Q2 2026 Daktronics Inc Earnings Call

December 10, 2025

Speaker #1: Good day, and thank you for standing by. Welcome to the Daktronics second quarter FY26 financial results conference call. At this time, all participants are in listen-only mode.

Howard Atkins: Good day, and thank you for standing by. Welcome to the Daktronics Q2, FY26 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsey Better. Please go ahead, ma'am.

Operator: Good day, and thank you for standing by. Welcome to the Daktronics Q2, FY 26 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsey Vetter. Please go ahead, ma'am.

Speaker #1: After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one-one on your telephone.

Speaker #1: You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, Lindsay Vetter. Please go ahead, ma'am.

Speaker #2: Thank you, Michelle. Good morning, everyone. Thank you for participating in our second quarter earnings conference call. During today's presentation, we will make forward-looking statements reflecting our expectations and plans about future financial performance and future business opportunities.

Lindsey Better: Thank you, Michelle. Good morning, everyone. Thank you for participating in our Q2 earnings conference call. During today's presentation, we will make forward-looking statements reflecting our expectations and plans about future financial performance and future business opportunities. These forward-looking statements reflect the company's expectations or beliefs about future events based on information currently available to us. Of course, actual results could differ. Please refer to slide two of the presentation that accompanies today's call, our press release, and our SEC filings for information on risk factors, uncertainties, and expectations that could cause actual results to differ materially from these expectations. During this presentation, we will also refer to non-GAAP financial measures. You can find the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the appendix to the company presentation slides, which can be found on the Investor Relations page of our website at www.daktronics.com.

Speaker #2: These forward-looking statements reflect the company's expectations or beliefs about future events based on information currently available to us. Of course, actual results could differ.

Speaker #2: Please refer to slide two of the presentation that accompanies today's call, our press release, and our SEC filings for information on risk factors, uncertainties, and expectations that could cause actual results to differ materially from these expectations.

Speaker #2: During this presentation, we will also refer to non-GAAP financial measures. You can find the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the appendix to the company presentation slides.

Speaker #2: Which can be found on the investor relations page of our website at www.daktronics.com. Our earnings release for the second quarter of 2026, which was furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures.

Lindsey Better: Our earnings release for the 2026 Q2, which was furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as discussion of certain limitations when using non-GAAP financial measures, are included in the earnings release, which has been posted separately to the Investor Relations page of our website. I'll turn the call over to Brad Wiemann, Daktronics Interim President and CEO.

Our earnings release for the 2026 Q2, which was furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as discussion of certain limitations when using non-GAAP financial measures, are included in the earnings release, which has been posted separately to the Investor Relations page of our website. I'll turn the call over to Brad Wiemann, Daktronics Interim President and CEO.

Speaker #2: 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.

Speaker #2: Included in the earnings release, which has been posted separately to the investor relations page of our website. I'll turn the call over to Bradley Wiemann, Daktronics Interim President and CEO.

Speaker #3: Well, thank you, Lindsay. And good morning, everyone. Thank you for joining our second-quarter fiscal 2026 call. I'm joined on the call by Howard Atkins, board member and acting Chief Financial Officer.

Brad Wiemann: Well, thank you, Lindsey.

Lindsey Better: Thank you, Lindsey.

Brad Wiemann: Good morning, everyone. Thank you for joining our Q2 fiscal 2026 call. I'm joined on the call by Howard Atkins, Board Member and Acting Chief Financial Officer. We will review our fiscal 2026 Q2 results and accomplishments, and then take your questions. Turning to our slide presentation on slide three, here are the key messages from the Q2. We delivered another quarter of solid results, driving revenue and profit expansion through exemplary execution through the first half of the year. The Q2 of each year is typically marked by a heavy slate of project completions, and our team's performance with respect to manufacturing, installation, and service execution was excellent, with overall efficient project production and delivery supporting our progressively strong results.

Good morning, everyone. Thank you for joining our Q2 fiscal 2026 call. I'm joined on the call by Howard Atkins, Board Member and Acting Chief Financial Officer. We will review our fiscal 2026 Q2 results and accomplishments, and then take your questions. Turning to our slide presentation on slide three, here are the key messages from the Q2. We delivered another quarter of solid results, driving revenue and profit expansion through exemplary execution through the first half of the year. The Q2 of each year is typically marked by a heavy slate of project completions, and our team's performance with respect to manufacturing, installation, and service execution was excellent, with overall efficient project production and delivery supporting our progressively strong results.

Speaker #3: We will review our fiscal year 2026 second quarter results and accomplishments, and then take your questions. Turning to our slide presentation on slide three.

Speaker #3: Here are the key messages from the second quarter. We delivered another quarter of solid results, driving revenue and profit expansion through exemplary execution in the first half of the year.

Speaker #3: The second quarter of each year is typically marked by heavy slate of project completions and our team's performance with respect to manufacturing, installation, and service execution was excellent.

Speaker #3: With overall efficient project production and delivery supporting our progressively strong results. During the quarter, we completed a number of large-scale installations, including Miami Freedom Park in Major League Soccer.

Brad Wiemann: During the quarter, we completed a number of large-scale installations, including Miami Freedom Park in Major League Soccer, Baltimore Orioles Major League Baseball, Aramco Stadium in Saudi Arabia, Zayed Sports City in Abu Dhabi, Philadelphia International Airport, San Antonio Spurs, University at Buffalo football, and a nice digital signage project in Duke Energy Convention Center. Our sales and marketing team secured large orders in our live events segment related to three Major League Baseball stadiums and three Major League Soccer arenas for recent project wins. We are five for five on large-scale Major League Baseball projects for Fiscal Year 2026. We also captured strong growth in our transportation segment, with good uptake of airport and Intelligent Transportation System projects domestically, and our international segment also drove double-digit growth. These efforts together produced 12% fiscal Q2 order growth from last year's across all business segments.

During the quarter, we completed a number of large-scale installations, including Miami Freedom Park in Major League Soccer, Baltimore Orioles Major League Baseball, Aramco Stadium in Saudi Arabia, Zayed Sports City in Abu Dhabi, PHL International Airport, San Antonio Spurs, University at Buffalo Football, and a nice digital signage project in Duke Energy Convention Center. Our sales and marketing team secured large orders in our live events segment related to three Major League Baseball stadiums and three Major League Soccer Arenas for recent project wins. We are five for five on large-scale Major League Baseball projects for Fiscal Year 2026. We also captured strong growth in our transportation segment, with good uptake of airport and Intelligent Transportation System projects domestically, and our international segment also drove double-digit growth. These efforts together produced 12% fiscal Q2 order growth from last year's across all business segments.

Speaker #3: Baltimore Orioles, Major League Baseball; Ramco Stadium in Saudi Arabia; Zayed Sports City, Abu Dhabi; Philly Airport; San Antonio Spurs; University at Buffalo football.

Speaker #3: And a nice digital signage project in Cincinnati Convention Center. Our sales and marketing team secured large orders in our live event segment related to three Major League Baseball stadiums and three Major League Soccer arenas for recent project wins.

Speaker #3: We are five for five on large-scale Major League Baseball projects for fiscal year 2026. We also captured strong growth in our transportation segment. With good uptake of airport and intelligent transportation system projects domestically and our international segment also drove double-digit growth.

Speaker #3: These efforts, together, produced 12% fiscal second quarter order growth from last year's across all business segments. Through our effort, we delivered our third consecutive quarter of top-line growth.

Brad Wiemann: Through our effort, we delivered our third consecutive quarter of top-line growth. We continued to improve our profitability in the quarter through both value-based pricing bounded by guardrails and a sharp focus on operational and cost efficiencies. These efforts produced our Q2 of driving operating income over $20 million. While tariff expenses continue to be dynamic and impactful, we are maintaining flexibility and being responsive to this changing environment. We ended the quarter with a product backlog of $321 million, which grew 36% year over year, giving us a multi-quarter revenue runway for revenue growth. Turning to slide four, in our live events business, as I mentioned, we won six Major League Sports projects this past quarter, three Major League Baseball, and three Major League Soccer, driving 26.5% order growth from last year.

Through our effort, we delivered our third consecutive quarter of top-line growth. We continued to improve our profitability in the quarter through both value-based pricing bounded by guardrails and a sharp focus on operational and cost efficiencies. These efforts produced our Q2 of driving operating income over $20 million. While tariff expenses continue to be dynamic and impactful, we are maintaining flexibility and being responsive to this changing environment. We ended the quarter with a product backlog of $321 million, which grew 36% year over year, giving us a multi-quarter revenue runway for revenue growth. Turning to slide four, in our live events business, as I mentioned, we won Six Major League Sports projects this past quarter, three Major League Baseball, and three Major League Soccer, driving 26.5% order growth from last year.

Speaker #3: We continue to improve our profitability in the quarter through both value-based pricing, bounded by guardrails, and a sharp focus on operational and cost efficiencies.

Speaker #3: These efforts produced our second quarter of driving operating income over $20 million. While tariff expenses continue to be dynamic and impactful, we are maintaining flexibility to be responsive to this changing environment.

Speaker #3: We ended the quarter with product backlog of 321 million dollars, which grew 36% year over year. Giving us a multi-quarter revenue runway for revenue growth.

Speaker #3: Turning to slide four. In our live events business, as I mentioned, we won six Major League Sports projects this past quarter. Three Major League Baseball and three Major League Soccer driving 26 and a half percent order growth from last year.

Speaker #3: As I mentioned, we are five for five on large Major League Baseball projects in fiscal year 2026. Additionally, we won several other stadium and arena display enhancements as customers continue to expand their digital display footprint throughout the venue.

Brad Wiemann: As I mentioned, we are five for five on large Major League Baseball projects in fiscal year 2026. Additionally, we won several other stadium and arena display enhancements as customers continue to expand their digital display footprint throughout the venue. We continue to enhance our product and service offerings to align with customer needs and desires, such as our narrow pixel pitch product lines, advanced control system capabilities to engage fans, and improved seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. Pictured here is CHI Health in Omaha, Nebraska. In our commercial business, growth in our on-premise advertising business remained strong and up double-digit year over year after a strong performance in Q1 as customers continue to successfully transition to next-generation fuel price products, which are short-term in nature and offer quick deliveries and feature-rich enhancements.

