Daktronics (DAKT) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, March 4, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Interim President and CEO — Brad Wiemann
• CEO and President — Ramesh Jayaraman
• Acting Chief Financial Officer — Howard Atkins
• Vice President of Investor Relations — Lindsey Vetter

TAKEAWAYS

• Revenue -- $182,000,000 reported, representing a 21.6% increase year over year, primarily from efficient order conversion.
• Gross Profit Margin -- 24% for the quarter, essentially flat year over year; sequentially declined from 27% due to operating leverage effects and increased tariff expenses.
• Orders -- Orders exceeded $200,000,000 for the fifth consecutive quarter, with new order growth of 7.6% and a record in the Transportation segment.
• Product and Services Backlog -- $342,000,000 at quarter end, an increase of 25%, concentrated in Live Events projects.
• Net Income -- $3,000,000 reported, or $0.06 per fully diluted share; adjusting for nonrecurring management and acquisition expenses, adjusted net income is $4,600,000.
• Operating Income -- $1,900,000 pretax, reversing an operating loss of $3,600,000 a year prior.
• Share Repurchases -- 1,300,000 shares repurchased during nine months at a volume-weighted average price of $17.60, with $17,000,000 remaining under authorization.
• Cash Balance -- $144,000,000 cash at period end, up 13% from prior year, with zero bank line borrowings outstanding.
• Live Events Segment -- Six of six Major League Baseball project wins year to date, including the Seattle Mariners, and multiple other stadium enhancements reported.
• Transportation Segment -- Orders up 130%, including a major project at a top five U.S. airport and additional wins from Caltrans.
• Commercial Segment -- Large national customer order in on-premise advertising; Out of Home revenue down due to a key account's purchase delays, with recovery expected in the next quarter.
• International Segment -- Sizable stadium orders secured in Spain and Australia, while overall international business declined after a strong prior year.
• High School Park and Recreation Segment -- Order growth of 13.4%, expanded market share among U.S. high schools, and increased adoption of professional services.
• Acquisition -- Intellectual property and associated engineering teams from XCC acquired, advancing micro LED and micro integrated circuit development and expanding narrow pixel pitch product lines.
• Operations Initiatives -- Strategic price adjustments, SaaS business model development, digitization, and artificial intelligence adoption actively underway to improve productivity and revenue recurrence.
• Manufacturing Facility -- Mexico facility on track to be operational in first quarter of fiscal 2027; not expected to materially impact gross margin.

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RISKS

• Atkins reported, "We had an extra $6,000,000, for example, of total tariff expense in the third quarter of this year," resulting in compressed sequential gross margins.
• Management stated the market outcome for Supreme Court tariff-related refunds remains "highly uncertain for the foreseeable future."
• Live Events revenue mix led to lower margins, as fulfillment was "largely from the lower-margin Live Events business line."
• International business declined compared to the previous year, despite localized order wins.

SUMMARY

Daktronics (NASDAQ:DAKT) delivered revenue and new orders growth, anchored by significant expansion in Live Events and Transportation, which drove the backlog to a multiyear high. Management emphasized operational initiatives including price adjustments, digital transformation, and expansion into narrow pixel pitch and micro LED segments via a recent acquisition. The company maintained a disciplined capital allocation approach with ongoing share repurchases and a growing cash reserve, bolstered by a zero-debt position. Despite improved net income and operating profitability, sequential margin compression arose from tariff costs and continued reliance on Live Events fulfillment. Investor focus is directed to additional product launches and a strategic update at the April 9 Investor Day.

• Jayaraman emphasized an organizational shift towards a "market-led, technology-driven, and customer-focused" strategy in his first quarter as CEO.
• A major pipeline of orders is expected to convert into revenue over multiple quarters, providing a "multi-quarter runway" and supporting stronger revenue recurrence trends.
• Management reinforced ongoing adaptability in supply chain practices and indicated cash strength would enable select M&A opportunities where "industrial logic" justifies deployment.
• Wiemann confirmed the Out of Home revenue shortfall stemmed from a key customer's acquisition integration, with order normalization anticipated in the upcoming quarter.

