Good day, ladies and gentlemen, and welcome to the Daktronics' Fiscal Year 2024 Third Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded, Wednesday, February 28, 2024, 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. Carla Gatzke, Corporate Secretary for Daktronics, for some introductory remarks. Please go ahead, Carla.

Thank you, Kevin. Good morning, everyone. Thank you for participating in our third 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 opportunities that 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 introduction of new products and technology, availability of raw materials, components and shipping services, and other important factors. These identify factors could cause actual results, to differ materially from those discussed in this call in the company's 2024 quarterly earnings release, and in its most recent annual report on Form 10-K. Our second quarterly 2024 earnings release, contains certain non-GAAP financial measures and was furnished to the SEC on a Form 8-K this morning -- clarify, third quarter 2024 earnings release. We also made slides available for today's call. All of these documents are available on the Investors section at Daktronics website, www.daktronics.com. I'll turn the call over to our CEO, Reece Kurtenbach.

Thank you, Carla. Good morning, everyone. Thank you all for joining us today. Our third quarter and year-to-date results reflect our team's strong execution of our strategies across all our business areas. These strategies have raised the bar for execution and expectations of profitability in our operating model. As a result, we have delivered record sales and operating income to-date in fiscal 2024, and drove robust operating cash generation in the third quarter. These results serve as evidence, of the success of our past decisive, and deliberate actions taken, to adapt to challenging business conditions, and to improve our customers' experience, while increasing our profitability, and working capital levels. The results also testify, to the resiliency and strength, of our teams within Daktronics and to our strategy, of capturing demand in diversified markets, and innovating across technology platforms. If you have opened the slide deck, I invite you to turn to Slide 3 titled Fiscal Third Quarter 2024 Highlights and to follow the financial outcomes for the quarter. To put our fiscal 2024 results delivery into perspective, our third quarter is historically a seasonally low volume quarter, for revenue and therefore, historically could result in a breakeven, or even a loss-making quarter. However, reflecting back to fiscal 2023 third quarter, we fulfilled back-ordered work, as we had new designs available, to take advantage of the available parts in our supply chain, and as other supply chain-related pressures were resolving. This resulted in extraordinarily high volume, and high profit for the third and fourth quarters of fiscal 2023, a unique time for us. During this fiscal year's third quarter, despite a return to more traditional seasonality, and fulfilling a lower volume of orders, as compared to last year's surge, we drove an $8 million profit - operating profit and generated $9…

Thank you, Reece. Please turn your attention to Slide 4 titled F Q3, FY 2024 Financial Highlights for the quarterly overview. Orders for the third quarter of fiscal 2024, increased by 29.4%, from the third quarter of fiscal 2023, through strong demand in the Live Events business unit, returning demand in the spectacular and out-of-home markets in our Commercial business unit and solid growth in High School Park and Recreation and Transportation business units. These higher orders, offset the decline in the International business unit orders, as compared to last year's third quarter. We believe international demand softness, relates to the economic, and geopolitical conditions. We generated sales of $170 million, for the third quarter of fiscal 2024, as compared to $185 million of sales, for the third quarter of fiscal 2023. This 7.9% sales volume declined, as the industry is returning to more traditional seasonal trends, and because during last year's back half of the second quarter, and during the third quarter, the supply chain stabilization, allowed us to physically finish a high volume of orders and deliver, for revenue recognition in those quarters. As Reece highlighted, the third quarter is our historically low sales volume quarter, because of sport seasonality, outdoor construction lulls in the winter months, and fewer workdays due to the holiday breaks. This year's third quarter volume, was as expected. Supply chains, also continued to flow generally as expected. Gross margin as a percentage of net sales, increased to 24.5% for the third quarter, of fiscal 2024, as compared to 22.6% in the third quarter of fiscal 2023. The 190 basis point increase in gross profit percentage, is attributable to strategic pricing actions, and stability in our diversified supply chains. Operating margin, was 4.7% of sales, during the third quarter of fiscal 2024, as compared…

