although we are currently reviewing the specifics within that $40 million to make sure that investment of resources is exclusively focused on just the mission critical highest return initiatives.
Reece: <unk>.
Reece: Now the target achieving operating margins in the 10% to 12% range through structural cost reduction.
Howard Atkins: Over the last eight plus months, the management team reviewed, valued, and developed specific implementation plans for about $18 million in cost savings by fiscal 28. at a full run rate from tighter inventory management, simplifying product complexity in the company, more effective procurement contract negotiation, and leaner, more targeted, more adaptable manufacturing capacity.
Reece: Over the last eight plus months the management team, who are viewed valued and developed specific implementation plans for about $18 million in cost savings by fiscal 2008.
Reece: At a full run rate from tighter inventory management simplifying product complexity in the company.
Reece: More effective procurement contract negotiation.
Reece: Leaner more targeted more adaptable manufacturing capacity.
Howard Atkins: We will be completing the next round of our cost recovery reviews for additional cost savings as part of the fiscal 2026 annual plan, which will be completed in April, and we will report out of the results from that plan in our next quarterly review.
Reece: We will be we'll be completing the next round of a cost recovery reviews for additional cost savings as part of the fiscal 2026 annual plan, which will be completed in April and we will we will report out.
Reece: The results from that plan in our next quarterly review.
Howard Atkins: Now, business transformations tend to be most successful when supported by business and financial management practices that are aligned with the objectives of the transformation and support the continuation of high-grade operating performance in the transformed company. Now, at Daktronics, this is what my statement means. First, we've been looking at our compensation program. Several months ago, the company engaged a top-notch management consultant from compensation programs. With the support of that consultant, the company is putting finishing touches on a comp structure that is designed to align the long-term interests of the executive team with the long-term interests of our shareholders, align the annual variable comp program with clear and precise performance objectives, and enhance the company's ability to retain and, as needed, attract top talent.
Reece: Now business transformations tend to be most successful when supported by business and financial management practices that are aligned with the objectives of the transformation and support the continuation of high grade operating performance and a transformed company.
Reece: Now that trial at that Tronox. This is what my statement means first we've been looking at comp our compensation program.
Reece: Several months ago the company engaged.
Reece: A topnotch management consultant.
Reece: Compensation programs with the support of a consultant.
Reece: The company is putting the finishing touches on a comp structure that is designed to align the long term interests of the executive team with a long term interest of our shareholders align the annual variable comp program was clear and precise performance objectives and enhance the company's ability to retain.
And as needed attract top talent.
Howard Atkins: planning. The company has been refining its annual strategic risk management and capital and capex planning to optimize capital allocation across the company. And you'll be hearing some more from us over the coming quarters in terms of what exactly that means in terms of refining the planning process.
Reece: Planning the company has been refining its annual strategic risk management and capital on Capex planning to optimize capital allocation across the company and Youll be hearing some more from us over the coming quarters in terms of what exactly that means in terms of refining the planning process.
Howard Atkins: Pricing. Guardrails have been put in place to help ensure business pricing margins are consistent with value-based selling and achieving acceptable ROI return on investment.
Reece: Pricing.
Reece: Card rails have been put in place to help ensure business pricing margins are consistent with value based selling and achieving acceptable ROI return on investment.
Howard Atkins: Digital transformation, another important process underpinning our future. Sheila is going to talk in a second about more detail on the digital transformation. I would just say here that getting our internal processes on a digital platform should improve efficiency and internal controls, as well as provide a more effective and reliable interface with our customers on pricing and service.
Reece: Digital transformation and other important process underpinning our future.
Reece: It was going to talk in a second about more detail on the digital transformation I would just say here that getting our internal processes on a digital platform should improve efficiency and internal controls as well as provide a more effective and reliable interface with our customers on pricing and service.
Howard Atkins: Let me conclude by saying that the Daktronics business transformation is not a project and is more than a process. It's an ongoing effort by the company to leverage its competitive advantages to realize and grow its full intrinsic value. Be the best for its customers, the best for its team, and of course, the best for its shareholders.
Reece: Let me conclude by saying that the Tektronix business transformation is not a project.
Reece: It's more than a process.
Reece: It's an ongoing effort by the company to leverage its competitive advantages to realize and grow its full intrinsic value.
