Daktronics Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 25, 2025

Key Takeaways

  • Positive Sentiment: Q4 orders and backlog grew 29% sequentially and 17% year-over-year, ending FY25 with a $342 million backlog, setting up potential revenue growth in FY26.
  • Positive Sentiment: Adjusted operating cash flow doubled in Q4 and rose 54.5% for the year, driven by business transformation initiatives that improved value-based pricing and inventory efficiency.
  • Negative Sentiment: Adjusted operating margin contracted to 6.6% in FY25 from 10.6% in FY24, pressured by lower volumes and nonrecurring transformation costs.
  • Positive Sentiment: The company finished FY25 with $128 million in cash, retired 9% subordinated debt, and secured board approval for a $10 million share repurchase program.
  • Neutral Sentiment: Tariff policy remains uncertain, but management plans to mitigate cost increases through value-based pricing, supply-chain flexibility, contract protections and its U.S. manufacturing footprint.
AI Generated. May Contain Errors.
Earnings Conference Call
Daktronics Q4 2025
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the Daktronics Fourth Quarter Fiscal Year twenty five Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. Would now like to hand the conference over to your speaker today, Carla Gatzky, Corporate Secretary. Please go ahead.

Carla Gatzke
Carla Gatzke
VP - Human Resources & Corporate Secretary at Daktronics

Thank you, operator. Good morning, everyone. Thank you for participating in our fourth quarter earnings conference call. Today's presentation 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.

Carla Gatzke
Carla Gatzke
VP - Human Resources & Corporate Secretary at Daktronics

Of course, 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.dactronics.com. Our earnings release for the twenty twenty five fourth quarter, which is furnished to the SEC on a Form eight ks this morning, also contains certain non GAAP financial measures.

Carla Gatzke
Carla Gatzke
VP - Human Resources & Corporate Secretary at Daktronics

Reconciliation of these non GAAP financial measures to the most directly GAAP measures, 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'll turn the call over to Andrew Siegel, Chairman of the Board for some introductory remarks.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

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. On our last quarter call, 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.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

You're hearing my voice today, asked me to step up to become Chairman of the Board. Why does that matter? Well, I'm an on 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 off of Fox pursuant to which the company terminated our poison pill, converted the 9% subordinated debt, undertook a comprehensive review of our exec compensation and added Papa Fox's appointee, Peter Feigen, President of the Milwaukee Bucks of the NBA to our Board.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

Peter is 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 of Alta Fox for that recommendation, for providing the financing and like many of you have reached out for 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 reflect its importance to supporting our ongoing business transformation plan while flexibly protecting shareholder interests.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

Then on top of this transition and transformation, another keyword was thrown into the mix during the past almost three months for us, along with most U. S. Manufacturers, but I'm taking it personally, that 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.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

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 the 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 an 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.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

It doesn't show up on the balance sheet, but it's an incredible asset nonetheless, and I thank the team. Our fourth quarter results reflect this focus and determination. The Daktronics Board remains committed to the shareholders it represents just as our executive team remains committed to our customers and to 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 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 eight ks we filed.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

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 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 again with the help of nationally recognized consultants who match best practices to the company's culture.

Andrew Siegel
Andrew Siegel
Chairman at Daktronics

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 positively to the opportunity and expressed their excitement about the company and the 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 Wiemann, our President our Interim President and CEO. Brad?

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Okay. Thank you, Andrew, and good morning, everyone. Thank you for joining our fourth quarter fiscal twenty twenty five 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 twenty twenty five results, accomplishments and then take your questions. Please turn to Slide three of the presentation and we'll get started.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 $50,000,000 in new order flow booked across all segments in the fourth quarter alone.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

This supported 15% sequential sales growth from the third quarter, replenished our backlog and is setting us up well as we head into fiscal twenty twenty six. 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 $6,000,000 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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. 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 a home of College World Series.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 first year during the year, orders for fiscal twenty twenty five decreased 12% year over year and for Q4 decreased 11% year over year following a record FY 2024 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 and 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 Tri Stadium at the University of Iowa, where fans will be welcomed with new products.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 order wins with orders for the year increasing 31% from last year and for the fourth quarter increasing 44% from the fourth quarter of twenty twenty four. 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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, who 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 independent channel continue to pay off. We 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

This growth is being driven by customers interested in our 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 twenty twenty six. We expect to benefit as a U.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

S. 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 domestic 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Our international orders increased every quarter throughout FY twenty twenty five and we reached a peak in the fourth quarter coming in nearly at $25,000,000 Our largest growing market in FY twenty twenty five 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. In our Events segment, we had we won a very large multimillion dollar project, Aramco Stadium at Al Qabar, Saudi Arabia, a planned multipurpose facility. Our products were specified into those projects.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

In the industry segment, we won multiple command and control projects across The Middle East throughout fiscal year twenty twenty five. Pictured here is a recent installation at Al Arabia in Dubai and out of home company there. In our High School Park and Recreation business, we drove record orders 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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. Further 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 as a solutions control solution, drives further recurring revenue. Venus Live, which brings new capability 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

