Contradictions Emerge in M&A Strategy, Live Event Growth, and Gross Margin Drivers

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: Down ~3% YOY; third consecutive quarter of sequential growth
• EPS: $0.33 per diluted share; up from a prior-year loss (PY loss driven by $21.6M FV adjustment on convertible notes); prior quarter loss driven by $15.5M credit loss and $5.6M non-recurring costs
• Gross Margin: Not disclosed; management cited improved project margins vs prior year due to mix and fixed-cost leverage; tariff expense was $6M vs $1M prior year
• Operating Margin: Not disclosed; operating income was $23.3M vs $22.7M in the prior year

Guidance:

• Demand remains strong across markets; backlog of ~$360M provides revenue tailwind
• Expect continued growth in Live Events and High School/Parks & Recreation
• Executing on efficient revenue conversion, inventory, supply chain, and cost management
• Tariff environment remains uncertain; company prepared to mitigate impacts
• Balance sheet strong (cash ~$137M) to support growth and flexibility
• Continued investment in product development and digital transformation to drive differentiation and scalability

Business Commentary:

* Revenue Growth and Order Book: - Daktronics reported a strong beginning to fiscal 2026, with an ending cash balance of $136.9 million and a backlog of $360 million. - The growth was driven by strong order growth in live events, high school park and recreation, and international markets.

• Live Events and Major Sports Projects:
• The live events business secured all three major league sports projects, contributing to an 81% year-over-year and 10% sequential increase in orders.

• This success was attributed to enhanced product and service offerings and alignment with long-term profitable growth objectives.

• High School Park and Recreation Surge:

• Daktronics experienced record order growth in high school park and recreation, with a 36% year-over-year and 7% sequential increase in orders.

• The growth was supported by industry-leading value propositions and strong adoption of professional services.

• Gross Margin Improvement:

• The company's gross margin improved, benefiting from revenue mix and fixed cost leverage.
• This was due to improved value-based pricing, strong fixed cost leveraging, and cost control measures.

Sentiment Analysis:

• Management highlighted 35% YOY order growth to $239M, backlog of ~$360M, cash of ~$137M, and operating cash flow up 34% YOY. They reported the third straight quarter of sequential revenue growth (down ~3% YOY due to timing mix) and improved project margins from value-based pricing, mix, and fixed-cost leverage. They emphasized strong pipelines in Live Events and record High School/Parks orders.

Q&A:

• Question from Aaron Spicala (Craig-Hallum Group): What does the Live Events pipeline and revenue cadence look like, and can the segment reach prior high-water marks?
  Response: Pipeline is strong; won 3/3 major league projects; expect continued growth in- and out-of-bowl, but specifics and timing are project-dependent with some revenue extending into FY27.

• Question from Aaron Spicala (Craig-Hallum Group): How sustainable are gross margin trends; any one-time effects?
  Response: Margins benefited from mix and fixed-cost leverage; warranty costs normalized; sustainability depends on future mix, but better alignment of manufacturing and revenue is ongoing.

• Question from Aaron Spicala (Craig-Hallum Group): Thoughts on M&A given the strong balance sheet?
  Response: Open to strategic M&A; evaluating opportunities carefully; strong cash enables flexibility; no specific deals to announce.

• Question from Anja Soderstrom (Sidoti): In the three Live Events wins, how was competition and did you displace others?
  Response: Markets are competitive across bids; value selling, services, and financing tools help differentiate and improve margins; displacement varies by deal.

• Question from Anja Soderstrom (Sidoti): What drove gross margin improvement—mix or efficiencies?
  Response: Both: higher-margin mix and plant fixed-cost leverage, plus value-based pricing and procurement/inventory improvements.

• Question from Anja Soderstrom (Sidoti): Will digital transformation lower opex or aid gross margin?
  Response: Expect efficiency gains and better customer experience; near-term higher IT/product dev spend, with benefits to productivity and competitiveness over time.

• Question from Anja Soderstrom (Sidoti): Update on share buyback authorization?
  Response: Repurchased ~$10.7M in Q1; just under $10M remains; board open to additional authorization; capital management remains flexible.

• Question from Eric Lamarder (Half Moon Capital LLC): Any residual one-time transformation consulting costs in Q1 to add back?
  Response: No; those consulting fees are behind us and not in Q1.