Reece: Best for its customers the best towards team.
Reece: Of course, the best for our shareholders.
Howard Atkins: There's a lot to do and a lot left to do. The team is committed to owning the transformation effort because the team is committed to owning the results.
Reece: There's a lot to do and a lot left to do the team is committed to owning the transformation effort because the team is committed to owning the results. So.
Sheila Anderson: So let me now turn it over to Sheila to discuss a little bit more detail on the digital transformation progress. Thanks Howard, let's move to slide 9, digital transformation update. Our IT and data technology platforms are key in our business transformation, as it supports our aggressive growth ambitions, data-driven planning, and is foundational to creating operational efficiency. In fiscal 2025, we added products to our e-sales channel and improved back-office integrations with systems and processes, while it delivered results, particularly in our high school park and recreation segment. Currently, we are in the testing and training pre-go-live phases for certain.
Reece: So let me now turn it over to Sheila to discuss a little bit more detail on the digital transformation progress.
Sheila Anderson: Thanks Howard.
Reece: Slide nine digital transformation update.
Reece: Our ICA data technology platforms are key in our business transformation as it supports our aggressive growth ambitions data driven planning and is foundational to creating operational efficiency.
Reece: In fiscal 2025, we added product to our <unk> sales channel and an improved back office integration with systems and processes.
Reece: We delivered results, particularly in our high School Park and Recreation segment.
Reece: Currently we are in the testing and training pre go live basis for certain.
Sheila Anderson: Parts of our Enterprise Performance Management and Service Tools Implementation. For our enterprise performance management tool, our testing of the consolidation and reporting phases are near completion, and we are set to run these systems parallel to ensure they seamlessly operate to launch as expected in May. The Enterprise Performance Management Tool has additional phases planned to launch throughout Fiscal 26, including the data capture of detailed demand forecasts to be utilized to further enhance and better align our strategic, operational, and financial planning, and make the data accessible and organized for teams to utilize in planning and capital allocation decisions.
Reece: Our enterprise performance management and service tools implementations.
Reece: Our enterprise performance management to all our testing of the consolidation and reporting basis are near completion and we are set to run in parallel to ensure they seamlessly operate to launch is expected in may.
Reece: The enterprise performance management tool has additional phases are planned to launch throughout fiscal 'twenty six including the data capture a detailed demand forecast to be utilized to further enhance and better align our strategic operational and financial planning and makes us data at festival and organize for TMT utilized in planning and capital allocation.
Sheila Anderson: The service system is set to launch this spring, final documentation, training, and testing is also being performed to ensure the finance system and service system seamlessly integrate. We have also made a technology vendor selection for the sales and porting tools, and we plan to launch that during fiscal 2026.
Reece: As you are making.
Reece: The service system is set to launch this spring final Documentations training and testing is also being performed to ensure the finance system and service system seamlessly integrate.
Reece: We have also made a technology vendor selection for the sales. According to all that we plan to launch that during fiscal 2026.
Sheila Anderson: As we look ahead, we are planning for ERP upgrades to take advantage of the automation capabilities in the newest version.
Reece: As we look ahead, we are planning for an ERP upgrade to take advantage of in the automation capabilities and the newest version.
Sheila Anderson: With that, I'll turn it back over to you.
Reece: With that I'll turn it back over to you.
Reece Kurtenbach: Thanks, Sheila. In conclusion, our summary on slide 10 recaps our key highlights. Our performance serves as evidence that we are on a sustainable trajectory of growth and increasing profitability. Our transformation program supports our commitment to grow revenues faster than the addressable market growth, achieve 17 to 20% return on capital, and 10 to 12% in operating margin by fiscal 2028. Our multi-year transformational strategies and near-term progress on these goals demonstrates our commitment to improve and consistently earn returns above the cost of capital and in the top range of our industry. 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: Sheila in conclusion, our summary on slide 10 recaps, our key highlights our performance serves as evidence that we arent sustainable trajectory of growth and increasing profitability. Our transformation program supports our commitment to grow revenues faster than the addressable market growth achieved 17% to 20.
Reece: Return on capital and 10% to 12% and operating margin by fiscal 2028 are.
