Daktronics, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Daktronics second quarter fiscal year 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, you will need to press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Ms. Carla Gasky. Ms. Gasky, you may begin.

Thank you, Howard. 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 risk 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 introduction of new products and technology, availability and cost of raw materials, components and shipping services, geopolitical and governmental actions, and other important factors. These identified factors could cause actual results to differ materially from those discussed in this call in the company's second quarter 2025 quarterly earnings release and its most recent annual report on Form 10-K. Our second quarter 2025 earnings release contains certain non-GAAP financial measures and was furnished to the SEC Securities and Exchange Commission on a form 8K this morning. We also made slides available for today's call. All these documents are available on the investor section at Daktronics website, www.daktronics.com. I'll turn the call over to our CEO, Reece Kurtenbach.

Thank you, Carla. Good morning, everyone. Appreciate all you joining us today. We demonstrated our continued strong execution towards driving growth and returns above our cost of capital again this quarter. We achieved sales growth in the first half of our fiscal year, typically the highest seasonal period, and a record in a quarter for cash generation, which illustrates our disciplined management of working capital on the quarter sales growth and further strengthens our balance sheet, positioning us well as we look into the future. As you can see on our slide presentation on page three, fiscal second quarter 2025 highlights, we delivered great value to our customers with tight efficiencies and cost reductions in our manufacturing areas and consistently meeting project deadlines during the quarter, all while driving forward our strategic and digital transformations. During the quarter, we completed innovative and visually striking installations at the LA Clippers Intuit Dome, the Miami Heat's Kaseya Center, numerous college and high school sporting facilities, and upgraded many commercial locations to the latest digital technologies. Our sales growth and careful working capital management drove cash flows from operations of $43.3 million for the fiscal second quarter and $62.8 million for the first half of the year. Additionally, we made strong progress along our stated digital transformation roadmap with work toward the launch of our enterprise performance management tools and upgrades of our service and systems maintenance solutions, set to go live as planned in the second half of the fiscal year. In addition, we are working to enhance and add new show control capabilities. Our show control software solution provides dynamic, seamless, and fully immersive game day and event production. It is really exciting to see the first-ever flameball center hung installation at the Miami Heat. Building first-of-its-kind creations using LED technology is something that drives our company forward and excites our employees. Bringing this iconic sculpture to life for the Miami Heat, the Kaseya Center, and their audiences is a great engineering feat that we are proud to have accomplished. We look forward to providing other customers similar types of creations to amaze their fans and audiences. In addition to the record generation of cash, we delivered a solid set quarter and first half year of financial performance, growing revenue 4.5% to $208 million at 26.8% gross margins and earning a 9.2% adjusted operating margin for the quarter. Backlog is at $236 million, declining as planned as we move into our seasonally lower volume third quarter. As you will recall, our third quarter is historically lower because fall sports installations have been completed, there is a natural slowdown of outdoor construction projects, and we have two major holidays in the period, reducing the overall days of production. Because of these dynamics, and the reality many of our costs are more fixed in the near term, operating margins are often lower in our fiscal third quarter. The management team activates different mitigation strategies to reduce costs during this time, such as reduction in shifts, and utilizes capacity to focus teams on revenue generation and overall improvement activities. Sheila will further discuss financial results later in the call. But first, please turn to slide four, market vertical, FQ2 review for more details. In live events, in addition to the installations already highlighted, we completed delivery for several large projects which included center hung video, ribbon boards, and other cutting edge displays to provide innovative great game day experiences in various arenas and stadiums. Customers in trusting Dektronix included University of Connecticut, University of Kansas, the LA Lakers Crypto.com Arena, Van Andel, Boston Convention Center, Philadelphia Phillies, Baylor University, and the AAA Charlotte Knights. Our outlook for this segment remains similar to our last call. We expect live events demand to remain strong as venues enhance facilities to entertain fans and attract athletes. Orders in this market are large and installations can be lengthy and complex. and therefore creates variability in period to period order and sales volumes. As we plan for each season, we liken each to a graduating class, with each year having a certain number of new systems and potential upgrades or replacements. Some class sizes are larger or smaller, with individual owners or customers determining when their projects will move forward. As we evaluate the current class of available projects in the near term, We now expect spring baseball project orders to be a smaller class as a number of potential upgrades have moved out to future seasons. As we