Q1 2027 Daktronics Inc Earnings Call

September 2, 2026

Operator: Good day, and thank you for standing by. Welcome to the Daktronics first quarter fiscal year 2027 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lindsay Vetter. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the Daktronics Q1 Fiscal Year 2027 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 the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lindsay Vetter. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press *11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded.

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

Speaker #2: Good morning, everyone. Thank you for participating in our fiscal 2027 first-quarter earnings conference call. On today's call will be Ramesh Jayaraman, our president and chief executive officer, and Howard Atkins, our acting chief financial officer.

Lindsay Vetter: Good morning, everyone. Thank you for participating in our fiscal 2027 first quarter earnings conference call. On today's call will be Ramesh Jayaraman, our President and Chief Executive Officer, and Howard Atkins, our Acting Chief Financial Officer. As a reminder, this presentation will contain forward-looking statements under the Private Securities Litigation Reform Act, 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 2 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. We undertake no obligation to publicly update or revise any forward-looking statements.

Speaker #2: As a reminder, this presentation will contain forward-looking statements under the Private Securities Litigation Reform Act, 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.

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

Speaker #2: We undertake no obligation to publicly update or revise any forward-looking statement. 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.

Lindsay Vetter: 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 may be found on the investor relations page of our website at www.daktronics.com. Our earnings release for the fiscal 2027 first quarter, which was filed to the SEC on a Form 8-K this morning, also contains a certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well a 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 will now turn the call over to Ramesh.

Speaker #2: This may be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the fiscal 2027 first quarter, which was furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures.

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, are included in the earnings release, which has been posted separately to the investor relations page of our website.

Speaker #2: I'll now turn the call over to Ramesh.

Speaker #3: Thank you, Lindsay, and good morning, everyone. We had a strong start to fiscal '27, and I want to thank our approximately 2,700 employees across the globe for their execution and dedication.

Ramesh Jayaraman: Thank you, Lindsay, and good morning, everyone. We had a strong start to fiscal 2027, and I want to thank our approximately 2,700 employees across the globe for their execution and dedication. Our strategic plan, consisting of organic growth, operational excellence, and disciplined capital deployment is working, as reflected in Q1's results in sales, profit expansion, and EPS growth. In Q1, we delivered 7.1% net sales growth, supported by strong demand across key end markets in a quarter that was one week shorter than last year's. We expanded operating income by 7.2% and grew EPS to $0.40 for the quarter. Our new business pipeline remains robust. The year-over-year bookings and backlog comparison mainly reflects order timing, as we negotiated substantial projects in Q1 that we expect to receive purchase orders for in Q2.

Speaker #3: Our strategic plan, consisting of organic growth, operational excellence, and disciplined capital deployment, is working, as reflected in Q1’s results—in sales, profit expansion, and EPS growth.

Speaker #3: In Q1, we delivered 7.1% net sales growth, supported by strong demand across key end markets in a quarter that was one week shorter than last year's.

Speaker #3: We expanded operating income by 7.2% and grew EPS to $0.40 for the quarter. Our new business pipeline remains robust. The year-over-year bookings and backlog comparison mainly reflects order timing, as we negotiated substantial projects in Q1 that we expect to receive purchase orders for in Q2.

Speaker #3: Our focus on growth and operational efficiency generated $31.4 million in cash from operations during the quarter. We returned capital to shareholders through share repurchases, and our balance sheet liquidity remains strong.

Ramesh Jayaraman: Our focus on growth and operational efficiency generated $31.4 million in cash from operations during the quarter. We returned capital to shareholders through share repurchases, and our balance sheet liquidity remains strong. Of the numerous highlights this quarter, I will talk about three today. One, our recently opened Mexico manufacturing plant is ramping up and successfully completed its first major production run of our narrow pixel pitch product, and we expect to ship this in late Q2. Two, our Camino 8, which is our next-generation real-time 2D, 3D graphics rendering engine that integrates with Daktronics Show Control, debuted at the Angel Stadium for the Los Angeles Angels home opener in early April and is now in full deployment. Starting this fall, Camino 8 will be installed in more than 10 venues across the NHL, MLS, and NCAA football, volleyball, and basketball programs.

Speaker #3: Of the numerous highlights this quarter, I'll talk about three today. One, our recently opened Mexico manufacturing plant is ramping up and successfully completed its first major production run of our narrow pixel pitch product, which we expect to ship in late Q2.

Speaker #3: Two, around Camino 8, which is our next-generation real-time 2D/3D graphics rendering engine that integrates with Daktronics Show Control, debuted at Angel Stadium for the Los Angeles Angels' home opener in early April and is now in full deployment.

Speaker #3: Starting this fall, Camino 8 will be installed in more than 10 venues across the NHL, MLS, and NCAA football, volleyball, and basketball programs. Thirdly, and most importantly, we continue augmenting our strong management team with key leadership additions in marketing and procurement, and building muscle as we scale the business.

Ramesh Jayaraman: Thirdly, and most importantly, we continue augmenting our strong management team with key leadership adds in marketing and procurement and build muscle as we scale the business. Now, let's turn to the next slide on our market verticals and for an update in the first quarter. In live events, we actively installed college football and basketball projects ahead of the upcoming season, including at the University of Illinois, Ohio State, Penn State, and North Carolina. New Camino 8 systems that I mentioned earlier are being installed across a variety of customers across the NHL, MLS, and NCAA volleyball, football, and basketball programs. Live events remains a highly differentiated business for us, well-positioned to benefit from the shift towards real-time graphics and video through Camino 8, and our pipeline continues to be robust in the live events business. Pictured here is the Wake Forest Allegacy Federal Credit Union Stadium in Winston-Salem, North Carolina.

Speaker #3: Now, let's turn to the next slide on our market verticals and for an update in the first quarter. In live events, we actively installed college football and basketball projects ahead of the upcoming season.

Speaker #3: Including at the University of Illinois, Ohio State, Penn State, and North Carolina. New Camino 8 systems, as I mentioned earlier, are being installed across a variety of customers across the NHL, MLS, and NCAA volleyball, football, and basketball programs.

Ramesh Jayaraman: New Camino 8 systems that I mentioned earlier are being installed across a variety of customers across the NHL, MLS, and NCAA volleyball, football, and basketball programs. Live events remains a highly differentiated business for us, well-positioned to benefit from the shift towards real-time graphics and video through Camino 8, and our pipeline continues to be robust in the live events business. Pictured here is the Wake Forest Allegacy Federal Credit Union Stadium in Winston-Salem, North Carolina.

Speaker #3: Live events remains a highly differentiated business for us, well-positioned to benefit from the shift towards real-time graphics and video through Camino 8, and our pipeline continues to be robust in the live events business.