INDUSTRY GLOSSARY

• Narrow pixel pitch: A display technology term referring to high-resolution LED panels with closely spaced pixels, often used for indoor applications requiring detailed image quality.
• Chip-on-board (COB): A manufacturing method in LED technology in which multiple diode chips are mounted directly onto a substrate to improve display brightness, uniformity, and reliability.
• SaaS (Software-as-a-Service): A recurring-revenue business model delivering software solutions via subscription, typically hosted in the cloud and accessed remotely.
• Out of Home (OOH): The advertising industry segment comprising digital billboards and other public-location display networks outside consumers' homes.

Full Conference Call Transcript

Lindsey Vetter: Thank you, Jonathan. Good morning, everyone, and thank you for participating in our third quarter earnings conference call. During today's presentation, we will make forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities. These forward-looking statements reflect the company's expectations 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 accompanying presentation slides, which may be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the 2026 third quarter, which was furnished to the SEC on Form 8-K this morning, also contains certain non-GAAP financial measures. Reconciliations 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.

I will now turn the call over to Brad Wiemann, Interim President and CEO through the third quarter, for his review.

Brad Wiemann: Well, good morning, everyone. Welcome to our call. Thank you for joining our third quarter fiscal 2026 call. I am joined on the call by Howard Atkins, board member and Acting Chief Financial Officer, along with Ramesh Jayaraman, CEO and President, who is officially in the role as of February 1. We will review our fiscal 2026 third quarter, which ended on 01/31/2026, along with the results and accomplishments, and then take your questions. Turning to our slide presentation on slide three, here are the key messages for the third quarter.

The team delivered another quarter of solid results, driving revenue growth of 21.6% year over year, despite the effectively shorter work period due to the three major holidays as well as adverse weather conditions throughout the quarter. Our manufacturing team did a superb job in efficiently converting the order book we have built over the past few quarters. During the quarter, we progressed with several large-scale installations, including five Major League Baseball stadiums, such as the Seattle Mariners, as well as the University of Illinois football's video scoring system. Orders in the quarter were once again over $200,000,000. Our sales and marketing team secured large orders in our Live Events segment.

Our Transportation segment had a record order quarter with a good uptake in airports and in intelligent transportation systems. With new order growth in the quarter at 7.6%, our product and services backlog grew to $342,000,000 coming into Q4 and is 25% higher than it was this time last year. In December, we announced our acquisition of the intellectual property and the absorption of associated engineering teams from ex display companies, or XCC, expanding our micro LED and micro integrated circuit capabilities. XTC advances our high-resolution, narrow pixel niche product offerings and provides us a cost-effective pathway to service small volume display opportunities with medium-sized display solutions.

While the Supreme Court decision on reciprocal tariffs is now known, the market outcome with respect to refunds is likely to be highly uncertain for the foreseeable future.

Turning to slide four. In our Live Events business, as I mentioned, we won another Major League Baseball project in the quarter, making us six for six in large Major League Baseball projects in fiscal 2026. Additionally, we won several other stadium and arena display enhancements, as customers continue to expand their digital display footprint throughout their venues. We continue to enhance our product and service offerings to align with customer needs, such as our narrow pixel pitch product line, advanced control system capabilities to engage fans, and improved seamless control and management of displays from anywhere, giving venue operators greater flexibility and control over their digital assets. Pictured here is the Seattle Mariners slide deck.

In our Commercial business, on-premise advertising remained strong. Customers continue the successful transition to next-generation fuel-type products, which was supported by a large order from a national customer. In our Out of Home business, we added several new customers this quarter, but were down overall due to purchase delays from a key account, which we expect to recover in the fourth quarter. Our pipeline of opportunities continues to expand with independent billboard operators, as more and more customers recognize our value proposition based on brand strength, image quality, reliability, service responsiveness, and reputation for innovation with the release of our new billboard products.

In our Outdoor Spectacular segment, we booked a large order in Times Square, and we grew our pipeline of projects. We also expanded our indoor business sold through audiovisual integrator channels through our offerings of narrow pixel pitch chip-on-board products. Pictured here is the Miami Beach Convention Center.

In Transportation, orders for both intelligent transportation systems and aviation were up a record 130% from last year. We secured a very significant project with one of the top five airports in the U.S., along with new orders from Caltrans in California. Pictured here is a rendering of that top five airport win.