Reece: Our multi year transformational strategies and near term progress on these goals demonstrates our commitment to improve and consistently earn returns above the cost of capital and in the top range of our industry.
Reece: We are a global industry leader and best in class video communication displays and control systems, and we continue to focus on bringing value to our customers. We are the only U S manufacturer of scale with a global footprint servicing by geographic market and consistent.
Reece Kurtenbach: We are the only U.S. manufacturer of scale with a global footprint, servicing by geographic market, and consistently demonstrate world-leading technology leadership, high-quality solutions, and world-class service.
Reece: Demonstrate world, leading technology leadership high quality solutions and World Class service.
Operator: With that, I would ask the operator to please open the line for any questions. Thank you.
Reece: With that I would ask the operator to please open the line for any questions.
Operator: At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: 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 on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Aaron Spikala: And our first question comes from the line of Aaron Spikala of Greg Holland Capital Group. Your line is now open. Yeah, good morning. Thanks for taking the questions. Maybe first for me on, you know, some of the delays in bookings. Sounds like it's not, you know, too broad based, maybe a little more focused in the transportation segment. But can you just give a little bit more color there, you know, it sounds like you're still somewhat optimistic of growing orders for the year.
Speaker Change: And our first question comes from the line of Aaron's Michaela of Craig Hallum Capital Group. Your line is now open.
Aaron Michaela: Yes. Good morning, Thanks for taking the questions maybe first for me on some of the delays in bookings.
Speaker Change: Sounds like it's not too broad based maybe a little more focused in the transportation segment, but could you just give a little bit more color. There. It sounds like you are still somewhat optimistic of growing orders for the year and then if you could also just touch on kind of early read on tariffs and what that means for you, but also as you kind of.
Reece Kurtenbach: Then if you can also just touch on, you know, kind of early read on tariffs and what that, you know, means for you, but also, as you kind of compete in the market as well. Yeah, thanks, Sharon. Many of our markets have these large projects that are part of the order mix. And that can create a lumpiness as an order books on a particular day and then delivers over multiple weeks and quarters on into the future. And so we continue to see strong activity in quoting and interest from customers that are out there. And so we're seeing that the order mix and are still optimistic on future growth of the business as a whole.
Aaron Michaela: Compete in the market as well.
Aaron Michaela: Yeah. Thanks Erin.
Aaron Michaela: Many of our markets have these large oh.
Aaron Michaela: Projects that are part of the order mix and that can create a lumpiness as order books on a particular day and then delivers over multiple weeks and quarters on into the future.
Aaron Michaela: We continue to see strong activity in quoting and interest from customers that are out there and so we're seeing the order mix in there.
Aaron Michaela: Still optimistic on future growth of the business as a whole.
Reece Kurtenbach: So I would attribute most of this to a large order mix and timing.
Aaron Michaela: I would attribute most of this too.
Aaron Michaela: Large order mix and timing.
Reece Kurtenbach: As far as tariffs... Yeah, that's a dynamic environment. Overall, though, what Daktronics, as being a U.S. manufacturer, we've been paying tariffs on semiconductors, which was the focus, especially out of China, which was the focus of previous tariff initiatives by the last administration, as well as the first Trump administration. The current tariffs are more broad-based across all products coming in from China. And that, we think, hits our competitors harder than us, because we've already been paying some tariff, and these are new to them in their world. So maybe a little pining on tariffs. I in no way prescribe that I have a prediction of where all that's going, but a little bit of comment on orders.
Aaron Michaela: As far as tariffs.
Aaron Michaela: Yes, that's a dynamic environment overall, though what <unk> as being a U S manufacturer, we've been paying tariffs on semiconductors, which was the focus.
Aaron Michaela: Especially out of China, which was the focus of previous tariff initiatives by the last administration as well as the first a Trump administration.
Aaron Michaela: The current tariffs are more broad based across all products coming in from China.
Aaron Michaela: We think it hits, our competitors' harder than us because we've already been paying some tariff and these are new to them.
Aaron Michaela: They're a world so maybe a little opining on tariffs I know way prescribed that I have a prediction of where all that's going but a little bit of comment on orders.
Aaron Spikala: Any of that helpful? Yeah, no, that was thanks, Reece.
Aaron Michaela: Any of that helpful.