Speaker #3: Pictured here is the Wake Forest Allegacy Stadium in Winston-Salem, North Carolina. In our commercial business, our out-of-home segment booked a large billboard order, along with an airport advertising refresh order from a national customer.

Ramesh Jayaraman: In our commercial business, our out-of-home segment booked a large bulk billboard order along with an airport advertising refresh order from a national customer. Our on-premise business is shipping a large fewer digit replacement program order received in the prior year. Pictured here is the La Crosse Sign Group, the Kwik Trip in Bonduel, Wisconsin. In transportation in Q1, we won large intelligent transportation systems, or ITS projects, which help to grow the backlog in the segment. Our airport business won additional narrow pixel pitch orders from Los Angeles International and Spokane International Airports. Our transit business won large orders from Sacramento Regional Transit, the SunRail in Florida, and a project in Houston. We are seeing strong acceptance of new products, and our backlog and pipeline remain solid. Pictured here is the Union Station in Los Angeles, California.

Speaker #3: Our on-premise business is shipping a large fuel-digit replacement program, an order received in the prior year. Pictured here is the La Crosse Sign Group at the Kwik Trip in Bondville, Wisconsin.

Speaker #3: In Transportation in Q1, we won large Intelligent Transportation Systems, or ITS, projects, which helped to grow the backlog in the segment. Our airport business won additional narrow-pixel pitch orders from Los Angeles International and Spokane International Airports.

Speaker #3: Our transit business won large orders from Sacramento Regional Transit, the SunRail in Florida, and a project in Houston. We are seeing strong acceptance of new products, and our backlog and pipeline remain solid.

Speaker #3: Pictured here is Union Station in Los Angeles, California. In the high school park and recreation business, we booked several large projects this quarter.

Ramesh Jayaraman: In the high school park and recreation business, we booked several large projects this quarter, including Round Rock and Northside Independent School Districts in Texas, Los Angeles Harbor College, and Harrisburg High School in South Dakota. We held our annual video summit for high school users of our control systems, an event built for the high school market that connects educators with industry professionals and producers of scholastic technology and professional live events. The event gives educators practical skills they can apply immediately. Youth sports and the shift to video remain strong secular drivers of demand, further supported by our competitive differentiation through Daktronics Sports Marketing's school curriculum, DakClassroom, and other paid professional services. Our pipeline in the high school parts and automation business continues to remain strong. Pictured here is the Massillon City School District in Massillon, Ohio.

Speaker #3: Including Round Rock and Northside Independent School Districts in Texas, Los Angeles Harbor College, and Harrisburg High School in South Dakota. We held our annual video summit for high school users of our control systems.

Speaker #3: An event built for the high school market that connects educators with industry professionals and producers of scholastic, college, and professional life events. The event gives educators practical skills they can apply immediately.

Speaker #3: Youth sports in the shift to video remain strong secular drivers of demand, further supported by competitive differentiation through Daktronics sports marketing, school curriculum, the classroom, and other paid professional services.

Speaker #3: Our pipeline in the high school parts and recreation business continues to remain strong. Pictured here is the Massillon City Schools in Massillon, Ohio. In the international segments, we won a large order in Colombia for a major football stadium for an outdoor halo display.

Ramesh Jayaraman: In the international segment, we won a large order in Colombia for a major football stadium for an outdoor halo display. A longtime out-of-home customer in Serbia awarded us a large order for an additional 50-display rollout. Our international pipeline remains strong heading into Q2, especially in stadiums. We continue expanding our presence in specific international markets with regionally tailored solutions. Pictured here is the iMedia 247, the Metropolitan in Dubai, UAE. In our services business, our control upgrade orders grew, driven by Camino 8 adoption across our installer customer base. We also launched LiveWrx in late July, a mobile-based fan experience platform built for high school sports that delivers a professional, polished experience on the video board and can be run by one person. A QR code lets fans join and engage live instantly.

Speaker #3: A long-time out-of-home customer in Serbia awarded us a large order for an additional 50-display rollout. And our international pipeline remains strong heading into Q2, especially in stadiums.

Speaker #3: We continue expanding our presence in specific international markets with regionally tailored solutions. Pictured here is the iMedia 24/7, the Metropolitan in Dubai, UAE. In our services business, our control upgrade orders grew, driven by Camino 8 adoption across our installed customer base.

Speaker #3: We also launched Live Works in late July, a mobile-based fan experience platform built for high school sports that delivers a professional, polished experience on the video board and can be run by one person.

Speaker #3: A QR code lets fans join and engage live instantly. Live Works expands our recurring revenue opportunities and strengthens our SaaS portfolio ahead of the fall demand season.

Ramesh Jayaraman: LiveWrx expands our recurring revenue opportunities and strengthens our SaaS portfolio ahead of the fall demand season. Our growth strategy remains underpinned by large, attractive end markets benefiting from long-term secular demand, increasing complexity, growing scale, the adoption of video and fixed digit displays, and increasing software and content requirements. Our results, backlog, and pipeline reflect that. Let's move to the next slide to provide more specifics about our forward-looking strategy. Our strategy rests on three priorities: accelerating organic growth, strengthening operational excellence, and deploying capital with discipline to expand profitability and improve returns. On organic growth, we are focused on our core businesses, where we are uniquely positioned to benefit from the secular shift towards greater complexity, scale, and video. We are also selectively expanding into new vertical markets in North America, growing through software and services, and focusing on driving international growth.

Speaker #3: Our growth strategy remains underpinned by large, attractive end markets, benefiting from long-term secular demand, increasing complexity, growing scale, the adoption of video and fixed-digit displays, and increasing software and content requirements.

Speaker #3: And our results, backlog, and pipeline reflect that. Let's move to the next slide to provide more specifics about our forward-looking strategy. Our strategy rests on three priorities.

Speaker #3: Accelerating organic growth, strengthening operational excellence, and deploying capital with discipline to expand profitability and improve returns. On organic growth, we are focused on our core businesses.

Speaker #3: We are uniquely positioned to benefit from the secular shift toward greater complexity, scale, and video. We're also selectively expanding into new vertical markets in North America, growing through software and services, and focusing on driving international growth.

Ramesh Jayaraman: On operational excellence, we are getting leaner and sharper every quarter, improving procurement through data-driven strategic sourcing, optimizing our global manufacturing footprint, investing in factory automation, and deploying lean principles across the business with proven leaders directing each effort. On capital deployment, we are making high return investments in organic growth and operational efficiency, including our plant network improvements and automation, while sharpening our focus on the M&A pipeline to evaluate complementary products/solutions, vertical markets, and geographies. We continue to return excess capital to shareholders while preserving flexibility to act when opportunities arise. Let's turn to the next slide for more detail on these initiatives in the first quarter. We will talk to the strategic execution status under the three key pillars: growth, operational excellence, and capital deployment. In addition, we will provide an update on the talent augmentations to our strong management team. Starting with our growth initiatives.