As I mentioned, we are five for five on large Major League Baseball projects in fiscal year 2026. Additionally, we won several other stadium and arena display enhancements as customers continue to expand their digital display footprint throughout the venue. We continue to enhance our product and service offerings to align with customer needs and desires, such as our narrow pixel pitch product lines, advanced control system capabilities to engage fans, and improved seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. Pictured here is CHI Health in Omaha, Nebraska. In our commercial business, growth in our on-premise advertising business remained strong and up double-digit year over year after a strong performance in Q1 as customers continue to successfully transition to next-generation fuel price products, which are short-term in nature and offer quick deliveries and feature-rich enhancements.

Speaker #3: We continue to enhance our product and service offerings to align with customer needs and desires, such as our narrow pixel pitch product lines, advanced control system capabilities to engage fans, and improved seamless control and management of display content from anywhere.

Speaker #3: Giving venue operators greater flexibility and control over their digital assets. Pictured here is CHI Health in Omaha, Nebraska. In our commercial business, growth in our on-premise advertising business remains strong and up digital double-digit year over year.

Speaker #3: After a strong performance in the first quarter, as customers continue to successfully transition to next-generation fuel price products. Which are short-term in nature and offer quick deliveries and feature-rich enhancements.

Speaker #3: In our out-of-home business, our pipeline of opportunities is expanding as optimism and sentiment continue to rise with independent billboard operators. As we further develop their perception of our value proposition through recognition of our brand strength, image quality, reliability, service responsiveness, and reputation for innovation, we are excited about the release of our new billboard product offerings.

Brad Wiemann: In our out-of-home business, our pipeline of opportunities is expanding as optimism and sentiment continue to rise with independent billboard operators as we further develop their perception of our value proposition through recognition of our brand strength, image quality, reliability, service responsiveness, and reputation for innovation with the release of our new billboard product offerings. The outdoor spectaculars projects in city centers continue to be highly competitive and variable in available projects. However, our indoor spectacular projects, sold through AV integrator channels, are growing through narrow pixel pitch product line introductions with streamlined tools and services. We are seeing growth in the government and military space, as well as out-of-home advertising in transportation centers. Orders in this segment decreased 5% year over year, primarily driven by fewer large projects awarded in the outdoor spectacular business during the quarter. Pictured here is Park Outdoors.

In our out-of-home business, our pipeline of opportunities is expanding as optimism and sentiment continue to rise with independent billboard operators as we further develop their perception of our value proposition through recognition of our brand strength, image quality, reliability, service responsiveness, and reputation for innovation with the release of our new billboard product offerings. The outdoor spectaculars projects in city centers continue to be highly competitive and variable in available projects. However, our indoor spectacular projects, sold through AV integrator channels, are growing through narrow pixel pitch product line introductions with streamlined tools and services. We are seeing growth in the government and military space, as well as out-of-home advertising in transportation centers. Orders in this segment decreased 5% year over year, primarily driven by fewer large projects awarded in the outdoor spectacular business during the quarter. Pictured here is Park Outdoors.

Speaker #3: The outdoor spectaculars projects and city centers continue to be highly competitive and variable in available projects. However, our indoor spectacular projects sold through AV integrator channels are growing through narrow pixel pitch product line introductions, with streamlined tools and services.

Speaker #3: We are seeing growth in the government and military space, as well as out-of-home advertising in transportation centers. Orders in this segment decreased 5% year over year primarily driven by fewer large projects awarded in the outdoor spectacular business during the quarter.

Speaker #3: Pictured here is Park Outdoors. This is their 50th install of a Daktronics digital billboard in Syracuse, New York. Transportation business orders grew 15% from last year, driven by increased demand in our intelligent transportation systems and aviation.

Brad Wiemann: This is their 50th install of a Daktronics digital billboard in Syracuse, New York. Transportation business orders grew 15% from last year, driven by increased demand in our intelligent transportation systems and aviation. Along with strong demand for full matrix parking solutions, we were awarded a five-year procurement contract from the Utah Department of Transportation for intelligent transportation message displays. Through focused marketing and partner network growth, we have also improved our brand position for indoor solutions, leading to quarter-over-quarter opportunity growth. Pictured here is Spokane International Airport parking application display. This is a nice combination of our strengths in roadway displays, airports, and parking solutions. Our international business, which serves all the end markets of our domestic segments served outside of North America, is developing well as our efforts to realign our focus on key geographies over the past several quarters are paying off.

This is their 50th install of a Daktronics digital billboard in Syracuse, New York. Transportation business orders grew 15% from last year, driven by increased demand in our intelligent transportation systems and aviation. Along with strong demand for full matrix parking solutions, we were awarded a five-year procurement contract from the Utah Department of Transportation for Intelligent Transportation message displays. Through focused marketing and partner network growth, we have also improved our brand position for indoor solutions, leading to quarter-over-quarter opportunity growth. Pictured here is Spokane International Airport parking application display. This is a nice combination of our strengths in roadway displays, airports, and parking solutions. Our international business, which serves all the end markets of our domestic segments served outside of North America, is developing well as our efforts to realign our focus on key geographies over the past several quarters are paying off.

Speaker #3: Along with strong demand for full matrix parking solutions, we were awarded a five-year procurement contract from the Utah Department of Transportation for intelligent transportation message displays.

Speaker #3: Through focused marketing and partner network growth, we have also improved our brand position for indoor solutions, leading to quarter-over-quarter opportunity growth. Pictured here is Spokane International Airport's parking application display.

Speaker #3: This is a nice combination of our strengths in roadways, display roadway displays, airports, and parking solutions. Our international business, which serves all the end markets of our domestic segments, served outside of North America, is developing well as our efforts to realign our focus on key geographies over the past several quarters are paying off.

Speaker #3: Second quarter orders in this segment increased 23.6% from last year, with strong demand in the Middle East and European regions, from advertising stadium and transportation customers.

Brad Wiemann: Q2 orders in this segment increased 23.6% from last year, with strong demand in the Middle East and European regions from advertising, stadium, and transportation customers. We are also seeing strong uptake of our indoor solutions across multiple markets, especially government entities, through growing AV integrator channel partners. Pictured here is a large digital billboard installed at The Metropolitan in Dubai in partnership with Media 24/7. In our high school park and recreation business, after a record Q1, our Q2 orders were comparable with orders in the Q2 of last year. We have expanded our presence among the 30-some 1,000 high schools in the US and continue to win projects by leveraging our strong value propositions and market differentiators. We expect continued strong uptake of our leading solutions and adoption of professional services, particularly in curriculum development and sports marketing going forward.

Second quarter orders in this segment increased 23.6% from last year, with strong demand in the Middle East and European regions from advertising, stadium, and transportation customers. We are also seeing strong uptake of our indoor solutions across multiple markets, especially government entities, through growing AV integrator channel partners. Pictured here is a large digital billboard installed at The Metropolitan in Dubai in partnership with Media 24/7. In our high school park and recreation business, after a record first quarter, our second quarter orders were comparable with orders in the second quarter of last year. We have expanded our presence among the 30-some 1,000 high schools in the US and continue to win projects by leveraging our strong value propositions and market differentiators. We expect continued strong uptake of our leading solutions and adoption of professional services, particularly in curriculum development and sports marketing going forward.

Speaker #3: We are also seeing strong uptake of our indoor solutions across multiple markets, especially government entities, through growing AV integrator channel partners. Pictured here is a large digital billboard installed at the Metropolitan in Dubai.

Speaker #3: In partnership with Media, 247. In our high school park and recreation business, after a record first quarter, our second quarter orders were comparable with orders in the second quarter of last year.

Speaker #3: We have expanded our presence among the 30-some thousand high schools in the US and continue to win projects by leveraging our strong value propositions and market differentiators.

Speaker #3: We expect continued strong uptake of our leading solutions and adoption of professional services particularly in curriculum development and sports marketing going forward. In the picture here, we have Dak Prescott.

Brad Wiemann: In the picture here, we have Dak Prescott being recognized for his generous contributions to his high school alma mater, Haughton High, Haughton, Louisiana, part of which included a Daktronics video system. Turning to slide five, we announced this morning that we are enhancing our global manufacturing footprint with the opening of a facility in Saltillo, Mexico, with a target for production operation in late April 2026. This location is strategic in that it offers a broadened network, increasing the agility of our global production capacity, provides opportunity for growth in line with our growth projections, favorable trading relationships with the United States, and trading relationships with key supplier countries. Overall, the new facility will complement our existing footprint and offer optionality as we optimize production going forward. Moving to slide six, our commitment to innovation continues to drive market differentiation and value for our customers.

In the picture here, we have Dak Prescott being recognized for his generous contributions to his high school alma mater, Haughton High, Haughton, Louisiana, part of which included a Daktronics video system. Turning to slide five, we announced this morning that we are enhancing our global manufacturing footprint with the opening of a facility in Saltillo, Mexico, with a target for production operation in late April 2026. This location is strategic in that it offers a broadened network, increasing the agility of our global production capacity, provides opportunity for growth in line with our growth projections, favorable trading relationships with the United States, and trading relationships with key supplier countries. Overall, the new facility will complement our existing footprint and offer optionality as we optimize production going forward. Moving to slide six, our commitment to innovation continues to drive market differentiation and value for our customers.

Speaker #3: Being recognized for his generous contributions to his high school alma mater, Haughton High, Haughton, Louisiana. Part of which included a Daktronics video system. Turning to slide five.

Speaker #3: We announced this morning that we are enhancing our global manufacturing footprint with the opening of a facility in Saltillo, o, Mexico. With a target for production operation in late April 2026.

Speaker #3: This location is strategic in that it offers a broadened network, increasing the agility of our global production capacity. Provides opportunity for growth in line with our growth projections.

Speaker #3: Favorable trading relationship with the United States, and trading relationships with key supplier countries. Overall, the new facility will complement our existing footprint and offer optionality as we optimize production going forward.

Speaker #3: Moving to slide six. Our commitment to innovation continues to drive market differentiation and value for our customers. In the second quarter, we've made significant progress in the following areas.

Brad Wiemann: In the Q2, we've made significant progress in the following areas, delivering solutions that address evolving market demands. First, we expanded our narrow pixel pitch offering in the US market with an additional 2.5mm chip-on-board model. This new model is more robust and lighter weight than previous product offerings and delivers superior image quality at close viewing distances, making them ideal for high-end retail, corporate environments, and venue applications where visual excellence is non-negotiable. Second, we introduced our new billboard product series, a next-generation entry-level digital billboard designed and cost-optimized for the out-of-home advertising market. This product brings enhanced performance and operational efficiency to outdoor applications, expanding our competitive positioning in the billboard space. Third, sports venues are demanding easy-to-use integrated and mobile technology solutions. Our new AllSport Lite mobile scoring app delivers a modern approach to entry-level scoreboard control.