In International, after a great order year in 2025, our international business was down from last year. However, we have secured sizable orders from two stadium customers in Spain and Australia as they are expanding their systems. We also see a strong uptake in indoor solutions across multiple markets, especially government entities, through growing our audiovisual integrator channel partners. Pictured here is an indoor video display at the United Arab Emirates University.

High school parks and recreation continues to have a solid year with third quarter order growth of 13.4% over the last year. We have expanded our presence among the 30-some thousand high schools in the U.S. and continue to win projects by leveraging our position in the communities we serve and enhancing our differentiating financial service offerings through Daktronics Sports Marketing. We expect continued strong uptake in our leading solutions and adoption of professional services, particularly in high school curriculum development and in-classroom service offerings. Pictured here is Marathon High School in Florida.

Turning to slide five. Key product releases. Our commitment to innovation continues to differentiate us as a value provider among our customers. In the third quarter, we introduced our next-generation indoor video solution for high school arenas, as well as a next-generation digital audio facade for outdoor audio solutions. For the remainder of fiscal 2026, we have two additional product launches planned: our next-generation LED street furniture, as well as specialized large-digit fuel price system offerings, which expand our product line for high-rise signage for long-distance viewing. The photos here show an example of our indoor narrow pixel pitch at Eldon High School in Eldon, Iowa, and our new digital audio facade installed at Dallas Independent School in Dallas, Texas.

Turning to slide six. Our plan to achieve sustainably higher profit growth for the company remains on track. In the third quarter, here is an update on initiatives and progress. The strategic price adjustments we have implemented align with our value-selling approach. The development of our software-as-a-service initiative augments how we serve the market, developing recurring revenue subscription models and simplifying our customer engagement. We are digitizing most aspects of our business to make it easier and faster for customers to do business with us and to improve internal operating efficiency, and we are actively applying artificial intelligence to improve productivity throughout the company.

I will now turn it over to Howard Atkins, our Acting Chief Financial Officer, to review our financials.

Lindsey Vetter: Howard?

Howard Atkins: Thank you, Brad, and good day, everyone. Thank you for your interest in Daktronics, Inc. The Daktronics team produced another solid quarter in the third quarter. We anticipated the usual seasonal pattern with fewer days to complete order bookings and to fulfill revenue, and also typical adverse weather conditions that did prevail in the quarter. But because this was anticipated, we took steps in the field and in our manufacturing to continue the year-over-year growth that we have now produced over each of the last four quarters. As Brad mentioned, orders grew about 8%. Remember, last year in the third quarter we booked a $30,000,000 stadium order.

This year in quarter three, we also had a number of larger orders, including one stadium order on the last day of the quarter, but the single largest deal in the third quarter of this year was $13,000,000. Importantly, our orders have now been relatively broad-based at or over $200,000,000 in each of the last five quarters, including a record Transportation order in the third quarter.

As orders have grown, so has revenue. We had $182,000,000 in the quarter, which grew more than 20% year over year, mostly due to efficient order conversion by our manufacturing teams during the quarter, which included working more than one shift at times to fulfill the extra order flow around the holidays. Gross profit margin in the quarter was essentially flat to the year-ago quarter at 24%, reflecting a variety of factors: one, the benefit of operating leverage as revenue rose year over year relative to fixed costs in our cost of goods sold; secondly, the efficiencies we have achieved up and down the supply chain as a result of the business transformation initiatives that have been undertaken in the last year; and thirdly, mix on new business was a little bit better in the third quarter than previously. These margin benefits were offset by the fact that backlog fulfillment in the quarter was largely from the lower-margin Live Events business line. More importantly, last year did not contain any reciprocal tariffs or any other of the newer tariffs that were only introduced late in 2025.

We had an extra $6,000,000, for example, of total tariff expense in the third quarter of this year. The sequential gross profit margin declined from 27% to 24%. The main factor there was fixed-cost operating leverage which, as previously described, when revenue is going up, it typically goes up faster than our fixed costs in COGS, and on the way down, it just has the opposite effect. So our revenue declines a little faster than the fixed-cost side of cost of goods sold.

