Daktronics DAKT Q4 2025 Earnings Call Transcript

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DATE

Wednesday, June 25, 2025 at 11 a.m. ET

CALL PARTICIPANTS

Chairman of the Board — Andrew Siegel

Interim President and CEO — Brad Wieman

Acting Chief Financial Officer — Howard Atkins

Vice President of Investor Relations — Carla Gatzke

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RISKS

Howard Atkins stated, "the ultimate cost of the tariff is not yet reliably determinable because the ultimate rates, of course, have not been set and keep on changing." highlighting ongoing tariff uncertainty impacting input costs and future profitability.

Special and nonrecurring expenses totaled $16.5 million for FY2025, with $7.5 million incurred in the fourth quarter, creating pressure on GAAP results.

Adjusted operating income margin declined to 6.6% in FY2025, down from 10.6% in FY2024, reflecting margin compression year over year.

TAKEAWAYS

Order Backlog: Ended at $342 million at fiscal year-end 2025, up 8% from fiscal year-end 2024, with Q4 FY2025 backlog up 29% sequentially, positioned to drive future revenue.

Revenue: Sequential sales grew 15% from the third quarter, reflecting broad-based order momentum and customer demand across all segments.

Operating Cash Flow: Delivered $97.7 million in operating cash flow for FY2025, up 54.5% compared to FY2024.

Adjusted Operating Income: Adjusted operating income for FY2025 was $50 million, second highest in company history, but below FY2024’s $87 million.

Adjusted Operating Margin: Adjusted operating income margin was 6.6% in FY2025 versus 10.6% in FY2024, confirming margin pressure despite transformation initiatives.

International Orders: International orders grew 32% in FY2025 compared to the prior year, with Q4 FY2025 international orders more than doubling from Q4 FY2024 and reaching nearly $25 million in Q4, indicating global expansion momentum.

Commercial Segment Orders: Commercial segment orders increased 31% in FY2025 compared to the prior year and 44% for the fourth quarter versus the prior year’s fourth quarter, evidencing accelerated demand in this segment.

Live Events Orders: Orders decreased 12% for FY2025 and Live Events orders decreased 11% year over year in the fourth quarter, attributed to an atypical, industry-wide delayed baseball ordering season after a record year in FY2024.

Transportation Segment Orders: Transportation segment orders decreased 10% in FY2025 compared to the prior year but increased 14% in the fourth quarter compared to Q4 FY2024, with key wins in airport and roadway projects offsetting the full-year decline in transportation orders in FY2025.

High School Park and Recreation Orders: High School Park and Recreation orders grew 19% in FY2025 compared to the prior year and grew 33% year over year in the fourth quarter, achieving new records.

Nonrecurring Expenses: $16.5 million incurred in nonrecurring expenses for business transformation, governance, and management changes in FY2025; $7.1 million for consulting (FY2025), $6.8 million for corporate governance (FY2025), and $2.6 million for transition costs for both the fourth quarter and the full year.

Noncash Valuation Impacts: $22.5 million GAAP charge on convertible note for FY2025, $15.5 million provision for loan losses for FY2025, and $2.8 million noncash benefit was recorded in Q4.

Operating Cash: Ended FY2025 with $128 million in cash, up 57% from the prior year, giving the company greater financial and strategic flexibility.

Share Repurchases: Repurchased $29 million of stock at a $14.23 volume-weighted average in FY2025, neutralizing convertible note dilution, and board approved an additional $10 million buyback program.

Tariff Costs: Incurred about $2 million in higher tariffs in the initial five weeks of FY2026, nearly all at the peak tariff rates imposed in late Q4 FY2025, with mitigation measures pending rate stabilization.

Inventory Reduction: Achieved a 23% inventory reduction in FY2025 through manufacturing and supply chain efficiency, setting up a lower base for future sales growth.

Executive Compensation Plan: Implemented a new compensation philosophy focused on aligning incentives with transformation goals and long-term shareholder returns.

Transformation Targets: Management reiterated long-term goals of operating margin expansion to 10%-12% by FY2028, ROIC target of 17%-20% by FY2028, and compound annual growth rate of 7%-10% by FY2028.

Capital Allocation: Prioritizing capital deployment to product development, digital transformation, and share repurchases, with incremental investment directed to high-return growth opportunities.

Consulting Costs Outlook: Transformation consulting engagements concluded in Q4, management stated no further material consulting cost accruals for current initiatives are planned as of Q4 FY2025.

SUMMARY

Management reported that the business and digital transformation initiatives are delivering targeted cost savings, reduced inventory, and recurring cash generation, with execution recognized as "on track" for all major objectives. Significant new orders in Q4 FY2025, especially in international and commercial segments, are set to convert into FY2026 revenue, contributing to a robust backlog that supports the company's intermediate growth ambitions. Capital discipline included $29 million in share buybacks in FY2025 to address dilution from the convertible note. Tariff uncertainty introduces ongoing risk, but management outlined price increases, supply chain flexibility, and contract protections as current mitigation levers, with the cost impact potentially reduced if tariff rates stabilize.