look ahead, we continue to expect healthy demand for in-the-bowl applications and expansion into outside the bowl as more focus is being placed on entertainment areas, spaces like entryways, atriums, concourses, and adjacent entertainment zones. Our narrow pixel pitch line of products matches the needs of customers for many of these locations and continues to be in demand. Our commercial business primarily consists of sales through resellers, mainly sign companies, to many types of customers and applications, including military, utilities, transportation, national retailers, quick serve restaurants, casinos, shopping centers, cruise ships, commercial building owners, petroleum retailers, and other on-premise customers. Also included in this segment are out-of-home advertising companies and larger advertising displays called spectaculars. Orders can vary in this market also because of the larger size orders in these two segments. During the quarter, we secured a large project for the center, formerly known as the CNN Center in Atlanta, which drove the order volume increases. In addition, out-of-home orders increased as a result of our continued strategies to promote to independent out-of-home operators and serve the large national out-of-home advertisers, winning us additional orders. Our focus for this market is to grow our core areas and continue to build out our AV integrator network to market our narrow pixel pitch product lines, especially in control room applications used by military, utility, and transportation agencies. As an example, during the quarter we were successful in a sale of an NPP product through an AV channel for use at the George H.W. Bush Library. This slide also includes a picture of an installation at Quantico Marine Base, a testament to our focus on the military AV channel and the use of NPP products for multiple applications. In our transportation market, variability in orders versus prior periods is natural in this segment, which is a large project business and therefore lumpy. Despite the down order comparison, our financial performance for this segment was solid as we fulfilled a backlog of orders from long-time repeat customers, including one at our Sioux Falls Regional Airport. We continue to see a trend in upgrades in and around airports for digital signage. Our teams are focused on winning projects for intelligent transportation systems, including traffic management centers, airport projects, and other mass transit system projects. The outlook for this segment remains solid and is poised to take advantage of selling our full line of video display systems from our MPP products to our pre-qualified and trusted ITS systems used by state and city governments. The International, During the quarter, we were awarded a number of contracts in the out-of-home space in Saudi Arabia and Australia. While orders continue to be slow as compared to prior years, which we believe continues to reflect economic and geopolitical uncertainty, we are actively quoting opportunities to additional out-of-home customers and for several mid-sized sports products and continue to see signs of converting more quotes into orders. With our existing customer base and a focus on these types of new orders from a broad array of customers, we are laying the groundwork for future repeat and upgrade types of orders in the future. The picture displayed on this slide is for an MPP product installation in Singapore. In addition, customers value our product designs tailored specifically to their unique needs as evidenced by a strong response to our EcoSmart energy savings product which is desired by our energy sensitive customers. In high schools, the market continues to convert to full video usage, which drove the increase in orders for the quarter. We began deliveries of our new higher margin product to not only support our customers, but further bolster our contribution margin for this segment. The pictured installation at Warren Harding High School in Ohio is one example of the number of high schools upgrading outdoor upgrading outdoor installations to video displays. And increasingly, demand has grown for full video usage indoors as well. As mentioned a moment ago, with respect to our show control software, we continue to make progress on our major enhancements of control systems to enhance the live event experience and improve workflow efficiencies. These enhancements will empower our customers to deliver dynamic presentations using cutting-edge scoring and timing software, 3D data visualizations, real-time rendering, and integrated data through sports-specific applications. The addressable market for our new solution is broad, including anyone supporting live events, entertainment, and sports, even if they're not using Dictronics displays, and is slated for release by fiscal year-end. Additionally, we are introducing cloud access, allowing customers to schedule, store, and manage their content and data sources from anywhere. The work that we are doing here sets us up nicely to increase our recurring revenue streams, which we intend to be a driver for gross margin expansion over time. As Sheila will detail in a moment, during the second half of the year, we are set for two major internal technology launches at the core of our digital transformation roadmap. These launches are the building blocks of the future foundation for which we will service our customers, measure our performance, and manage the overall business. We'll also continue to develop our overall comprehensive transformation efforts through the rest of the fiscal year, refining our transformation initiatives, and making selected investments in transformational actions designed to drive future year's revenue growth, profitability, and sustainable returns in the mid to upper teens for ROIC. I will discuss this more after a bit. But first, for additional details on the financial results for the quarter and the year, I'll turn it over to Sheila.