Daktronics third quarter 2026 net income after tax was $3,000,000, or $0.06 per fully diluted share. This quarter included nonrecurring expenses related to management transition and acquisition expenses of $1,600,000, or adjusted net income of $4,600,000. Last year's third quarter net loss of $17,200,000 included a $14,000,000 fair value adjustment on the convertible note that has since been converted and also contained $3,600,000 of consultant-related expenses associated with the business transformation initiatives and corporate governance matters that pertained last year. Adjusted net income a year ago, therefore, was about $500,000, so we are up quite substantially from there. After removing the nonrecurring expenses and noncash benefit, our third quarter 2026 net income rose significantly on an adjusted basis.

Since we have solid earnings, we are able, starting this year, to take advantage of the new tax laws permitting accelerated depreciation for R&D and other expenses.

On a pretax basis, operating income for the quarter was $1,900,000 compared with an operating loss of $3,600,000 in 2025. In addition to the nonrecurring items, the company incurred a $400,000 expense for the first time as it absorbed the expert developers that Brad mentioned before from XPC. The impact of the intellectual property adjustments on the Daktronics balance sheet is negligible. We had a small gain offset by a write-down of the remaining loan that we had to XDC from Daktronics. So negligible balance sheet impact and about a $400,000 impact on operating expenses for the one month that we absorbed so far the new team.

Let me now turn to segment revenue. This table, if you remember, shows at the business-line level, over a period of time last year and then sequential quarters as well, the percentage of our revenue coming from each of our business lines and the margin most commonly we are earning on each of those businesses. It also shows the gross profit margin earned in the third quarter. This gives you some sense of how business mix is impacting our revenue. As indicated a couple of times, most of our revenue growth this past year has derived from the fulfillment of Live Events projects, typically lower-margin projects. So that is what is coming through on the revenue line.

We did have a small amount of revenue in the quarter coming through the orders, but as Brad alluded to before, this quarter in particular we had a little bit of a skewing towards the back end of the quarter in terms of the new order growth, and as a result, the revenue contribution from that will land in the fourth quarter as opposed to the third quarter. So, again, most of the revenue coming through in the third quarter was from backlog. I should mention that in Live Events, the fulfillment that we have is heavily engineered with high dependence on indirect installation costs.

The next slide shows you our segment product backlog, and last quarter we highlighted for you again that most of the revenue coming through from the backlog was Live Events. The product backlog stood at $342,000,000 at the end of the third quarter, continuing to be up—up 25% from a year ago. Particularly with the recent major wins, our backlog remains high and remains weighted towards Live Events. We are now starting to convert the major projects that we have talked about over the past couple of quarters, which will be a feature of our revenue growth in the fourth quarter and into the early part of 2027.

This gives us, as you would imagine, a multi-quarter runway on our revenue and a more predictable growth pattern and stronger revenue recurrence over the next couple of quarters. The combination of a high backlog, as I have just alluded to, coming into the fourth quarter with what we are seeing as a good pipeline already in the fourth quarter—good order momentum—sets us up well for a good top- and bottom-line finish to the year.

Let me now move to the next slide and talk about our balance sheet, which, as you may remember, has been substantially strengthened over the last three or four quarters. This slide shows you how we are managing working capital and capital allocation. First, our inventory levels have moderated relative to revenue over the past several quarters. Our manufacturing team has done a really good job efficiently managing inventory. This is one of the initiatives that we undertook in the business transformation projects over last year, and this reflects again better alignment and improving efficiency in our working capital management.

During the first nine months of the year, we repurchased approximately 1,300,000 shares of common stock at a volume-weighted average price of $17.60. That leaves us with about $17,000,000 worth of open share repurchase authorization. Since the company reinstituted its share repurchase program in late 2024, the company has repurchased 3,360,000 shares of stock at a VWAP of about $15.15. We ended the quarter with a cash balance of $144,000,000, an increase of 13% from 2025. So we continue to run a relatively strong cash balance, even with the share repurchase activity.

We essentially are keeping a very strong balance sheet to give us the resiliency and adaptability to continue to generate strong returns for our shareholders going forward as we use cash and capital of the company for shareholder benefit. We have converted our commercial bank backup credit line from an asset-based facility to a cash-flow facility, reducing its cost and providing the company with additional financing flexibility if necessary. We, of course, have no borrowings under the company's bank line of credit, and none are contemplated at this point in time. We now turn the floor over to Ramesh.

