Daktronics, Inc. Aktie

Thank you. Good day, everyone, and thank you for standing by. Welcome to Daktronics' fourth quarter fiscal year 2026 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. participate you will need to press star 1 1 on your telephone you will then hear a message advising your hand is raised to withdraw the question please press star 1 1 again please be advised that today's conference is being recorded now it's my pleasure to hand the conference to the chief executive officer of the.

J.R. Rahman. Please proceed. Thank you, Carmen. Good morning, everyone. for participating in our fourth quarter earnings conference call. As a reminder, this presentation will contain forward-looking statements under the Private Securities Litigation Reform Act. reflecting our expectations and plans about future financial performance and future business opportunities. 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 expectations that could cause actual results to differ materially from these expectations. We undertake no obligation to publicly update or revise any forward-looking statement.

During this presentation, we will also refer to non-GAAP financial measures. You can find the 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 our investor relations page of our website at www.dactronics.com. Our earnings released for the 2026 fourth quarter, which was furnished to the SEC on a form 8K this morning, also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well 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 Ramesh Jayaraman, President and CEO for his review.

Thank you, Lindsay, and good morning, everyone. Thank you for joining our fourth quarter fiscal 26 call. joined on the call by Howard Atkins, board member and acting chief financial officer. This morning I'll recap our fiscal 2016 results and operating highlights, including our business accomplishments, how we are tracking towards our fiscal 28 objectives, and our strategic pillars for growth. Then Howard will review our fourth quarter and full year financials. And finally, towards the end, I'll discuss our fiscal 27 outlook, and then we'll take your questions. Let's move to the next slide to recap fiscal 26. We're absolutely proud of the results our team generated in fiscal 26.

We delivered record annual revenues and record annual orders. meaningful expansion in operating margins and EPS growth. Let's focus on the left-hand side of the page. Our actions result in performance we strove for. For the year, we delivered 10 plus percent order booking growth. nearly 11% net sales growth, a 290 basis points expansion and operating margin, and 25% growth in adjusted EPS to $0.05. We enter fiscal 27 with a backlog of $356 million, up 4% over prior year. Howard will provide more details in the financial section and we improved our working capital with a strong balance sheet liquidity and return capital to shareholders through share repurchases with nearly $25 million in buybacks in fiscal 26. The handing of the baton from Brad Wieman has been extremely smooth.

I will continue to rely on his perspective and judgment over the remaining weeks until his retirement from Daktronics. In fiscal 26, we accelerated execution of our three-year business transformation. Our teams work together to advance key growth initiatives, expand our penetration of the core end markets we serve, including sports, both national live events as well as high school level that we call HSPR, our transportation segment, and our international business. We also improved our operational supply chain execution for speed and efficiency. More efficient operations combined with streamlined backlog conversion and near-term capture of our demand pipeline of higher margins supported by value-based pricing actions we implemented. We accomplished several key operating objectives. Firstly, enhanced our customer experience with the launch of our modernized service system in May.

Second, as I mentioned, we continue to progress our transformation initiatives to drive margin and efficiency gains. Third, we sustained and extended our leadership in innovation across our products and customer solutions. Fourth, we began expanding our capacity at our Mexico manufacturing facility. I will discuss more on this in a moment. Our nearly 2,700 employees make this happen and we stand extremely grateful for that. As we move to the next page, we'll review our market verticals in the fourth quarter and how they performed. In our live events business, we completed 11 Major League Baseball, Major League projects, including an LED refresh using our renewed product line at the Chicago Wrigley Field, pictured here. 11,300 square foot video display for the Seattle Mariners, among the largest in Major League and new LED displays throughout Yankee Stadium.

This trend continued in college sports. We completed 11 new displays, including an end zone measuring 106 feet. for the University of North Carolina, new AV and sound system installations for the Washington State University, including the electronics show control, amongst many others. We are already seeing great results from our strategic partnership with Grass Valley, combining diachronics leadership, enlarged format LED displays, control and venue presentation with their live production technology enabling stadium operators to seamlessly manage production and display content more seamlessly. This helps improve synchronization, reduces setup complexity, and provides for more dynamic fan engagement. This type of solution, along with Camino 8, strengthens our competitive differentiation in live events and supports our broader strategy to expand software and services-enabled roles. Our pipeline for live events continues to be robust. As we look at our commercial business, our out-of-home business focuses on large billboard operators and independent operators who value reliability, image quality, efficient and timely service. lower total cost of ownership.

During Q4, we added five new customers and built a pipeline for future growth. Our Spectacular's business booked a large Times Square order in Q4. Our opportunity creation is very strong coming to 2027. Pictured here is the Sun River Commons in St. George, Utah. As we turn to our transportation business, we had a strong finish to the year for our ITS business, including growth with Caltrans, which is a California DOT. And in October, U.S. production content requirements under BABA increase, which will exclude competing products that are only assembled in the U.S. And this will benefit us with our U.S. production model in this segment.

We enjoyed continued success with sales of indoor solutions at transit hubs, traffic management centers, and airports, including two large ship-on-board displays for the Memphis International Airport, which is pictured here. Q4 wrapped up a record order year for transportation with a solid backlog and pipeline. As we turn to our high schools business, HSPR, We earned big wins in Q4, including in Massillon, Ohio, and two highly rated and fast-growing districts in Texas. Overall video installations were up 18.5% over last year. Our pipeline continues to be strong entering Q1, driven by our push towards indoor and outdoor radio solutions. Enthusiasm around youth sports is fueling the increased spend in high schools and high end recreation facilities. our Daktronics Sports Marketing support, our best-in-class school curriculum, classroom and our other paid professional services continue to provide important competitive differentiation. Pictured here is the Madeira High School football in Cincinnati, Ohio.

Our international business, we want a very large multiple arena project in Qatar to be completed in preparation for the International Basketball Federation, the U18 Asia Cup event. We won a large digital billboard rollout in the United Arab Emirates with Hills Advertising for their premium digital out-of-home locations. entering that chronic position in the out-of-home market across the Middle East region. Our pipeline remains strong coming into Q1, especially with stadiums across the Middle East and Africa region. International focused growth and regionally tailored product as we outline the investor day will remain a key focus as we expand our presence. pictured here the indoor resolution display installed in a boardroom at the United Arab Emirates University in Dubai Overall, our growth strategy is underpinned by our participation in large, attractive markets. Currently benefiting from long-term secular demand drivers of increasing complexity, scale and adoption of video and fixed digits and our backlog and pipeline reflectors. Let's turn to the next page on the FY26 Key Business Updates. During the fourth quarter, we developed our global manufacturing footprint. experiential updates to our software suite, and continued operational excellence through upgrading our services support platform.

Our capacity expansion of our new 110,000 plus square foot facility in Saltillo Mexico manufacturing is still underway. This facility will support greater agility in the global production network and supply chain, helping us to deliver profitable growth and increasing our ability to adapt to changing geopolitical environment and trade agreements. The initial focus of this factory would be producing large format outdoor displays to serve customers in North America. and we have the potential to add the manufacture of other displays in the future. Production is planned to begin in July 26, and first shipments are estimated in the Q2 timeframe. Next, as we discussed at our April Investor Day, we debuted Camino 8. at Angel Stadium for the Los Angeles Angels home opener in early April this year. Camino 8 integrates with Daktronics show control systems, providing real-time data graphics, lighting, audio, and other venue elements for live storytelling playback directly to LED displays. It is a simple and easy to use, elevating the in-venue experience and provides a platform for software and services growth within live events.

Finally, we launched our new services system deployment in May. and retired our legacy platforms, simplifying our technology stack and cutting its maintenance requirements. Through the remainder of the year, we reach 100% customer adoption on the new platform. We also achieve cost efficiencies through process automation, which is helping us serve our customers with the continued Daktronics class-leading service. Moving to the next slide, our results exiting fiscal 26 demonstrate our momentum. Leverage our exceptional and unique market positioning. We are a market leader in the large format LED industry and have a committed team of employees. Our end markets continue to be attractive, all growing at 2 to 3x GDP.

We have carefully considered organic and inorganic growth plans tied to committed profitability goals. We are deploying capital to achieve more profitable and sustainable growth, improving resiliency and reliability. and with a renewed commitment to operating efficiency and productivity. And we are deploying capital to maximize our returns to our shareholders. Now I'll turn over to Howard Atkins, our acting CFO, to take through the financials.

Thank you, Ramesh. And good day, everyone. Thank you for your interest in Daktronics. start with a quick summary of our operating results focusing on organic growth and our margin. The Daktronics team produced a very solid finish to a very strong year. delivered record annual revenue of $839 million, growing 10.9% over full year 2025. Operating income, or IBIT, rose to $61 million from $33.1 million in 2025 on the combination of 10.9% revenue growth and a 290 basis point increase in adjusted operating margin to 7.3%. Full year earnings per share of $0.92, or $1.05, as adjusted for non-recurring items during the year, grew 25% from adjusted 2025 EPS. And fourth quarter adjusted EPS of $0.27 per share was 50% higher than the comparable $0.18 per share in the fourth quarter. quarter of the last fiscal year. Reflected in other income, we booked a $3.8 million provision for possible credit losses on an investment in an affiliate, which we exited in the fourth quarter as we continue to strengthen our balance sheet.

Our effective tax rate in Q4 was 21.6%, down from 29.9% a year ago, as we are no longer impacted by the fair value adjustments as we had been previously on the convertible note that we repaid in fiscal 2025. As such, our effective tax rate has normalized close to to the U.S. statutory rate, and we are able now to take advantage of the new tax laws this year permitting accelerated depreciation for research and development. We turn to the slide on our orders of sales and also our gross margin. Fiscal 26 was an exceptional year for bookings, reflecting strong customer demand across our major end markets, and continued momentum in larger project activity. a year in which we had record order growth that we averaged more than, I'm sorry, record orders, we averaged more than $215 million of order bookings per quarter for the year. quarter to quarter variability, primarily reflecting the timing of larger project awards. These quarterly growth trends are near the top of the range established during 2025, 2025 Business Transformation Plan, an associated three-year plan from 2025 to 2028. Just to point out, if you remember in the latter part of fiscal 25 and early 26, we had some anticipatory demand in front of the announced pricing changes that we instituted that year. So some of the order growth that you see there is related to that.