Brad Wieman emphasized, "We are the only US manufacturer of scale, with a global footprint and servicing by geographic market." underscoring Daktronics' differentiated market position and capacity for global supply chain adjustments.

Howard Atkins highlighted that "The full year and fourth quarter special items breakdown as follows" for Q4 and FY2025. providing precise visibility into one-time expense categories impacting reported results.

Management stated that digital platform launches and SaaS solutions such as Venus Live, Show Control Next Generation, and Display Studio are expanding recurring revenue streams.

Howard Atkins described the improvement in working capital, noting, "manufacturing groups reduced inventory by 23%" in FY2025. and clarified that future inventory additions will proceed from this more efficient baseline as sales expand.

Questions on future margin trajectory elicited management’s view that operating margins could rise as value-based pricing, operational efficiency, and new solutions take effect beginning in FY2026.

INDUSTRY GLOSSARY

Buy America Act: US federal legislation requiring transportation infrastructure projects funded by the government to use American-made materials and products, impacting sourcing and potential market share for domestic manufacturers.

Chip-on-Board Solutions: LED technology that mounts multiple LED chips directly onto a substrate to improve efficiency and reduce complexity, used in advanced display systems.

Venus Control Suite: Daktronics’ proprietary suite of software tools for display content creation, scheduling, and control, tailored to live events and commercial installations.

SaaS (Software as a Service): A model of delivering software on a subscription basis via the cloud, providing recurring revenue and flexibility for end users.

ITS (Intelligent Transportation Systems): Advanced applications that manage transportation systems, including digital signage for traffic management and safety.

Show Control: Daktronics’ software platform for integrated management of graphics, statistics, video playback, and display control across venues.

Full Conference Call Transcript

Carla Gatzke: Thank you, operator. Good morning, everyone. Thank you for participating in our fourth 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 exceptions 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 a 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 2025 fourth quarter, which is furnished to the SEC on a Form 8-K this morning, also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP 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'll turn the call over to Andrew Siegel, Chairman of the Board, for some introductory remarks.

Andrew Siegel: Thanks, Carla, and good morning, everybody, from here in Brookings. I thought maybe I'd just take a few brief minutes to set the stage. Our last quarter call, we shared several pieces of important news beyond our earnings report. First, the senior management transition in which your board named a well-respected company veteran who has led the group of our largest and most profitable segments, Brad Wieman, as Interim CEO. We accelerated our financial transformation by asking Director Howard Atkins to take on the acting CFO role until our new CEO can make their own chief financial officer selection. And while you're hearing my voice today, they asked me to step up to become chairman of the board.

Why does that matter? Well, I'm an honor insider shareholder who first invested on the conviction that the company was undervalued. I continue to view the stock as significantly undervalued, and I'm committed to closing that gap. Secondly, at the time, we announced that we had reached an agreement with our then-largest shareholder, AlphaFox, pursuant to which the company terminated our poison pill, converted the 9% subordinated debt, undertook a comprehensive review of our exec compensation, and added AlphaFox's appointee, Peter Feigen, President of the Milwaukee Bucks of the NBA, to our board. Peter's terrific. He jumped in right away with the voice of the customer to provide insight and guidance, particularly to our live events team.

So I want to thank Conor, Haley, and Walter Fox for that recommendation, providing the financing, and like many of you have reached out, continuing to offer constructive ideas about the company's future. Third, we reincorporated the company in Delaware, where corporate law is well understood, clear, and predictable. This redomestication was accomplished with the overwhelming approval of shareholders, which reflects its importance to supporting our ongoing business transformation plan while flexibly protecting shareholder interests. Then on top of this transition and transformation, another T word was thrown into the mix during the past almost three months. For us, well, along with most US manufacturers, I'm taking it personally. Created many and multivariate challenges.

Those challenges were met and managed by the executive team extraordinarily well. Seeing how quickly and often the landscape changed since Liberation Day was really remarkable how the potential impact in so many vectors and just the overall uncertainty was expertly met by this team. So I can report to you that our fourth fiscal quarter was, in addition to being transitional, transformation, and reactive to the tariff policy uncertainty, was, in fact, a quarter of strength, stability, and optimism. There actually aren't sufficient words that I can come up with, at least, to describe what Brad and Howard and the entire team managed to accomplish in these few short months.

But you can glean from our order backlog growth and absence of upheaval. Further, as you'll hear about shortly from Brad and Howard, our business and digital transformation remains on track to achieve the objectives we set on the last quarter call. I want to thank the entire senior leadership team for their diligence and their steadiness navigating this transition. Personally, I can tell you that I've come to appreciate the character of this team, their loyalty to the company and its stakeholders, and their openness to executing the change that this transformation plan is now driving. It doesn't show up on the balance sheet, but it's an incredible asset nonetheless. And I think the team.

