Daktronics Inc 2027 Q1 Earnings Call

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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lindsey Vetter. Please go ahead. 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 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, 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 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.

Thank you, Lindsey, and good morning, everyone. We had a strong start to fiscal 2017, 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.

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'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, 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.

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, The Ohio State University, Pennsylvania State University, and University of 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. 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 fuel digit replacement program order received in the prior year. Pictured here is the La Crosse Sign Group, the Kwik Trip in Wando, Wisconsin. 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. Our transit business won large orders from Sacramento Regional Transit District, 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.

In the high school park and recreation business, we booked several large projects this quarter, including Round Rock Independent School District and Northside Independent School District 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, collegiate, 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 a competitive differentiation through Daktronics Sports Marketing's school curriculum, DakClassroom, and other paid professional services. Our pipeline in the high school parks and recreation business continues to remain strong. Pictured here is the Massillon City School District in Massillon, Ohio.

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 24/7, the Metropolitan in Dubai, UAE. In our services business, our control upgrade orders grew, driven by Camino introduction 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.

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 six-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.

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, our new order pipeline in our core markets remains 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. Third, as I mentioned, our Camino 8 expansion earlier, we are continuing to make strong progress. The Los Angeles Angels are 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.

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 second half 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 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. 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.

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 a continued focus for our strategic execution.