Order strength was broad-based across the portfolio. All business units except commercial grew orders in fiscal 2026, while commercial remained relatively stable against a strong prior year comparison and continued to show healthy underlying demand indicators. In live events, as Ramesh mentioned, we continue to build on our leadership in professional sports, winning all five Major League Baseball stadium opportunities that were available for bid during the year. Transportation delivered a record year with orders of $89 million, up 24% year-over-year, supported by continued demand for intelligent transportation and aviation-related display solutions. International orders were solid at $75 million for the year, including larger wins in Qatar and the UAE, underscoring continued demand for premium sports venues and digital out-of-home solutions in the Middle East. including in the most recent quarter. Revenue performance in fiscal 26 reflected the combination of strong order activity, effective backlog conversion, and our value-based pricing actions. As a project-oriented business, the timing of larger customer awards, production schedules, and installation milestones can create quarter-to-quarter variability.

However, the underlying trend during the year reflected solid growth. with the usual seasonality softer third quarter in 2026. Importantly, this revenue growth was broad-based across the portfolio. Four of our five reporting segments delivered double-digit revenue growth in fiscal 26, ranging from just over 10% in live events and high school parks and recreation to 16% in commercial and 25% in international. Transportation was the exception, reflecting timing dynamics rather than a change in the long-term demand profile for that business. Gross profit increased 17% for the year, and fourth quarter gross profit increased 36% year over year, reflecting stronger revenue, improved operating leverage, value-based pricing actions, and continued execution on cost and manufacturing efficiency initiatives from the original year to the next. original transformation initiative from 2025 as planned at that time. We entered fiscal 26 with a more challenging input cost environment, including tariff headwinds and continued uncertainty around tariff rates, timing, exemptions, and competitive responses. Against that backdrop, our teams use the levers available in our management system to protect profitability, including value-based pricing, selective pricing adjustments, supplier negotiations, strategic sourcing, manufacturing footprint optimization, and a focus, again, on contingency. continuing focus on operating efficiency.

In the fourth quarter, gross profit margin rose to 28% or 27.4%, excluding the impact of a warranty provision recapture during the quarter, compared with the prior four-quarter average margin of 26.4%. The improvement in the fourth quarter was driven primarily by revenue conversion, operating leverage, manufacturing expense discipline, and working capital efficiency improvements, again tied to the 2025 Business Transformation Program. Business mix was not a significant driver of the margin expansion in the fourth quarter, as the proportion of revenue from higher margin businesses outside project-oriented live events remained relatively consistent at approximately 62% of total revenue. As we've discussed previously, our cost structure includes a meaningful fixed cost component, with roughly half of our cost of sales relatively fixed in any given quarter. As a result, project timing and revenue volume can affect quarterly gross margin by creating margin leverage or deleverage, as we saw in the third quarter. and we continue to see in the third quarter of each year previously. That dynamic contribute to lower gross profit margin in the seasonally softer third quarter as I just mentioned, followed by stronger gross profit and gross profit margin in the fourth quarter as we just We now turn to the slide on our backlog. With orders above revenue each quarter in 2026, the backlog remained high or increased throughout the year. ending the year at a fourth quarter level of 4% from last year's fourth quarter.

With the exception of 2024, which was basically a bounce back from COVID, the average quarter and backlog during fiscal 26 was at its highest level in our history. The high backlog continues to provide a solid underpinning for revenue in subsequent quarters, as the single largest source of revenue in any quarter is typically the fulfillment of project backlog, coupled, of course, with the pacing of new installations. We currently estimate that about 52% of year-end revenue is from the project backlog. backlog will convert to revenue in the first quarter. And again, that will be supplemented by the same quarter book, the bill. Let's talk about expenses and efficiency and productivity. The combination of depreciation, amortization, as well as operating expenses has been running at just under $50 million per quarter. Our objective is to keep CAPEX and OPEX efficiently focused on foundational and high return investment spend, such as new product innovation and design, manufacturing productivity, and information technology initiatives, such as automation, and innovation, digitalization, and initiatives that make it easier and more efficient for our customers to do business with us.

I'll point out that product development expenses in 26 included the cost of absorbing XDC as previously announced. That cost was about $400,000 in the third quarter and about $800,000 in the fourth quarter. And our results have now already begun to include startup costs associated with the addition of 110,000, 111,000 square feet of manufacturing capacity in Mexico. We would expect some increase in depreciation and amortization accounting during 2027, as we discussed in our investor day with investments coming forward in things like automation, as we continue to reinvest in our business for a high return, not only in 2027, but in future years as well. This chart shows, this next chart on slide 11 shows our growth and inter-year quarterly pattern of various earnings metrics including operating income, EBITDA, which is the sum of operating income and appreciation and amortization, and earnings per share. all of which were up double-digit in fiscal 2026. As mentioned, annual adjusted earnings per share was 27%, quarterly adjusted earnings per share was 50%, reflecting the growth and operating margin increases that I've discussed during 2026. Let's turn to a balance sheet and capital management.

In fiscal 26, the business generated $49.2 million of cash from operations. compared with $97.7 million in 2025. Remember in 2025 at the beginning of the year, we were generating cash from that post COVID burst in 2024. On average, our quarter end cash balance was $141 million compared with $123 million average cash balance in 2025. Since the fourth quarter of fiscal 25, we have repurchased approximately $46 million of common shares. In fiscal 26, just for the year, the company returned approximately 56% of its net income to its shareholders to approximately $25.5 million were purchased. at a volume weighted average price of $17.8 a share. These repurchases reflect our disciplined capital allocation framework and our confidence in the long-term value creation opportunity for Daktronics. As we look to fiscal 27, we're starting from a position supported by $356 million backlog, demand across our major end markets.

Similar to prior years, revenue timing will reflect, of course, the normal cadence of project-based businesses, including customer reward, timing, production schedules, installation milestones and seasonal patterns. As a reminder, the first quarter of fiscal 27 will include 13 weeks this year, this coming year, with 14 weeks in the first quarter of fiscal 26. So, that will be, of course, a factor in considering comparing year-over-year results as we move through the early part of 27. Our focus remains on converting backlog, executing against the opportunities in our pipeline, and managing input cost volatility and tariff changes with discipline that includes value-based pricing, strategic sourcing, supplier negotiations, manufacturing footprint optimization, and operational implementation. efficiency initiatives. While customer demand and larger project awards can vary and will vary by end market, by quarter, our backlog, pipeline, and operating priorities support our confidence in continued progress toward our fiscal 28 growth and margin targets. Now I'll turn the call back to Ramesh. Thank you. Thank you, Howard.

I want to reiterate our fiscal 28 guidance on slide 12. Our fiscal 26 performance and our position entering fiscal 27. keeps us on track with our fiscal 28 targets and we are reaffirming each of them today. As we look at growth, we're looking at 7 to 10% revenue greater. Second, from an operating margin perspective being the 10 to 12 percent range. And ensuring our ROIC will be in the 17 to 20% range. Building on Howard's outlook, we enter fiscal 27 with a very strong backlog. continued demand across our major end markets, and a clear set of execution priorities that support our path to fiscal 28 financial targets. While project timing and customer demand can vary by quarter and by end market, the the underlying drivers of our strategy remain intact, and we remain focused on executing with discipline drive sustainable growth, margin expansion, and attractive returns.

Let's move to the last slide to discuss more specifics on our fiscal 27 outlook. going forward strategy. We enter fiscal 27 with a robust pipeline. the strength of our operating foundation, clarity of our execution roadmap, and back with the 356 million backlog. Fiscal 27 represents an important year of execution. as we continue to advance our strategic priorities, build on the operational improvements already underway, and position the business for sustainable growth, margin expansion, and attractive long-term returns. It is a pivotal year to execute our strategic objectives laid out in our three-year plan. As we outlined it in yesterday, our strategies focused on three priorities designed to create shareholder value. One is accelerating organic growth. Two, strengthening operational excellence. And third, deploying capital with discipline to expand profitability and improve returns.

To accelerate our organic growth, we are benefiting both from secular market trends and structural shifts in complexity, scale, and the move towards video. We have also identified opportunities to expand into vertical markets beyond the 80% of the SAM we serve today. In addition, software and services are critical components of the solutions we provide, and we are focused on accelerating growth in both. Finally, we are taking a disciplined approach to international business by prioritizing the right markets and defining how best to serve them. To drive operational excellence, we are looking at deploying technology, including advanced factory automation. We will also improve and expand the lean principles to amplify results across the supply chain. Additionally, we are optimizing our manufacturing network, including the ramp of our Mexico facility. to create greater flexibility across a global footprint and better position to manage supply chain cost increases and tariff volatility.

We're also focused on direct and indirect procurement opportunities to work with the right partners at the right cost basis to help optimize gross margin. Consistent with the capital allocation framework we outlined in Investor Day, We deploy capital with discipline and a clear focus on achieving our ROIC objectives across three priorities. One, investments in our organic growth and operational excellence as I have outlined before. Two, an organic growth expansion with a structured and disciplined approach to M&A. Three, returning excess capital to shareholders by share buybacks. We enter fiscal 27 with momentum, energy and focus. very proud of the executive team, our nearly 2,700 Daktronics family members for their continued dedication, execution, focus, and delivering to our customers.

Now we'll turn the call over to the operator to take questions. So much. And as a reminder, to ask a question, press star 1 1 on your telephone and wait for your name to be announced. To remove yourself, press star 1 1 again. One moment while we compile the Q&A roster. One moment for our first question, please. It comes from the line of Aaron Spacholo with Craig Hallam Capital. Please proceed.

Yes, good morning, Ramesh and Howard. Thanks for taking the questions. Maybe first for us, you kind of noted strong pipeline. multiple times and sounds like it's across the business. Can you just maybe talk about any areas of, you could see some outsized growth as we think about FY27, just kind of confidence that growth as you pursue those FY28 targets. And then talk a little bit about just margins that you're seeing today, bookings, backlog related as we think about the next year.

Yes, thank you, Aaron. Look, across the board, what we see is the pipeline continues to be strong. The bigger question here is just related to conversion and when the conversions will happen. As we keep close proximity to the customers, what we know is it is clearly their intent to go ahead and do some of these. right now for us is how they will convert into bookings and then eventually transform into revenue and how the timing would kind of be. But what we can say is as we just look at the overall pipeline metrics and where we stand, we'll say they are robust at this stage.

And that stands across all of our vertical markets. Got you. And then maybe kind of margins that you're seeing today as you kind of go to bid and, you know, really good performance there. Any still kind of lingering tariff impacts and just, you know, how you're thinking lean and automation can help expand that? Would you say tariffs and leases?.

I wouldn't say tariff so much, Harrod. There's a couple of cross currents in the market. Competitive pressure is always there. On the one hand, on the other hand, as we outlined in our own particular case during Invest Today and alluded to here in today's report, and we'll continue to discuss going forward, the things that we're doing internally that will improve margin generally in the company, including things like procurement and automation and such. So we're very focused on both the margin side of the equation as well as the growth side of the equation.

And then just any kind of guideposts where you're at, kind of lean automation efforts, what inning as we maybe think about the performance so far and what's to come?.