Our fourth quarter results reflect this and determination that the Daktronics Board remains committed to the shareholders it represents just as our executive team remains committed to our customers and maintaining and further developing the unique qualities that make Daktronics the best in the business and yes, to transforming our operations in order to achieve our revenue growth, margin expansion, and ROIC targets. I mentioned a moment ago that the company had undertaken a comprehensive exec compensation review. That's now been completed. And you will have seen this morning some detail of the plan the Board has adopted in the 8-Ks we filed. Most basically, we're making our compensation more competitive.

Obviously, we're in a market with a search for CEO and to follow a CFO. So we do have an appreciation for where the market is. But more than just making sure comp is competitive, so we attract first-rate talent, the objective is to align the comp plan with the goals of the transformation. So primarily, the principles of the plan are meant to further incent our sales leaders toward driving revenue, and for functional leaders to achieve the margin expansion and shareholder return goals of the transformation. So we've now implemented a new exec compensation philosophy again, with the help of nationally recognized consultants who match best practices to the company's culture.

That philosophy uses a full range of compensation incentive tools to maximize company-wide performance. On the CEO search, in particular, we don't yet have anything to announce with respect to that. But the search committee is very pleased with the quality and quantity of candidates who have responded and expressed their excitement about the company and their possibilities before us. So we're on track, and personally, I'm feeling good about the temporal progress here. So with those preliminaries, let me turn the call over to Brad Wieman, our President, our Interim President, and CEO. Brad?

Brad Wieman: Okay. Thank you, Andrew, and good morning, everyone. Thank you for joining our fourth quarter fiscal 2025 call. I'm on the call with Howard Atkins, our board member and acting chief financial officer. And we will be reviewing our fiscal fourth quarter and 2025 results accomplishments and then take your questions. Please turn to Slide three of the presentation and get started. The main message I want to share with you today is emphasized here. We had a strong finish to a transformational year. We replenished our backlog in the fourth quarter. We were up 29% from Q3 and up 17% year over year, broad-based. Through strong customer demand, our teams drove strong order growth in the second half.

With $50 million in new order flow booked across all segments in the fourth quarter alone. This supported 15% sequential sales growth from the third quarter, replenished our backlog, and is setting us up well as we head into fiscal 2026. Additionally, we work to preserve gross margins through improved value-based pricing and increasing manufacturing efficiencies, including better aligning our capacity to demand and lowering manufacturing costs, which improved our segments' contribution margins. This minimized the effect of year-over-year volume decrease resulting from lower Q3 orders really related to an atypical delayed baseball ordering season. And resulted in adjusted operating income of $6 million.

The business and digital transformation plan is in place, our execution of the plan is on track and driving results. And we more than doubled the fourth quarter operating cash flow year over year. Turning to Slide four, we'll talk about our market verticals. In Live Events, we won major new projects, some are mentioned here. These include a variety of applications from main video, auxiliary video, fascia, ribbon, interior displays, a wide variety of products and applications. Repeat these are repeat customers. The one and only on this one University of Illinois, a very large multimillion-dollar system. You may have seen that in our news release. The rest are new customers. All of which are multimillion-dollar systems.

Including Charles Schwab Field in Omaha, as you likely know it as the home of College World Series. Miami Freedom Park, home of the Inter Miami Football Club. The University of Nebraska Football, surprisingly, this is our first install at the University of Nebraska. We're happy to do it. We're replacing a competitor's display on the north end. And this is like I said, first video at that stadium. Cincinnati Convention Center purchased seven fifteen-millimeter exterior displays. Due to the atypical delay in baseball activity, and that was industry-wide, not just us, during the first year during the year, orders were fiscal 2025 decreased 12% year over year. And for Q4 decreased 11% year over year.

Following a record FY24 and fourth quarter. We continue to enhance our products and services as we expect continued growth in the Live Events business. For both in-bowl applications, but also outside of the bowl. As more emphasis is placed on entertaining informing fans through digital technology throughout the venue. Which aligns with our control system capabilities, our service and subscription offerings, our narrow pixel pitch product offerings, our teams continue to focus on winning business aligned with our corporate transformation objectives on long-term profitable growth. In the picture here is Jack Trice Stadium at the University of Iowa, where fans will be welcomed with new products.

We're switching over from our previously installed 15-millimeter high-definition technology to a 13-millimeter high-definition technology. The large screen in this project will be 36 feet by 157 feet. In our commercial business, all areas saw demand and success in the order wins, with orders for the year increasing 31% from last year and for the fourth quarter increasing 44% from the fourth quarter of 2024. This business consists of out-of-home and on-premise advertising sales and larger advertising displays, which we call spectaculars. Conducted primarily through channel partners such as sign company resellers, and AV integrators. In the on-premise area, customers are successfully transitioning to our next-generation fuel price products, which offer quick deliveries and feature-rich enhancements.