Reece Kurtenbach: And then, you know, maybe you touched on it a little bit with with the high school segment, but, you know, the shift to kind of digital there, can you just talk about, you know, where that market is, you know, in general, from a conversion standpoint, you know, the drivers behind that, maybe from like a payback perspective, and just, you know, what that means for you, you know, traditional boards versus video boards from from like a content perspective, just as we think about framing that that growth opportunity. Yeah, the high school market is very exciting. We've been, you know, it's really a wide open.
Aaron Michaela: Yes, no that was it thanks.
Aaron Michaela: And then maybe you touched on it a little bit with the high school segment, but.
Speaker Change: This shift to digital there can you just talk about where that market is in general from a conversion standpoint, you know the drivers behind that maybe from like a payback perspective, and just you know what that means for you.
Speaker Change: Traditional boards versus video boards from from like a content perspective, just as we think about framing that growth opportunity.
Speaker Change: Yes, the high school market is very exciting.
Speaker Change: It's really a wide open those customers have been buying what we call standard fixed digit scoreboards from us for years, but they have aspired to have more of a video.
Reece Kurtenbach: Those customers have been buying what we call standard fixed digit scoreboards from us for years, but they have aspired to have more of a video, you know, what they see when they go to a professional stadium or college, they'd like to see in their local high school stadium or gymnasium. And we're seeing that interest as the quality of the product has continued to improve and the prices have continued to become more competitive. More and more of these schools and organizations are reaching and installing video display systems. We think Daktronics has the best round out of display systems, control systems, and both the technical and professional services to make these types of customers successful.
Speaker Change: What they see when they go to a professional stadium or college they'd like to see in their local.
Speaker Change: High School stadium or gymnasium.
Speaker Change: We're seeing that interest as the quality of the product has continued to improve and the prices have continued to become more competitive more and more of these schools and organizations are reaching and installing video display systems. We think tektronix has the best round out of.
Speaker Change: Display systems control systems, and both the technical and professional services to make these types of customers successful and of the 10000 high schools that are out there today, we think a fewer than 10% of them have converted one of their facilities to video as we sit today.
Reece Kurtenbach: And of the 10,000 high schools that are out there today, we think fewer than 10% of them have converted one of their facilities to video as we sit today. And I might be low on 10,000 high schools, it might be more than that out there. All right. No, that's that's that's good color. Thanks.
Speaker Change: <unk>.
Speaker Change: And I might be low on 10000 high schools, who might be more than that out there.
Speaker Change: Alright.
Aaron Spikala: And then, you know, just on kind of capital allocation, you know, it sounds like we'll get more color here in the coming quarters. But, you know, so you bought back some stock in the quarter, but just given you know, where the balance sheets at, you know, maybe just thoughts on on kind of capital allocation at a high level with with where that's Yeah, we we continue to work with the board on capital allocation on a quarterly by quarterly basis. And we will, as you said, we will invest in the best way to get value out of our CapEx?
Speaker Change: That's good color, Thanks, and then.
Speaker Change: Just on kind of capital allocation it sounds like we'll get more color here in the coming quarters, but.
Speaker Change: So you bought back some stock in the quarter, but just given where the balance sheets at maybe just thoughts on kind of capital allocation.
Speaker Change: At a high level with.
Speaker Change: Where that's at.
Speaker Change: Yes.
Speaker Change: We continue to work with the board on capital allocation on a quarterly by quarterly basis, and we will as you said, we will invest in the best way to get.
Speaker Change: Get value out of our Capex.
Reece Kurtenbach: How would we invest in just different development activities?
Speaker Change: How do how would we invest in just different development activities. We continue to look at especially tuck in merger and acquisition opportunities and then of course, our ways to more directly give value back to shareholders through stock buybacks and other vehicles.
Reece Kurtenbach: We continue to look at especially tuck-in merger and acquisition opportunities, and then of course, ways to more directly give value back to shareholders through stock buybacks and other vehicles. All right, that sounds good. Thanks for taking the questions. I'll turn it over. Thank you. One moment for our next question.
Speaker Change: Alright that sounds good thanks for taking the questions I'll turn it over.
Speaker Change: Thank you Mohammed for next question.