Ramesh Jayaraman: Thank you, Howard, and good morning, everyone. It is an exciting time to officially join and serve as the Daktronics, Inc. CEO. I am honored to lead a great company at this pivotal time and to work with the talented team that has accomplished a great deal in strengthening a resilient platform for sustainable and profitable growth. As we move to the next slide, I want to start by thanking Brad Wiemann, who presented earlier today and who has served very capably as the Interim President and CEO. Brad has been instrumental in my onboarding, and we have completed a smooth transition and handover of the CEO role.

Brad will stay with Daktronics, Inc. as Executive Vice President and adviser, and I will continue to rely on his knowledge and judgment as we move forward. Thank you again, Brad.

Moving to the next slide. My first priority, as I joined February 1 officially, was to come up to speed quickly, and I have been on a learning journey—what I call a look, listen, learn tour—as I settled into Brookings, South Dakota, to be closer to the team and to our business. It has been an absolute warm welcome by the past management, the team, and the community as a whole. I have had a chance to travel both domestically and internationally, visiting sites in bidding as well as completed stage to understand our offerings, meet our customers and suppliers, including at a global trade show.

In addition, I have spent time in some of our factories and repair centers to look at the operational excellence work that is in progress, and with our frontline—our sales and field service technicians. In addition, I have spent time reviewing plans for our talent as we look at the growth that we are planning ahead. This journey continues to teach me as we continue defining our strategies, all with an intent of being a market-led, technology-driven, and customer-focused difference maker in the AV market space.

Turning to the next slide. I have to say, as I get around the company, I have been personally able to witness firsthand the dedication, the focus, and the drive of our team members, and the results they can produce as you just saw in Q3 results. We are entering into the final quarter of the year with very strong momentum, strong end-market demand, and a strong backlog tailwind. We are driving towards a strong finish of fiscal 2026 through efficient revenue conversion, and expense and productivity management, to deliver strong results and continued cash flow generation.

We are, in parallel, also formulating our next strategic steps from a customer-led and market-first perspective with the lens on growth—developing products, services, and solutions that extend our competitive lead and building a lens on operational excellence to optimize the profitability and cash generation we deliver. I would like to personally invite you all to our Investor Day on April 9 at the Nasdaq MarketSite, where the leadership team and I will present our joint plans to drive the next phase of Daktronics, Inc. growth. We will offer updates in our vertical market growth opportunities, execution initiatives, innovation priorities, as well as our capital allocation and financial frameworks. We look forward to having you join us.

With that, we will turn the call over for your questions. Operator?

Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone. Our first question comes from the line of Aaron Spychalla from Craig-Hallum Capital Group. Your question, please.

Aaron Spychalla: Yeah. Hi, Ramesh, Brad, and Howard. Thanks for taking the questions. Maybe first for me on the win rates. You know, they have been really impressive on the large-scale side of Live Events. You know, you talked about six for six. Can you just talk about how that pipeline is shaping up here as seasons, you know, kind of wrap up in the next few months? And then just maybe how would you characterize win rates across the overall business versus historical?

Brad Wiemann: Hey. Good morning, Aaron. This is Brad. Yeah. We won another Major League Baseball project, which is excellent. Our pipeline continues to be robust, strong going into this next year, so we are happy about that. Of course, you have seen our backlog, so we have a nice backlog in the business. And then we have the college and university side, and we have talked about that in the past, and some of the headwinds that are in that market, but are being worked out, and that is really around the NIL money that is being spent on coaches and players. We think that all gets worked out.

But as you saw, we have the University of Illinois project that we worked out—the largest football stadium build that we had—and there are others in the pipeline, so we are excited that opportunity still exists. So pipeline overall looks good. And win rate, of course, as you mentioned, we were six of six this last year. So we are excited about that, and that is partly to play with one of our competitors taking a little bit of a backseat in the marketplace this last year, which we have talked about before. Is that helpful, Craig?

Ramesh Jayaraman: I am also able to add to it from my perspective. Yeah. I mean, I think we have got strong wins in Live Events as Brad just mentioned, but our high school market and our Transportation market also continue to be strong. And I think it is important to have the fact that as we look at our growth, we are looking with a balanced portfolio—the appropriate portfolio management—as we kind of move ahead to gain market share. As Brad earlier mentioned, we had a massive win in Transportation that we just announced. And, really, as you look at our high school markets, they continue to be strong, driven by this change from scoreboards to video.