Demand in the out-of-home market has been strong throughout the year, which reflects greater optimism that has been developing both in the national and independent billboard operators are more often choosing Daktronics due to our recognized brand strength and image quality and reliability as well as our service responsiveness. We released the next-generation billboard product in the fourth quarter, which has been well received by customers. Our investments in the independent channel continue to pay off. Continue to bring additional AV partners on and are seeing double-digit order growth from this channel. This is a focus area for our indoor application growth. In the picture here is Syracuse University esports facility. This is a direct view LED video wall.

Bringing esports and gaming to life at Syracuse. In our transportation business, orders tend to be large, which creates order variability from quarter to quarter. Orders decreased 10% from last year, but increased 14% from the fourth quarter. Driven by notable wins, a multimillion-dollar roadway project for an airport, intelligent transportation system win for in California, which drives the implementation and deployment of transportation technology in California, where we are gaining acceptance of our products for intelligent transportation over the roadway use. We're also strengthening the airport market pipeline developed through our strategic relationships. This growth is being driven by customers interested in our chip and chip on board solutions.

In the picture here is a rather typical display for our Vanguard ITS roadway displays at Texas Department of Transportation. Going forward, we are focused on growing our ITS market by winning new agency approvals, the Buy America Act, DAA, continues to go into full effect in October of 2026. We expect to benefit as a US manufacturer and our teams are actively promoting the Buy America Act. Our adjacent growth plans are on track as we deliver chip on board solutions across multiple markets. International. Our international business, which serves all the end markets of our markets, which we serve outside of North America, has been an area of concentration and focused development for the past several quarters.

These efforts are paying off with orders growing 32% from last year and more than doubling from Q4 of last year. Our international orders increased every quarter throughout FY 2025 and we reached a peak in the fourth quarter coming in nearly at $25 million. Our largest growing market in FY '25 were advertising. Fourth quarter from this was the largest quarter for advertising orders. This was driven by orders from customers in Saudi Arabia, UAE, Germany, Serbia, UK, Georgia, Australia, for both new and replacement displays. Our Events segment, we had we won a very large multimillion-dollar project Aramco Stadium at Al Qamar, Saudi Arabia. A planned multipurpose facility, our products were specified into those projects.

In the industry segment, we won multiple command and control projects across The Middle East, throughout fiscal year '25. Pictured here is a recent installation at Al Arabia in Dubai, an auto phone company there. In our high school park and recreation business, we drove record for the year, and the quarter. Orders grew 19% for the year and 33% for the fourth quarter. Industry-leading value propositions allow the sales team to implement value selling which separates us from our competition. We are experiencing strong adoption of professional services, particularly in curriculum development and sports marketing. The market continues to convert to full video, indoor and outdoor.

Schools of all sizes are purchasing video with the help of Daktronics Sports Marketing. In addition, Daktronics curriculum, a software as a service product, which brings in recurring revenue teaches students career-ready production skills. Pictured here is Frederick School District in Frederick, Wisconsin. Turning to slide five. Of course, new products and services are essential for our continued growth and value-added differentiation. In the fourth quarter, we released and sold new products. A digital billboard product and an outdoor video display system. These products leverage platform technology to reduce product complexity. Leverage supply chains and simplify both manufacturing, and installation processes. Over to the right, is the new digital billboard in New Orleans for Lamar.

In addition, we are in the process of rolling out control system solutions. These include LiveSwitch, which provides video switching and replay for high school venues. In our fiscal year 2026, our current year, we will continue to add capabilities to enable expansion into college and university applications. The following are cloud-based software solutions control solution, drives further recurring revenue Venus Live, which brings new capabilities to our show control solution for live events. Show Control next generation, scoring, statistics, graphics, content creation, and display control. And the photo in this picture shows a view of display studio which is an in-game tool to display content.

Across all the displays within the venue Display Studio is a tool that is part of Daktronics' events-focused show control solution. The photo from this picture is AccraSure Stadium home of the Pittsburgh Steelers. Turning to slide six. With respect to business transformation, we made strong progress on these initiatives in the fourth quarter, and our implementation plan is on track and driving results. Actions we have taken to date include taking price adjustments, which I mentioned a moment ago, allowing us to preserve our value-based products and services positioning.

Launch of SaaS trials to target customers, focused approach on prioritized growth areas, business verticals, and geographies, driving faster inventory turnover and improved inventory efficiency by leveraging our platform designs to reduce complexity. Released a modernized service software system that will help us to enhance customer experience, through better service management and enablement of self-service options. We are working on launching an AI-guided troubleshooting and technical services making increased use of our purchasing power to improve our input costs, and simplifying some of our products which allows us to bring them to market more quickly.

