Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Daktronics Inc (DAKT, Financial) reported an 11% increase in new orders from the previous year, demonstrating strong demand.
- The company achieved solid operating cash flow of $19.5 million, reflecting efficient financial management.
- Revenue growth and gross margin expansion were noted, with a sequential increase in gross margin to 26.4%.
- Daktronics Inc (DAKT) successfully completed several large projects, including installations for major universities and sports venues.
- The company has a strong balance sheet with $97.2 million in cash, restricted cash, and marketable securities.
Negative Points
- International market performance remains slow due to economic and geopolitical uncertainties.
- Operating expenses have increased, primarily due to sales and wage increases and additional hiring.
- The company faces a highly competitive environment, particularly from Southeast Asian manufacturers.
- Some customers have delayed buying decisions, impacting order flow in certain segments.
- Investments in digital transformation and consulting services are expected to impact operating margins by $8 million to $10 million in fiscal year 2025.
Q & A Highlights
Q: Congratulations on the execution in the quarter. Can you just talk a little bit about the backlog? When do you expect that to normalize?
A: Good question, Anja. Backlog, we think we'll start to see more of a seasonal cycle represented in our results where Q1 and Q2 tend to be higher sales revenue months, Q3 tends to be lower, and Q4 starts to build into our busier summer. So we would expect our backlog to grow as we move through Q3 and then tend to trend down in our summer months. We would expect that to continue on into FY25 and into FY 2026. Most of the unusually high backlog from supply chain issues has been resolved.
Q: The revenue in the first quarter was quite strong sequentially. Was anything there that was pulled in from the second quarter? Or how should we think about the second quarter?
A: In our summer months, there's a lot of projects in flight as many of our customers are sports-driven and getting ready for the fall sports. So it's sometimes difficult to predict what's going to happen right at a quarter boundary. But there wasn't, I would say, an unusual amount of movement. So I don't think much was pulled in from Q2 into Q1.
Q: In terms of your targeted operating margin, you're there already. And you have -- you're taking a lot of initiatives with the digital transformation. Do you think maybe there would be room to expand that target?
A: Great question. Our management team is looking at that now. We believe there's room for growth, and we believe there is room for margin growth, operating margin growth. How do we balance those two is really the opportunity we have in front of us, but we believe there is room for top-line growth and operating margin growth.
Q: You also mentioned pricing as a driver for margin expansion. Can you just talk about the competitive environment and your value proposition compared to competitors and how you win?
A: Yes. It continues to be a competitive environment. Most of our competition comes out of Southeast Asia. Our value proposition has been very strong and remains consistent. We have strong control of the displays and how those AV systems are made, strong capability in the control systems, and we are a full-service organization. By balancing all those three things together is what's made Daktronics strong.
Q: I wanted to ask you about market share. How has that developed in the last couple of years and specifically in the last, say, three, four quarters?
A: It's more of that data is hard to come by. We do track win-loss on our opportunities. We spend much less time with customers that are really price-focused. We are focused on customers that see the value proposition that Daktronics has. In this highly price-sensitive market, I suspect we don't have as high a market share as we had previously going into COVID. In other areas, I believe we've been able to maintain our market share quite well.
Q: Can you comment at all about the credit position of the company? And how has that developed in the last couple of quarters?
A: As a credit position, we have a very strong balance sheet today, high levels of cash, and are not pulled out on our line of credit.
Q: What kind of credit is at your disposal at this point in time if you needed it?
A: We have an asset-based lending line and roughly runs around $35 million of availability on that line.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