Well, if you remember coming out of the original transformation program, we had a couple of things there. have been more or less completed, including things related to working capital management and procurement. The first phases of procurement have been completed from that original effort. But again, as we outlined in Investor Day, on procurement, we're going to be extending both the direct procurement and now doubling back on the indirect as well. So there's more to come that's sort of just getting underway on the indirect and deeper on the direct side of procurement, and then beginning to develop or complete our plans on.

on lean and automation and the network. Understood, and then maybe just one last quick one on free cash flow. You know, look like you consumed a little bit there in the fourth quarter, you know, working capital. Can you just maybe talk about the dynamics there as we think about FOMC?.

Absolutely. Absolutely. We had in the fourth quarter a a little bit longer time gap between the completion of our orders, a couple of orders and project related orders, which where revenue is timed to the completion of the order on the one hand versus the billing for the final payment, which is tied to the actual completion of the installation. So that's just the timing thing. So we should see the reversal of that early in the fiscal 27th year.

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

Thank you. Our next question comes from Tom Hayes with Roth Capital Partners.

Hey, good morning, guys. Thanks for taking my questions. Hey, Tom. Hi, Tom. Hi, Tom. Hey, Howard, maybe a quick follow-up to your commentary on slide nine on the continued focus on expenses. Did you say that you expect the sum of the four categories to be roughly $50 million per quarter?.

It's been running at 50 million. uh you know ins ins and outs on that uh what i would try to signal to you is we continue to focus on sort of pairing off expenses that, you know, are not really contributing to either the growth rate or the margin of the company. By the same token, We are coming through a period now where things like automation will involve some more Catholics, for example. So the author's message here is we are maintaining a discipline around making sure that that $50 million, if you will, that average of $50 million is is spent on things that are actually going to generate, you know, the right break for us.

Okay, that makes sense. Maybe Ramesh, for you on the Communilate rollout, just kind of high level, maybe describe how that differs from products on the market currently and associated with that. Is there a recurring revenue component to the Communilate?.

Yes, so there will be a combination that will sit with initial software and some element of recurring. That's kind of the direction we are basically headed to with Camino 8. It's been pretty strong Tom, you know, I mean, I think we had our first showcasing in April. You know we've got a pipeline that's beginning to build so I feel you know, very energized with the pipeline that's beginning to build and also just given the time backs and the other things we're doing with other technologies, you know, there seems to be a pretty good interest in terms of where we are headed. And I think the biggest advantage here is for the customer in terms of making it seamless, you know, so what we who is focusing on the operator of a stadium and helping make it seamless for them. And that's a big value add from their standpoint.

Okay, appreciate that. Maybe just one follow-up for Howard. Again, still kind of new to the story. If you go back to Q1 of last year, gross margin of 29.7% coming out later for the year. Was there anything specific that kind of drove that and then just so you could allow it correctly for this year?.

Yes, I alluded to that a little bit today, but last year, remember, tariff adjustment announced in April. We had announced pricing increases. We saw a little bit of a kind of anticipatory demand in front of the pricing increases, as well as in front of the tariff changes, and those two things are in some sense connected. And that occurred particularly in HSPR. So if you go back and you look at the last quarter of fiscal 25 and the first quarter of 26, We had a decent increase in HSPR orders, which then impacted revenue in the first quarter and somewhat into the second quarter of fiscal 26. The other thing I would point out is that the pricing increases that we introduced in the early part of 26... kind of led the effect of the tariff increases, right? Because we were supplying or converting fulfilling those standard orders, which are quick turns in terms of revenue production, with inventory that we already had on hand that weren't impacted by the tariff increases, tariff increases followed. So we did have some positive benefit late 25, early 26, both orders and the tariff increases.

and revenue connected primarily with HSPR. Great. Appreciate the call. Thanks for the questions.

Thank you so much. And as a reminder, if you do have a question, simply press star 1 1 to get in the queue. Our next question is from Anya Sonderstrom with CDOTI. Please proceed.

Hi, everyone. Thank you for taking my question. I congratulate you on the nice performance. Just curious for the Mexico facility, what kind of impact do you think that will have on the margin? And will it sort of mute the margins before you ramp?.

and help it improve? I think the Mexico facility, first of all, Agnes, to, you know, as you can see with our growing demand across the all of the businesses, we need production capacities. I think tied back to our customer needs. And I'll give you an example. A stadium used to operate 80 days a year just for games. Now they've kind of become 250, 300 days a year with all the other activities that are taking place, whether it be concerts, whether it be other stuff. And that gives us constricted timelines to go deliver to the stadium. So Mexico will, along with our Brookings facility, our U.S. facility, will aid as we tie that together with our global facilities to be able to deliver to the customers.

That's our first focus. The second is... you know, provided how all tariffs and other stuff work, this should result in better margins over a period of time. I don't think it will be initially, but it will happen over a period of time. that will tie back to our operational initiatives as well. That will be coupled to automation, lean, as well as procurement, as Howard kind of spoke about. So this will be a combination effect that we'll basically see in the P&L.

Okay, thank you. And then since the commercial is a little bit of a challenge at the moment, what initiatives can you take there to sort of drive that demand? Can you repeat that question again? Sorry, Anja. For commercial, what kind of initiatives can you take to sort of drive higher interest? It seems like that's been a little bit challenged.

Yes, so look, the commercial business, you know, I think it's out of form, looks pretty positive in terms of the pipeline that's building up and Spectacular is seeming to be better. So we kind of see 26 as a period of a little bit of a dip in terms of where customers invested, but overall the pipeline seems to be strong. That coupled with, I think, the I think our initiatives on pricing, our initiatives on value-based pricing and how we can supply are bringing us back into the lead again. And I think it's yet to be seen. What we see is the pipeline is strong. What we have to see is how the conversion kind of works too. But we are monitoring this very closely and it's a focus for us.

us as a company. Okay, thank you. That was all for me.

Thank you so much. And as I see no further questions in the queue, I will conclude the Q&A session and pass it back to Ramesh Jayaraman for closing comments.

Well, first of all, thank you everyone for joining our call and really thanks to our employees who made the results that we are able to project today happen. We look forward to seeing you all at the Needham Industrial Tech Robotics and Power Conference, where we'll participate, as well as other investor events coming up. What I feel is we have the strategy, the execution, the people. We need to be successful and we are really excited about what's ahead. Thank you again for the trust you place in us, and we wish you all a very great day.

Thank you. And this concludes our conference. Thank you for participating and you may now disconnect.

[Call has ended.]

Good morning, everyone. Thank you for being here. Welcome to the Daktronics Investor Day. I promise you this won't be the last Investor Day, but it's only going to be the best 1 we've had in 32 years. Before we get started, I wanted to direct your attention to the safe harbor statement. This is the traditional standard but important statement. Please take a brief moment to review it as it covers important and important information regarding the forward-looking statements that you will be hearing about throughout today's presentations.

With respect to our agenda for the day, we have a very full day plan view. I hope and expect that you'll find informative. There's a lot of detail that we're going to have here today for you. With respect to the company's businesses and the manufacturing, installation, innovative product development and other services that support those businesses. We will have time for 2 Q&A sessions during the day, 1 about midway through the presentations and then a little bit longer 1 at the end.

So you'll have plenty of time to ask questions that come to mind during the course of the day. And I'd like to say we're really excited. We're excited to be putting on this presentation for you. and excited about the story that the team will have to we'll tell you during the course of the day today.

So with that in mind, I'd like to introduce Daktronics Chairman, Andrew Siegel. Andrew.

Thank you, good morning, everybody. Just to tell you a quick personal story, it's 1 for me to be on this floor of this building. I worked in this building for years. And this floor used to be a very architecturally significant place called the Condas cafeteria which is sort of famous for the way it was designed. And I had lunch here every day for about 6 years.

So if you notice me during lunch later on being hestalgic, that's sort of what's going on in my head. But we've got a lot of business to get to between now and then. So to 1 start thinking about lunch quite yet. Now if you are here with us this morning, you probably know that, among other things, Daktronics make scoreboards. I happen to think we've got a pretty good scoreboard of our own. We started buying the stock my firm back when it was between $3 and $4. And we started buying it because we noticed that everywhere we looked, there was Daktronics.

Yet at the same time, we also realize that the Daktronics share price seemed to be disconnected from its strong customer relationships, it's technology leadership, certainly, it's service and support leadership and the strong feelings that customers had for it. And the tremendous opportunity we saw in its massive installed base to leverage that for high-margin recurring services and software business.

So we've been correcting that, as you can see from this scoreboard. But I think we'd also say this forward would show we're still in the early innings, okay, so we can move off of this. But what it does show is that the Board is aligned with you, our shareholders and committed to conforming the share price to the potential, okay? The most recent activity we've taken to show that evidence is through the hiring of Ramesh Jayaraman is our new President and CEO, and he'll be taking the podium shortly as Howard showed Ramesh brings among many other things, focus on international growth, new channel development and operational improvement.

He and many of the senior business leaders that you will meet today we'll talk about the promise that the future holds for Daktronics based both on large industry tailwinds and specifically on the innovations that we're bringing to our own go-to-market. So as we wrote in our shareholder letter earlier this year, there's a lot more to informing, anertaining and communicating that is in that device that we all carry around in our pockets.

Daktronics, our vision is no less than being the leader in large-format displays. When you look up, we want you to see Daktronics okay? Today's subject then, if I can collapse it is the integrated story of management's plan to deliver that opportunity. So thank you all both in person and online for being here, and welcome to Daktronics 2026 Investor Day.

[Presentation]

It is so good to see everyone. Good morning. Thank you all for joining us today in person as well as on the webinar. We are just excited to have you here. We're just honored and grateful for your support of the journey that Daktronics has taken and the journey that we are going to go take further as we accelerate growth and accelerate profitable growth. I personally known Daktronics for about 10 years. I've been in the AV space in a variety of companies and my first interactions were Daktronics and it's just been an amazing relationship over time where I've seen them from the other side and what they've done and how we can build them further.

The focus today of my time will be on the corporate strategy where we are headed. We'll have our business leaders come in later to talk about each of our different segments, but also give you a view on our technological services as well as our manufacturing capabilities as we try to build that forward. whether it's you land at an airport, whether you took a road that you came in today, whether it was a train that you took or a fuel station, you pump gas at or a high school or college that you went or your kids went to or a large stadium that you just watch the game at I just simply walk past Times Square this morning. Daktronics is everywhere. You look up and you see Daktronics everywhere.

