Good day, and thank you for standing by. Welcome to the Daktronics Fourth Quarter Fiscal Year 2025 Financial Results Conference Call. At this time, 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. 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. I would now like to hand the conference over to your speaker today, Carla Gatzke, Corporate Secretary. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for participating in our fourth quarter earnings conference call. 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. Of course, actual 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.daktronics.com. Our earnings release for the 2025 fourth quarter, which is furnished 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 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.

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. Our last quarter call, we 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. And while you're hearing my voice today, they asked me to step up to become chairman of the board. Why does that matter? Well, I'm an honor 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, AlphaFox, pursuant to which the company terminated our poison pill, converted the 9% subordinated debt, undertook a comprehensive review of our exec compensation, and added AlphaFox's appointee, Peter Feigen, President of the Milwaukee Bucks of the NBA, to our board. Peter's 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, and Walter Fox for that recommendation, providing the financing, and like many of you have reached out, 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 reflects its importance to supporting…

Okay. Thank you, Andrew, and good morning, everyone. Thank you for joining our fourth quarter fiscal 2025 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 2025 results accomplishments and then take your questions. Please turn to Slide three of the presentation and get started. 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 million in new order flow booked across all segments in the fourth quarter alone. This supported 15% sequential sales growth from the third quarter, replenished our backlog, and is setting us up well as we head into fiscal 2026. 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 million. 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. 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…

Thank you, Brad, and thanks to 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 nonrecurring and other special items that hit the income statement. During the year, we incurred $16.5 million in nonrecurring expenses in connection with various transformation initiatives. About half of those costs, $7.5 million to be precise, were incurred in the fourth quarter. The full year and fourth quarter special items breakdown as follows. First, had consulting costs of $7.1 million in the full year and $1 million 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 were redomiciling and shareholder relations. Of $3.9 million for the quarter and $6.8 million for the year. And finally, we recorded $2.6 million for both the fourth quarter and the full year for advisory, severance, and other compensation costs associated with the management transition that we announced at the end of the third quarter. All of these nonrecurring expenses flow through G&A expense, and therefore, they impacted pretax operating income. In addition to the above, the above the line nonrecurring expenses, we took or incurred several other special noncash valuation adjustments. Including the following. We recorded a noncash benefit of $2.8 million and a charge of $22.5 million for…

Okay. Thank you, Howard. Turning to Slide 13. We embarked on this journey to really 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 2028. Our plan is in place. We are executing on it. We have a lot of work to do. And our team is committed to its success. 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. 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. Our supply chain remains healthy and functional. Find that as is true of all of us, our customers are becoming acclimated to and inflation. And are accepting of it as a reality of doing business right now. The translation plan is unaffected, We are moving ahead at pace. One of the initiatives that we have laid out and our long-term objectives remain in place. As for fiscal year 2026, demand for our technology-leading display solutions remains strong. And we are remaining flexible and competitive on a value basis in the macro environment. 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 US manufacturer of scale, with a global footprint and servicing by geographic market. 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 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.

Thank you. And our first question is going to come from the line of Aaron Spekella with Craig Hallum Group. Your line is open. Please go ahead.

Yeah. Good morning, Andrew, Brad, and Howard. Thanks for taking the questions, and thanks for all the good color and commentary. So far. You know, 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 2028 targets for high single-digit CAGR just hoping to get a little color on what growth might look like in FY '26.

Yes. 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 '28 is going to be some lumpiness year over year in that, but all in all, we think we can achieve that. We think FY 2026 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. Alright.

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

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 the 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 '25 to hold our margins and really a down revenue year. And we think we can carry that forward into FY 2026 and further. In addition to that, we're bringing on new markets, new services that they're additive. They take time. They're small at first, but we believe that they're going to be accretive over time beginning in FY '26. So all those things combined, we believe, can lead to a higher operating margin year.

Alright. And then maybe turning to the commercial segment, I 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 and just maybe talk about the shift to digital in that market at a high level? You know, where are we in that conversion and, you know, how much kind of green space is there for you as that market kind of shifts in the coming years?

Yeah. 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 hoping it the independent billboard operators as well as the national customers. 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 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. 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 private primarily to doge. I think, you know, 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.

No, it does. Great. Thanks for the color. And then just maybe thinking about the working capital efforts underway so far, you know, a lot of nice cash generation in the year. Just curious on additional kind of levers there. You know, where can that cash conversion can it get back to where it was a few years ago? And then, you know, any thoughts on capital allocation just given the balance sheet would be helpful. Thanks.

Well, balance sheet, I'll ask the answer the second question first. You know, to grow and grow it as we our objective here is obviously, profitable margins. So our first use of capital is going to be, you know, getting the growth. We talked about product development and, and, the digital transformation. That's where our incremental capital expenditures are going. In particular, we've talked about share repurchase, obviously, with this amount of cash. That is still very much on the table, and it's, you know, economic for our shareholders to do that. So, it's a little bit of all of the above. But, you know, the good news is we have the cash and the capital and our objective is to get it, you know, deployed, in the highest return ways we can.

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

Alright. Thank you. Thank you. And one moment for our next question.

Our next question comes from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead.

Hi. And congrats on the nice performance here, and thank you for taking my questions. Many of them have been already. But I'm curious for international, the strength there. What is the primary driver for that? And do you see that continue into the first quarter?

The strength in orders you're saying or what which yeah. We had 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 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 2025. So that's what creates this really interesting and, you know, opportunity for us, 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 start to the year and a mechanism for, you know, continued revenue growth throughout the year the projects come on board.

And how are the orders and backlog trending in the first quarter?

Just in general? Or overall? Early indications are business is still brisk.

Okay. Thank you. And then in terms of the one-time fees, should we expect more of those in fiscal 2026?

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

Okay. Got it. And then also you mentioned you the board approved a $10 million buyback. Program. Did you have anything left on the old one?

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

Shortly.

Okay. Thank you. That was all for me.

Alright. Thank you.

Thank you. And, again, ladies and gentlemen, if you wish to ask a question at this time, please press. And our next question is going to come from the line of Mac Furst with Sinclair Research. Your line is open. Please go ahead.

Yeah. Hi. This is Mac Furst with Singular Research. Congratulations on the quarter. This is a question for either Howard Atkins or Brad Wieman. What do you expect business and digital transformation expenses to be in fiscal 2026?

When you say expensing, you're talking about additional fees or consulting expenses?

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

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

Okay. Thank you. Thank you very much. So consulting fees, for digital business transformation in fiscal 2026 will be quite low. Okay. Thank you.

Thank you. And I'm showing no further questions at this time. And I would like to hand the conference over to Brad Wieman for closing remarks.

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. Enjoy it, and thank you for joining our call today.

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