Speaker #3: On operational excellence, we are getting leaner and sharper every quarter—improving procurement through data-driven strategic sourcing, optimizing our global manufacturing footprint, investing in factory automation, and deploying lean principles across the business.

Speaker #3: With proven leaders directing each effort, on capital deployment, we are making high-return investments in organic growth and operational efficiency, including our plant network improvements and automation, while sharpening our focus on the M&A pipeline to evaluate complementary products, solutions, vertical markets, and geographies.

Speaker #3: And we continue to return excess capital to shareholders while preserving flexibility to act when opportunities arise. Let's turn to the next slide for more detail on these initiatives in the first quarter.

Speaker #3: We will talk to the strategic execution status under the three key pillars: growth, operational excellence, and capital deployment. In addition, we will provide an update on the talent augmentation to our strong management team.

Speaker #3: Starting with our growth initiatives, our new order pipeline in our core markets remains strong as our sales, marketing, and development teams capture customer demand.

Ramesh Jayaraman: Our new order pipeline in our core markets remain strong as our sales, marketing, and development teams capture customer demand. We are also recruiting to expand into new verticals and channels, which allow us to enter the unserved addressable market in North America. As I mentioned, our Camino 8 expansion earlier, we are continuing to make strong progress. Los Angeles Angels now using Camino advanced visualizations in stadium, and starting this fall, Camino 8 will be installed at 10 plus venues for the NHL, MLS, NCAA, football, volleyball, and basketball. As we look at our operational excellence initiatives, we hired a new global procurement leader and combined our direct and indirect procurement teams.

Speaker #3: We are also recruiting to expand into new verticals and channels, which allows us to enter the unserved, addressable market in North America. And third, as I mentioned our Camino 8 expansion earlier, we are continuing to make strong progress.

Speaker #3: LA Angels, now using Camino Advanced Visualizations in stadium, and starting this fall, Camino 8 will be installed at 10-plus venues for the NHL, MLS, NCAA, football, volleyball, and basketball.

Speaker #3: As we look at our operational excellence initiatives, we hired a new global procurement leader and combined our direct and indirect procurement teams. We are leveraging AI to analyze our spend cube across product categories, business segments, and vendors.

Ramesh Jayaraman: We are leveraging AI to analyze our spend cube across product categories, business segments, and vendors, with results applied to optimize direct and indirect procurement starting in the H2 of the year. We are optimizing our manufacturing network. Our Mexico ramp-up is progressing per schedule. We are increasing automation and manufacturing with initial focus on the US transportation facility, and our China facility planning is underway. In addition, Daktronics is considering a proposal to exit the highly customized international transportation business. A decision to exit such business would impact the long-term viability of our Ireland facility. Today, we inform employees in our Daktronics Ireland facility that we are entering into a collective redundancy consultation process. Looking at the third pillar on capital deployment, we are beginning to invest in manufacturing automation to raise efficiency, improve productivity, and reduce production costs.

Speaker #3: With results applied to optimize direct and indirect procurement starting in the second half of the year, we're optimizing our manufacturing network. Our Mexico ramp-up is progressing per schedule.

Speaker #3: We are increasing automation and manufacturing, with an initial focus on the U.S. transportation facility, and our China facility planning is underway. In addition, Daktronics is considering a proposal to exit the highly customized international transportation business.

Speaker #3: A decision to exit such business would impact the long-term viability of our Ireland facility, so today we informed employees in our Daktronics Ireland facility that we are entering into a collective redundancy consultation process.

Speaker #3: Looking at the third pillar on capital deployment, we are beginning to invest in manufacturing automation to raise efficiency, improve productivity, and reduce production costs.

Speaker #3: We are planning to have automated building machinery installed, intended to reduce motion, excess processing, and wait time for metal-fabricated enclosure elements used across many of our products.

Ramesh Jayaraman: We are planning to have automated bending machinery installed, intended to reduce motion, excess processing, and wait time for metal fabricated enclosure elements used across many of our products. This is a good example of the operational discipline underpinning our margin expansion. We are committed to testing and expanding automation with a strong view on business case and return on invested capital. We are increasing our focus on inorganic growth. At the board level, we have a strategic transactions committee that meets biweekly to review acquisition opportunities in complementary products/solutions, verticals, and geographies that can strengthen our organic growth strategy. We have a search underway for a corporate development leader to support this effort. We continue to return capital to investors. Of our $40 million stock buyback authorization, we purchased $4.4 million in Q1. Lastly, but most importantly, building on talent is continued focus for our strategic execution.

Speaker #3: This is a good example of the operational discipline underpinning our margin expansion. We're committed to testing and expanding automation with a strong view on the business case and return on invested capital.

Speaker #3: We are increasing our focus on inorganic growth. At the board level, we have a Strategic Transactions Committee that meets biweekly to review acquisition opportunities in complementary products, solutions, verticals, and geographies that can strengthen our organic growth strategy.

Speaker #3: We have a search underway for a corporate development leader to support this effort. We continue to return capital to investors. Of our $40 million stock buyback authorization, we purchased $4.4 million in Q1.

Speaker #3: Lastly, but most importantly, building on talent is a continued focus for our strategic execution. I'm proud of our executive team and our employee base as we continue to build the business together.

Ramesh Jayaraman: I am proud of our executive team and our employee base as we continue to build the business together. In Q1, we further aligned key executive compensation tied to performance and long-term shareholder value. We have strengthened capabilities with key additional leadership in procurement, marketing, and IT, and we anticipate having a new international leader join us in Q2. Developing key talent is an integral part of our growth and scaling story, and the executive team and I met on identifying the highest potential talent within the company. Now I turn over to Howard Atkins, our acting CFO, to take us through the financials.

Speaker #3: In Q1, we further aligned key executive compensation with performance and long-term shareholder value. We have strengthened our capabilities with key additional leadership in procurement, marketing, and IT.

Speaker #3: And we anticipate having a new international leader join us in Q2. Developing key talent is an integral part of our growth and scaling story.

Speaker #3: The executive team and I met to identify the highest potential talent within the company. Now, I'll turn it over to Howard Atkins, our Acting CFO, to take us through the financials.

Speaker #2: Thank you very much, and good morning, everyone. I'm pleased to say that the first quarter was another great quarter, carrying forward the momentum we had at the end of fiscal '26 into the first quarter, with a really good tailwind.