We're incredibly proud of the story. This is a company that was born 57 years ago in Brookings, South Dakota, a really small town. And today, what we do is we bring visual storytelling, wire displays as well as integrated software to inform, connect and entertain our communities worldwide. On the trailing 12 months, we've done north of $800 million. We've got a growing operating income trajectory, 25-plus 100 amazing employees that make this all come together. And I think as you look at the charts, we have a pretty balanced and diversified portfolio.

Revenue split at about 89% between product and installation and about 11% in aftermarket services and software. And we go to market through various channels of commercial live events that's primarily stadiums, high school, parks or creation transportation and clearly, our international business as we look at having a balanced portfolio. This business is unique. As I mentioned, I've been in the space for 10-plus years.

Most companies are either installation companies or they are pure product companies. And what makes us really unique is we are a full life cycle provider. I call us a cradle-to-grave provider, whether it be doing product and software engineering whether it comes to manufacturing, doing the project delivery and doing the aftermarket services. We are with the customer through every step of their way. So when you typically look at these life cycles and large projects, it's about 10 years. And we are there from the day they think about it to the day they kind of want to rebuild it.

And what it does is gives us customer proximity through the entire time frame to build with them and work with them to grow who we are. We do have a global footprint. As I mentioned, we are headquartered in Humble town or Brookings, South Dakota. But I always say we are a gem out of South Dakota the shine slide across the rest of the world, and we are proud of that. Our manufacturing sites are in U.S., China, Ireland and Mexico, which gives us a very balanced footprint to manage our geopolitical movements that I'm sure everyone is aware of, but also helps us to allow to cater to customer needs to ensure we can deliver to them in the time frames.

And when later some of my colleagues come up, you'll hear about some of the time lines we get to ensure that you can enjoy the sports that you do. We have a dual engineering facility, 1 in the U.S. and 1 in China as we look at building the best of breed. And clearly, we cater all across the U.S. and the world through our service, installation and sales customer-centric sales networks across the world to ensure we can do this. We operate in about 100-plus countries where we have active video installations today.

Today, I've got the entire management team out here. But as we put the focus on today, today's focus will be around our business unit leaders, who will talk about each of our segments. We'll talk about our software and services business. We'll be spending time on manufacturing supply chain as well as our design development and clearly with Howard, our CFO, who came to introduce himself earlier and will be available through the day for questions and making sure that you understand the story that we're kind of going after. As you look at the growth journey, I'm going to talk about this in 2 phases. One is what we call is delivering our 3-year plan, a plan that we started about a year ago.

We'll give you updates on where we are, but also talk about what we kind of see with the changing landscape and how we want to build 2 is going to be our Go Beyond journey. That will outline later in my discussion today. But first, I'm going to start about talking about the right-hand side of the chart, which is really delivering the 3-year plan. and how we are kind of moving towards that. As we look at the 3-year plan, we have 2 strategic pillars, and it's a balanced growth plan. We look at growth, and we want to optimize it with operational excellence.

This is both sides of coin that have to go together as we look at building this profitable accretive story for the longer term. Under the organic growth, I'll spend more time over here through my presentation. And Matt, when he comes up, we'll spend more time on the other section, I'll introduce these for us, clearly, the markets that we play in, and I think as Andrew mentioned, we've got tailwinds that are helping in the market, but there are also fundamental structural changes that are helpful to what we do.

And that gives us clear organic growth in the core. Over the last 2, 2.5 months that I've been in the company, working with the management team, we've also identified areas where we feel there are further opportunities for growth as we look at the space to build us. Third, we'll talk about software and services growth. This is a critical component. As I said, 1 of the unique opportunities we have is any stadium, any high school, any place you go to. The final thing you see is the display and how we control the display, the software that works on it plays a very critical part, and we want to be a part of it.

Fourth is about disciplined international growth as we look at the key markets and how we go build this. I spoke about operational excellence. Those are very critical things. We're also an industrial manufacturing company. We have supply chain challenges, just like the rest of the world does. And given my time having spent about 15-plus years in Asia, having lived in China, having seen what those movements are. It's critical that we are ahead of the curve as we look at it in balancing these international markets. A, we'll look at automation. This is critical as we try to look at brands factory automation. Two is really about lean and making sure we can improve on lean. I think some of the work the team's already done have produced results, and we want to kind of amplify it. We want to accelerate it.

Third is really looking at our footprint optimization. Mexico gives us a great advantage, but also as we start to balance the world and how the footprint works, this is an ongoing exercise for us for us to be successful. And lastly is looking at procurement, direct and indirect opportunities. And as we kind of come in and really look at it as a team, this is an opportunity for us to bring the cost basis that is rightfully needed working with the right set of partners. I'll outline a bit more in the coming slides, and I'll start with the growth areas. What you see in this slide is just overall from a conversion perspective, we're in a great progressive as well as a growth industry.

What you see is there's a clear wave of digital and connected that is happening. -- to bigger and higher resolution. This is critical as the world moves forward, I think just walk around Times Square and you want to see that. Third is the LED costs are coming down. And now we're able to compete with LCD in some of the areas, and LED is way longer lasting in a much, much better technology as you look at where it needs to go. As well as what you see is just overall, the trends give us a very, very positive flavor as they kind of come together. So they're all the right ingredients that help you make the right dish, and that's what we kind of see.

As we look at the to my left of the chart, what you see is all the markets that we play in, which is in the dark gray, light gray, the white, they are our traditional market. So that's live events, as I kind of mentioned, our HSPR commercial business, our transportation business, they all have growth trajectories that with these trends as well as the trends in the market, they put you in a forward foot. What we also see, which is the dark blue box, which is the new verticals, and I'll talk to that in the coming slides, gives us a new opportunity, and they also give us growth abilities to build forward where we need to go. These trends are secular.

And these are some of the pictures. I've had a chance over the last 2, 2.5 months to be out in the field with our teams out there. We were at Miami heat and that's just a picture from the Miami heat. What you see is those center hugs, as we call them, are getting more complex. You saw a picture of the intu done before Miami, and we can give you multiple examples and when Jay comes up, he will, what you will see is they're getting more complex. And there is as you flow video through this, you need software because how you need to showcase this is very, very critical.

It's not as simple as taking something on Netflix and watching on a different device. This is actually customizing to ensure our content is right. That's the trend in the 154 proteins. As we take that down and just go down to the college sports, what I'm showing you is Avanti, this is our second one. But most of these and when Jay comes up, he'll actually talk about the display sizes and where they're headed. Most of these displays are getting to be 30%, 40%, 50%, 70% bigger from 1 stadium to another. And what this is, is a trend that aids us and where we are going to. Now I'm going to take you to high schools.

My kids go to a high school. And it's interesting what you see is scoreboards and that was a history of Daktronics. When I went to the high school in Watertown, South Dakota, which most of us, I didn't even know where it was, except porting what amazed me was we are augmenting a video digital scoreboard that we did for scores with the video scoreboard, it's not getting replaced, it's getting put together. What you're beginning to see is a center hung. Yes, the Miami heat is nice and beautiful. But if I show you Watertown, South Dakota, there's a center Hong Kong. And what you're going to see is the ability to advertise is moving from fixed into digital.

And this is a trend that aids the school as well as aids us. And when Jeremy comes up, he'll speak more about what they are beginning to see. So these are secular trends and where we are headed. And the intent across the board is how do we improve fan experiences, how do we improve the experience of everyone who's coming in and what you can build on and both of these are critical, and they're going hand-in-hand I'd mention about new markets as we kind of went through looking at our addressable markets, Today, we cater to about 80% of the market. This is what we call as existing verticals and my colleagues will come and talk about it. What we also see are new vertical markets. This is government control rooms, houses of worship that are beginning to make this trend towards high-end LED, and it's getting more and more common. What Daktronics is known for is our quality.

Our reliability, customers trust us. We will outlook our CapEx cycle. In most cases, very, very easily. They want that same reliability to be brought from the outdoor to the indoor. And that is what's making us win is that test of time that we've been around them, we are a customer-centric organization. and that is a clear win for us. Today, we've catered to that 20% of that market opportunistically. A deal comes once in a while, we'll go chase it. What we're going to do is really look at this as a full fledged focus for us in building where we would like to go to and make this a new market for us. It's going to take us a little bit of time as we develop this, but this is a clear focus as we try to build where we would like to go.

Third, I'm going to talk about software and services. I think as you look at it, when we look at the relative profitability of our original equipment, our technical services, what we call as professional services and our subscription services, there is no doubt in mind that the profitability relatively increases. What we see out here is with our show control, which is an Abeles control suite and what we call as Camino 8, we just released 1 at the Angels a couple of days ago. What you're beginning to see is these bring experiences where we're able to take our hardware, our controlling software, our embedded software, but also bring in experiential software.

That we can go build on and there's a huge opportunity for us as we just look at our current customer base to try and go build this further. International growth. This is a critical focus as we really start I think as Andrew mentioned, I've spent about 15 years of my life outside of this country, having lived in a variety of environments. And what you see is we have to get our focus deeper on high-growth regions as well as segments that the world is beginning to move towards. Two is expanding ourselves to regionally trailer offerings. I think our engineering teams in China give us a great ability for us to think from a different part of the world and try and build out where we would like to get to and really, we need to start catering to that local market for us to be successful.

And third is really looking at new partnerships coming from different industries Other industries use different channels to market and how do we kind of leverage that as we bring it to this section and make sure that we are able to partner with them to grow into some of these segments, and that's going to be a pretty critical focus as we move ahead. As we move to operational excellence, as I mentioned, it's the other side of the coin for us going through advanced automation, whether it be automating our manufacturing processes or whether it be stitching together, how we look at cycle times and other things through lean is going to be very important as we try to build towards better product cost, better efficiency and the right cost to cater to the customer.

Really, as we look at manufacturing network optimization, we are building facilities. We've got amazing facilities in the U.S., which allows us to become locally compliant in many cases, given the requirements of certain vertical markets, but balancing that with our international locations and building this out will be critical for the right cost and also the ability for us to take on projects that we can deliver, given the time lines that everyone is under nowadays.

Last part would be the international and intentional strategic sourcing. As we look at our direct costs, I think we've made some great progress. We have work to do on our indirect costs. and also ensuring we can build this further. So that as we look at all of these 4 things coming together, they'll have an operative leverage on the P&L and what we can build towards. Overall, what you see is each of these initiatives would result in a revenue growth CAGR of high double-digit to low single digit, which ties back to the confirmations we've given last year. We've pressure tested them in the last 2, 2.5 months, as I also come into the role and the intent that will be in the 7% to 10% range of where we would like to get to.

Two is as we look at the margin improvement, given where we are, the subline improvement that we look at a mid-single-digit improvement that can happen in order to go improve where the business can get to. Each of these line items as the leaders come to present, will give you a better view. But what you will see is we are kind of affirming our guidance that we had said last year that we're committed to the plan that we've laid out.