In the second quarter, we've made significant progress in the following areas, delivering solutions that address evolving market demands. First, we expanded our narrow pixel pitch offering in the US market with an additional 2.5mm chip-on-board model. This new model is more robust and lighter weight than previous product offerings and delivers superior image quality at close viewing distances, making them ideal for high-end retail, corporate environments, and venue applications where visual excellence is non-negotiable. Second, we introduced our new billboard product series, a next-generation entry-level digital billboard designed and cost-optimized for the out-of-home advertising market. This product brings enhanced performance and operational efficiency to outdoor applications, expanding our competitive positioning in the billboard space. Third, sports venues are demanding easy-to-use integrated and mobile technology solutions. Our new All Sport Lite mobile scoring app delivers a modern approach to entry-level scoreboard control.

Speaker #3: Delivering solutions that address evolving market demands. First, we expanded our narrow pixel pitch offering in the U.S. market with an additional two-and-a-half-millimeter chip-on-board model.

Speaker #3: This new model is more robust and lighter weight than previous product offerings. And delivers superior image quality at close viewing distances, making them ideal for high-end retail, corporate environments, and venue applications where visual excellence is non-negotiable.

Speaker #3: Second, we introduced our new billboard product series, a next-generation entry-level digital billboard designed and cost-optimized for the out-of-home advertising market. This product brings enhanced performance and operational efficiency to outdoor applications, expanding our competitive positioning in the billboard space.

Speaker #3: Third, sports venues are demanding easy-to-use integrated and mobile technology solutions. Our new all-sport light mobile scoring app delivers a modern approach to entry-level scoreboard control.

Speaker #3: Designed for youth sports, practices, and community events, it makes scoring simple and intuitive for everyone, from coaches to volunteers. Last, we launched our Venus Control Suite Live.

Brad Wiemann: Designed for youth sports practices and community events, it makes scoring simple and intuitive for everyone, from coaches to volunteers. Last, we launched our Venus Control Suite Live, our cloud-hosted content management system purpose-built for live event venues. This platform enables seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. For the remainder of fiscal 2026, we have three significant product launches planned: a next-generation LED street furniture featuring our enhanced LED technology that targets the premium out-of-home advertising market and delivers improved visual performance and operational capabilities for urban environments. We are also developing a next-generation advanced indoor video display that incorporates customer and market feedback to offer improved visual experience, improved robustness, and greater cost efficiency.

Designed for youth sports practices and community events, it makes scoring simple and intuitive for everyone, from coaches to volunteers. Last, we launched our Venus Control Suite Live, our cloud-hosted content management system purpose-built for live event venues. This platform enables seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. For the remainder of fiscal 2026, we have three significant product launches planned: a next-generation LED street furniture featuring our enhanced LED technology that targets the premium out-of-home advertising market and delivers improved visual performance and operational capabilities for urban environments. We are also developing a next-generation advanced indoor video display that incorporates customer and market feedback to offer improved visual experience, improved robustness, and greater cost efficiency.

Speaker #3: Our cloud-hosted content management system purpose-built for live event venues. This platform enables seamless control and management of display content from anywhere. Giving venue operators greater flexibility and control over their digital assets.

Speaker #3: For the remainder of fiscal 2026, we have three significant product launches planned. A next-generation LED street furniture, featuring our enhanced LED technology that targets the premium out-of-home advertising market and delivers improved visual performance and operational capabilities for urban environments.

Speaker #3: We are also developing a next-generation advanced indoor video display that incorporates customer and market feedback to offer improved visual experience, enhance robustness, and provide greater cost efficiency.

Speaker #3: We are also preparing for the launch of our specialized large-digit field price system, which expands our product line offering for high-rise signage for long-distance viewability.

Brad Wiemann: We are also preparing for the launch of our specialized large-digit fuel price system, which expands our product line offering for high-rise signage for long-distance viewability. The photos shown here are an example of our indoor pixel pitch at a Major League Soccer stadium, Sporting Kansas City's Children's Mercy Park, an 18,000-seat stadium designed specifically for soccer, and below that, a shot of our AllSport Lite mobile scoring app, which makes it easy and intuitive to run a Daktronics scoreboard with just a mobile device. Our progress down the innovation roadmap is on schedule. Turning to slide seven, the implementation of our transformation plan remains on track and continues to deliver tangible benefits to the business and our reported results. Here is an update for the Q2 on initiatives in progress.

We are also preparing for the launch of our specialized large-digit fuel price system, which expands our product line offering for high-rise signage for long-distance viewability. The photos shown here are an example of our indoor pixel pitch at a Major League Soccer Stadium, Sporting Kansas City's Children's Mercy Park, an 18,000-seat stadium designed specifically for soccer, and below that, a shot of our All Sport Lite mobile scoring app, which makes it easy and intuitive to run a Daktronics scoreboard with just a mobile device. Our progress down the innovation roadmap is on schedule. Turning to slide seven, the implementation of our transformation plan remains on track and continues to deliver tangible benefits to the business and our reported results. Here is an update for the Q2 on initiatives in progress.

Speaker #3: The photos shown here are an example of our indoor pixel pitch at a Major League Soccer stadium. Sporting Kansas City's children's Mercy Park, an 18,000-seat stadium, designed specifically for soccer, and below that, a shot of our all-sport light mobile scoring app, which makes it easy and intuitive to run a Daktronics scoreboard with just a mobile device.

Speaker #3: Our progress down the innovation roadmap is on schedule. Turning to slide seven. The implementation of our transformation plan remains on track and continues to deliver tangible benefits to the business and our reported results.

Speaker #3: Here is an update for the second quarter on initiatives and progress. The strategic price adjustments we have implemented align with our value-selling approach.

Brad Wiemann: The strategic price adjustments we have implemented align with our value selling approach, allowing us to maintain our premium positioning while protecting margin in the current challenging environment. This initiative is on track, and results to date continue to show customer acceptance of our value propositions. The software-as-a-service product trial was launched successfully. This initiative was designed to help identify priority areas for a broader subscription management strategy that we continue to expand upon and will further develop over the next several quarters. The software-as-a-service initiative augments how we serve the market, developing recurring revenue subscription models and simplify customer engagement. Our disciplined approach of prioritizing high-growth international geographies and market segments is concentrating our resources where we see the strongest demand and best returns. Our digital transformation projects are improving our process efficiency, modernizing our technologies, and driving data insights that improve decision-making and create value for our customers.

The strategic price adjustments we have implemented align with our value selling approach, allowing us to maintain our premium positioning while protecting margin in the current challenging environment. This initiative is on track, and results to date continue to show customer acceptance of our value propositions. The software-as-a-service product trial was launched successfully. This initiative was designed to help identify priority areas for a broader subscription management strategy that we continue to expand upon and will further develop over the next several quarters. The software-as-a-service initiative augments how we serve the market, developing recurring revenue subscription models and simplify customer engagement. Our disciplined approach of prioritizing high-growth international geographies and market segments is concentrating our resources where we see the strongest demand and best returns. Our digital transformation projects are improving our process efficiency, modernizing our technologies, and driving data insights that improve decision-making and create value for our customers.

Speaker #3: Allowing us to maintain our premium positioning while protecting margin in the current challenging environment. This initiative is on track and results to date continue to show customer acceptance of our value propositions.

Speaker #3: The software as a service product trial was launched successfully. This initiative was designed to help identify priority areas for a broader subscription management strategy that we continue to expand upon and will further develop over the next several quarters.

Speaker #3: The software as a service initiative augments how we serve the market, developing recurring revenue subscription models and simplify customer engagement. Our disciplined approach of prioritizing high growth international geographies and market segments has concentrated our resources where we see the strongest demand and best returns.

Speaker #3: Our digital transformation projects are improving our process efficiency, modernizing our technologies, driving data insights that improve decision-making, and create value for our customers. We are overhauling our quoting platform to make it easier and more efficient for our customers to do business with us.

Brad Wiemann: We are overhauling our quoting platform to make it easier and more efficient for our customers to do business with us. Additionally, as part of our digital transformation, we are building out our AI experimentation roadmap and governance, upgrading our ERP system, and making service platform enhancements. As part of our strategic planning process, we are proactively aligning our operations and product designs with the evolution we anticipate in the underlying technologies that drive customer experience and demand.

We are overhauling our quoting platform to make it easier and more efficient for our customers to do business with us. Additionally, as part of our digital transformation, we are building out our AI experimentation roadmap and governance, upgrading our ERP system, and making service platform enhancements. As part of our strategic planning process, we are proactively aligning our operations and product designs with the evolution we anticipate in the underlying technologies that drive customer experience and demand.

Speaker #3: Additionally, as part of our digital transformation, we are building out our AI experimentation roadmap and governance, upgrading our ERP system, and making service platform enhancements.

Speaker #3: And as part of our strategic planning process, we are proactively aligning our operations and product designs with the evolution we anticipate in the underlying technologies that drive customer experience and demand.

Speaker #3: Actions that we have completed include the following drivers of cost benefits and customer experience: achieving faster inventory turnover and improved inventory efficiency. We are enhancing our customer experience with our modernized service system that was launched in May.

Brad Wiemann: Actions that we have completed include the following drivers of cost benefits and customer experience: achieving faster inventory turnover and improved inventory efficiency, enhancing our customer experience with our modernized service system launched in May, deploying AI-guided troubleshooting tools with our technical services team to speed resolution of customer issues, improving our input costs through leverage of our purchasing power, reducing product complexity and time to market, and aggressively renegotiating key supply contracts to secure better terms and pricing. Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

Actions that we have completed include the following drivers of cost benefits and customer experience: achieving faster inventory turnover and improved inventory efficiency, enhancing our customer experience with our modernized service system launched in May, deploying AI-guided troubleshooting tools with our technical services team to speed resolution of customer issues, improving our input costs through leverage of our purchasing power, reducing product complexity and time to market, and aggressively renegotiating key supply contracts to secure better terms and pricing. Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

Speaker #3: Deploying AI-guided troubleshooting tools with our technical services team to speed resolution of customer issues. Improving our input costs through leverage of our purchasing power.