Andras Soderstrom: Our next question comes from a line of Andras Soderstrom of Sodori, your line is now open. Hi, thank you for taking my questions. You mentioned the internationals picking up, are you seeing that continuing now into the fourth quarter or how is that trending? Yeah, international has been soft for us really since the pandemic. And we've been seeing really good quoting activity, but a softness in turning those quotes into orders in in prior periods, we're in, continuing to see an increase in that conversion rate. And we believe that absent a geopolitical incident, that that trend is likely to continue.
Speaker Change: Our next question comes from the line of Ron Johnson is a strong of Sidoti. Your line is now open.
Ron Johnson: Hi, and thank you for taking my questions.
Speaker Change: You mentioned international speaking.
Ron Johnson: Have you seen that continue into the fourth quarter.
Speaker Change: How is that trending.
Speaker Change: International has been soft for us really since the pandemic and we've been seeing really good.
Speaker Change: Good quoting activity, but a softness in turning those quotes into orders in prior periods.
Speaker Change:
Speaker Change: We're continuing to see an increase in that conversion rate.
Speaker Change: We believe that.
Speaker Change: Absent <unk>.
Speaker Change: Opaline nickel incident that that trend is likely to continue.
Reece Kurtenbach: And is there any specific region that's doing better or that you're calling out?
Speaker Change: And is there any specific region, that's doing better.
Speaker Change: You're calling out there.
Reece Kurtenbach: Our strongest regions have historically been Europe, the Middle East, as well as Australia, and we're seeing good activity in those areas as well as some of the other areas outside the Okay, thank you.
Speaker Change: Our our strongest regions have historically been.
Speaker Change: Europe.
Speaker Change: The middle East as well as Australia.
Speaker Change: And we're seeing good activity in those areas as well as some of the other areas outside the us.
Reece Kurtenbach: And you also mentioned, you expect to spend about 40 million in annual product development. And so you're going to spend a little bit more on that, it seems like, but are you also implementing some digital transformation initiatives there that might make it also more efficient, in addition to spending more money on it? We believe our digital transformation will really positively impact our operations and really every area of Daktronics. And so as we move forward into the future, we believe there will be efficiencies to be gained in product development, in our sales, in our services, as well as in our fulfillment operations.
Speaker Change: Okay. Thank you and you also mentioned you expect to spend.
Speaker Change: And then about $40 million in annual product product development.
Speaker Change: So youre going to spend a little bit more on that it seems like what are you all.
Speaker Change: Implementing some digital transformation initiatives that might make it awesome rfps from <unk>.
Speaker Change: Yes.
Speaker Change: Spending more money on it.
Speaker Change: We believe our digital transformation will really positively impact our operations and really every area of tektronix and so as we move forward into the future. We believe there will be efficiencies to be gained in product development in our sales and our services as well as in our fulfillment operations.
Reece Kurtenbach: And I'll add, Anja, that in our product development line, too, there is about roughly half or a little less is spent on the control system side, which adds some of these unique features and helps the customer automate or put up content. So that's also true.
Speaker Change: <unk>.
Speaker Change: And I'll add on you that in our product development line queue. There is about roughly half or a little less spend on the control systems side, let's add some of these unique.
Speaker Change: The unique features that help the customer automate or put up content.
Speaker Change: That's also true.
Andras Soderstrom: Okay, thank you. That's helpful.
Okay. Thank you that's all.
Reece Kurtenbach: And then in terms of, you mentioned also you're renegotiating the supply agreements and scrubbing of the entire supply chain. Could you just elaborate on that? Sure, we have a practice of having regular. Supplier meetings, but we're taking a more aggressive approach as we look to the future for our volumes and have started at the top of the supplier list and have worked our way through to make sure we're maximizing our terms and conditions for the company. Okay, thank you. I'll get back in queue. Thank you.
Speaker Change: And then in terms of you mentioned multiyear renegotiating discipline agreements and scrubbing of Empire supply chain could you just elaborate on that.
Speaker Change: Sure we have a practice.
Having regular.
Speaker Change: Supplier meeting, but we're taking a more aggressive approach as we look to the future for higher volume than has started at the top of the supplier list and have worked our way through it to make sure we're maximizing our terms and conditions for for the company.
Speaker Change: Okay. Thank you I'll get back in queue.