Now I'll switch gears to the second part of our growth journey, and this will be thinking beyond the core. As you look at our cash position, we've been in a nice, we have no debt. We're in a cash position that is in the $150 million-ish range, somewhere in that range over the last 3, 4 quarters. And the intent is, as we start looking at cash deployment, we see this in 3 areas. One is some organic investments. As we look at automation and the other areas that I just mentioned to give you examples, the ROIC, as we see that is in the mid- to high teens.

That is a good way of, in our opinion, of taking some of the cash back. Two is really looking at an organic growth expansion and I'll give you a bit more flavor in my next slide of where our initial thinking is. And third is from returning excess capital back to shareholders in terms of buybacks we will manage all these 3 depending on when the right timing is and what's the right water. And as we look at the year to ensure we get the right returns back to all of you. As we move towards inorganic growth levers, part of my background is also M&A.

So as we kind of go down this, we want to have a pretty structured and a disciplined approach to M&A. This is very critical because as we look at the value creation, what needs to come out, it's very critical for us that it's not just spending cash. It is about ensuring the returns are better than what we kind of put in and give us the best returns. A clear defined approach for targeting will go through it in 2 phases. One is from an industry screening criteria where we kind of want to be. And 2 is really looking at the target company criteria just as we kind of go down the filtering areas.

Let me focus on the industry screening. We'll look at it from 3 perspectives: product portfolios that tie back to certain verticals that we play in. Two is really look at geographic expansion where the opportunity may be right. And third is focused on vertical market expansions, as I kind of alluded before, that will be valuable to our growth. With those high-level criteria, we want to move towards the target company criteria that will be critical for us as we kind of go down where out the DCF and the cash flows and understand how we create the right return and that would really focus on industrial logic.

And how does that logic really fit well together. Two, we want deals that are financially accretive in terms of how we build this out. And third is about the operational synergies that have to sit as we look at all of our back-end functions and what needs to come together. Over the next coming few months, we will be outlining as we start targeting the industry and looking where it is. And if there are ones that you guys see, please bring them to us, we're open for deals. And I think that's the message we want to give is we will be open for deals as we go down this area. We're in the process of building a corporate development structure as well in order to ensure that we can give this the right most focus and building towards where we would like to go.

In summary, what I'm going to tell you is we are a great and committed team. I'm absolutely proud of the team that's out here. of our 25-plus 100 employees who make the wheel stone. There is not a day when I go out, when I don't hear about how customers love us, how they call us to be humble how they call us to be focused and how these people are all winners and heart. And that's the biggest message I want you to know is that matters to me. Because when you get those right ingredients, all coming together. I know the dish is coming out of great. As we look at this, what we also see and these are industry factors that really help us is we are a market leader in the large format LED industry.

The markets, as I mentioned, are attractive end markets for us, all with the 2 to 3x GDP growth. Third, when you look at our organic and our inorganic plans and our profitability goals, we stand committed. We reaffirm them. And as we also look at operational excellence, which is the other side of the coin, just as we look at our growth side, we also want to balance with the OpEx side, keeping this, bringing the efficiency and the cost reduction without sacrificing our reliability, our quality are important. And what you will see is a capital deployment approach that's disciplined to bring the best returns to our shareholders. I want to come back here and reiterate our guidance. About a year ago, we spoke about a 7% to 10% revenue CAGR.

We affirm we'll be back in that range. Two, we'll talk about our operating margin in the 10% to 12% range. And this will, as I mentioned before, not just look at our structural cost reductions, but also we will be inputting into technology as we look at the years ahead. and that is critical for our growth. And the last is ensuring our ROIC is in the 17% to 20% and we reaffirm our guidance as to where we are headed. I just want to thank you for the time. I think I've got my colleagues coming up next. And with that, I'm going to have we'll have our business unit leaders come up next as well as services, and we'll open up to a brief Q&A in between. And I'm going to pass this over thank you again.

[Presentation]

I love all that video landed with the Pat McAfee quote. If you don't know who Pat McAfee is, he's a really popular sports broadcaster it's got a big podcast. It's got a show on ESPN. About a year ago, he was looking to upgrade the facilities at his high school. And he wanted the best that he found us thankfully. And we developed a really nice relationship with Pat. We've done some marketing projects together, and we've got more to come. That's been a lot of fun. But good morning. My name is Jeremy Johnson. I'm glad you're all here. I'm also really happy to be here. I am the Vice President of our Commercial business unit and the High School Park and Recreation business units, so the 2 business units. And I'm going to cover both of those today. I'm going to give you a bit of an overview about what we do, our sales process, how we win, and then there'll be a few data points on market share and growth.

First, I'm going to talk about commercial. Our commercial business unit really is comprised of 3 segments. We've got the on-premise signage business, the Outahome digital billboard business and the spectacular business. But the spectacular segment is managed by Jay Parker and his team. So I'm not going to cover that part of it, but I'll cover the other 2. First up, our on-premise business. This is a nice photo [indiscernible] of things that we do you can see the outdoor signs kind of on the right and on the left, these are that's where most of our revenue comes from is outdoor. We have some growing some good success on the indoor space as well, though it's growing.

But 1 of the nice pictures here is this quick trip you can see that's got a mix of different technologies. We've got a nice message center on the bottom where the milk is advertised and then the gas digits on the top Culvers message center. These are all very good customers of ours. So 1 of the unique things about this business is that we sell through a channel. It's a nonexclusive open distribution channel through sign companies. And syncopes are very important for us for a number of reasons. First, literally, there are millions of applications for our products.

If you think of all the signs out there, every 1 of those is an application for our products. We can't see all that demand. And we can expect all those potential customers to know who we are. but they know who their sign company is if they need to sign. So signed companies are usually the first to see the demand for what we do. So that's really important. Second thing is, signs are regulated every municipal has a sign code. Every city has a sign code, and they're all different. So the sign companies know how big the signs could be, how much square footage you're allowed, what colors they can be, all that kind of stuff. It would be hard for us to keep track of all that sign companies know all that.

They get the permits necessary to get the jobs done. And we don't really build science, sign companies do. They do the design, custom fabrication, installation and ongoing maintenance of science. We sell them this critical component in the middle, oftentimes in the middle. The electronic message display. And they really like what we do because it adds good revenue to their projects, but we don't build science. So we need them to do that. The other nice thing is sign companies that support us in this business unit do a lot of work for us in all of our other business units as good subcontractors.

And so we're able to build a really nice reciprocal relationship with sign companies that benefits the whole company. And Jody is going to talk about that a little bit more in his presentation in a few moments. So because signed companies are important, we call on them. We have a field sales team. We're frequently face-to-face with signed companies One of the ways we like to do that is with these demonstration trailers that you see in this picture here. Every 1 of our field salespeople has access to a trailer like this. So we'll take this trailer display and there's displays on both sides. We'll take it to a signed company, and we'll talk about the technology.

We'll teach them the tips and tricks on how to promote digital. They get really familiar with it. And then we can also take it to their service organization, and we can demonstrate to them how to change critical components of the display. So they really serve a nice purpose for calling on signed companies. But we also use it to call and end customers. So when a signed company has an opportunity for an EMC, electronic message display, we'll take this unit with them to their end customer, we'll put custom content on it, and we'll do a demonstration for the end customer. They can come out and see the technology, get hands on it, understand how durable it is.

They can play around with the software and see how easy it is. It's a great tool. It's a great way to close. So we like that. Now we don't just focus solely on sign companies. We do a lot of marketing to create demand from the end customer verticals that we serve and we take that demand, qualify those leads and give them to our signed companies, which is how we build loyalty with signed companies. To understand our differentiation, it's important to understand signed companies. Most of the same companies we work with are relatively small, sometimes less than 20 people, usually family-owned, second, third generation, and they're in a really competitive industry.

Signed business is tough. But at their core, they're expert designers, fabricators and installers. That's what they do really, really well. So when they're going to buy something expensive, like what we provide and put it in their signs, it's got to be a good decision. They can't really afford to make a mistake. When they buy a product from us, it's got to show up on time. It's got to incorporate into their signage really well, when installed, it has to fire up, has to run dependably. And if something does happen, they need to work with a company that's got their back. It's going to be able to get the parts out quickly, get things fixed because they really just can't afford to be wasting time on these things.

So we do those things really, really well. And that's why sign companies keep choosing us time and time again. And then Ramesh made a number of comments about software. Software is really important. We provide the software that programs are science. They don't program themselves, Somebody's got to do it. And what we have is a really good user-friendly and powerful system that many deem as best-in-class in the sign industry. So with channel partners, it is really about loyalty, and we earn that loyalty by having a valued relationship that's built on good leads coming to them and good training for their sales and service people.

And the end customers, well, the LED asset that they have, that's important, but they kind of just expect that to work. Their experience with us is really through the software. Every day, they're experiencing Daktronics through the software. So as long as that experience is really good, they're going to choose us for their next site, and they're going to choose us again when they replace their sign. Now I'm going to pivot to the billboard business. This has really been a fun business to be in. It's filled with so many creative and exciting people, right, Barry, Barry knows. We've been in this business for about 25 years, and this is a nice collage of photos typical things that we do. But for the most part, what we sell is the outdoor billboard, the rectangle you see along the road.

That's where most of our revenue comes from. But we sell to the world's largest billboard operators as well as smaller operators throughout the country. So we'll sell to all billboard companies. I mentioned Outdoor, that's where most of our revenue comes from, but we're seeing some really nice growth in the indoor space as well, primarily in airports and you're going to hear more about that from Spencer when he talks about transportation because we collaborate on that work in the airport space. The digital billboard has really been the solution to the capacity problem for operators, billboard operators highly regulated industry. It's really difficult and expensive to put up new billboards. We couldn't just go leave here and do it. It's very hard and expensive. And so they had a capacity problem. How do they grow capacity.

So with the digital, what they're able to do is they're able to take on billboard that has a static advertisement, replace that with a digital billboard. Now they can have 6, 8, 10 advertisers increasing their capacity greatly, but also really greatly increasing the revenue per location. So it's been a really good fit for the billboard industry. And it's a nice business to be in. This last year, the Autohome industry posted a $9.5 billion revenue, up 3.6%, 19 consecutive quarters of growth for the billboard industry, so that's really good. But what's interesting about that of the $9.5 billion, 36% of the revenue came from digital ad sales, and that's growing at 10.5% per year. So that's impactful.

Now another interesting stat of all the billboards out there, only 5% of them are digital. So this industry really likes what we do, and there's good opportunity there. Our sales strategy is simple develop long-term relationships with billboard operators. I'll tell you why that's important. Probably more than 20 years ago, a billboard executive told me that we should consider the digital billboards that we sell as like an annuity because once an operator converts a site from static to digital, it's always going to be digital. So as long as we do what we say we're going to do, we show up, we take care of the customer, we take care of the product. We're going to earn the right to have that business when the sign needs to be replaced.