We more than doubled our operating cash flow in the fourth quarter and drove 54.5% growth in operating cash flow for the year, supported by the business transformation efforts as outlined. Turning to Slide seven. Significant progress was made in digital transformation during fiscal year '5. The goal of which is increased internal efficiency and ease of purchasing for our customers. Our e-sales channel is in place, and we're adding new products and services. We're testing of our enterprise price performance management, which is now in the implementation phase. We launched new control systems, as mentioned. Sales tool development is on track for configure price quote.

Which we plan to have an initial release in the latter part of FY 2026. Additionally, our plan over the next six to twelve months is to enable subscription management upgrade our ERP, the enterprise performance management release for fulfillment performance reporting customer data unification across all systems, and data governance for better decision making and regulation compliance. Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

Howard Atkins: Thank you, Brad, and thanks to all of you who are listening in today for your interest in the company. I will be starting my presentation. For those of you who are following along with the deck, on slide eight. In order to provide clarity about our underlying financial results, I'd like to first go over the nonrecurring and other special items that hit the income statement. During the year, we incurred $16.5 million in nonrecurring expenses in connection with various transformation initiatives. About half of those costs, $7.5 million to be precise, were incurred in the fourth quarter. The full year and fourth quarter special items breakdown as follows.

First, had consulting costs of $7.1 million in the full year and $1 million in the fourth quarter, for the business and digital transformation initiatives that we've been talking about. The consulting engagements, these consulting engagements were concluded successfully in the fourth quarter. The implementation is beginning to produce the intended results. And no further consulting cost is being accrued at this time for these particular initiatives. Next, we recorded expenses for various corporate governance matters including legal and advisory costs were redomiciling and shareholder relations. Of $3.9 million for the quarter and $6.8 million for the year.

And finally, we recorded $2.6 million for both the fourth quarter and the full year for advisory, severance, and other compensation costs associated with the management transition that we announced at the end of the third quarter. All of these nonrecurring expenses flow through G&A expense, and therefore, they impacted pretax operating income. In addition to the above, the above the line nonrecurring expenses, we took or incurred several other special noncash valuation adjustments. Including the following.

We recorded a noncash benefit of $2.8 million and a charge of $22.5 million for the quarter and year, respectively, for the change in fair value of the convertible note due to its conversion and changes in the stock price over the fair value measurement period in the third and fourth quarter. At year-end, we recorded a noncash provision for possible loan losses of $15.5 million on a loan to an affiliate which we have a minority position. This was done at year-end 2025. These asset valuation impacts went through other income and therefore impacted reported net income, but not operating income.

Finally, on the GAAP, we reviewed all of our estimated costs for open warranties and overtime project contracts in effect as of our year-end reporting date. For any additional expected costs due to the significantly higher reciprocal tariff rates that would have been in effect at that time at year-end. Which impacted overtime revenue recognition and warranty expense. These tariff estimates impacted operating income negatively in the fourth quarter, by $1.2 million. At the substantially lower tariff rates now under discussion in the recent pause period, this impact would largely be reversed. On slide nine, making the adjustments for these nonrecurring expenses. Adjusted operating income for 2025 was $50 million.

Still down from our record $87 million operating income in 2024, nevertheless, the second highest adjusted operating income year in the company's history. And more importantly, the second highest year in orders and net sales. As a percentage of revenue, adjusted operating income margin was 6.6% in 2025 versus 10.6% in 2024. Let me talk a little bit now on slide 10 about revenue, and particularly the revenue tailwind that we see coming in 2026. For those of you who haven't been tracking the company over time, let me first try to provide some perspective on orders and revenue.

As the world returned to some semblance of normality, as COVID receded, several years ago, pent-up demand for our products and services resulted in significant post-COVID order growth. Between 2021 and 2024. Combined with our resolution of supply chain bottlenecks during that period, a recapitalization of the company, selective value-based price increases, and new product introductions, the company emerged from that period a larger healthier organization which produced record sales and record profits in 2024. Some of that revenue completed in early 2025. Now with orders in early 2025 dipping below revenue for a bit, our revenue declined bottom at bottoming out and seasonally soft third quarter of 2025.

The team began rebuilding order flow in the third quarter of last year and particularly in the fourth quarter. With fourth quarter orders up 17% year over year from the fourth quarter of 2024. This growth was broad-based, resulting in a more diverse revenue mix and resulting in a product backlog at year-end 2025, of $342 million up 8% from a high year-end 2024 backlog. Now while this order growth did produce a 17% sequentially sequential increase in fourth quarter revenue from the third quarter about $70 million of the third and fourth quarter orders. Will start generating revenue only when the projects are started in fiscal 2026.