Howard Atkins: Thank you, Ramesh, and good morning, everyone. I am pleased to say that the first quarter was another great quarter, carrying forward the momentum we had at the end of fiscal 2026 into the first quarter with a really good tailwind. The bottom line, if you will, the company earned earnings per share of $0.40 in the quarter, an increase of 21.2% from the first quarter a year ago, and our highest quarterly earnings per share in the past three years. This result reflects solid operating earnings of $24.9 million, up 7.2% from a year ago, even with one less week this quarter than the year ago quarter. This also reflects the cumulative effect of having repurchased an additional 225,000 shares, equal to $4.4 million at economically attractive deals during this last quarter. Our net sales rose 7.1%.

Speaker #2: The bottom line, if you will, the company earned earnings per share of $0.40 for the quarter, an increase of 21.2% from the first quarter a year ago.

Speaker #2: And our highest quarterly earnings per share in the past three years. This result reflects solid operating earnings of $24.9 million, up 7.2% from a year ago.

Speaker #2: Even with one less week this quarter than the year-ago quarter. This also reflects the cumulative effect of having repurchased an additional 225,000 shares, equal to $4.4 million, at economically attractive yields during this last quarter.

Speaker #2: Our net sales rose 7.1%. Revenue growth would have been well above that if we had the extra week this quarter like we had in the first quarter of last year.

Howard Atkins: Revenue growth would have been well above that if we would have had the extra week this quarter like we had in the first quarter of last year. Remember, we came into this quarter with one of our highest quarterly backlogs, $356 million. Our manufacturing and fulfillment teams did a great job efficiently completing revenue over time project orders and standard immediate revenue orders. Approximately 50% of the $356 million backlog was fulfilled in the first quarter. Our gross profit rose 10% this quarter, with gross profit margin rising to 30.5%, up 80 basis points from last year. Several factors contributed to the higher gross profit margin. First, as you may remember, our gross profit margin does tend to rise when revenue rises due to some fixed cost operating leverage within gross profit.

Speaker #2: Remember, we came into this quarter with one of our highest quarterly backlogs, $356 million. Our manufacturing and fulfillment teams did a great job efficiently completing revenue-over-time project orders and standard immediate revenue orders. Approximately 50% of the $356 million backlog was fulfilled in the first quarter.

Speaker #2: Our gross profit rose 10% this quarter, with gross profit margin rising to 30.5%, up 80 basis points from last year. Several factors contributed to the higher gross profit margin.

Speaker #2: First, as you may remember, our gross profit margin does tend to rise when revenue rises due to some fixed cost operating leverage within gross profit.

Howard Atkins: Second, we also had some mix lift this quarter from sales increases in the higher margin transportation and international businesses. Third, we began receiving tariff refunds during the quarter and expect several more quarters of refunds. We will be recording refunds on a cash basis net of client payments going forward as well as we did in the first quarter. Fourth, rising RAM and sensitive input prices put some upward pressure on cost of goods sold, largely offsetting the tariff refunds in the quarter. We began selectively raising product prices early in the second quarter, the quarter that we are in. We expect to manage through a period of market-driven input cost inflation by raising prices with the market and achieving cost savings from procurement and other cost savings initiatives across the supply chain.

Speaker #2: Second, we also had some mixed lift this quarter from sales increases and higher margin transportation and a higher margin transportation and international businesses. Third, we began receiving tariff refunds during the quarter, and expect several more quarters of refunds.

Speaker #2: We will be recording refunds on a cash basis for client payments going forward, as well as we did in the first quarter. And fourth, rising RAM and sensitive input prices put some upward pressure on cost of goods sold, largely offsetting the tariff refunds of the quarter.

Speaker #2: We began selectively raising product prices early in the second quarter—the quarter that we're in—and we expect to manage through a period of market-driven input cost inflation by raising prices with the market and achieving cost savings from procurement and other cost-saving initiatives across the supply chain.

Speaker #2: As mentioned by Ramesh earlier, while orders actually booked in the first quarter were down from a year ago, we did arrange a few substantial orders, which we expect to be booked when we receive the regular purchase orders.

Howard Atkins: As mentioned by Ramesh earlier, while orders actually booked in the first quarter were down from a year ago, we did arrange a few substantial orders, which we expect to be booked when we receive the regular purchase orders going forward. Our backlog coming into the second quarter was $311 million. This was the sixth consecutive quarter in which our product backlog exceeded $300 million. This amount does not yet include the substantial orders that I mentioned earlier, which should also generate revenue throughout the balance of the year, mostly beginning in the third quarter. Our operating expenses, expense trends with respect to operating expenses. Our selling expense rose $2.2 million in the quarter, in part due to the $2 million commission expense on a large international order.

Speaker #2: Going forward, our backlog coming into the second quarter was $311 million. This was the sixth consecutive quarter in which product backlog exceeded $300 million.

Speaker #2: This amount does not yet include the substantial orders that I mentioned earlier, which should also generate revenue throughout the balance of the year, mostly beginning in the third quarter.

Speaker #2: Our operating expenses expense trends with respect to our operating expenses, our selling expense rose 2.2 million dollars in the quarter, in part due to the $2 million $2 million commission expense on a large international order.

Speaker #2: We expect to see some increase in selling costs as additional producers are onboarded for new market and sales channel rollouts during the course of the year.

Howard Atkins: We expect to see some increase in selling costs as additional producers are onboarded for new market and sales channel rollouts during the course of the year. As a percentage of revenue, selling expenses remained at about 8%. Product development expenses increased $1.4 million from a year ago, in part due to having absorbed about $1 million per quarter of labor costs of XDC for the development of our MicroLED. CapEx depreciation and amortization at $4.7 million this quarter. This will gradually increase as we invest more capital in automation during the course of the year. During the last three years, the company averaged about $14 million to $16 million of annual CapEx. We expect that to be in the $20 million range over the next few years, given the high expected returns on these investments.

Speaker #2: As a percentage of revenue, selling expenses remained at about 8%. Product development expenses increased $1.4 million from a year ago, in part due to having absorbed about $1 million per quarter of labor costs of XDC for the development of our microLED.

Speaker #2: Capex depreciation and amortization at $4.7 million this quarter. This will gradually increase as we invest more capital in automation during the course of the year.

Speaker #2: During the last three years, the company averaged about $14 to $16 million of annual CapEx. We expect that to be in the $20 million range over the next few years, given the high expected returns on these investments.