The photo from this picture is Aquashire 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 twenty twenty five, 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 performance management, which is now in implementation phase. We launched new control systems as mentioned.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Sales tool development is on track for Configure Price Quote, which we plan to have an initial release in the latter part of FY twenty twenty six. 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
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

Thank you, Brad, and thanks 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 non recurring and other special items that hit the income statement. During the year, we incurred $16,500,000 in non recurring expenses in connection with various transformation initiatives. About half of those costs, $7,500,000 to be precise, were incurred in the fourth quarter.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

The full year and fourth quarter special items break down as follows: first, we had consulting costs of $7,100,000 in the full year and $1,000,000 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 for redomiciling and shareholder relations of $3,900,000 for the quarter and $6,800,000 for the year. Finally we recorded $2,600,000 for both the fourth quarter and the full year for advisory, severance and other compensation costs associated with the management transition that we announced in the end of the third quarter.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

All of these non recurring expenses flow through G and A expense and therefore they impacted pre tax operating income. In addition to above the line non recurring expenses, we took or incurred several other special non cash valuation adjustments, including the following: We recorded a non cash benefit of $2,800,000 and a charge of $22,500,000 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 non cash provision for possible loan losses of $15,500,000 on a loan to an affiliate in 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.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

Finally, under GAAP, we reviewed all of our estimated costs for open warranties and over time 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 over time revenue recognition and warranty expense. These tariff estimates impacted operating income negatively in the fourth quarter by $1,200,000 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 non recurring expenses, adjusted operating income for 2025 was $50,000,000 still down from our record $87,000,000 operating income in 2024, but 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 into 2026.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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 sales and record profits in 2024, with some of that revenue completed in early twenty twenty five. Orders in early twenty twenty five dipping below revenue for a bit, our revenue declined bottoming out in a seasonally soft third quarter of twenty twenty five. 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 twenty twenty four.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

This growth was broad based resulting in a more diverse revenue mix and resulting in a product backlog at year end twenty twenty five of $342,000,000 up 8% from a high year end 2024. While this order growth did produce a 17% sequential increase in fourth quarter revenue from the third quarter, about $70,000,000 of the third and fourth quarter orders will start generating revenue only when the projects are started in fiscal twenty twenty six. The good news here is this is setting the stage for what is shaping up to be a solid revenue growth throughout the coming year. We are encouraged additionally by the revenue trends that we see at the beginning of the new fiscal year. Slide 11 addresses our balance sheet strength and talks a little bit about our capital allocation.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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%. 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.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

As previously reported, we converted the 9% 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 net, will save about $1,000,000 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 working capital management and efforts to preserve adjusted margin, we generated $97,700,000 in operating cash flow and ended 2025 with $128,000,000 in cash, up 57% from last year. The significant increase in cash has provided us added flexibility to invest capital for value creation.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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. In 2025 we repurchased $29,000,000 of common shares in the market at a volume weighted average price of $14.23 per share, in part to neutralize the shares issued to retire the convertible note. Today we announced board approval for an additional $10,000,000 share repurchase program. Let me conclude by touching on tariff facts and impacts as much as we can talk about them and understand them.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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 including China but many other countries as well. Third, the pre reciprocal tariffs, these are tariffs that we've been incurring since 2018, have been running at approximately $500,000 per month since 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. And finally, in the first five weeks so far in fiscal twenty twenty six, the higher tariff rates that have been invoiced to us have cost us about $2,000,000 and I want to be really clear about what that means.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

That is gross, it's not any pricing or manufacturing or other operating expense mitigation efforts that are already underway. More importantly, almost all of that $2,000,000 is at the highest rates that were imposed by The United States on Chinese imports at the end of twenty twenty five, which were more than three times the rates currently being discussed between the two countries. Basically the things that were on the water after the April second liberation announcement that have now initially come in. But before The US and China paused reciprocal tariffs as of April 2 in that short one month period, the $2,000,000 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.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

So now let me turn the call back to Brad.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Okay, thank you, Howard. Turning to Slide 13, we embarked on this journey really to 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 twenty twenty eight. Our plan is in place, are executing on it. We have a lot of work to do and our team is committed to its success.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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. And we have an 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Our supply chain remains healthy and functional. We find that as is true of all of us, our customers are becoming acclimated to inflation and are accepting of it as a reality of doing business right now. The transformation plan is unaffected. We are moving ahead at pace on the initiatives that we have laid out and our long term objectives remain in place. As for fiscal year twenty twenty six, demand for our technology leading display solutions remains strong and we are remaining flexible and competitive on a value basis in the macro environment.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 U. S. Manufacturer of scale with a global footprint and servicing by geographic market.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 and 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 Spakala with Craig Hallum Group. Your line is open. Please go ahead.