And that's nice because it gives us a little bit of predictability in our revenue model in a very unpredictable world, right? And we're in a good spot because 25 years ago when we sold our first digital billboard, we were the only 1 there -- there we didn't have any competition. Now of course, we have a lot now. But during those really high growth years from like 2004-ish to 2011-ish or so, we collected a lot of wins. We collected a lot of customers. And it's really nice, they're loyal to us today. And so we kind of know a little bit about where our revenue is going to come from, from that existing customer base. The lower in the industry was that the first billboards were carved on cave walls picture of a lake with an arrow sort of implies water over here, right?

And since then, the industry has been trying to improve upon that messaging and the clarity of the messaging. If you just go back 50 years ago, when a digital or I'm sorry, not a digital bill when a billboard was printed, it was 30 DPI, 30 dot prints resolution. Today, when you print a billboard, it's 300 dots per inch resolution. So a 10x increase in just 50 years. The industry cares about image quality, and they invest in it, and it's important. When Coca-Cola buys an ad, Coke Red needs to be Coke red, not some variant to red. It's got to be spot on. Just as important for digital. And this is really good for Daktronics because we do image quality, great. It's what we are known for. We've got a lot of secret sauce when it comes to image quality and we pour it into what we do, and our customers really appreciate that.

Durability and performance is also critically important. These displays that we put out there are kind of like cash registers on poll. If they're not operating, they're not collecting any revenue. that's literally true. And so we learned that it is really critical that they run. And so we build very good displays. We believe that we build the industry's most durable displays, the longest-lasting displays. But things do go wrong. And so we had to build a service organization that was really robust and able to respond to the industry's needs to be there very quickly to fix the displays. And we do that really, really well. That was hard to build, but more importantly, it's really hard to replicate. And Sarah is going to spend some time talking about our service organization in a few moments. So our ability to provide the industry's best uptime and long-term image quality allows operators to get the most from their investment, providing a better financial return for our customers.

And because the image quality is so valuable, this allows us to confidently stand on our value propositions. People do pay more for Daktronics because of these things that we do, and that's important. And our proven track record puts us in a good spot to earn that repeat revenue and displays need to be replaced. Okay. Now I'm going to touch on high school parks and recreation, the other business unit that I manage. This has been a really exciting space for the past few years. I'm sure if you've been watching us, you've seen this category growing nicely primarily fueled by the adoption of indoor and outdoor video. That's been the key driver. But use sports in general is huge use sports today is measured at a $40 billion industry growing at 10% annually. There are 45 million kids playing organized sports, 60% participation rate.

And for those of you that are parents like me and you have kids at Play Sports, it's expensive parents are paying $1,000 on average per year per kid and that's increasing. The reason why all those numbers are important is that means more newer, bigger, better facilities, which benefits Daktronics. So we sell in all 4 of these categories here. The K-12 public and private schools is really our bread and butter. That's where we shine where most of our revenue comes from. We also do well in community colleges, tech schools and municipalities parks and parks and recreation is a smaller part of what we do, but it's an area where we think we can grow.

Our approach to sales is similar to what I described earlier. We have field salespeople that go call on schools. Our sales teams are really deeply embedded into the school community. They show up frequently. They're well-known friendly faces and friendly faces in the community scene. And they stay very busy. 32,000 schools in the U.S. with 128,000 sport venues that need to be taken care of, we've got a lot of opportunity. Our field sales staff very important. Like I said, this is very much a relationship business. You got to show up. When schools are going to spend a couple of hundred grand on a video system, they expect you to be there and take care of them. So we got to be there. Very important. One of our greatest selling points when we go to schools is that we can bring the same system capabilities and qualities that are used in the professional levels at scale down into the high school.

That's huge because it gives the buyer so much confidence. We know about schools, right? We hear about all the time. There's not a lot of money in schools, budgets are tight. They can't afford to make a bad decision. So when they know that the Daktronics system that's down the road at whatever professional stadium that they're at is that quality, and that's what they're going to get. They feel a lot better about the decision. So really important. Another key thing for us is our DAK classroom curriculum. This is a subscription service that we sell to schools where they can, in the classroom, learn how to operate the tectonic system. And this is great because it demonstrates to school, we're not just about the product sale. We're really doing something about education, and that really resonates within the school.

We pair that with Crew Connect. What Crew Connect is an ecosystem of partners at all levels of sports from college to pros, students can see opportunities for jobs, internships and scholarships at facilities that support tectonic systems. And our sports marketing business is huge. Again, revenue is always tightened schools. So we have a team of marketing experts that help schools understand how to monetize their audience through the selling of sponsorships these are the dollars that are used to pay for the equipment that we provide to them. Very, very important. About 50% of all of our video sales today are monetized in some way by tectonic sports marketing.

So I'm going to tell you how all this comes together. Imagine you're an athletic director, okay? You just went on the road with your football team to your rival school. And they've got a new Daktronics video board and now you want one. It looks great. You want it so bad, you can taste it, you need it. But you got to go through the school board and budgets are tight. Everybody needs money the band needs to do to bus, right? You got to get in line, but you want to make the pitch because you want it. And so you do your homework, you find actronics and you realize these guys have got a lot going on.

They've got a lot of good value propositions. I think this is what I'm going to pitch. So you go to the school board, you're ready to go. You start with school pride and recruitment. Our stadium needs a new football video board. And if we do this, it's going to be so exciting fans are going to come. We're going to fill the stands students are going to be excited, and we're going to recruit new student athletes to our school. Okay. That's a good start. New students in the school means dollars to school. Students equals dollars. So that's a good point. fans in the stands means ticket sales. That's also dollars to the school. So that's a strong place to start. All right. Then you bring in our curriculum, DAK classroom and Crew Connect.

And when we go to Daktronics, who's the best, by the way, they've got a curriculum that we can bring into the school and can be taught in the classroom a CTE accredited curriculum that's important. What that's going to allow us to do is the kids are going to learn about how to operate the system. So we don't have to hire anybody to run this on Friday nights. We don't have to beg for volunteers. The students are going to learn how to create content in the classroom and run the cameras in the control system on Friday nights. And because the tronics is so well connected in the sports industry. They've got this thing called Crew Connect and the kids that are taking the class, they're going to be able to see opportunities for jobs and scholarships and internships within Crew Connect.

Okay. This is big, too. because this is going to get the interest from other people in the school. Educators as I see this as positive superintendents and principles. They're constantly being barraged about talking about CTE and career-ready opportunities. So they're going to get really excited about this. Then you close with Daktronics Sports Marketing. Daktronics has a track record for helping schools raise money to pay for this equipment. What we're going to do is we're going to take out a 5-year loan, Daktronics and teaches how to sell the sponsorships that sponsorship money is going to pay for the loan and then some, so the ban gets new tubes. Basically, the sponsorships pay for the displays. You put all this together, it's just a lights out pitch. And the thing is it's just not a bunch of smoke. It's the real deal.

This is what our customers are able to do and get deals done. It's these things that help us grow our leadership position, hold our value and consistently win. Okay. I'm going to talk a little bit about numbers. Maybe I'll start here. So we've got about an $800 million SAM, about a $900 million TAM. Overall, if you combine HSPR and commercial, it's about a 31% market share. We've got a notably higher market share in SPR where we've been in that business for longer than these others, and we do really well there. I talked a lot about video boards, but scoreboards are also really important. We sell a lot of them. But so we do really well in market share in HSPR, but these other areas are good to 34% in on-premise, almost 20 and out of home. When you consider the competitive environment, I think those are strong numbers. We're not swimming in Blue Ocean. We're really proud about the position that we have in these areas.

And it comes to growth, this category has grown at a little bit over 7% year-over-year, and we're kind of right in the mix with our 3 primary segments here, a little bit north of that and HR and an on-premise and out-of-home we're kind of in the range. And a lot of things are working in our favor use sports surge, I talked about really moving the needle for us, just the general digital adoption of digital jobs in general. Ramesh talked about that. There's just such a trend moving in that direction, right? People expect to see digital LED display costs, there are costs that come at us that kind of work against us, but there's costs that are in our favor as well, and so we're taking advantage of that. And the LED technology continues to look better and work better.

When it comes to the pillars of growth for us, a lot of it is about organic. We're continually innovating as a company. We are. We never stop. And so we think there's room to grow there remember 128,000 schools, millions of potential signed customers. We've got opportunities there. So we're expecting some nice growth. And then software is important. You're going to hear that repeated by all of our business leaders, Ramesh talked about it. Sarah's going to talk about it Brettwill as well software is important, and we're driving features to help adopt more paid services. And then break fixed service and service contracts, again, really important. And I'm going to let Sarah cover that in more detail, but it's also an area of growth for us. So I'm going to wrap up just 3 quick takeaways on each of the 3 businesses that I covered in our signed business. It's all about loyalty.

And it's about being consistent in quality and consistently showing up. In the auto home space, we provide the best return on investment for our customers hands down, and that's why people keep coming back to us. In an HSPR, we've got a value proposition story that just can't be beat. Competitors can do parts of what we do, but nobody can put it all on the table at the same time. Only Daktronics can do that. So up next, we're going to hear from the spectacular world of live events and spectaculars. Thank you.

[Presentation]

I love that quote. Yes, is the answer, what is the question. And I think that's it's exciting for us to talk about that because you're going to hear some really talented people coming up that, yes, is the answer and what is the question? My name is Jay Parker. I'm Vice President for Live Events and Spectaculars along with Jody Kress, who is leads our he's Vice President, lease are Project Realization Group. I'm going to talk to you a little bit about live events and spectaculars. We have to talk a little bit about where we play, how we win, what our differentiators are and then what we see for market share and potential growth opportunities.

So excited to be here today. The videos that you saw Back in my day, when we were playing sports, we didn't have an instant replay. We talked a little bit about having a film we watch film after we played and it was in black and white. Can you imagine what video technology is doing to the sporting facilities these days? It's really making it very, very exciting, and we're very excited to be in this space. So if we talk about live events, we're going to start there first professional teams. That's who we chase. That's 1 of our major sectors that we chase. That's NBA, NHL, it's Major League Baseball. It's the NFL, Major League Soccer, 154 teams. In this country, there's over 4,000 colleges and universities, of which 1,300 of them have college sports.