The good news here is this is setting the stage for what is shaping up to be solid revenue growth throughout the coming year. And we are encouraged additionally by the revenue trends that we see at the beginning of the new fiscal year. Let me now turn to Slide 11, which addresses our balance sheet strength and talks a little bit about our capital allocation. We very firmly believe that maintaining a strong balance sheet is important to building a resilient business. Our balance sheet today is stronger than ever. In 2025, inventory was officially reduced, one of the quick win ideas from the business transformation project that we undertook last year.

Over the year, manufacturing groups, reduced inventory by 23%. Now as sales revenue grows going forward, we would expect to begin adding to inventory again but obviously now from a lower base than otherwise would have been the case. As previously reported, we converted the nine subordinated note to common for the terms of that note and neutralized the additional common shares via open market share purchases. The retirement of the note net, will save about $1 million in annualized net interest expense versus today's short-term investment rates. We monitor our credit exposure to past due customer and vendor receivables on the balance sheet and, to date, have not seen any discernible weakening.

Through our efficient cap working capital management and efforts to preserve adjusted margin, we generated $97.7 million in operating cash flow and ended 2025 with $128 million in cash up 57% from last year. The significant increase in cash has provided us added flexibility to invest capital for value creation. We've been maintaining product development and selected IT investments as we previously disclosed in the third quarter at relatively high levels as we invest in high growth, wider margin business products and projects. And digital transformation to improve selling effectiveness and internal efficiency. We will continue to review product development and IT regularly to make sure we are prioritizing the highest return investments.

And in 2025, we repurchased $29 million of common shares in the market at a volume-weighted average price of $14.23 per share. Part to neutralize the shares issued to retire the convertible note. And today, we announced board approval for an additional $10 million share repurchase program. Let me conclude by touching on tariff facts and impacts as much as we can talk about them and understand them. Ultimately, the ultimate cost of the tariff is not yet reliably determinable because the ultimate rates, of course, have not been set and keep on changing.

It's unclear at this point whether imports for both finished products and imports and inputs will ultimately be subject to tariffs, although tariffs on both types of imports finished products and inputs, are currently on the table. Specific import codes are actually unclear. There are exceptions. Correct import codes are still uncertain, and applicability. All of these things are still up in the air. And of course, competitor reactions are all over the place and, ultimately also not known. What I can tell you in terms of relevant Daktronics facts are the following. First, as we previously mentioned, about 80% of Daktronics finished product is manufactured in our US factories.

Second, less than 50% of inputs used by Daktronics US factories are from imports, from all countries, into The United States and including China, but many other countries as well. Third, the pre-reciprocal tariffs. These are tariffs that we've been incurring since 02/2018. Have been running at approximately a half a million dollars per month. Since 02/2018, and since those were already in effect, have already been reflected over time in our operating costs and pricing. Next, new steel and metals tariffs, which were introduced in February in our case, are very negligible.

Operator: And finally, in the first five weeks so far in fiscal 2026,

Howard Atkins: the higher tariff rates that have been invoiced to us have cost us about $2 million and I want to be really clear about what that means. That is gross. It's not it's before any pricing or manufacturing or other operating expense mitigation efforts that are already underway. And more importantly, almost all of that $2 million is at the highest rates that were imposed by The United States on Chinese imports at the end of 2025, which were more than three times the rates currently being discussed between the two countries. So, basically, the things that were on the water after the April 2 Liberation Day announcement, that have now initially come in.

But before The US and China paused the pre-reciprocal tariffs as of April 2 in that short one-month period. The $2 million just refers to that particular, initial piece. And as we know, we're currently in a pause, so we would expect that number to come down in any event for the time being. Brad will touch on tariff mitigating strategies in a moment. So now let me turn the call back to Brad.

Brad Wieman: Okay. Thank you, Howard. Turning to Slide 13. We embarked on this journey to really generate better returns for all our stakeholders. We are targeting performance aligned with higher operating margins of 10% to 12% operating in the top quartile ROIC target of 17% to 20% and achieving a compound annual growth of 7% to 10% by fiscal year 2028. Our plan is in place. We are executing on it. We have a lot of work to do. And our team is committed to its success.

Our goal to achieve this plan through the business and digital transformation we talked about today to repeat, includes value-based pricing, revenue mix diversification, new products for new applications, planning, risk management, capital allocation, executive compensation, and digital transformation. Turn to Slide 14. We have faced some headwinds, but we are not unaccustomed to challenges. With regard to the tariff environment, we'll adjust as needed. We have many levers to pull, and we will make no regrets adjustments. We can adjust prices as needed in keeping with our value-based positioning. We have protection clauses in our contracts. We have some flexibility in our supply chain. And we have a global footprint that affords us flexibility as needed.

