Good day, ladies and gentlemen, and welcome to the Daktronics Fiscal Year 2024 Second Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded today, Tuesday, December 5, 2023, and is available on the company's website at www.daktronics.com. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Ms. Sheila Anderson, Chief Financial Officer for Daktronics, for some introductory remarks. Please go ahead, Sheila.

Thank you, Gigi. Good morning, everyone. Thank you for participating in our second quarter earnings conference call. I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing 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 concerning future events. All forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from our expectations. Such risks include, but are not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts and orders, fluctuations in margins, the introductions of new products and technologies, availability of raw materials, components and shipping services and other important factors. These identified factors could cause actual results to differ materially from those discussed in this call in the company's 2024 quarterly earnings release and its most recent annual report on Form 10-K. Our second quarter 2024 earnings release contain certain non-GAAP financial measures that was furnished to the Securities and Exchange Commission on a Form 8-K this morning. These documents are available on the Investors section at Daktronics website at www.daktronics.com. I'll turn the call over now to our CEO, Reece Kurtenbach.

Good morning. Thank you, Sheila. Thanks, everybody out there for joining us today. We have had a record start to fiscal year 2024 in both sales and operating income and had robust operating cash generation for the quarter. All of this is the result of strong execution in our strategic strategies across all our business areas. We continue to benefit from our past decisive and deliberate actions to improve our customers' experience while increasing our profitability and working capital levels. Our performance is also a testimony to the resiliency and strength of our teams within Daktronics as well as our strategy of diversified markets and innovation across technology platforms. For additional details on the financial results for the quarter, I'll turn it back to Sheila.

Thank you, Reece. As Reece mentioned, we had a record start for orders and operating income and strong operating cash flows. Congratulations to the Daktronics team for this great effort. For the quarter and year, orders and demand outlook remained strong in Live Events, High School Park and Recreation and Transportation as we see customers continue to invest in digital displays to inform, entertain and persuade their audiences. International orders have been increasing this year as global economies recover from the pandemic despite more related events. For fiscal 2024, commercial areas have been contracted for orders and out-of-home digital billboard and the military areas. As a reminder, given the impact of large tailored projects across our markets, orders can be lumpy. We reported sales of $199.4 million for the second quarter of fiscal 2024. This was an increase of 6.4% compared to $187.4 million for the second quarter of fiscal 2023. Sales growth was driven by fulfilling orders in backlog. Gross profit as a percentage of net sales increased to 27.2% for the second quarter of fiscal 2024 as compared to 16.9% in the second quarter of fiscal 2023. The over 10-point increase in gross profit percentage is attributable to the increased sales volume over our relatively fixed cost structure, strategic pricing actions and a stable supply chain causing fewer operational disruptions during the second quarter of fiscal 2024 as compared to a year earlier. Operating expenses for the second quarter of fiscal 2024 were $34.8 million compared to $30.2 million for the second quarter of fiscal 2023. As a percentage of sales, operating expenses for the quarter over prior year was 17.4% as compared to 16.1%. On a year-to-date basis, operating expenses as a percent of sales was 15.2% as compared to 17.1%. Both gross profit and operating expenses…

Thank you, Sheila. As we look ahead, industry research predicts the LED market will achieve an estimated 20% to 25% compounded annual growth rate over the coming years, depending on the specific end market and geography considered. We are well positioned to continue to capitalize on growth in the global use of audio visual communication systems in both traditional and new applications, and we remain focused on engaging in a full range of activities to serve our customers by providing high-quality standard display products as well as custom-designed integrated systems, both with ongoing services and support. Manufacturing a complete line of products from small scoreboards and electronic displays to large multimillion-dollar video display systems and the related control and sound systems, developing capabilities to design, manufacture, install and service, complete integrated systems and we are recognized as a technical leader in these areas, generating new leads and serve repeat customers based on our performance, reputation and marketing efforts. As we look ahead to the remainder of the current fiscal year, our attention remains focused on our multiyear journey to capture the market's expected growth and broaden our leading market position by offering best-in-class technologies and services to both our traditional customers as well as new and adjacent markets. As we look into the second half of fiscal 2024, we are applying the experience we gained over the last two fiscal years and intend to closely monitor the ever-evolving geopolitical and global economic environment and as necessary, quickly adjust our resources and market approaches so that we can maintain profitability and cash generation throughout various cycles. In our business areas, we are focused on growth opportunities over the long-term. These include our High School Park and Recreation business unit to grow through the adoption of video displays for sporting and educational…

Thank you. [Operator Instructions] Our first question comes from the line of BJ Cook from Singular Research.

Hey, guys. Nice quarter. Just a few quick questions here. Looks like gross margin was down slightly from Q1. I guess still working through some inflationary cost pressures? Or is this kind of more of a return to normalized gross margin?

Yes, BJ, first of all, thanks for joining us this morning. As Sheila mentioned in her comments, we do have a fixed cost infrastructure with our factories and other areas. So as revenue might fluctuate through the quarter-to-quarter, you might see a change in the measured gross profit, even though our pricing and other cost structures have remained similar. And so we think we still have a strong backlog of good orders, and we believe that we're set up for success for the rest of the fiscal year over the long-term and for the long-term with both our backlog as well as the ordering activity that we're seeing. So we're not thinking that's a long – we are thinking that’s part of our business over the long-term. That's not some sort of a change in how our market pricing or order taking is going.

All right. Thanks, Reece. One more. You mentioned a great quarter in terms of cash generation, got a healthy amount of cash on the balance sheet. Just wondering if paying down the mortgages on your radar or if there's other uses for that cash that you guys are considering?

Yes, certainly, that's always a discussion with our Board, but there's different ways that we could choose to use that cash and paying down debt is one of those. I think we'll see that those strategies become visible here in the coming quarters.

Okay. Cool. I’ll appreciate it.

Thank you. Appreciate the questions and the participation.

Of course.

Thank you. [Operator Instructions] I would now like to turn the conference back over to Reece Kurtenbach for closing remarks.

Thank you, everybody, for attending our conference call today. We are appearing in the Noble Capital and Singular conferences over the next few days, and we'll host the next conference call when our third quarter results are released later this Spring. I hope you all have a wonderful holiday season. Appreciate your participation in today's call, and we'll talk to you in the quarter. Thanks, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.