Speaker Change: Thanks, and thanks Tanya.
Mac Furst: One moment for our next question. And our next question comes from a line of Mac Furst of Singular Research. Your line is now open. Yeah, hi, this is Mac Furst with Singular Research. Quick question on the international markets. You said that The quote activity has picked up internationally, and you mentioned a couple of continents, Europe Australia, but you said that international, the closure rate is not hasn't picked up. How would you explain that that quotes, that maybe go up?
Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Matt first of singular research. Your line is now open.
Matt Kirschner: Yeah, Hi, this is Matt Kirschner singular research a quick question on the international.
Matt Kirschner: Markets, you said that.
Matt Kirschner: The quote activity has picked up internationally.
Matt Kirschner: And you mentioned a couple of continents, Europe, Australia, but you said.
Matt Kirschner: International.
Matt Kirschner: The closure rate is not.
Matt Kirschner: It Hasnt picked up.
Matt Kirschner:
Matt Kirschner: How would you explain that the courts, but maybe you can go up but.
Reece Kurtenbach: Maybe I should clarify my comments, Mac, is that we've been seeing strong quoting activity, but the conversion from quote to order hasn't been as strong in the past periods. But we've been seeing that picking up in the prior quarter, and we believe it's still going on in the current quarter, and that absent, you know, some geopolitical event, we believe that we will see a higher conversion rate of quotes in coming quarters as well. Thank you.
Matt Kirschner: Maybe I should clarify my comments back is that.
Matt Kirschner: We have been seeing strong quoting activity, but the conversion from quote to order hasnt been strong in the past periods, but we've been seeing that picking up.
Matt Kirschner: In the prior quarter end.
Matt Kirschner: We believe it's still going on in the current quarter and that absent.
Matt Kirschner: Some geopolitical event, we believe that we will see a higher.
Matt Kirschner: Conversion rate of quotes in coming quarters as well.
Mac Furst: Thank you, Reece. I did have a question about, yeah, that answers my question. I did have a question about the import tariffs, but the previous analyst took my question. So thank you very much for answering it previously. Thank you.
Rich: Thank you thank you rich.
Speaker Change: I didn't have a question about.
Speaker Change: That answers my question I did have a question about the <unk> respect the previous analyst took my question. So thank you very much for answering it previously.
Operator: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com. Thank you.
Speaker Change: Okay.
Speaker Change: Got it back.
Operator: I'm showing no further questions at this time.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to <unk> for closing remarks.
Reece Kurtenbach: I would now like to turn it back to Reece Kurtenbach for a closing remark. Well, thank you. I appreciate everybody who attended today's conference.
Speaker Change: Well thank you.
Reece Kurtenbach: I would like to let you know that we do have investor outreach activities planned in the next quarter, including a virtual Sudoti small cap conference on March 19. And the Craig Hallam annual investor Institutional Investor Conference on May 18 in Minneapolis.
Speaker Change: Appreciate everybody who attended today's conference I would like to let you know that we do have investor outreach activities planned in the next quarter, including a virtual Sidoti small cap conference on March 19th and the Craig Hallum Annual Investor Institutional Investor Conference on May 18th in Minneapolis.
Reece Kurtenbach: We will host our next earnings call when we release our year-end results.
Speaker Change: We will host our next earnings call when we release our year end results and then I might just say a few words that you.
Reece Kurtenbach: And then I might just say a few words that, as you saw, and as Andrew mentioned earlier in the call, I am stepping back from my role at Daktronics. Appreciated interacting with all of you each quarter over the last 12 years. And I believe Daktronics is in a great spot and look forward to seeing its success in the ongoing future.
Speaker Change: As you saw and as Andrew mentioned earlier on the call I am stepping back from my role at Tektronix.
Speaker Change: <unk> interacting with all of you each quarter over the last 12 years and I believe tektronix is in a great spot and look forward to seeing its success in the ongoing future.
Operator: I wish you all a great spring, and you will be talking with Brad Wieman and Howard Atkins at our next call. Thanks, everyone, and bye-bye.
Speaker Change: I wish you all a great spring and.
Speaker Change: You will be talking with Brad women and Howard Atkins at our next call. Thanks, everyone and bye bye.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].