Andrew Siegel: And we have an

Brad Wieman: international business with room to grow and provides revenue diversification and reduces exposure to tariffs. In terms of market positioning, this remains solid and our long-term plan is intact. Our supply chain remains healthy and functional. Find that as is true of all of us, our customers are becoming acclimated to and inflation. And are accepting of it as a reality of doing business right now. The translation plan is unaffected, We are moving ahead at pace. One of the initiatives that we have laid out and our long-term objectives remain in place. As for fiscal year 2026, demand for our technology-leading display solutions remains strong.

And we are remaining flexible and competitive on a value basis in the macro environment. Our priorities are to execute diligently for our customers to complete the next steps of our business and digital transformation and to drive toward the achievement of our long-term financial objectives. We are the global industry leader in best-in-class video communication displays and control systems. We are the only US manufacturer of scale, with a global footprint and servicing by geographic market. We have new indoor products and control system solutions that are opening pathways to adjacent applications to more deeply serve our customer base with all their needs.

We are excited and committed to our future, and are executing toward our growth and return objectives. I want to thank the entire Daktronics team for their hard work dedication, particularly during this transformation period and against the macro backdrop. Now I'll turn the call over to the operator for questions. Thank you.

Operator: Thank you. And our first question is going to come from the line of Aaron Spekella with Craig Hallum Group. Your line is open. Please go ahead.

Aaron Spekella: Yeah. Good morning, Andrew, Brad, and Howard. Thanks for taking the questions, and thanks for all the good color and commentary. So far. You know, first for me, I guess on the top line as we think about revenue growth for FY 2026, can you just kind of talk a little bit about that? I know you don't guide, but looking at backlog up high single digits, and just some of your FY 2028 targets for high single-digit CAGR just hoping to get a little color on what growth might look like in FY '26.

Brad Wieman: Yes. Thanks for the question. We are on track. All our markets were showing expecting growth across the board. We believe, and the 7% to 10% compound annual growth that we talked about through FY '28 is going to be some lumpiness year over year in that, but all in all, we think we can achieve that. We think FY 2026 is one of those years that can do that. So the business we have out there with the backlog and looking at the orders that we're seeing we believe fits well into our plans. Alright.

Aaron Spekella: Thanks for that. And then on margins, I appreciate the color on the tariffs and that it's an uncertain kind of outlook there. You maybe just give a little more detail on some of the levers that you've maybe pulled so far? What might be to come? And you know, just how you're thinking that can impact margins here as we think about the growth in FY 2026 and potential margin expansion from here?

Brad Wieman: Yeah. That's one of our strategic objectives, of course, as part of our plan. And that happens in a number of ways with the value-based pricing that we talked about throughout the presentation that those are our objectives and those are in the implementation phase. So we've implemented a number of value-based pricing adjustments already. But we're also driving costs out of our operations and getting more lean as we look across the enterprise to improve our overall performance. And we saw that in FY '25 to hold our margins and really a down revenue year. And we think we can carry that forward into FY 2026 and further.

In addition to that, we're bringing on new markets, new services that they're additive. They take time. They're small at first, but we believe that they're going to be accretive over time beginning in FY '26. So all those things combined, we believe, can lead to a higher operating margin year.

Aaron Spekella: Alright. And then maybe turning to the commercial segment, I guess, in particular, really good order activity there. Can you just give us an update on some of the efforts to expand the AV network there on the integration side and just maybe talk about the shift to digital in that market at a high level? You know, where are we in that conversion and, you know, how much kind of green space is there for you as that market kind of shifts in the coming years?

Brad Wieman: Yeah. Really good question. As you know, in our commercial business, we serve really three we'll call it four customer groupings. We have non-premise that serves primarily in the retail space. We participate mostly in the outdoor solutions for on-premise advertising. In out-of-home, we're seeing a lot of optimism in that market from our hoping it the independent billboard operators as well as the national customers. They're buying really our products at a higher rate. I could speak to that in more detail later. In our spectacular business, we're seeing growth. It's really related back to out-of-home well. But the segment you're mentioning is focused around our AV integrator space and our independent channel.

We see a lot you mentioned green space. We see a lot of opportunity here a lot of room to expand upon that. Our plans are to do just that and we're at the initial stages of really going at a more aggressive plan to grow that part of our business. Our teams have been doing a great job focused primarily on retail and military. Military has had a little bit of a setback. I tie it private primarily to doge. I think, you know, just some slowdown in the military spending market although that's been small overall. I've seen a lot of optimism, and I think we can grow that piece of the business. With a lot of upside.

I hope that answers your question.

Aaron Spekella: No, it does. Great. Thanks for the color. And then just maybe thinking about the working capital efforts underway so far, you know, a lot of nice cash generation in the year. Just curious on additional kind of levers there. You know, where can that cash conversion can it get back to where it was a few years ago? And then, you know, any thoughts on capital allocation just given the balance sheet would be helpful. Thanks.