Howard Atkins: Our G&A expense increased $1.3 million in the first quarter, in part due to consulting and additional management expenses associated with the execution of our business initiatives and our operational excellence programs, which are expected to yield solid results starting in the H2 of this year, more fully in 2028. In terms of our earnings, overall growth trend in the various earnings metrics over the last five quarters show solid growth, with operating income at $24.9 million, as I mentioned earlier, margin exceeding the lower end of our 10% to 12% target range. EBITDA rising to $29.6 million. As I mentioned earlier, our earnings per share at $0.40 per share. Another key aspect of our first quarter, importantly, we continue to maintain a resilient balance sheet to profitably and flexibly manage growth and risk.

Speaker #2: Our G&A expense increased $1.3 million in the first quarter, in part due to consulting and additional management expenses associated with the execution of our business initiatives and our operational excellence programs, which are expected to yield solid results starting in the second half of this year, and more fully in 2028.

Speaker #2: In terms of our earnings, overall growth trend in the various earnings metrics over the last five quarters showed solid growth, with operating income at $24.9 million, as I mentioned earlier, exceeding the lower end of our 10% to—and margin exceeding the lower end of our 10% to 12% target range.

Speaker #2: EBITDA rose to $29.6 million. As I mentioned earlier, our earnings per share were $0.40 per share. Another key aspect of our first quarter: importantly, we continue to maintain a resilient balance sheet to profitably and flexibly manage growth and risk.

Speaker #2: Our operating cash flow in the quarter was 31.4 million dollars, with free cash flow at 27 and a half million dollars after capex cash spend.

Howard Atkins: Our operating cash flow in the quarter was $31.4 million, with free cash flow at $27.5 million after CapEx cash spend. The result of the solid earnings I mentioned in the quarter and the continued efficient management of working capital. Working capital did increase approximately $16 million in the quarter compared to the last quarter of last year. I am sorry, the last quarter a year ago, but that was in line with the higher revenue, so the ratio remained basically constant. During the quarter, we purchased $4.4 million of shares at a value-weighted average price of $19.56 per share, roughly 23% of our net income in the quarter. In the last five quarters, the company repurchased $29.9 million worth of shares at a value-weighted average price of $18.04 per share.

Speaker #2: The result of the solid earnings I mentioned in the quarter and the continued efficient management of working capital. Working capital did increase approximately $16 million in the quarter compared to the last quarter of last year.

Speaker #2: I'm sorry, the last quarter a year ago, but that was in line with a higher revenue so the ratio remained basically constant. During the quarter, we purchased $4.4 million of shares at a value-weighted average price of $19.56 per share, roughly 23% of our net income in the quarter.

Speaker #2: In the last five quarters, the company repurchased 29.9 million dollars worth of shares at a value weighted average price of 18 dollars and 4 cents per share.

Speaker #2: As a result, primarily of cash generation and excessive capex, our end-of-period cash balance reached $155 million after share repurchases, with only $10 million in debt.

Howard Atkins: As a result, primarily of cash generation in excess of CapEx, our end-of-period cash balance reached $155 million after share repurchases, with only $10 million in debt. Let me now briefly address a matter that has been in the media concerning the National Basketball Association's investigation of Kawhi Leonard and the Los Angeles Clippers in connection with the league's collective bargaining agreement that many of you may have heard about. As you might expect, we have received requests for information from the National Basketball Association. Additionally, the Securities and Exchange Commission is seeking information from us concerning the company and Mr. Leonard. We take these requests seriously and are cooperating. At this point, out of respect for the respective processes, we will not be providing further comment. Let me turn the floor back over to Ramesh.

Speaker #2: Let me now briefly address a matter that has been in the media concerning the NBA's investigation of Kawhi Leonard and the Clippers, in connection with the league's collective bargaining agreement that many of you may have heard about.

Speaker #2: As you might expect, we have received requests for information from the NBA. Additionally, the Securities and Exchange Commission is seeking information from us concerning the company and Mr. Leonard.

Speaker #2: We take these requests seriously and are cooperating. At this point, out of respect for the respective processes, we will not be providing further comment.

Speaker #2: And now, let me turn the floor back over to Ramesh.

Speaker #3: Thank you, Howard.

Ramesh Jayaraman: Thank you, Howard. We are off to a strong start for fiscal 2027, with continued momentum in sales, operating margin, and EPS. Daktronics is the leading end-to-end solution provider, and I am absolutely proud to serve the company. As outlined in our Investor Day, we are the market leader in the large format LED industry with a skilled and committed team. Our large end markets are driven by secular demand trends, all growing at 2 to 3x GDP. We are executing well on our strategic growth and operational excellence plans towards our committed profitability goals. We are deploying capital responsibly and with discipline to achieve more profitable, sustainable growth with improved resiliency, reliability, and efficiency. We are deploying this capital to maximize returns to our shareholders. Moving to the next slide. As we move deeper into fiscal 2027, we continue to track toward our fiscal 2028 targets, which we reaffirm today.

Speaker #2: We're off to a strong start for fiscal '27. With continued momentum in sales, operating margin, and EPS, Daktronics is the leading end-to-end solution provider, and I'm absolutely proud to serve the company.

Speaker #2: As outlined in our Investor Day, we are the market leader in the large-format LED industry, with a skilled and committed team. Our large end markets are driven by secular demand trends, all growing at 2 to 3 times GDP.

Speaker #2: We are executing well on our strategic growth and operational excellence plans toward our committed profitability goals. We're deploying capital responsibly and with discipline to achieve more profitable, sustainable growth with improved resiliency, reliability, and efficiency.

Ramesh Jayaraman: We are executing well on our strategic growth and operational excellence plans towards our committed profitability goals. We are deploying capital responsibly and with discipline to achieve more profitable, sustainable growth with improved resiliency, reliability, and efficiency. We are deploying this capital to maximize returns to our shareholders. Moving to the next slide. As we move deeper into fiscal 2027, we continue to track toward our fiscal 2028 targets, which we reaffirm today.

Speaker #2: And we are deploying this capital to maximize returns to our shareholders. Moving to the next slide, as we move deeper into fiscal '27, we continue to track toward our fiscal '28 targets, which we reaffirmed today.

Speaker #2: First, 7 to 10 percent revenue three-year target. Second, operating margin in the 10 to 12 percent range. And ensuring our ROIC is in the 17 to 20 percent range.

Ramesh Jayaraman: First, 7% to 10% revenue, three-year CAGR. Second, operating margin in the 10% to 12% range, and ensuring our ROIC is in the 17% to 20% range. We are pleased with our progress and really excited about our forward plan. We have a strong backlog, continued demand across our major end markets, and a clear set of carefully considered execution priorities that support our path forward and our confidence. Now I will return the call over to the operator to take your questions.

Speaker #2: We are pleased with our progress, and we're excited about our forward plan. We have a strong backlog, continued demand across our major end markets, and a clear set of carefully considered execution priorities that support our path forward and our confidence.