And I think we see that trend continuing to be strong in the marketplace. So I would say it is balanced overall as we try and look at our growth story, just going through the quarters as they do in terms of how high schools spend and the college, you know, and the football or the NFL or NBA each kind of spend. So that is what we are going with.

Aaron Spychalla: Thanks. I appreciate the color on that. And then maybe, you know, on the Commercial market, I know you have been making inroads, you know, expanding the reseller and integrator channel. Just maybe, you know, an update there. And it seems like demand trends are pretty good in that market as well.

Ramesh Jayaraman: Yeah. They continue to remain strong.

Brad Wiemann: I talked about our on-premise as well as our public spectaculars and Out of Home market. Those are still looking promising. The overall buying position of Out of Home customers—that is the advertising segment—is strong. I did mention one customer that pulled back a little bit in the third quarter. That is one of our national customers, and we believe that recovers this next quarter. So nothing concerning there. Our products that we are bringing to the marketplace for the on-premise segment continue to help us to win projects there, so we are seeing growth on that side of it.

But on the spectacular side, we had a nice win in Times Square, as I mentioned, but the exciting part for me is the audiovisual integrator space that we continue to see growth in, and that is on our indoor product lines, which is really a big part of our overall growth strategy.

Aaron Spychalla: And just, I mean, on that reseller and integrator channel, I mean, maybe an update on just efforts there—where you are in that journey?

Brad Wiemann: Yeah. On the reseller side, we have been in that business for some time, and we, you know, continue—we have salespeople all across the U.S.—to work and develop sales channel partners and to promote more of our products through that channel. So that is going well. The AV integrator is a newer area for us, and we are seeing continued growth. I think this is our—I cannot quite go back through the numbers because I do not have them top of mind—but we are seeing continued growth and expansion in that space in both the number of integrators, number of orders, and the number of quotes. So the pipeline continues to grow.

That is really aligning around our indoor product lines and this chip-on-board offering that is really doing quite well for us. That is helping us both in the AV space as well as some of these large projects, which we mentioned, across transportation, airports, and other things. So, yeah, overall, we are going to continue to invest in that area to expand our presence in that particular market space or through that channel partner of AV integrators.

Aaron Spychalla: Thanks for the color there. And then maybe one last question on margins. I know you highlighted the tariff impact. So excluding that, another good quarter. Maybe just talk what inning you think you are in from these operations initiatives and just trying to understand where margins can go from here, and then any thoughts more broadly on any oil impact and just what is going on macro-wise—what that could mean for the supply chain, if anything.

Howard Atkins: On the first issue, Aaron, in terms of where we are, you know, we have either started or we are on the way on kind of the vast bulk of the initiatives that came out of the project we did last year. And all of what we have either started or are in the process of completing has either been built into or is about to be built into our regular strategic planning process. So that is how we are embracing everything and tracking to make sure that everything gets completed going forward. So I would say, from a starting and along-the-way point of view, we are well into the game.

In terms of the realization of the benefit, I would also say we are a year into the effort at this point, and, you know, again, we are more than a third to a half into the actual realization of the benefit. But, again, the important thing is, you know, we are taking what we have done and now building it into a more comprehensive strategic plan because if the world changes—and there are more things that we are thinking of doing for sure about strategically and operational efficiency things as well—and we will continue to talk about that, and we will have some detail around that at the Investor Day.

As far as the geopolitical situation in the world, we are monitoring it. You know, there is risk out there, and a lot of uncertainty. Obviously, the uncertainty level has gone up. But as we have described in the past, you know, we intentionally keep things in the company reasonably adaptable, and as the world changes, we will adapt to the world. We have a great manufacturing network that allows us to do that. We have a team that works well together to make sure that it happens effectively. And so being adaptable and resilient here is really important, and also having cash is really important. So that is how we are trying to deal with the answer.

Aaron Spychalla: Great. Thanks for taking the questions, and looking forward to the Investor Day. I will turn it over.

Operator: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press 11. Our next question comes from the line of Anja Soderstrom from Sidoti. Your question, please.

Anja Soderstrom: Hi, and thank you for taking my questions. I have some follow-ups and then I have some other questions. So on your gross margin, you also mentioned it was due to revenue mix and the Live Events being softer, and given Live Events is a big part of your backlog, how should we think about the impact of that going forward?