Speaker #3: Reducing product complexity and time to market, and aggressively renegotiating key supply contracts to secure better terms and pricing. Now I'll turn the call over to Howard Atkins, our Acting Chief Financial Officer, to review our financials.

Speaker #3: Howard?

Speaker #2: Thank you, Brad,

Howard Atkins: Thank you, Brad, and good day, everyone. Thank you for your interest in Daktronics. The Daktronics team produced another solid Q2 in the Q2 with double-digit year-over-year growth in new orders, in sales revenue, and in operating income. This slide compares the Q2 with both last year's Q2 for the year-over-year comparison and also the Q1 in fiscal 2026 for the sequential Q results. Let's start with the bottom line, net income. Daktronics Q2 2026 net income after tax was $17.5 million or $0.35 per fully diluted share. Last year's Q2 net income of $21.4 million included a $10.3 million fair value adjustment on the convertible note that has since been converted, and it also contained $2.8 million of consulting-related expenses associated with the business transformation initiatives. Adjusted net income a year ago, therefore, was $13.9 million after removing these non-recurring expenses and non-cash benefit.

Speaker #2: and good day, everyone. Thank you for your interest in Daktronics. The Daktronics team produced another solid quarter in the second quarter with double-digit year-over-year growth in new orders, in sales revenue, and in operating income.

Speaker #2: This slide compares the second quarter with both last year's second quarter for the year-over-year comparison and also the first quarter in fiscal 2026 for the sequential quarter results.

Speaker #2: Let's start with the bottom line net income. Daktronics' second quarter 2026 net income after tax was $17.5 million, or 35 cents per fully diluted share.

Speaker #2: Last year's second quarter net income of $21.4 million included a 10.3 million dollar fair value adjustment on the convertible note that has since been converted.

Speaker #2: And it also contained $2.8 million of consulting-related expenses associated with the business transformation initiatives. Adjusted net income a year ago, therefore, was $13.9 million, after removing these non-recurring expenses and non-cash benefit.

Speaker #2: So, our second quarter 2026 net income rose 25.4% on a fully adjusted basis. Our effective tax rate in the second quarter was 20%, compared to an average statutory tax rate of 25%.

Howard Atkins: Our Q2 2026 net income rose 25.4% on a fully adjusted basis. Our effective tax rate in the Q2 was 20% compared to an average statutory tax rate of 25%. Since we've had solid earnings so far this year, we're able to start this year to take advantage of the new tax laws that permit accelerated depreciation of R&D and other expenses. On a pre-tax basis, operating income for the Q2 was $21.6 million compared with $15.8 million earned in Q2 of 2025, which, if you remember, included $3.3 million of transformation-related consulting expenses. Our bottom line results were driven by revenue growth at the top end of our 7% to 10% target range and our capture of the pricing benefit, and structural cost savings from the implementation of our business transformation initiatives.

Our Q2 2026 net income rose 25.4% on a fully adjusted basis. Our effective tax rate in the Q2 was 20% compared to an average statutory tax rate of 25%. Since we've had solid earnings so far this year, we're able to start this year to take advantage of the new tax laws that permit accelerated depreciation of R&D and other expenses. On a pre-tax basis, operating income for the Q2 was $21.6 million compared with $15.8 million earned in Q2 of 2025, which, if you remember, included $3.3 million of transformation-related consulting expenses. Our bottom line results were driven by revenue growth at the top end of our 7% to 10% target range and our capture of the pricing benefit, and structural cost savings from the implementation of our business transformation initiatives.

Speaker #2: Since we've had solid earnings so far this year, we're able to starting this year to take advantage of the new tax laws that permit accelerated depreciation of R&D and other expenses.

Speaker #2: On a pre-tax basis, operating income for the quarter was $21.6 million compared with $15.8 million earned in the second quarter of 2025, which, if you remember, included $3.3 million of transformation-related consulting expenses.

Speaker #2: Our bottom line results were driven by revenue growth at the top end about 7 to 10% target range, and our capture of the pricing benefit and structural cost savings from the implementation of our business transformation initiatives.

Speaker #2: Our gross profit margin was 27% in the second quarter, and the operating margin was 9.4%, both improved from last year, with the operating margin within striking distance of our target 10% to 12.5% range.

Howard Atkins: Our gross profit margin was 27% in Q2, and operating margin was 9.4%, both improved from last year, and operating margin within striking distance of our target 10 to 12.5% range. These key margins are being driven by several factors. First, the impact of strong order growth, the backlog revenue tailwind we have generated now for three consecutive quarters, and our efficient order-to-revenue conversion. Second, the benefit of fixed-cost operating leverage as total revenue grows relative to fixed costs. Third, of course, we've talked about value-based pricing initiatives, which are now built into our product and project pricing across the board. And finally, operating efficiencies, as Brad mentioned previously, up and down the supply chain from the business transformation work started late last year and other initiatives to reduce structural costs.

Our gross profit margin was 27% in Q2, and operating margin was 9.4%, both improved from last year, and operating margin within striking distance of our target 10 to 12.5% range. These key margins are being driven by several factors. First, the impact of strong order growth, the backlog revenue tailwind we have generated now for three consecutive quarters, and our efficient order-to-revenue conversion. Second, the benefit of fixed-cost operating leverage as total revenue grows relative to fixed costs. Third, of course, we've talked about value-based pricing initiatives, which are now built into our product and project pricing across the board. And finally, operating efficiencies, as Brad mentioned previously, up and down the supply chain from the business transformation work started late last year and other initiatives to reduce structural costs.

Speaker #2: These key margins are being driven by several factors. First, the impact of strong order growth, the backlog revenue tailwind we have generated now for three consecutive quarters, and our efficient order-to-revenue conversion.

Speaker #2: Second, the benefit of fixed-cost operating leverage as total revenue grows relative to fixed costs. Third, of course, we've talked about value-based pricing initiatives, which are now built into our product and project pricing across the board.

Speaker #2: And finally, operating efficiencies as Brad mentioned previously, up and down the supply chain from the business transformation work started late last year and other initiatives to reduce structural costs.

Speaker #2: These benefits, of course, were all offset in part by the tariff expense we have this year that we didn't have last year. This year, we incurred $8.8 million of tariff expense gross in the second quarter compared with $1.5 million of tariff expense in the second quarter of fiscal 25.

Howard Atkins: These benefits, of course, were offset in part by the tariff expense we have this year that we didn't have last year. This year, we incurred $8.8 million of tariff expense gross in the Q2 compared with $1.5 million of tariff expense in the Q2 of fiscal 2025. Let me now turn to slide nine, which shows you our business segment revenue. One of our key objectives has been to diversify our revenue sources, making us less dependent on any one business segment and generating more organically recurring total income. This table shows you the contributions to our revenue growth from each of our business segments for the Q2 of this year and last year, and sequentially from the Q1 of fiscal 2026. It also shows you, all the way on the right, the gross profit margin earned by each business segment in the Q2.

These benefits, of course, were offset in part by the tariff expense we have this year that we didn't have last year. This year, we incurred $8.8 million of tariff expense gross in the Q2 compared with $1.5 million of tariff expense in the Q2 of fiscal 25. Let me now turn to slide nine, which shows you our business segment revenue. One of our key objectives has been to diversify our revenue sources, making us less dependent on any one business segment and generating more organically recurring total income. This table shows you the contributions to our revenue growth from each of our business segments for the Q2 of this year and last year, and sequentially from the Q1 of fiscal 2026. It also shows you, all the way on the right, the gross profit margin earned by each business segment in the Q2.

Speaker #2: Let me now turn the slide nine, which shows you our business segment revenue. One of our key objectives has been to diversify our revenue sources, making us less dependent on any one business segment and generating more organically recurring total income.

Speaker #2: This table shows you the contributions to our revenue growth from each of our business segments for the second quarter of this year, and last year, and sequentially from the first quarter of fiscal 26.

Speaker #2: It also shows you all the way on the right the gross profit margin earned by each business segment in the second quarter. There are a number of factors, of course, which drive revenue in each of the business segments.

Howard Atkins: There are a number of factors, of course, which drive revenue in each of the business segments in various ways, including, among other things, order growth, which, as you know, has been very strong, our value-based pricing initiatives, increases in the size and breadth of our sales and marketing teams, our ongoing focus on control systems, servicing, and customer experience efforts, and, of course, as Brad mentioned earlier, our leading edge in product innovation. We've had solid growth in either or both of year-over-year and sequential revenue, as you can see in this table. The table also shows you how our mixes changed from the Q1 to the Q2. If you remember, we had a higher concentration of HSPR revenue in the Q1 and a higher margin as we go forward. As you'll see in a second, we're going to have a little bit greater concentration in live events.

There are a number of factors, of course, which drive revenue in each of the business segments in various ways, including, among other things, order growth, which, as you know, has been very strong, our value-based pricing initiatives, increases in the size and breadth of our sales and marketing teams, our ongoing focus on control systems, servicing, and customer experience efforts, and, of course, as Brad mentioned earlier, our leading edge in product innovation. We've had solid growth in either or both of year-over-year and sequential revenue, as you can see in this table. The table also shows you how our mixes changed from the Q1 to the Q2. If you remember, we had a higher concentration of HSPR revenue in the Q1 and a higher margin as we go forward. As you'll see in a second, we're going to have a little bit greater concentration in live events.

Speaker #2: In various ways, including among other things, order growth, which, as you know, has been very strong. Our value-based pricing initiatives, increasing in the size and breadth of our sales and marketing teams, our ongoing focus on control systems, servicing, and customer experience efforts, and of course, as Brad mentioned earlier, our leading edge in product innovation.

Speaker #2: We've had solid growth in either or both of the year-over-year and sequential revenue, as you can see in this table. The table also shows you as our mixes changed from the first quarter to the second quarter, if you remember, we had higher concentration of HSPR revenue in the first quarter and a higher margin.

Speaker #2: As we go forward, as you'll see in a moment, we're going to have a little bit greater concentration in live events. Let me now turn to the segment product backlog experience.

Howard Atkins: Let me now turn to the segment product backlog experience. In terms of order-to-revenue conversion, our product backlog stood at $321 million at mid-year, up nearly 36% from a year ago. Now, our product order-to-revenue conversion is a factor of a number of variables, including, for example, mix, as our mix changes. The product backlog can either take longer or shorter to come through. I just reported that our order mix in the Q2, for example, was live events, was about 35%, 36% of our order mix. But as you can see on this chart, live events currently is about half of our backlog mix. What that means is that as it's weighted towards live events, some of the major products that we've announced and Brad talked about earlier will be expected to start converting through next spring.