Speaker #2: Now we'll turn the call over to the operator to take your questions.

Speaker #3: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press *11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press *11 again.

Operator: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star one one again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Aaron Spychalla with Craig-Hallum Capital Group. Your line is open.

Speaker #3: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Aaron Spichala with Greg Helan Capital Group. Your line is open.

Speaker #4: Yeah, good morning, Ramesh and Howard. Thanks for taking the questions. First, for us on live events, it sounds like there's some order timing there.

Aaron Spychalla: Yeah, good morning, Ramesh and Howard. Thanks for taking the questions. First for us on live events, sounds like some order timing there. Can you just speak to the confidence in closing some of those here in the Q2? And then, performance has just been really solid there. Any changes you are seeing in win rates or competitively dynamics in that market?

Speaker #4: Can you just speak to the confidence in closing some of those here in the second quarter? And then, you know, performance has just been really solid there.

Speaker #4: You know, any changes you're seeing in win rates or competitive dynamics in that market?

Ramesh Jayaraman: Aaron, good to have you on the call. Live events, as you know, it is a large timing-oriented business, and really it is a timing of some of the negotiations that are in progress that we expect to be slightly delayed from Q1 into the latter part of Q2. That is where we kind of stand. With regards to all the other businesses, what we can say is our pipeline continues to be robust across the board, and we are beginning to see the pipeline beginning to shape up as the weeks and months take shape. That is where we stand.

Speaker #2: Aaron, good to have you on the call. So, live events—as you know—it's a large, timing-oriented business, and really it's a matter of the timing of some of the negotiations that are in progress, which we expect to be slightly delayed.

Speaker #2: You know, from Q1 into the latter part of Q2. So, that's where we kind of stand. With regard to all the other businesses, what we can say is our pipeline continues to be robust.

Speaker #2: Across the board, and you know, we are beginning to see the pipeline starting to take shape as the weeks and months progress. So that's where we stand.

Speaker #4: All right, thanks. And then on software and services, you know, you talked about Camino 8. You know, maybe can you just talk a little bit about some of the goals there?

Aaron Spychalla: All right, thanks. Then on software and services, you talked about Camino 8. Maybe could you just talk a little bit about some of the goals there, whether it is attach rates or just how you see margin impact there as that business grows for you?

Speaker #4: You know, whether it's attach rates or just how, you know, you see margin impact there as that business grows for you?

Speaker #2: Yes, you know, I mean, I think for us, fundamentally, when you look at it, we have been, I would say, on the capex side of a stadium build or, you know, a new construction that kind of goes on.

Ramesh Jayaraman: Yes, I think for us, fundamentally, when you look at it, we have been, I would say in the CapEx side of a stadium build or a new construction that kind of goes on. Really what we see is, as we look at our 10-year association with the customer from software services, it really gives us a unique opportunity to go and to start working with them on 2D, 3D graphics, integrating with our Show Control. That is a unique opportunity that allows for a customer to be able to deploy and use the solutions across the board. We are beginning to see this more and more from our customers, to be involved as a part of the operations, and that is where we are playing. That is giving, I would say, amplification to Camino 8 as we kind of spoke about.

Speaker #2: Really, what we see is, you know, as we look at our 10-year association with the customer from software services, it really gives us a unique opportunity to go in to start working with them on 2D, 3D graphics, integrating with our show control.

Speaker #2: And that's a unique opportunity that allows a customer to be able to deploy and use the solutions across the board. We are beginning to see this more and more from our customers.

Speaker #2: To be involved as a part of the operations, and that's where we are playing. And that's giving, you know, I would say, amplification to Camino 8, as we kind of spoke about.

Aaron Spychalla: Great, thanks for that. Then maybe one last one on margins. How much was the tariff impact in the first quarter? Sounds like you are expecting some more there, and it does just seem early in some of these operational excellence initiatives. Sounds like some balance between ASPs and costs, but just how are you thinking about margins trending from here?

Speaker #4: Great, thanks for that. And then maybe one last one on margins. You know, how much was the tariff impact in the first quarter? It sounds like you're expecting some more there, and it does just seem early in some of these operational excellence initiatives.

Speaker #4: It sounds like there's some balance between ASPs and costs, but just, you know, how are you thinking about margins trending from here?

Howard Atkins: Yeah. Aaron, we did in our release, and in our comments here, talk about the pluses and the minuses. To answer your question specifically, the tariff refund on a cash basis in the Q1 was about $3 million. As we said, again, that is going to change from one quarter to the next, but we expect to get some more incoming quarters because we are accounting for it on a cash basis, and when received. But as I say, there were pluses and minuses in the quarter, including cost increases that we referred to, which largely offset the $3 million.

Speaker #2: Yeah. So Aaron, we did, in our release and in our comments here, talk about the pluses and the minuses to answer your question specifically.

Speaker #2: The tariff refund on a cash basis in the first quarter was about $3 million and as we said, you know, we should again, that's going to change from one quarter to the next, but, you know, we expect to get some more incoming quarters because we are, you know, accounting for it on a cash basis.

Speaker #2: And when received. But as I say, there were pluses and minuses in the quarter, including, you know, cost increases that we referred to, which largely offset the $3 million.

Speaker #4: All right. Thanks for taking the questions. I'll turn it over.

Aaron Spychalla: All right. Thanks for taking the questions. I will turn it over.

Speaker #3: One moment for our next question. Our next question comes from Tom Hayes with Roth Capital Partners. Your line is open.

Operator: One moment for our next question. Our next question comes from Tom Hayes with Roth Capital Partners. Your line is open.

Tom Hayes: Hey, good afternoon, guys. Appreciate you guys taking the call, and congratulations on the nice start to the year. Ramesh, I was wondering if you could provide a little bit more color on the Mexico facility, progress in Q1, your expectations as we progress through the year, and what market or opportunities does that really provide you when it is fully up and running?

Speaker #5: Hey, good afternoon, guys. Appreciate you guys taking the call and congratulations on the nice start to the year. Ramesh, I was wondering if you could provide a little bit more color on the new Mexico facility kind of, you know, progress in Q1, your expectations as kind of we progress through the year and what market or opportunity does that really kind of provide you?

Speaker #5: You know, when it's fully up and running?

Speaker #2: Yeah, so Tom, you know, we are beginning to look at our manufacturing network just across the board, right? So, as we kind of start looking at geopolitical movements, commodity movements, supplier movements, we are looking at the entire stuff to say, you know, how do we basically keep the company rolling?