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

Yes. Good morning, Andrew, Brad and Howard. Thanks for taking the questions and thanks for all the good color and commentary so far. 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 twenty twenty eight targets for high single digit CAGR, just hoping to get a little color on what growth might look like in FY twenty twenty six.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Yeah, 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 twenty eight. There's going to be some lumpiness year over year in that.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

But all in all, we think we can achieve that. We think FY twenty twenty six 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.

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

All right. Thanks for that. And then on margins, I appreciate the color on the tariffs and that it's an uncertain kind of outlook there. Can 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?

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

And 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 Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 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 twenty twenty five to hold our margins and really a down revenue year.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

All right, thanks. And then maybe turning to the commercial segment, 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? Just maybe talk about the shift to digital in that market at a high level. Where are we in that conversion and how much kind of green space is there for you as that market kind of shifts in the coming years?

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

Yes, 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 both the independent billboard operators as well as the national customers.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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 as 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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

So 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 primarily to doge.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

I think 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 Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

No, it does. Great, thanks for the color. Then just maybe last, thinking about the working capital efforts underway so far, a lot of nice cash generation in the year. Just curious on additional kind of levers there. Where can that cash conversion can it get back to where it was a few years ago?

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

And then any thoughts on capital allocation just given the balance sheet would be helpful. Thanks.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

Well, sheet, I'll answer the second question first. Our objective here is to grow grow at obviously profitable margins. So our first use of capital is going to be getting the growth. We talked about product development and the digital transformation. That's where our incremental capital expenditures are going in particular.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

We've talked about share repurchase, obviously with this amount of cash. That is still very much on the table and it's economic for our shareholders to do that. So it's a little bit of all of the above but the good news is we have the cash and the capital and our objective is to get it deployed in the highest return ways we can.

Aaron Spychalla
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great, thanks for taking the questions. I'll turn it over.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

All right. Thank you.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Anya Soderstrom with Sidoti. Your line is open. Please go ahead.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Hi, and congrats on the nice performance here. And thank you for taking my questions. Many of them have been answered already. But I'm curious for international, the strength there. What is just the primarily driver for that?

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

And do you see that continue into the first quarter?

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

The strength in what is you saying? Which

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Yeah.

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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, getting that pipeline closed. What 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 twenty twenty five. So that's what that's what creates this really, interesting and, and and, you know, opportunity for us, to to get the kind of revenue growth that, you know that we that we're looking for 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 good start to the year and a mechanism for continued revenue growth throughout the year as the projects come on board.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Thank you. How are the orders and backlog trending in the first quarter, just in general or overall?

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

Early indications are business is still brisk.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay. Thank you. And then in terms of the onetime fees, should we expect more of those in in fiscal two thousand twenty six? Or

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

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

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

I will also say that these consulting fees are expected to be more than paid back multiple times in terms of the transformation results that we expect over the next three years.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay, got it. And then also you mentioned the board approved a $10,000,000 buyback program. Did you have anything left on the old one or?

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

We did. Yes. So but we'll we'll provide some further commentary on that shortly.

Anja Soderstrom
Senior Equity Research Analyst at Sidoti & Company

Okay. Thank you. That was all for me.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

All right. Thank you.

Operator

Thank you. And our next question is going to come from the line of MacPherson with Sinclair Research. Your line is open. Please go ahead.

Mac Furst
Research Analyst at Singular Research

Yes, hi. This is Macpherson with Singular Research. Congratulations on the quarter. This is a question for either Howard Atkins or Brett Wiemann. What do you expect business and digital transformation expenses to be in fiscal twenty twenty six?

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

When you say expense, are you talking about additional fees or or consulting expenses? Or

Mac Furst
Research Analyst at Singular Research

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

Howard Atkins
Howard Atkins
Acting CFO, Treasurer & Chief Transformation Officer at Daktronics

At at this point, as I said, we don't on the business transformation, you know, that that project, if you will, that we had last year with the outside consultant has now really been integrated into the company. 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 that team decides to take in 2025 that is not currently planned for but I can't guarantee that you know some idea that we you know the team comes up with in 2025 wouldn't require some outside help but you know again as far as the major project that we had last year, that that's behind us now. That that engagement has ended.

Mac Furst
Research Analyst at Singular Research

Okay. Thank you. Thank you very much. So consulting fees, for digital and business transformation into fiscal twenty twenty six 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 back over to Brad Wiemann for closing remarks.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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.

Brad Wiemann
Brad Wiemann
EVP, Interim President & CEO at Daktronics

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.

Executives
    • Carla Gatzke
      Carla Gatzke
      VP - Human Resources & Corporate Secretary
    • Andrew Siegel
      Andrew Siegel
      Chairman
    • Brad Wiemann
      Brad Wiemann
      EVP, Interim President & CEO
    • Howard Atkins
      Howard Atkins
      Acting CFO, Treasurer & Chief Transformation Officer
Analysts
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