Let me now turn to the segment product backlog experience. In terms of order-to-revenue conversion, our product backlog stood at $321 million at mid-year, up nearly 36% from a year ago. Now, our product order-to-revenue conversion is a factor of a number of variables, including, for example, mix, as our mix changes. The product backlog can either take longer or shorter to come through. I just reported that our order mix in the Q2, for example, was live events, was about 35%, 36% of our order mix. But as you can see on this chart, live events currently is about half of our backlog mix. What that means is that as it's weighted towards live events, some of the major products that we've announced and Brad talked about earlier will be expected to start converting through next spring.

Speaker #2: In terms of order-to-revenue conversion, our product backlog stood at 321 million dollars at mid-year, up nearly 36% from a year ago. Now, our product order-to-revenue conversion is a factor of a number of variables, including for example, mix as our mix changes the product backlog, can even take longer or shorter to come through.

Speaker #2: I just reported that our order mix in the second quarter for example was live events was about 35%, 36% of our order mix, but as you can see on this chart, live events will be currently is currently about half of our backlog mix.

Speaker #2: What that means is that as it's weighted towards live events, some of the major products will be that we've announced and Brad talked about earlier, will be expected to start converting through next spring.

Speaker #2: And converting that full amount of backlog will take some time, but also result in more predictable growth and better revenue recurrence, giving us a multi-quarter revenue runway.

Howard Atkins: Converting that full amount of backlog will take some time but also result in more predictable growth and better revenue recurrence, giving us a multi-quarter revenue runway. Another factor here is timing. As we've previously disclosed, the Tennessee Titans order, for example, that we booked in late last year will only start up until after the Q3 that we're in right now. So when orders start actually has an impact on this revenue conversion. The third factor I'd point out would be holidays as a technical matter. In the Q3, as you may remember, our Q3 revenue and income patterns typically are seasonally low. We have, as you know, in the Q3, the Thanksgiving holiday, the Christmas holiday, New Year's, all of which reduce the time in which orders actually do get converted to revenue.

Converting that full amount of backlog will take some time but also result in more predictable growth and better revenue recurrence, giving us a multi-quarter revenue runway. Another factor here is timing. As we've previously disclosed, the Tennessee Titans order, for example, that we booked in late last year will only start up until after the Q3 that we're in right now. So when orders start actually has an impact on this revenue conversion. The third factor I'd point out would be holidays as a technical matter. In the Q3, as you may remember, our Q3 revenue and income patterns typically are seasonally low. We have, as you know, in the Q3, the Thanksgiving holiday, the Christmas holiday, New Year's, all of which reduce the time in which orders actually do get converted to revenue.

Speaker #2: Another factor here is timing. As we've previously disclosed, the Tennessee Titans order, for example, that we took booked in the late last year, will only start up in won't start up until after the third quarter that we're in right now.

Speaker #2: So when orders start actually has an impact on this revenue conversion. The third factor I'd point out would be holidays. As a technical matter, in the third quarter, as you may remember, our third quarter revenue and income patterns typically are seasonally low.

Speaker #2: We have, as you know, in the third quarter, the Thanksgiving holiday, the Christmas holiday, and New Year's, all of which reduce the time in which orders actually do get converted to revenue.

Speaker #2: So that's the principal reason why we have this typically slower third quarter. We now move to slide 11, which discusses our inventory efficiency. One of the key initiatives undertaken, as a result of our business transformation analysis late last calendar year, has been a program of increasing the efficiency of our inventory management.

Howard Atkins: That's the principal reason why we have this typically slower Q3. We now move to slide 11, which discusses our inventory efficiency. One of the key initiatives undertaken as a result of our business transformation analysis late last calendar year has been a program of increasing the efficiency of our inventory management. This was an early win idea, and the results have been very successful. This chart shows you our inventory-to-sales ratio over the past five quarters and indicates that as revenue has grown, we have successfully operated the company with leaner inventories. This has, in turn, improved our overall balance sheet strength, giving us a higher investable cash position, and has also helped contain tariff costs on excess inventory. Let me now turn to our balance sheet. Balance sheet strength has been a hallmark of the company and will remain a hallmark of the company going forward.

That's the principal reason why we have this typically slower Q3. We now move to slide 11, which discusses our inventory efficiency. One of the key initiatives undertaken as a result of our business transformation analysis late last calendar year has been a program of increasing the efficiency of our inventory management. This was an early win idea, and the results have been very successful. This chart shows you our inventory-to-sales ratio over the past five quarters and indicates that as revenue has grown, we have successfully operated the company with leaner inventories. This has, in turn, improved our overall balance sheet strength, giving us a higher investable cash position, and has also helped contain tariff costs on excess inventory. Let me now turn to our balance sheet. Balance sheet strength has been a hallmark of the company and will remain a hallmark of the company going forward.

Speaker #2: This was an early win idea, and the results have been very successful. This chart shows you our inventory-to-sales ratio over the past five quarters and indicates that as revenue has grown, we have successfully operated the company with leaner inventories.

Speaker #2: This has in turn improved our overall balance sheet strength, giving us a higher investable cash position, and has also helped contain tariff costs on excess inventory.

Speaker #2: Let me now turn to our balance sheet. Balance sheet strength has been a hallmark of the company and will remain a hallmark of the company going forward.

Speaker #2: We ended the second quarter with a net cash balance of $138.3 million, an increase of about 20% from the comparable quarter comparable year-end position of $115.5 million.

Howard Atkins: We ended the Q2 with a net cash balance of $138.3 million, an increase of about 20% from the comparable year-end position of $115.5 million. The increase in our cash position, of course, is a consequence of our strong earnings as well as our working capital management, as I previously disclosed. As of today, the company can repurchase up to $25.7 million worth of shares, including $5.7 million of previously authorized unused share repurchase capacity, plus an additional $20 million of share repurchase capacity just authorized by the board. We also announced in an 8-K that in late November, we have converted our commercial bank backup credit line from an asset-based facility to a cash flow facility, which reduces its cost and provides the company with additional financing flexibility if necessary.

We ended the Q2 with a net cash balance of $138.3 million, an increase of about 20% from the comparable year-end position of $115.5 million. The increase in our cash position, of course, is a consequence of our strong earnings as well as our working capital management, as I previously disclosed. As of today, the company can repurchase up to $25.7 million worth of shares, including $5.7 million of previously authorized unused share repurchase capacity, plus an additional $20 million of share repurchase capacity just authorized by the board. We also announced in an 8-K that in late November, we have converted our commercial bank backup credit line from an asset-based facility to a cash flow facility, which reduces its cost and provides the company with additional financing flexibility if necessary.

Speaker #2: The increase in our cash position, of course, is a consequence of our strong earnings, as well as our working capital management, as I previously disclosed.

Speaker #2: As of today, the company can be purchased up to $25.7 million worth of shares, including $5.7 million of previously authorized unused share repurchase capacity, plus an additional $20 million of share repurchase capacity just authorized by the board.

Speaker #2: The we also announced in the in an 8K that in late November in late November, we have converted our commercial bank backup credit line from an asset-based facility to a cash flow facility, which reduces its cost and provides the company with additional financing flexibility, if necessary.

Speaker #2: So all in all, as our cash balance has increased, the company is in terrific position to optimize its capital position and invest for high return for our stakeholders and particularly for our shareholders.

Howard Atkins: All in all, as our cash balances increase, the company is in a terrific position to optimize its capital position and invest for higher returns for our stakeholders and particularly for our shareholders. We have no borrowings, by the way, under our company's bank line of credit, and none are contemplated. Let me now summarize our financial position and give you some ideas about the outlook. Again, we delivered a solid Q2 of double-digit order revenue and income growth while maintaining stronger levels of operating profitability. With the help of improved sales tools, processes, and having more sales boots on the ground, we've built a strong backlog entering Q3 that gives us a good tailwind with a lot of capacity and potential revenue runway for the next few quarters and smoothing out our revenue generation over time. Our strengthened balance sheet offers us increased flexibility for capital optimization.

All in all, as our cash balances increase, the company is in a terrific position to optimize its capital position and invest for higher returns for our stakeholders and particularly for our shareholders. We have no borrowings, by the way, under our company's bank line of credit, and none are contemplated. Let me now summarize our financial position and give you some ideas about the outlook. Again, we delivered a solid Q2 of double-digit order revenue and income growth while maintaining stronger levels of operating profitability. With the help of improved sales tools, processes, and having more sales boots on the ground, we've built a strong backlog entering Q3 that gives us a good tailwind with a lot of capacity and potential revenue runway for the next few quarters and smoothing out our revenue generation over time. Our strengthened balance sheet offers us increased flexibility for capital optimization.

Speaker #2: We have no borrowings for, by the way, under our company's bank line of credit and none are contemplated. Let me now summarize our financial position and give you some ideas about the outlook.

Speaker #2: Again, we delivered a solid quarter of double-digit order revenue and income growth, while maintaining strong levels of operating profitability. With the help of improved sales tools and processes and having more sales boots on the ground, we've built a strong backlog entering Q3 that gives us a good tailwind with a lot of capacity and potential revenue runway for the next few quarters and smoothing out our revenue generation over time.

Speaker #2: Our strength in the balance sheet offers us increased flexibility for capital optimization looking ahead. The third quarter of our fiscal year, as I mentioned earlier, is typically seasonally slower, largely due to the fact, as I mentioned before, on the holidays.

Howard Atkins: Looking ahead, the Q3 of our fiscal years, as I mentioned earlier, are typically seasonally slower, largely due to the fact, as I mentioned before, on the holidays, that we continue to target year-over-year revenue growth. We continue to invest in innovative products and services to extend our technology leadership. Our focus on increasing the contribution that our services suite makes to consolidated revenue creates more recurring and less capital-intensive revenue streams, which is additive to our return on invested capital. Finally, we've again strengthened the balance sheet and have increased our share repurchase capacity to minimize dilution in shares and contribute to investor returns. We are planning an investor day in early April and will provide you with more specifics as they become available. Now I'll turn the call back to Brad. All right. Thank you, Howard. Moving to slide 14.