Ramesh Jayaraman: Yeah. Tom, we are beginning to look at our manufacturing network just across the board, right? As we kind of start looking at geopolitical movements, commodity movements, supplier movements, we are looking at the entire stuff to say, how do we basically keep the company rolling? As we really look at our customer demand cycle build up, I think in Investor Day, we spoke about some of the installations happening in 14 days. So what we are also beginning to see is tighter schedules that are happening for us to go cater. So a combination of our world footprint plays a part, and Mexico will play a part. To start with, Mexico will play a bigger part with the live events business, just in ensuring we are able to cater to the global timeline.

Speaker #2: Two, as we really look at our customer demand cycle, you know, build-up, I think at Investor Day we spoke about some of the installations happening in 14 days.

Speaker #2: You know, what we're also beginning to see is tighter schedules that are happening for us to go cater to. So, a combination of our world footprint plays a part, and Mexico will play a part to start with. Mexico will play a bigger part with the live events business, just in ensuring we are able to cater to the global timeline.

Ramesh Jayaraman: So a combination for US, China, Mexico, and honestly, other facilities, as we come together to go deal with those projects will be the first priority as we get started. So that is where Mexico will be leveraged, and I think as time builds up and we get comfortable with Mexico and the supply chain and how it builds out, we will see the best use of the best plan to ensure we get the best cost leverage to get it in terms of landed cost per square meter.

Speaker #2: So a combination of our US, China, Mexico, and, honestly, other facilities as we kind of come together to deal with those projects will be the first priority.

Speaker #2: As we get started. So that's where Mexico will be leveraged and I think as time kind of builds up and we kind of get comfortable with Mexico and the supply chain and, you know, how it builds out, you know, we will see the best use of the best plan to ensure we get the best cost leverage to get it in terms of landed cost per square meter.

Speaker #5: Okay, appreciate that. And then, Howard, on the margin commentary you provided earlier, I just wanted to kind of dig into that a little bit.

Tom Hayes: Okay. Appreciate that. Howard, on the margin commentary you provided earlier, I just wanted to dig into that a little bit. It sounds like you expect more tariff refunds this year. You have put in some price increases that should offset some of the rising raw material prices. So does that equate to you holding margin flat to maybe upwards as you guys progress?

Speaker #5: It sounds like you expect more tariff refunds this year. You've put in some price increases that should offset some of the rising raw material prices.

Speaker #5: So does that kind of equate to, you know, holding margin flat to maybe upward as you guys progress?

Howard Atkins: Again, margin depends on lots of other things, but in terms of those two impacts, I think the messaging we are talking about here is we do expect, on a cash basis, several more quarters worth of tariff refund. And on the RAM and other input costs, I am sure you understand that that is happening now. And our expectation is that we will manage that in a variety of different ways, including some price increases with market. As you know, we also have a major procurement effort going on right now. So it is something that we monitor on a day-to-day basis, frankly, with a view towards offsetting the cost as much as we can.

Speaker #2: You know, again, margin depends on lots of other things, but in terms of those two impacts, I think the messaging we're talking about here is we do expect, on a cash basis, several more quarters' worth of tariff refund.

Speaker #2: And on the, you know, on the RAM and other input costs, you know, it's I'm sure you understand that that's happening now and our expectation is that we will, you know, manage that in a variety of different ways, including some price increases with market, as you know, we also have a major procurement effort going on right now.

Speaker #2: So, it's, you know, something that we monitor on a day-to-day basis, frankly, with a view towards, you know, offsetting the cost as much as we can.

Speaker #5: Okay.

Tom Hayes: Okay.

Speaker #2: So that's where we are.

Howard Atkins: That's where we are.

Tom Hayes: Appreciate that. Maybe just one last one.

Speaker #5: Appreciate that. Maybe just one last one.

Howard Atkins: Just to mention again, Tom, the price increases that I referred to started the Q2, not in the Q1. There was no offset to the input cost inflation in the Q1, was not managed yet by price increases. That'll start coming through this quarter.

Speaker #2: But just to mention again, Tom, the price increases that I referred to started in the second quarter, not in the first quarter. So there was no offset to the input cost inflation in the first quarter.

Speaker #2: It was not managed yet by price increases. That'll start coming through this quarter.

Speaker #5: Okay, great. And maybe just lastly, Ramesh, I think in the early part of the presentation you discussed this strong order activity in transportation. Maybe just kind of talk about some of the drivers of that.

Tom Hayes: Okay, great. Maybe just lastly, Ramesh, I think in the early part of the presentation, you discussed the strong order activity and transportation. Can you just talk about some of the drivers of that? Thank you.

Speaker #5: Thank you.

Ramesh Jayaraman: Yes. Transportation overall, as you see the ITS platform, which is the intelligent transport stuff. That is the stuff on top of roadways. We go through a cycle, and we have got a decent cycle with the ITS stuff that is building up. I think on airports, which is where we kind of forayed into, we have always done the outside of airports, departure places, as people come in. As we forayed into the inside, what we are beginning to see is, we are beginning to get new orders from more airports, one. Two, also expansion orders from the same airports that we have spoken about before. So LA Airport is a great example. We went through that before. Now we are kind of in the phase 2, phase 3 of the build that is beginning to happen. So we feel pretty good about what is kind of building.

Speaker #2: Yes. Transportation overall, as you see the ITS platform—which is the intelligent transport stuff—that’s the stuff on top of roadways. We are, you know, we go through a cycle and, you know, we’ve got a decent cycle with the ITS stuff that’s building up.

Speaker #2: I think on airports, which is where we kind of forayed into, you know, we've always done the outside of airports—you know, departure places, you know, as people come in.

Speaker #2: As we forayed into the inside, you know, what we are beginning to see is we are beginning to get new orders from more airports, one.

Speaker #2: Two, there are also expansion orders from the same airports that we've spoken about before. L.A. Airport is a great example; we went through that before. Now, we are kind of in the phase two, phase three of the build that's beginning to happen.

Speaker #2: So we feel pretty good about what's kind of building. And clearly, from a mass transit perspective, we're beginning to see some upgrades happening, as I just spoke about—Florida and other places, Houston—and that is beginning to come.

Ramesh Jayaraman: From mass transit perspective, we are beginning to see some upgrades happening, as I just spoke about Florida and other places, Houston, and that is beginning to come. I think it is coming because of two elements. One, it is a proven fact that our stuff lasts for a very long time, and that is a durability question that happens in transportation that is evident. Two is, as some of the new product developments kind of come through with our narrow pixel line and everything else, we are actually able to expand share into these customers, and that is where we are.

Speaker #2: And I think it's coming because of two elements. One, you know, it is a proven fact that our stuff lasts for a very long time, and that's a durability question that happens in transportation that is evident.