Howard Atkins: Anja, there is a table in the presentation which shows you, as of the end of the quarter, the mix of revenue in the backlog. So you see actually the number, and we try to give you what might be left of the revenue after the fourth quarter is finished. So we have, you know, somewhat of a hint, if you will, if not a calculation of what you might expect coming through from the backlog and how Live Events might impact that.

The point that we would make about the GP margin declining sequentially again has to do with the fact that our gross profit margin—the cost of goods sold side of the margin—does have some fixed cost in it. So when revenue is going up, you get the benefit of that on the gross profit margin. When revenue is going down, as it did seasonally in the third quarter, the opposite effect happens. So that is, and we will have more to say about that as well to help you understand that at the Investor Day.

Anja Soderstrom: Okay. Thank you. And then in terms of the facility, is that on track, and would that have any sort of impact on the margins?

Howard Atkins: I am sorry, Anja, say again, please.

Anja Soderstrom: Mexico facility. Is that on track to be up and running in April, and would that potentially have an impact on the gross margin as well?

Howard Atkins: Yeah. Not a significant impact on the gross margin overall. You know, capital expenses are to be capitalized, and we are leasing the facility there. But your question about being on track—yes, it is. We expect to be up and operating in the first quarter of FY '27, so this coming next fiscal year. That is all progressing well, and we expect to be fully operational certainly by the second quarter.

Anja Soderstrom: Okay. Thank you. And then you mentioned the delay from a key account in Commercial. What gives you the confidence that is temporary, and do you expect maybe that shortfall in the third quarter to be made up in the fourth quarter?

Brad Wiemann: Yeah. What I am referencing there, without naming the account itself, is that there was an acquisition made in this past year, so they are going through that acquisition phase, and we expect that to fully be in place and orders to continue to come in the fourth quarter. So nothing new there. We will certainly keep you apprised if something changes, but we do not expect that to be the case.

Anja Soderstrom: Okay. Great. Thank you. And then just as we have entered 2026, with everything that is going on and uncertainty, have you felt that the sentiment among your customers has changed at all?

Brad Wiemann: Yeah. We work in big projects—large projects that are well capitalized and have been moving along. So the opportunities that are out there, we are not foreseeing any reduction. Now speaking of the U.S. market, which is the majority of our business. As we get to the international side of it, and we do some business throughout the Middle East and Australia, of course, and Europe—we will see how that plays out. But, overall, I think the sentiment is projects are moving forward. They are funded. We are part of a larger overall project, and we are typically on the back end of the project. So those are usually well funded and moving forward.

So we are not expecting anything to be delayed at this point.

Anja Soderstrom: Okay. Thank you. And then in terms of M&A, what can we expect there? What are you looking at there? And how is the market for M&A?

Howard Atkins: As we have said in the past, Anja, we continue to believe there are opportunities to do tuck-ins and fill-ins in each of our businesses. We are obviously looking at that, but the other message I would give you on that is just our flexibility. Again, we have a strong cash position. We, as you know from everything that we do, are return-focused. We are not going to do anything that does not make sense strategically, that does not have industrial logic to it, and it has got to meet our financial return criteria, and we have to be able to integrate properly. So those are important characteristics.

But, along the strategic path, there inevitably will be some opportunities for us.

Ramesh Jayaraman: I think to add to Howard, this is part of our strategic consideration. Clearly, as Howard mentioned, the industrial logic has to make sense. And as we look at it through all phases—whether it be product, verticals, or geographies—this is something we are considering actively on a daily basis just given our cash position. But, at this stage, we do not have anyone that we could go and say we are right behind. But it is clear that, once one of these comes to fruition, we will be able to talk about our history.

Anja Soderstrom: Okay. Great. Thank you. That was all for me.

Operator: Alright. Thanks, Anja. Thank you. And this does conclude the question-and-answer session of today's program. I would like to hand the program back to Ramesh for any further remarks.

Ramesh Jayaraman: Thank you. Again, thank you, everyone, for participating. Thank you for joining our call today. We will be appearing, as I mentioned, at the Investor Day on April 9, but also at the Roth Conference in March. We look forward to seeing you there, and we clearly look forward to speaking with you all on our fourth quarter call. So thank you again, and have a great day. Thank you.

Operator: Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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