Looking ahead, the Q3 of our fiscal years, as I mentioned earlier, are typically seasonally slower, largely due to the fact, as I mentioned before, on the holidays, that we continue to target year-over-year revenue growth. We continue to invest in innovative products and services to extend our technology leadership. Our focus on increasing the contribution that our services suite makes to consolidated revenue creates more recurring and less capital-intensive revenue streams, which is additive to our return on invested capital. Finally, we've again strengthened the balance sheet and have increased our share repurchase capacity to minimize dilution in shares and contribute to investor returns. We are planning an investor day in early April and will provide you with more specifics as they become available. Now I'll turn the call back to Brad.

Speaker #2: Though we continue to target year-over-year revenue growth, we continue to invest in innovative products and services to extend our technology leadership. Our focus on increasing the contribution that our services suite makes to consolidated revenue creates more recurring and less capital-intensive revenue streams, which is additive to our return on invested capital.

Speaker #2: Finally, we've again strengthened the balance sheet and have increased our share repurchase capacity to minimize the evolution in shares and contribute to investor returns.

Speaker #2: We are planning and invest today in early April and will provide you with more specifics as they become available. Now I'll turn the call back to Brad.

Brad Wiemann: All right. Thank you, Howard. Moving to slide 14.

Speaker #2: All right. Thank you, Howard. Moving to slide 14. The forward-looking plan that we created three quarters ago was designed to materially improve our sustainable growth, market penetration, overall profitability, and return on invested capital that our business model delivers.

Howard Atkins: The forward-looking plan that we created three quarters ago was designed to materially improve our sustainable growth, market penetration, overall profitability, and return on invested capital that our business model delivers. To date, our efforts are successfully accruing margin benefits, and we are tracking overall toward our objectives of operating margins of 10% to 12%, operating in the top quartile, return on invested capital target of 17% to 20%, and achieving a compound annual growth rate of 7% to 10% by fiscal year 2028. Our plan is in place. We are executing on it. We have work to do, and our team is committed to its success. Going forward, we will continue to implement improved financial planning protocols and incentive compensation plans that better align compensation with shareholder value and with annual operating performance, enhancing our ability to drive business results and compensate accordingly.

Speaker #2: To date, our efforts are successfully accruing margin benefits, and we are tracking overall toward our objectives of operating margins of 10% to 12%, operating in the top quartile return on invested capital target of 17% to 20%, and achieving a compound annual growth rate of 7% to 10% by fiscal year 2028.

Speaker #2: Our plan is in place. We are executing on it. We have work to do, and our team is committed to its success. Going forward, we will continue to implement improved financial planning protocols, and incentive compensation plans that better align compensation with shareholder value and with annual operating performance.

Speaker #2: Enhancing our ability to drive business results and compensate accordingly. Turning to slide 15, as we look toward the second half, our product backlog, as Howard mentioned, is 321 million, up 36 percent year-over-year.

Howard Atkins: Turning to slide 15, as we look toward the second half, our product backlog, as Howard mentioned, is $321 million, up 36% year-over-year, capturing demand and driving multi-quarter revenue tailwind. We have demonstrated our increased efficiency in revenue conversion and successful inventory, supply chain, manufacturing, and cost management. Our pipeline of market opportunities is supporting our growth objectives. We are adding manufacturing capacity in Mexico and in Ireland to increase our flexibility and complement the 80% of product fulfillment currently completed in the US. We are staying responsive and flexible in a dynamic environment. We are focused on differentiated industry-leading product introductions and supporting growth through high-return product research and development. We are executing our transformation plan with its benefits demonstrated in our results. We are on track with our roadmap and our three-year growth, profitability, and return targets.

Speaker #2: Capturing demand and driving multi-quarter revenue tailwind. We have demonstrated our increased efficiency in revenue conversion and successful inventory supply chain manufacturing and cost management.

Speaker #2: Our pipeline to market opportunities is supporting our growth objectives. We are adding manufacturing capacity in Mexico and in Ireland to increase our flexibility and complement the 80 percent of product fulfillment currently completed in the US.

Speaker #2: We are staying responsive and flexible in a dynamic environment. We are focused on differentiated industry-leading product introductions and supporting growth through high return product research and development.

Speaker #2: And we are executing our transformation plan with its benefits demonstrated in our results. We are on track with our roadmap, and our three-year growth profitability and return targets.

Speaker #2: I want to thank the entire Daktronics team for their continued focus, strong performance, ingenuity, and dedication. I'll now turn the call over to Andrew Siegel, Chairman of the Board, for some further remarks.

Howard Atkins: I want to thank the entire Daktronics team for their continued focus, strong performance, ingenuity, and dedication. I'll now turn the call over to Andrew Siegel, Chairman of the Board, for some further remarks.

Speaker #3: Brad, thank you, and thanks to you and Howard for leading the team to another strong quarter. As they execute on our plan to drive growth in shareholder returns.

Lindsey Better: Brad, thank you. Thanks to you and Howard for leading the team to another strong Q, as they'll execute on our plan to drive growth and shareholder returns. Both of you talked about the outlook, so it's an appropriate time for me to introduce Ramesh Jayaraman, who officially starts work at Daktronics today and will assume the president and CEO role as of the start of the Q4 in February. The board's most important job is to make sure the person running the company has the energy, ambition, skills, experience, character, and talent to lead the team to achieving the company's potential. Clearly, the steps the board has taken over the past two years demonstrate how much your directors believe in and are committed to that potential.

Andrew Siegel: Brad, thank you. Thanks to you and Howard for leading the team to another strong Q, as they'll execute on our plan to drive growth and shareholder returns. Both of you talked about the outlook, so it's an appropriate time for me to introduce Ramesh Jayaraman, who officially starts work at Daktronics today and will assume the President and CEO role as of the start of the Q4 in February. The board's most important job is to make sure the person running the company has the energy, ambition, skills, experience, character, and talent to lead the team to achieving the company's potential. Clearly, the steps the board has taken over the past two years demonstrate how much your directors believe in and are committed to that potential.

Speaker #3: Both of you talked about the outlook. So it's an appropriate time for me to introduce Ramesh J. Rahman, who officially starts work at Daktronics today.

Speaker #3: And we'll assume the President and CEO role as of the start of the fourth quarter in February. The Board's most important job is to make sure the person running the company has the energy and ambition, skills, experience, character, and talent to lead the team to achieving a company's potential.

Speaker #3: Clearly, the steps the Board has taken over the past two years demonstrate how much your directors believe in and are committed to that potential.

Speaker #3: You saw last week's announcement, so I don't need to repeat anything, except to summarize that the Board selected Ramesh from among many highly qualified and interested candidates for this position because he is a transformational leader.

Lindsey Better: You saw last week's announcement, so I don't need to repeat anything, except to summarize that the board selected Ramesh from among many highly qualified and interested candidates for this position because he is a transformational leader. He's a proven operator. He's a business grower. He's built distribution channels all over the world. He's a high-energy guy who sets aside time and builds teams that deliver. He knows our industry well. He's been assigned at Harman and at Bosch. He's managed P&Ls our size and bigger, and he's driven growth organically and through M&A at higher-than-market growth rates. So although we just started today and isn't in a place to start answering questions just yet, we wanted to use this opportunity to have him begin to introduce himself to all of you. There's more to come over the next few months, including at the investor day. Welcome, Ramesh.

You saw last week's announcement, so I don't need to repeat anything, except to summarize that the board selected Ramesh from among many highly qualified and interested candidates for this position because he is a transformational leader. He's a proven operator. He's a business grower. He's built distribution channels all over the world. He's a high-energy guy who sets aside time and builds teams that deliver. He knows our industry well. He's been assigned at Harman and at Bosch. He's managed P&Ls our size and bigger, and he's driven growth organically and through M&A at higher-than-market growth rates. So although we just started today and isn't in a place to start answering questions just yet, we wanted to use this opportunity to have him begin to introduce himself to all of you. There's more to come over the next few months, including at the investor day. Welcome, Ramesh.

Speaker #3: He's a proven operator. He's a business grower. He's built distribution channels all over the world. He's a high-energy guy. He sets his sights high and builds teams that deliver.

Speaker #3: You know, as our industry well, this time at Harmon and at Bosch, he's managed P&Ls, our size and bigger, and he's driven growth organically and through M&A at higher-than-market growth rates.

Speaker #3: So although we just started today and isn't in a place to start answering questions just yet, we wanted to use this opportunity to have and begin to introduce

Speaker #1: Andrew Thank you . . Good morning everyone . I just want to take this opportunity to introduce myself and say how honored and am to energized I join Daktronics .

Brad Wiemann: Thank you, Andrew. Good morning, everyone. I just want to take this opportunity to introduce myself and say how honored and energized I am to join Daktronics. I have known Daktronics for the past nearly 10 years of association in the AV industry, and excited to join Daktronics at this pivotal time as we continue the journey of transformation for sustainable and profitable growth. I'm looking forward to working with the very talented Daktronics team and serving the team as their CEO. I'll be officially starting in the CEO role from 1 February, and my time between now and then will be to be on a look, listen, learn board so I can hit the ground running in the Q4. Thank you again for your interest in Daktronics, and I look forward to meeting you at the upcoming investor day in April. Brad, back to you.

Ramesh Jayaraman: Thank you, Andrew. Good morning, everyone. I just want to take this opportunity to introduce myself and say how honored and energized I am to join Daktronics. I have known Daktronics for the past nearly 10 years of association in the AV industry, and excited to join Daktronics at this pivotal time as we continue the journey of transformation for sustainable and profitable growth. I'm looking forward to working with the very talented Daktronics team and serving the team as their CEO. I'll be officially starting in the CEO role from 1 February, and my time between now and then will be to be on a look, listen, learn board so I can hit the ground running in the Q4. Thank you again for your interest in Daktronics, and I look forward to meeting you at the upcoming investor day in April. Brad, back to you.

Speaker #1: I have known Daktronics for the past nearly association ten years of AV in the industry , and excited to Daktronics at this pivotal time as we continue the journey of transformation for sustainable and profitable growth .

Speaker #1: I'm looking forward to working with the very talented team and serving the team at Daktronics as their CEO in the fourth quarter. Thank you again for your interest in Daktronics.

Speaker #1: And I look forward to meeting you at the upcoming Investor Day in April . Brad , back to you .

Speaker #2: Thank Okay . you , Ramesh . you , Andrew . I'll now turn the call back over to the operator for questions .