Speaker #2: Two is, you know, as some of the new product developments kind of come through with our narrow pixel line and everything else, we are actually able to go expand share into these customers, and that's where we are.

Speaker #5: Appreciate the color. Thank you.

Tom Hayes: Appreciate the color. Thank you.

Speaker #1: Again, ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. One moment before our next question.

Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from Anja Soderstrom with Sidoti. Your line is open.

Speaker #1: Our next question comes from Andra Soderstrom with Sidoti. Your line is open.

Anja Soderstrom: Thank you for taking my question. Howard, you said the price increases came through in Q2, so there is a lag of that in terms of high input.

Speaker #3: Hi, thank you for taking my question. So, Howard, I just want to confirm—you said the price increases came through in the second quarter.

Speaker #3: So there's a lag to that in terms of the high input.

Howard Atkins: I am sorry, Anja, I did not get the second half of your question.

Speaker #2: I'm sorry, Andra. I didn't get the second half of your question.

Anja Soderstrom: You are only increasing the prices in Q2 to offset the higher input, so there is a lag of that. Is that going to be an ongoing thing, or are we going to continue to see a lag?

Speaker #3: No. So you're only increasing the prices in the second—a lag of that. But is that going to be an ongoing thing, or are we going to continue to see a lag?

Anja Soderstrom: You are only increasing the prices in Q2 to offset the higher input, so there is a lag of that. Is that going to be an ongoing thing, or are we going to continue to see a lag?

Ramesh Jayaraman: Price increases are getting impacted in Q2.

Speaker #2: So, price increases are getting impacted in the second quarter.

Ramesh Jayaraman: Price increases are getting impacted in Q2.

Howard Atkins: In the Q2. I think the point I am trying to make is that the Q1 did not include any offset to the cost increases.

Howard Atkins: In the Q2. I think the point I am trying to make is that the Q1 did not include any offset to the cost increases. From new product price increases. We did start raising prices selectively so far this quarter, and you will see progressively as we go through the quarter, the effect of that in the quarter.

Speaker #5: In the second quarter, I think the point I'm trying to make is that the first quarter did not include any offset to the cost increases from new product launches or price increases.

Howard Atkins: From new product price increases. We did start raising prices selectively so far this quarter, and you will see progressively as we go through the quarter, the effect of that in the quarter.

Speaker #5: We did start raising prices selectively so far this quarter, and you will see progressively, as we go through the quarter, the effect of that in the quarter.

Speaker #3: Okay, so that should help the margins further in the second quarter and throughout the year.

Anja Soderstrom: Okay, so that should help the margins further in the Q2 and throughout the year.

Speaker #2: Well, again, there are all kinds of other things going through the margin. As we mentioned, the refunds will go through if they continue. You know, cost increases will need to be managed properly, but yes, starting this quarter we'll start seeing some price increases impacting the margin.

Howard Atkins: Well, again, there are all kinds of other things going through the margin. As we mentioned, the refunds will go through if they continue. Cost increases will need to be managed properly. But yes, starting this quarter, we will start seeing some price increases impacting the margin.

Speaker #3: Okay, thank you. And then in terms of just your longer-term targets, with all the moving parts, what gives you confidence that you're going to be able to achieve that longer-term margin profile?

Anja Soderstrom: Okay, thank you. Then in terms of just your longer term targets with all the moving parts, what gives you confidence in that you are going to be able to achieve that longer term margin profile?

Speaker #2: Yeah, I think it's a few areas, right? One, I think, looking at—you know, going back to what we spoke about, Anya—you know, on the organic side, it is clearly driven by the growth as well as operational excellence.

Ramesh Jayaraman: Yeah, I think it is a few areas, right? One, I think looking at going back to what we spoke about, Anja, in the organic side, it is clearly driven by the growth as well as operational excellence. We look at both sides of the coin and building towards the growth, but also an operational excellence part. So on the growth side, as you guys have seen, things have been going pretty stable in terms of where we are to what we have been kind of expecting. I think overall, the secular trends remain strong. We are expanding into new vertical markets that we alluded to. The software services gives us stickiness, and clearly our plan is also for more international growth as we look at building that segment of the business. I think what also gives us confidence is the operational excellence side.

Speaker #2: You know, we look at both sides of the coin in building towards growth, but also an operational excellence part. So, on the growth side, as you guys have seen, things have been going pretty stable in terms of where we are.

Speaker #2: To what we've been kind of expecting, you know, and I think overall the secular trends remain strong. We are expanding into new vertical markets that we alluded to.

Speaker #2: The software services give us stickiness, and, you know, clearly our plan is also for more international growth as we look at building that segment of the business.

Speaker #2: I think where it also gives us confidence is the operational excellence side. You know, as we start looking at procurement and what we are beginning to do with the data cube and what it's beginning to show us, we have clear opportunities in direct and indirect spend.

Ramesh Jayaraman: As we start looking at procurement and what we are beginning to do with the data cube and what it is beginning to show us, we have clear opportunities in direct and indirect spend. Two, with the manufacturing network optimization, we will see opportunities as we try to automate. That clearly gives us really good returns on investments, invested capital that we can see, and the lean processes. So we are seeing both sides kind of working down that execution line, and that is going to be a critical focus for us as we build the business.

Speaker #2: Two, with the manufacturing network optimization, we will see opportunities as that clearly gives us really good returns on invested capital that we can see.

Speaker #2: And the lean processes. So, you know, we are seeing both sides kind of working down that execution line, and that's going to be a critical focus for us as we build the business.

Anja Soderstrom: Okay, thank you. That was all for me.

Speaker #3: Okay, thank you. That was all from me.

Speaker #1: And I'm not showing any further questions at this time. I'll turn the call back over to Ramesh for any further remarks.

Operator: I am not showing any further questions at this time. I turn the call back over to Ramesh for any further remarks.

Ramesh Jayaraman: Well, thank you everyone for joining our call today. We will be participating at the November Raymond James Symposium, as well as other investor events coming up. Thank you again for your trust you have in place for us. We are excited about what is to come. Enjoy the last few days of summer, and we will speak to you all again in the fall. Have a great day.

Speaker #2: Well, thank you, everyone, for joining our call today. We will be participating at the November Raymond James Symposium, as well as other investor events coming up.

Speaker #2: Thank you again for your trust you have in place for us. We are excited about what is to come. Enjoy the last few days of summer, and we'll speak to you all again in the fall.

Speaker #2: Have a great day.

Speaker #1: Thank you, ladies and gentlemen. We appreciate your participation. This does conclude today's presentation. You may now disconnect and have a wonderful day.

Operator: Thank you, ladies and gentlemen. We thank you for your participation. This does conclude today's presentation. You may now disconnect and have a wonderful day.