Howard Atkins: Well, balance sheet, I'll ask the answer the second question first. You know, to grow and grow it as we our objective here is obviously, profitable margins. So our first use of capital is going to be, you know, getting the growth. We talked about product development and, and, the digital transformation. That's where our incremental capital expenditures are going. In particular, we've talked about share repurchase, obviously, with this amount of cash. That is still very much on the table, and it's, you know, economic for our shareholders to do that. So, it's a little bit of all of the above.

But, you know, the good news is we have the cash and the capital and our objective is to get it, you know, deployed, in the highest return ways we can.

Aaron Spekella: Great. Thanks for taking the questions. I'll turn it over.

Brad Wieman: Alright. Thank you. Thank you. And one moment for our next question.

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

Anja Soderstrom: Hi. And congrats on the nice performance here, and thank you for taking my questions. Many of them have been already. But I'm curious for international, the strength there. What is the primary driver for that? And do you see that continue into the first quarter?

Howard Atkins: The strength in orders you're saying or what which yeah. We had we had significant growth in orders in the third and the fourth quarter. We had a good pipeline to start with, and which is very successful in getting that pipeline closed.

Brad Wieman: What

Howard Atkins: creates a good tailwind for us though, is that because the orders basically came late in the year, the revenue associated with those orders is largely, almost exclusively going to be earned in 2026, fiscal twenty-six, rather than having already started to be earned in the third and the fourth quarter of 2025. So that's what creates this really interesting and, you know, opportunity for us, to get the kind of revenue growth that you know, that we, that we're looking for '26 and beyond.

And, you know, the projects will start throughout the year, so it's not all going to happen in the first quarter necessarily, but, you know, it gives us a good start to the year and a mechanism for, you know, continued revenue growth throughout the year the projects come on board.

Anja Soderstrom: And how are the orders and backlog trending in the first quarter?

Operator: Just in general? Or overall?

Howard Atkins: Early indications are business is still brisk.

Anja Soderstrom: Okay. Thank you. And then in terms of the one-time fees, should we expect more of those in fiscal 2026? Or

Aaron Spekella: Well, no. Not in connection with any of the initiatives that we undertook.

Howard Atkins: Last year. The consulting arrangements that we had for business transformation and the one or two particular ones for the digital transformation to get that project going. Or completed, as I mentioned before. So those fees are done because the engagements that we have with the consultants are finished. I, you know, I can't tell you that there won't be any additional consulting, but as far as the projects that we undertook last year, those are done. I will also say that these consulting fees are expected to be more than paid back and, you know, multiple times in terms of, you know, the transformation results that we expect over the next three years.

Operator: Okay. Got it. And

Anja Soderstrom: and then also you mentioned you the board approved a $10 million buyback. Program. Did you have anything left on the old one? Or

Howard Atkins: We did. Yes. So but we'll provide some further commentary on that.

Brad Wieman: Shortly.

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

Brad Wieman: Alright. Thank you.

Operator: Thank you. And, again, ladies and gentlemen, if you wish to ask a question at this time, please press. And our next question is going to come from the line of Mac Furst with Sinclair Research. Your line is open. Please go ahead.

Mac Furst: Yeah. Hi. This is Mac Furst with Singular Research. Congratulations on the quarter. This is a question for either Howard Atkins or Brad Wieman. What do you expect business and digital transformation expenses to be in fiscal 2026?

Howard Atkins: When you say expensing, you're talking about additional fees or consulting expenses? Or

Mac Furst: Overall expenses. And if you can break them down into consulting expenses and internal expenses, that's just fine.

Howard Atkins: At this point, as I said, we don't on the business transformation, you know, that project, if you will, that we had last year with the outside consultant has now really been integrated, into the company. The company owns the results, so the company owns the process. And our leadership team is very active in executing the plan. And frankly doesn't need any more consulting expense to make that happen. Now there may be some additional initiatives that we that team decides to take in 2025, that is not currently planned for, but I can't guarantee that some idea that we know, the team comes up within 2025, wouldn't require some outside help.

But, you know, again, as far as the major project that we had last year, that's behind us now. That engagement has ended.

Mac Furst: Okay. Thank you. Thank you very much. So consulting fees, for digital business transformation in fiscal 2026 will be quite low. Okay. Thank you.

Operator: Thank you. And I'm showing no further questions at this time. And I would like to hand the conference over to Brad Wieman for closing remarks.

Brad Wieman: Okay. Thank you, everyone, for joining us today, and we appreciate all the work that our teams are doing. And I want to just, again, congratulate our leadership team and all the employees at Daktronics. For the work that we've done throughout this past transformational year. Like I mentioned earlier, we have a lot of work yet to do, and we're tasked with that and we're planning to accomplish it. So with that, I wish you all just a wonderful summer. Enjoy it, and thank you for joining our call today.

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

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