Howard Atkins: Okay. Thank you, Ramesh, and thank you, Andrew. I'll now turn the call back over to the operator for questions.

Brad Wiemann: Okay. Thank you, Ramesh, and thank you, Andrew. I'll now turn the call back over to the operator for questions.

Speaker #3: you . As Thank a reminder to ask a question , please press star one one on your telephone and wait for your name to be announced .

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question will come from the line of Aaron Spychala with Craig-Hallum. Your line is open. Please go ahead.

Speaker #3: To withdraw your question , please press star one one again . One moment . While we compile our roster Q&A . Our first question will come line from the of Erin Spychala with Craig-hallum .

Speaker #3: line is Your open . Please go ahead .

Speaker #4: morning . Thanks for taking the questions . You know , first , Yeah . Good continued disclosures the in presentation this quarter , especially on the backlog by by segment .

Aaron Spychala: Yeah. Good morning. Thanks for taking the questions. First, I appreciate the continued disclosures in the presentation this quarter, especially on the backlog by segment. Can you just maybe talk about how you expect that to convert to revenue over the fiscal year and just kind of the margin profile in there? I know it can kind of vary by segment. And then just you talked a little bit about order conversion. Just how does kind of book to ship? How does that look if we kind of think about backlog plus that?

Speaker #4: Can maybe you just talk about , you know , how you expect that to convert to revenue over the over the fiscal year and just kind of the margin profile know it can in there .

Speaker #4: kind of vary segment . And then just you I talked a little bit about order conversion . Just how does book to ship kind of , how does that look ?

Speaker #4: kind of think If we about backlog plus that ?

Speaker #5: Well , a lot a lot of factors go into , you know , orders of revenue , conversion , the one that we try to highlight on this particular call is the the idea .

Lindsey Better: Well, a lot of factors go into orders of revenue conversion. The one that we try to highlight on this particular call is the idea, and we've talked about this before, that a higher percentage of our backlog is now in the live events segment. I mentioned statistically our live events orders in the second quarter were 36% of our total orders, but in terms of the backlog, it's about 50%. So that gives you some idea of how the backlog is skewed a little bit more towards live events. And live events orders, as you may remember, they typically don't start right away, so they're not standard orders. They're customized orders, and they have different starting dates. We mentioned that the Titans order doesn't even start until after the third quarter, so that's not going to be revenue in the third quarter yet.

Howard Atkins: Well, a lot of factors go into orders of revenue conversion. The one that we try to highlight on this particular call is the idea, and we've talked about this before, that a higher percentage of our backlog is now in the live events segment. I mentioned statistically our live events orders in the second quarter were 36% of our total orders, but in terms of the backlog, it's about 50%. So that gives you some idea of how the backlog is skewed a little bit more towards live events. And live events orders, as you may remember, they typically don't start right away, so they're not standard orders. They're customized orders, and they have different starting dates. We mentioned that the Titans order doesn't even start until after the third quarter, so that's not going to be revenue in the third quarter yet.

Speaker #5: And we've talked about this before that a higher percentage of our backlog is now in the line of events segment . I mentioned statistically , our orders , live events , orders in the second quarter were 36% of our total orders .

Speaker #5: But terms of in backlog . It's about 50% . So that gives you some how the idea of backlog is skewed a little bit more towards live events and live events .

Speaker #5: Orders . As you may remember , are they typically don't start right away . So they're not standard orders . They're customized orders and they have different starting dates .

Speaker #5: We mentioned that the Titans order doesn't even start until after the third quarter , so that's not going to be revenue in the third quarter yet .

Speaker #5: And and that that the stadium orders that that Brad has talked about , which are fantastic . And give us a good , you great runway .

Lindsey Better: And that the stadium orders that Brad has talked about, which are fantastic and give us a great runway, those will be spread out through the spring, actually. So it takes a while to get to order sometimes, but the good news is that that gives us more recurring revenue over a longer period of time and more predictable revenue over a period of time. So that's one big factor. I mentioned the seasonally slow third quarter. We'll have that again this year because we always have those holidays, and the same holidays occur every third quarter. And so that'll be a factor. And then, of course, the remaining factor is our potential order growth. So on top of the chart, I want to make sure we're not misleading you by showing you that chart. That chart just speaks to the backlog conversion.

And that the stadium orders that Brad has talked about, which are fantastic and give us a great runway, those will be spread out through the spring, actually. So it takes a while to get to order sometimes, but the good news is that that gives us more recurring revenue over a longer period of time and more predictable revenue over a period of time. So that's one big factor. I mentioned the seasonally slow third quarter. We'll have that again this year because we always have those holidays, and the same holidays occur every third quarter. And so that'll be a factor. And then, of course, the remaining factor is our potential order growth. So on top of the chart, I want to make sure we're not misleading you by showing you that chart. That chart just speaks to the backlog conversion.

Speaker #5: Those will be spread out over you know , through the spring actually . So so takes a it while to get to order sometimes .

Speaker #5: But the good news is that that gives us more recurring revenue over a longer period of time . And more predictable revenue over a period of time .

Speaker #5: So that's one , one big factor . I mentioned the seasonally slow third quarter . We'll have that again this year because we always have those holidays and same holidays occur every , every third quarter .

Speaker #5: And so that'll be a factor . And and then of course , the remaining factor is our potential order growth . So on top of the chart I want to make sure we're not misleading you by showing you that chart .

Speaker #5: chart just speaks That to the backlog conversion . Of course , we're going to get new orders every quarter . And that's also going to be converted to adding adding to revenue , revenue growth and revenue occurrence .

Lindsey Better: Of course, we're going to get new orders every quarter, and that's also going to be converted to adding to revenue growth and revenue recurrence. So lots of factors, Aaron, go into this. The one that we try to highlight for you here is the distinction, if you will, between orders and when they will start occurring as it pertains to live events in particular.

Of course, we're going to get new orders every quarter, and that's also going to be converted to adding to revenue growth and revenue recurrence. So lots of factors, Aaron, go into this. The one that we try to highlight for you here is the distinction, if you will, between orders and when they will start occurring as it pertains to live events in particular.

Speaker #5: So lots of factors Aaron , go into this . The one that we try to for you here highlight is the the distinction , if you will , between orders and and and when they will start occurring as , as it pertains to live events in particular .

Speaker #2: Maybe just add on to that . Aaron , our standard order business typically turns in weeks . You know , at four , six , eight weeks .

Howard Atkins: Maybe just to add on to that, Aaron, our standard order business typically turns in weeks, four, six, eight weeks. Our large project business has all those variables that Howard mentioned. We have room in our Q3 yet to bring in orders and convert it to revenue in our standard order business.

Brad Wiemann: Maybe just to add on to that, Aaron, our standard order business typically turns in weeks, four, six, eight weeks. Our large project business has all those variables that Howard mentioned. We have room in our Q3 yet to bring in orders and convert it to revenue in our standard order business.

Speaker #2: And our large project business has all those variables that Howard mentioned . So we have room in our third quarter yet to bring bring in orders and convert it to revenue .

Speaker #2: Even in our standard order business .

Speaker #4: Understood . Thanks for that . And then maybe , you know , can you just touch on on the margins that you've been adding to backlog and maybe just looking at year over year , the kind of margin any way improvements to just at a high level , roughly quantify the breakdown between some of the , you know , value added pricing or operating efficiencies , just kind of to get a better idea and , you know , really good performance , especially considering the tariff impact as well .

Aaron Spychala: Understood. Thanks for that. And then maybe can you just touch on the margins that you've been adding to backlog? And maybe just looking at year-over-year, the kind of margin improvements, any way to just at a high level, roughly quantify the breakdown between some of the value-added pricing or operating efficiencies, just kind of to get a better idea and really good performance, especially considering the tariff impact as well?

Speaker #5: Well , that is the story of value added pricing . And the operating efficiencies coming off of the work that we've already done .

Lindsey Better: Well, that is the story. Value-added pricing and the operating efficiencies coming off of the work that we've already done on structural cost savings have positively contributed to mostly to the operating margin. I'd focus your attention there because our gross profit margin has a number of other factors connected to it that change from quarter to quarter. But the storyline here is that we got pretty close again to a 10% operating margin. And that really is value-based pricing, order growth, structural cost efficiencies coming off of the work that we did already last year, offset in part by the extra tariff. And that's a big item because our extra tariff expense this year is almost another $8 million worth of tariff expense that we had in the quarter this year that we didn't have a year ago.

Howard Atkins: Well, that is the story. Value-added pricing and the operating efficiencies coming off of the work that we've already done on structural cost savings have positively contributed to mostly to the operating margin. I'd focus your attention there because our gross profit margin has a number of other factors connected to it that change from quarter to quarter. But the storyline here is that we got pretty close again to a 10% operating margin. And that really is value-based pricing, order growth, structural cost efficiencies coming off of the work that we did already last year, offset in part by the extra tariff. And that's a big item because our extra tariff expense this year is almost another $8 million worth of tariff expense that we had in the quarter this year that we didn't have a year ago.

Speaker #5: On structural cost savings have positively contributed to most primarily to the operating margin. I focus your attention there because our gross profit margin has a number of other factors connected to it that change from quarter to quarter.

Speaker #5: But the storyline here is that we got pretty close again to our 10% operating margin . And and that really is a value based pricing order growth , structural cost efficiencies coming off of the we did last already year work that , offset in part by the extra tariff .

Speaker #5: So and that's a that's a , you know , a big you know , big , big item because our extra tariff expense this year is another almost another $8 million worth of tariff expense that we had in the quarter this year that we didn't have a year ago .

Speaker #5: And our margin is still up from where it was a year ago.

Lindsey Better: Our margin is still up from where it was a year ago.

Speaker #4: Yep , yep . Understood . Yeah . It just trying to understand if you did kind of the tariff impact , it's almost , you know , 13% , you operating margin up 400 basis points year over year .

Our margin is still up from where it was a year ago.

Aaron Spychala: Yep. Yep. Understood. Yeah. I was just trying to understand if you did kind of ex the tariff impact. It's almost 13% operating margin up 400 basis points year over year. I was just trying to understand any kind of breakdown of what that split could be between value-added pricing and just maybe some breakdown of the operating initiatives. But my third, on the Mexico plant, can you just talk about how much that expands capacity by maybe in percentage terms or dollar terms? Are there any kind of segments this is focused on in particular? And it seems like there's some benefits to the business from a tariff perspective. Just how much investment might be needed for that plant?