We also go after Minor League facilities over 400 minor leaf facilities, and then we also chased some amusement parks, some theme parks and overall, we've got a very finite number of customers that we chase, but we know those customers very, very well. We've got an experienced sales team that lives within the region. So we try and be close to our customers. That's how we're successful. We go in and see them often. We get in early on projects. We preach something called 7 touches. So our sales team gets in and sees these customers in time, right? We know who they are. You can count them. We've got lists we've got who's got our product, who doesn't have our product, but we know who they are. We go after them very, very aggressively. And that helps us build this relationship depth if we can build relationships up these projects are complex sales. They're multimillion dollar projects.

There's more than 1 decision maker. There's 3 to 5 different decision-makers on most every project that we chase. That means we need to get to know our customers, get to know their consultants, their architects, their engineers, anybody that's part of that project as we go forward. The great thing is, is Daktronics, we have great products that are proven and they're reliable and that helps us sell. So as good as our sales team is, we've got the products to stand behind it, and we've got the best service team in the country. We take care of our customers after the sale. If you think about it, selling process could be anywhere from 2 to 4 years.

Our services team will have that customer for 10 years. years to make sure we take care of that customer in the process. And there's a lot of opportunities. There's a lot of games, Major League Baseball, you have 81 home games. There's 81 opportunities that we have to perform flawlessly, and we do it better than anybody else in the industry. And we build trust with these customers. And this trust is what wins. If we can get to that trust point, we win projects. So we talked a little bit about our differentiators. It's our people and it's our products and it's our services. That is what sets us apart from the industry. And it's not just our sales team it's everywhere from our design team to our project management teams, to our construction management people to our services team.

It's Daktronics. That's who we are, and that is where our people really stand apart from the rest of the industry. Our products, you saw them on the video board, exciting products, they work as intended. When you invite 70,000 of your friends over for a sporting event, our products need to work and they do. And we do that better than anybody else in the industry. And then our services team, we're not perfect. If something happens, our services team gets in, get it taken care of, and gets our customer moving out. And that's what keeps us and allows us to sustain our customer base over time. So all these the differentiators allow us to have this value-based pricing. We get repeat business across many different venues, right?

The best complement is when they repurchase from us after 10 years. So 1 of the biggest complements that we can get we can cross-sell opportunities. So in the college and university space, if we can get into their football stadium, it can get us to their basketball arena. You can get us to baseball software and all the other Olympic sports. It allows us to go across that campus. If we perform well, they want to keep buying from us and they want a consistent product within their facilities, so they know how to operate it. And they've got 1 call to make, if they have an issue, they know who it is, and we're going to come in and make sure we take care of them. And that's allowed us to have a very strong win rate.

And I'm going to share a little bit about where our market share is at. Currently, today, and these are our 3 largest markets that we chase. Major League sports, we've got a 53% market share. If you look at this chart, 11% is our next competitor. That's their market share. But we do have competitors in this space. There's over 15, 16 other competitors that have at least 1, 2 or more installs. So we do have competitors. We just got a large percentage of the win rate. Minority baseball. We've got 57%. So there's 120 teams in that space. Our next competitor has 6%. There's over 25 different competitors that we see in this space based on region, geography, where they're strong, that's where we see them at.

And then in college sports, if you look at football, basketball, baseball and softball, Baseball on software are probably the 2 bigger growth areas within college campuses, which is exciting. If you've ever watched a women's fast pitch softball game. It's exciting. It's fast pace. It's really fun to watch. We're going to see growth in that potential area in the future. along with other Olympic sports, we've got a 69% market share in that space. And our competitors, again, are at the 6% level where they're at. So our teams are not only competitive on the field or in the court, they are also competitive with the size of their video displays. And we like to encourage this. Right? Why not? When we walk into meetings, this customer goes, how big is the Atlanta Falcons display and we want something similar, bigger, smaller or whoever your rival is, that's where you want to be bigger than.

And you can see on this list, the Atlanta Falcons, Mercedes-Benz Stadium is the largest, and it's a halo. It's kind of unfair when you do a halo in a stadium, but they did a halo in a stadium. And then the LRAM is the second 1 on that chart. But you can find on that chart where your favorite team is. and you can see where your favorite team stacks up. One of the things when you look at this list, if you have 1 of the smaller displays, more than likely, it's an older display, and that's an opportunity to probably replace in the future. or they're talking about building a new stadium and in the professional sports area, if you watch the news, read the news, you'll see where a lot of teams are talking about trying to build a new stadium to try and get them caught up with where the rest of their partners are at. On this chart, the ones that are in blue are Daktronics installations, the dark blue are Daktronics. So there's 30 teams up here. There's 32 stadiums, 2 teams or 2 stadiums have 2 tenants. So there's 30 facilities. We've got 15 of the 30 in the NFL.

So strong market share there. It's why not bring it to college, right? Let them look at who's got the largest displays as well. University of Illinois. We are in the process of installing currently. It is a big video board for college athletics. It's exciting to see, but it's going to set the bar for who's going to want to try and get close to that. It is 70% larger than Auburn University, 70% larger. So you're all monitor donate money to them, see if they want to get a bigger video board, I think we all would be happy. All right. So and that's not too far from the truth. If you see in college and university space, there are donors that donate money, and that helps fund some of these video board projects.

So enjoy that. So Major League Baseball, we had a great successful major league baseball season. If you look at this chart, we had 5 major construction projects going on at these 5 ballparks. We are 5 for 5 Arizona Diamondbacks, Saddle Mariners, Baltimore orals, Chicago Cubs and the New York Yankees. So we, as an executive team, we got in on Monday. And in New York City, we had the opportunity to go see the New York Yankees game on Tuesday night. I thought the weather in South Dakota was colder weather here in New York is Chile we were outside, we're inside or outside. I've dressed for it, and I'm a larger human, so I've got my own furnace, but it was cold, but the displays look fantastic. And if anybody got a chance to see the Anke Stadium net, get out there and go see them.

And you'll see us. As Ramesh said, you'll see us everywhere. You'll see us on your drive there, you'll see us within the stadium. But this stat is absolutely incredible. I've been with Daktronics for over 30 years. I have never seen anybody and we're the only ones that could have pulled off 5 for 5. And you're going to hear from a group that's going to come up. Jody Kress is going to talk next. Brett's going to talk, Sara's going to talk. Matt's going to talk.

I get to talk about these 5 installations. They did all the work. And you're going to see what great team that we have behind us to be able to be successful and again, it builds trust and allows us the opportunity to succeed. But that wasn't all we did this baseball season. We did some smaller projects at the San Diego Padres, Milwaukee Brewers, Houston Astral, Philadelphia Phillies Cleveland Guardians and you're going to hear about a control system that we installed at the L.A. Angels. We also did a couple of minor baseball parks, and we're I mentioned we're installing the University of Illinois. And let's just go ahead and install the Tennessee Titans at the same time because that's going to be ready for this next football season.

So the team that we've got is built, built to be able to do many, many projects and have success and be very successful doing it because the real key is we got to be on time, on budget and opening day doesn't change. So this last part of March, early part of April, opening day game doesn't change. You cannot miss opening day game.

And that is what we strive really hard to make sure that we do. So that's live events. Spectaculars is a little it's an interesting name. I always get lucky because I get to describe that I supervise a spectacular sales team. and salespeople, anybody sales people in the room, you love that when you get called spectacular, but it is this group of you walked here through Times Square and you saw these spectacular displays were likely you saw more than 1 Daktronics display when you walked around in Times Square or walk got your way here today. But we serve big city centers. We sell big displays to Times Square. L.A. Las Vegas. If you go down the strip in Las Vegas, you'll see us in a lot of places. You'll see us up and down the strip, you'll see us in casinos. When you're around Times Square, you'll see us there.

But there are some other niches that we serve in the spectacular team. So we'll sell to cruise ships. We will sell to boating systems. We used to have a history, 1 of our when we started our company, we were in the voting system world. And we now do displays with another company. They do the control system, we do displays. It's a great situation for us to be in. We do cruise ships. Why not? We do sportsbooks, great place to put our displays. So this team has got a breadth of projects and verticals. And you heard Ramesh talk about new verticals. This group gets to play in some of these new verticals which is always fun because you're trying to build something. You try to pioneer something, you're trying to move things forward and move the needle as you go forward.

So here's the map on New York City, Los Angeles and Las Vegas. The dots on there represent where we've got an installation you can see where we've got. So go out to L.A. Olympics. Olympics is going to be interesting out in L.A. So people are wanting to make sure they have their displays out there to sell advertising. And it has a lot to do with but if you're walking around Times Square, I think at your test, you've got a map of our installations in Times Square, anywhere from Barclays to the Javits Center. We got some hotels. We've got some rooftops all across Broadway, more projects in Broadway. And then we've also got some crazy sports projects in the New York area. You got the Yankees, you got the Brooklyn Nets. You got the Islanders, the Red Bulls and Madison Square Garden.

So not only in the square, but you're going to see us in these iconic facilities in New York has a lot of iconic facilities. So we're very excited about not only having our spectacular products and we talked about it when you leave your house, you are seeing us all the way. And then you go to a sporting event and Madison Square Garden, you are seeing Daktronics all along your way. So in this world of spectacular, there are a lot of influencers in this space. There's developers, out-of-home companies that are developers. We've got real estate that are developers we had the great event yesterday, bringing up the bell. We had some of our good customers in the Times Square area join us there that are out-of-home companies. We were excited that we because of them, we are fortunate to be able to do what we do.

So we were very, very appreciative that they joined us. architects, engineers, consultants, all these people are our potential customers. So we work hard to make sure that we can chase them, we can be successful with them. But they are also like live events, they're complex sales. There are 3 to 5 decision makers in these projects. So we have to we have to compete hard. We have to get in early, get it often help with the design, make sure that we build trust. And when you build trust, you have a great chance to win projects. ROI focus. It's about putting an advertising display up and generating revenue, selling ads, and that helps pay for it.

And the more we can help these customers figure out how to do that. and have the best image quality, we can, they can sell their advertising and be successful. So similar LED product as the live event space and we work hard a little bit different control systems in this space because it's a schedule and timing advertising type space and they try to leverage all the advertising that they can possibly sell. But it's an exciting space for us to be able to be in One of the other places when you heard our spaces and niches Ramesh talked about, these new market verticals that we're looking at.

So about 4, 5 years ago, we dove into the Fed Gov space, government military space, and the civilian command centers and Daktronics being a South Dakota based corporation has a strong value proposition to the government space, right? So we're in a great position. So we started in that space, started having some success. And then those customers pulled us into some of their other verticals, which is industry hospitality, houses of worship and we started seeing some success in that area. This is a great opportunity for us to continue to grow because we have a strong, strong presence and they call the outdoor space, but it's in this outdoor sporting space. We also do arenas, but this is a high-resolution product, which is exciting. So we've got opportunities for growth, and we're looking forward to that going into the future.