Thank you, Sheila. Please reference Slide 6 titled Market Verticals Update. Our mission is to support our customers to inform, entertain and persuade their audiences, and their customers. Let's look more specifically into our business areas. In Live Events, we again partnered with the Detroit Tigers, to deliver the second largest main video display in baseball's major leagues at Comerica Park, updating and upgrading our previous installation from 2012. Five additional displays will be installed along the fascia, dug out and line score locations ahead of the 2024 baseball season. Moving forward, we expect Live Events demand, to remain strong as there are a number of projects being bid, as venues enhance facilities, to entertain fans and attract athletes. We see this trend continuing, and more focus being placed on entertainment areas, and the experience outside the bowl, in places like entryways, atriums, concourses and adjacent entertainment areas. Commercial orders, especially from customers in the out-of-home advertising space, can be sensitive to economic conditions, and they can rebound quickly as conditions improve. This market is also sensitive, to the large national advertiser spending decisions, which is why we also focus, on winning other independent billboard sales. We saw a nice order rebound in Q3 in both national and local out-of-home customers. However, large national out-of-home companies, are noting plans to continue, to constrain spending in the coming calendar year. We continue to innovate, and provide competitive differentiation in the marketplace, to reach the needs of our customers. For example, we are seeing interest in our light direct digital billboards. Light direct, narrows the viewing cone of the display, preventing light emissions from spilling into surrounding areas, and targeting only the intended audience in urban and rural environments. We continue to build out our AV integrator network, to market our narrow…

Thank you. [Operator Instructions] Our first question comes from BJ Cook with Singular Research. Your line is open.

Hi, thanks for taking my question, guys. New order growth was quite a bright spot for the quarter. Interestingly, last quarter, there were higher orders in International and Transportation, decrease in Commercial. This quarter was quite the opposite. I know results can kind of be choppy, but is there anything unique that you're seeing in those segments, given the jump in new orders?

BJ, first of all, I appreciate the question. Thanks for joining us this morning. And I think what you're seeing is, as we described here, lumpiness, we - International and Transportation tends to be large order based and that order books in a certain period, and then it fulfills in the subsequent periods. And so, I think what you're seeing, is a normal kind of impact of our business, which is why we tend to look, over larger periods, to kind of smooth some of that out.

Great. Thanks. You guys mentioned in your remarks, some new sources of revenue and SaaS, or recurring revenue in military as well. Can you expand on those? Or how far along in the sales process, are you in those different opportunities?

Certainly, our - what we call our narrow pixel pitch product, has really matured into a nice line of different pixel pitches in different ways that our customers can use them. And the AP integrator reseller chain that we sell a lot of that through, continues to grow and be developed. Some of - but there's still room to continue to add AV integrators and build our visibility in that market space. On the software as a system and some of these other content services, we see great potential in those areas, but relatively new. We're adding customers in those areas, but really in the past 12 to 18 months that has started.

Thanks, guys. Appreciate it

Thanks, BJ.

[Operator Instructions] Our next question comes from Anja Soderstrom with Sidoti. Your line is open.

Hi, and thank you for taking my question. Congratulations on the good progress here. I'm just curious with the backlog declining. I understand that's, due to catch-up from last year a supply chain. But when do you think that will revert, to seeing growth again?

Our backlog is going to fluctuate from quarter-to-quarter, Anja, as we book these large orders and then kind of work them off. We believe, though, that our - a year ago, our backlog was too large. We had a lot of product in there, and we weren't able to meet market lead times. And so, we see the reduction year-over-year in backlog as a positive as we've got our delivery more into market lead times. But I would also say that as we talked about seasonality, our fiscal Q1 and Q2, tend to be our largest revenue quarters. And so, we would expect backlog to grow, somewhat as we go into that period, and then shrink as we go into Q3. And then grow again, as we would come back into the next fiscal year, as we've - just over time, experienced that seasonality in and out. Is that helpful Anja?

Yes, that was helpful. Thank you. And then in terms of the gross margin is fluctuating quite a bit as well. What is sort of a sensible one to use going forward for projections?

Revenue growth is the...

The gross margins?

Gross margins. I think we're going to see a stabilization in our gross margins as the business environment just isn't as volatile, as it was a year or so ago. Where does that all settle out is a good question, Anja. We believe that we certainly are enjoying these gross margins, and we're very sensitive to pricing adjustments and cost increases. And we're fighting, to hold those gross margins quarter-after-quarter. As far as guidance on what gross margins would, or could be, I don't think we're ready, to give that at this time.

Okay. Thank you. That was all from me.

Thank you, Anja

[Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to Reece for any closing remarks.

Thank you, Kevin. I'd like to thank everyone for attending our conference call today. I would like to let you know that, we are appearing at the Sidoti Small Cap Conference in March, and we often have one-on-ones following the conference call. And we'll host the next earnings call likely in June, as we release our annual results. I hope you all have a great day, and a great week, and thanks again for joining us.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.