Aaron Spychala: Yep. Yep. Understood. Yeah. I was just trying to understand if you did kind of Ex the tariff impact. It's almost 13% operating margin up 400 basis points year over year. I was just trying to understand any kind of breakdown of what that split could be between value-added pricing and just maybe some breakdown of the operating initiatives. But my third, on the Mexico plant, can you just talk about how much that expands capacity by maybe in percentage terms or dollar terms? Are there any kind of segments this is focused on in particular? And it seems like there's some benefits to the business from a tariff perspective. Just how much investment might be needed for that plant?

Speaker #4: We're just trying to understand any kind of breakdown of what split could be that between value added pricing and just maybe some breakdown of the operating initiatives .

Speaker #4: But maybe , you know , third , on the on the Mexico plant , can you just talk about how much that expands capacity by maybe in percentage terms or dollar terms ?

Speaker #4: Is there any kind of segments , you know , this is focused on in particular and , you know , seems like there's some , some benefits to the business from a tariff perspective , just how much investment might be be needed for , for that plant .

Speaker #2: Yeah , it's it's a , it's a small investment . We're leasing the facility in Mexico . We're putting some equipment in there .

Howard Atkins: Yeah. It's a small investment. We're leasing the facility in Mexico. We're putting some equipment in there. What we build and how we go about it is going to be determined over time, but this is complementary to our plants here in the US as well. So we're able to bring product in, have it assembled, manufactured, and brought into the States. It's a small operation at this time. We have room for growth if we need to do that. And that leads into that comment I made about optionality earlier today, optionality into the future about our overall production capacity and where it's at and how it plays into tariffs and all the other things that come our way. So it's a small operation at this time.

Speaker #2: What we build and how we go about it is going to be determined over time . But this is complementary our to plants here in the US as well .

Speaker #2: So we are able to bring product in, have it assembled, manufactured, and brought into the States. It's a small operation at this time.

Speaker #2: We have room for growth if we need to do that . And that's leads into that comment I made about optionality earlier today , optionality into the future , about our overall production capacity and where it's at and how it plays into tariffs and all the other things that come our way .

Speaker #2: So it's a small operation at this time .

Speaker #4: No , I appreciate that . And just maybe then one last quick one , you know , appreciate again the slide on on management .

Speaker #4: And just good to see the working capital management over the last year . You know getting the cash conversion cycle down to kind of pre-COVID levels .

Aaron Spychala: No. I appreciate that. Then just maybe one last quick one. Appreciate again the slide on inventory management, and just good to see the working capital management over the last year getting the cash conversion cycle down to kind of pre-COVID levels. Just how do you see that trending moving forward? How much more room for improvement do you see from those types of initiatives on working capital?

Speaker #4: Just , you know , how do you see that trending moving forward . How much more room for improvement do you see from from those types of initiatives on working capital ?

Speaker #5: It's going to remain a focus for the company . But we're we're pretty much , you know , where we want , where we try to get to as a result of the that we analysis did last year .

Lindsey Better: Aaron, it's going to remain a focus of the company, but we're pretty much where we tried to get to as a result of the analysis that we did last year and basically paring off excess inventory and putting in place the processes to keep it managed efficiently. So it'd be misleading to say it's going to improve a lot more from where it is right now. But as revenue grows, that's going to have a positive impact.

Howard Atkins: Aaron, it's going to remain a focus of the company, but we're pretty much where we tried to get to as a result of the analysis that we did last year and basically paring off excess inventory and putting in place the processes to keep it managed efficiently. So it'd be misleading to say it's going to improve a lot more from where it is right now. But as revenue grows, that's going to have a positive impact.

Speaker #5: And basically paring off excess inventory and putting in place the processes to keep it , you know , keep it managed efficiently . So I be misleading to say it's going to improve a lot more from where it is right now .

Speaker #5: , but Well as revenue grows , that's going to , you know , have a positive impact , right ?

Speaker #4: No , definitely understand that . Thanks for for the color and for taking the questions . I'll turn it over .

Aaron Spychala: Right. No. Definitely. Understand that. Thanks for the color and for taking the questions. I'll turn it over.

Speaker #3: Thank you . One moment for our next question . And as a reminder , if you would like to ask a question , please press star one one on your telephone .

Operator: Thank you. One moment for our next question. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Our next question comes from the line of Anya Soderstrom with Sidoti. Your line is open. Please go ahead.

Speaker #3: Our next question comes from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead.

Speaker #6: Hi . Thank you for taking my question and congrats on the nice performance here . And welcome on board , Ramesh , I , I'm curious , given the strong backlog growth that how should we saw , we think about the third quarter softening ?

Anya Soderstrom: Hi. Thank you for taking my question. Congrats on the nice performance here. And welcome on board, Ramesh. I'm curious, given the strong backlog growth that we saw, how should we think about the Q3 softening?

Speaker #2: What . Well you mentioned it . We have a great backlog coming in . The softening . Howard talked about it as far as the holidays .

Howard Atkins: Well, you mentioned it. We have a great backlog coming in. The softening, Howard talked about it as far as the holidays. We have fewer days, fewer available workdays to convert inventory or convert our backlog over into revenue. So that's the primary thing. But we are sitting on a nice backlog, and we'll use the factories to the extent that we can and plan to have employees take some time off during the holidays.

Ramesh Jayaraman: Well, you mentioned it. We have a great backlog coming in. The softening, Howard talked about it as far as the holidays. We have fewer days, fewer available workdays to convert inventory or convert our backlog over into revenue. So that's the primary thing. But we are sitting on a nice backlog, and we'll use the factories to the extent that we can and plan to have employees take some time off during the holidays.

Speaker #2: know , we a You fewer , have fewer days , fewer available workdays to to convert inventory or convert our backlog over into revenue .

Speaker #2: So that's the primary thing . But we are sitting in a backlog and we'll use the factories to the extent that we can .

Speaker #2: and And plan to have employees take some time off during the holidays .

Speaker #6: Okay . Thank you . And then in terms of the capacity now , when you added adding the Mexico plant , how should we think about the capacity utilization in the US and in the other facilities ?

Anya Soderstrom: Okay. Thank you. And then in terms of the capacity, now when you're adding the Mexico plant, how should we think about the capacity utilization in the US and in the other facilities? Are you going to move some production from there to Mexico, or are you seeing the growth going into Mexico?

Anya Soderstrom: Okay. Thank you. And then in terms of the capacity, now when you're adding the Mexico plant, how should we think about the capacity utilization in the U.S. and in the other facilities? Are you going to move some production from there to Mexico, or are you seeing the growth going into Mexico?

Speaker #6: Are you going to move some some production from there to Mexico , or are you seeing the growth going into Mexico ?

Speaker #2: No , this is really fitting into our growth objectives . So we , you know , the overall plan , the 7 to 10% that we talked about over the next three years , this is complementary to that .

Howard Atkins: No. This is really fitting into our growth objectives. So the overall plan, the 7% to 10% that we talked about over the next three years, this is complementary to that. So we don't plan to move any work from the US factories over to Mexico. And so this is part of our expansion plans.

Ramesh Jayaraman: No. This is really fitting into our growth objectives. So the overall plan, the 7% to 10% that we talked about over the next three years, this is complementary to that. So we don't plan to move any work from the US factories over to Mexico. And so this is part of our expansion plans.

Speaker #2: So we don't don't plan to , you know , move any work from the US factories over to Mexico . And so this is part of our expansion plans .

Speaker #6: And how far is this expansion is going to bring in terms of revenue before you need to expand further ?

Anya Soderstrom: How far is this expansion going to bring in terms of revenue before you need to expand further?

Speaker #2: I'll say that .

Speaker #6: Or is there any other way you could expand in terms of know how much revenue can can this footprint facilitate before you need to expand further ?

Howard Atkins: Say that one more time.

Ramesh Jayaraman: Say that one more time.

Anya Soderstrom: Or is there any other way you could expand in terms of how much revenue can this footprint facilitate before you need to expand further?

Speaker #2: Yeah , this is a small footprint that we're bringing in over there . And , you know , about 80% of what we manufacture for our for our customers worldwide comes out of our US factories .

Howard Atkins: Yeah. This is a small footprint that we're bringing in over there. And about 80% of what we manufacture for our customers worldwide comes out of our US factories, and this isn't changing with that. So this is part of our overall expansion plans of revenue, and it's a small footprint, like I mentioned. So I would still foresee us being around that 80% here in the US. So just making up part of that growth expansion.

Ramesh Jayaraman: Yeah. This is a small footprint that we're bringing in over there. And about 80% of what we manufacture for our customers worldwide comes out of our U.S. factories, and this isn't changing with that. So this is part of our overall expansion plans of revenue, and it's a small footprint, like I mentioned. So I would still foresee us being around that 80% here in the U.S. So just making up part of that growth expansion.

Speaker #2: And that hasn't this isn't changing with So this is a part of our overall that . expansion plans of revenue . And it's it's a footprint .

Speaker #2: small Like I mentioned . So I would still foresee as being around that 80% here in the US . So just making up part of that growth , expansion .

Speaker #6: Okay . Thank you . That for me was all .

Speaker #3: Thank you . And I am showing no further questions at this time . And I would like to hand the conference back to over Bradley Wiemann for closing remarks .

Anya Soderstrom: Okay. Thank you. That was all for me.

Operator: Thank you. I am showing no further questions at this time, and I would like to hand the conference back over to Brad Lehman for closing remarks.

Operator: Thank you. I am showing no further questions at this time, and I would like to hand the conference back over to Brad Wiemann for closing remarks.

Speaker #2: Well thank you And everyone . for joining the call today . And we we will be appearing at this conference in January . Have a wonderful holiday season .

Howard Atkins: Well, thank you, everyone, for joining the call today. We will be appearing at the Sidoti conference in January. Have a wonderful holiday season, as we have wanted our employees to do as well. We look forward to speaking with you on our third conference call, our third quarter call. Have a great day.

Brad Wiemann: Well, thank you, everyone, for joining the call today. We will be appearing at the Sidoti conference in January. Have a wonderful holiday season, as we have wanted our employees to do as well. We look forward to speaking with you on our third conference call, our third quarter call. Have a great day.

Speaker #2: And we have one of our employees to do as well . And we look forward to speaking with you on our third conference call .

Speaker #2: Our third quarter call . Have a great day .

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

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