So Daktronics in this space, we are TAA-compliant Trade Agreement Act compliant. And that's what you need to do business with the government, you need at least hit that area. And we are we've got a strong value proposition by being in South Dakota, U.S. manufacturing, U.S. assembly. We've got a great product. We've got a great engineering team. You'll hear from Brett coming up here whenever Brett speaks, it actually gets me excited. It gets me excited to go out and try and start selling the next opportunity that we have. Jeremy mentioned superior video processing. And there is a difference when you see our video displays and the processing that we do. And then we're trying to go through these partners and see how we can get there with the partners that we've got. So you can see some market successes that we've had Times Square.

There's a it's a military training center in the middle. It looks like an arena, but they use it for war gaming planning. So those ever thought that would be the case, but it looks like an arena and it's an opportunity and it's in the federal government space for us. So if you take a look at some of the opportunities for us and our market share and our growth rate so if you look at this, again, we have about an $800 million SAM and our TAM is about $900 million. And if you look at our live events team has got dominant. We're dominant in the space. We've got a 57% market share when we look at the SAM and our spectaculars team, we've got an opportunity for growth. We're sitting at 11% market share, and we have that opportunity to be able to grow, but we are in a good position and I think we've got good discussions going on and how do we attack this market further into the future.

But if you look at the growth rate in the markets that I lead, the bottom row is our College University space. college universities are kind of going through their own transformation today. And if you watched in 4 NCAA Tournament, 1 of the biggest sporting events that happens, they're working their way through it. They're working their way through payroll, paying players. So we'll see where that goes. But industry sources show that, that can still grow at 6.2%. The next 1 up, the dark blue is major league sports. It's and then the light blue, the lighter blue is our spectacular team. So you can see the growth rates, 6% to 7.5%, and we're confident that we can grow at those market rates and continue to find success in the spaces that we're in. So next up, we're going to watch a video and then Jody Crest is going to join me on stage and talk a little bit about it's 1 thing when you sell the project, you've got to execute on that project. So back to you guys.

[Presentation]

Okay. Good morning, everyone. Jay said, my name is Jody Kress, Vice President of Project realization at Daktronics. And I want to thank our production team for capturing that video and that time lapse. That is exactly what our customers experience when they work with Daktronics. -- execution on complex projects and some really highly visible venues from around the world. So what I'm going to talk about today is how that execution is built into our delivery strategy and why that matters. And so as Ramesh mentioned earlier, hit the button too soon. As Himesh mentioned earlier, we are a full life cycle provider. So we work with our customers through all phases of the project from beginning to end. And my role in project realization is to work with our solution design teams and our project management teams to take a customer's vision or an idea and make that reality, therefore, the term realization. And we manage everything from the early design phases all the way through the on-site installation and the configuration to make that all happen.

And as I mentioned, these are highly complex, visible projects. So doing this well is very important, and this capability is really difficult for anyone to really replicate or copy. And so therefore, our project realization capability, we feel is a really clear and durable differentiator at Daktronics. So I'm going to take this a little bit further here in detail, and I'm going to use the Miami Heat as my example. But it's really not the story really isn't this display got installed. It's really how did this get done. And we start with our design teams, designing these systems using the latest in 3D modeling tools to design the systems. We're starting to use AI more as an assistant or to help us with our design to improve efficiency and accuracy with those designs.

At the same time, we developed a detailed site and integration plan to help us understand how these systems are going to integrate with the customers' facilities because it's strange, but every facility seems to be different and has some unique challenges to work through. And so developing that plan early is very important. At the same time, being we are the manufacturer we work very closely with Matt's manufacturing team to develop our production plan that allows us to be successful, like Jay said, 5 for 5 for baseball. We had to have a pretty solid production plan to make sure we delivered all of those on time. And so we work closely with our manufacturing team to make that happen. And then we also work with manage subcontractors. We hire people to help us do the perform all the activities that need to come together on site. And as Jeremy mentioned, a lot of those subcontractors are also our customers.

So it's a win-win situation for all of us. And we do all this coordination. Our teams balance all this coordination trying to balance the schedule, the budget, and the quality across the entire project. And most importantly, this is all led by Daktronics project managers who do this type of work every day. This is what they wake up and they do it every day, project after project year after year. And we mentioned the Yankees. The Yankees just posted a LinkedIn video yesterday or the day before, something dropped where they talk about this experience they had with our project manager and the Yankees staff talk about that. If you have time, I would encourage you to watch that. It's a pretty powerful video. And so yes, and then the other point I wanted to make here is although that I'm talking about this during the live events and Spectaculars segments here today.

This is a capability that we can span across the business. There are some high schools in Jeremy's market, for example, that start to look like small to midsized colleges to be honest. So we can scale this to other markets of the business to, even in Aviation, Spencer's got some applications that start to look like a spectacular application. So this is a capability that we can scale across the organization. And then Jay talked earlier about why we went in live events and spectaculars and here's 4 points on why that really matters. First, to ensure strong execution on the industry's most visible projects. These are marquee venues, iconic installs, and our track record here is really proven. Second, it helps protect margin. Because on these complex projects, it's not the product that's necessarily risky, right? It's the on-site work and the execution on site.

That's really the risky part. And being, we own that full life cycle we have the experience and the control over that life cycle to manage that risk proactively versus reacting to that risk. And I think that's a real advantage. And it also expands our value proposition. Customers don't just trust us to build the system. They trust us to manage the entire outcome. And so that's very important, too. And then finally, the proven execution is what earns us repeat business. We do what we say we're going to do, and our customers trust us to do that, and that leads to a durable competitive advantage in my opinion that I think others really struggle to match. And so I'm just proud of our teams that support us on these projects. And with that, I'm going to hand it back to Jay to talk a little bit more about growth in live events and spectaculars.

So yes is the answer. What is the question? You've seen a couple of projects, the Miami Heat project, you saw that, that was a custom play ball Miami Heat logo, Flame Ball fits perfectly, Jodin team and our manufacturing team and engineering team knocked it out of the park. But that team does best in the industry. And that's definitely an advantage for us. So if we look at the 3 pillars of success, it is continue to protect our core. We've got a strong market share in the verticals that we chase, and we need to protect that core because we do have competitors. Believe it or not, we do have competitors and they're highly aggressive. So we got to keep protecting the core. But we've also got products that can extend us not only from the seating bowl but into the concourses.

So if you are seeing some of these facilities today, and there's an opportunity for growth is adding more displays in the concourses, in the team meeting rooms in the locker rooms, places that have traditionally been LCD within a stadium and arena are now converting more to LED. So that's really our growth area. And the great thing is we have customers. So they want to come back to us. They want to integrate all of this together. So that's our that's really 1 of our strong pillars that we have. We need to grow the software side of our business. And I haven't talked a lot about the software side and what we call Camino 8, but we've got strong not only video displays but control systems. In the college university space, when they have 4, 5 or 6 different installs on campus, they want a similar control system.

So it's easier to train their staff, they can produce events. But if you are in a New York Yankees, for example, you want your video of a screen to look in bowl like what is on TV on the sport networks. You want to see that on the sports network comment. You're going to hear some exciting stuff coming from Brett and Sara on Camino 8, and that's going to help us with this growth to get into this high-end advanced graphics type area in that space. We also want to be able to grow our high-margin service business. So you saw the videos that we saw up here that was created by the Daktronics teams, and they can create that type of content for our customers as well. So that's an opportunity for growth.

Also, service agreements is an opportunity for us for growth. So we're excited about those opportunities. We're excited that we're the leader in the live event space. But we don't take that for granted. Every day, we wake up knowing we've got to protect our customer base and make sure we take care of them better than they've ever been taken care of. That's what we do. That's what we try and do. I mentioned 7 touches. We do that every single day. Execution on these highly complex projects, that's not simple. That's not easy, and you got to make sure you got the right team to be able to do it. You saw the video of Crypto.com arena, which was formerly the Staples Center, and there's a competition between Staples Center and crypto com and L.A. versus Madison Square Garden on what's the busiest arena in the world.

Those 2 will fight. But we had 16 days and Jody and team nailed it, which is fantastic. We knew we could do it. We just had to have the right plan. We worked a lot of late hours, but we got it done. So it was very, very exciting. And then I think our growth, software and services. I think that's where we've got another opportunity for growth. So with that, next step is going to be we're going to talk about transportation and Spencer Dagan is going to be talking to you about that.

[Presentation]

Good morning. I'm Spencer Dagan, Vice President of our Transportation business unit. During my time this morning, I'll describe the markets that make up our transportation business unit and share some details about how we go to market in each space. I'll also share some market trends and some growth strategies that will influence our next few years. When we say transportation markets, Ramesh mentioned it, Jay mentioned it, we mean the customer markets that made it possible for us all to get here today.

If you came by car, rail, bus or an airplane, you were likely informed by Daktronics equipment. We include 4 markets in our transportation business unit, our ITS market, our intelligent transportation systems. Aviation, public transit and parking. I'll spend most of my time today on ITS and aviation with a quick touch on public transit. I'll start with on the far left is 1 of our most common applications in this space, often referred to as a DMS or dynamic message center. You'll see a couple of other applications about DMS or lane control shown here as well. In ITS, our largest end user group is our DOT customers, followed by tolling and other local transit authorities or traffic authorities such as the Port Authority here in New York.

We go to market most often through resellers and electrical contractors that are bidding the roadway projects are our most common reseller in this space. The remaining 20% is purchased directly by end agencies and either owner furnished into their construction projects or sometimes they self-install. Our differentiators in the ITS space are headlined by our U.S. manufacturing approach. We produce these products in the U.S. and we lead by far, in compliance with the Buy America standards. In October, this upcoming October, so just 6 months from now, a long-standing waiver for manufacturing products goes completely away and it's completely removed and strict rules for U.S. content go into place.

That will eliminate the acceptance for only assembled products that are only assembled in the U.S. So that raises the bar significantly for U.S. manufacturing content and really favors the Daktronics model. We are the leader in you'll see it later when we talk about market share, but we are the leader here. We support and assist architects, engineers and consultants as they develop specs and support our end agency customers. And that work is often years and months ahead of any procurement or purchase activity. Half or more of our marketing and selling effort is on that presale activity that prepares us for the future bid process. And finally, this is a unique product line. ruggedized or ITS grade or common terms in this space and the barrier to entry with these products keeps our competitor list short. So how do these things drive success? Like all of Daktronics, our products are top of class in quality and reliability. Our service teams are superior to anyone in this market.

Sarah's service organization has people in place to help any customer need. As the market leader, we also have the opportunity to steer the future generations of products, and that can be a big benefit for Daktronics. We've been in this business for 57 years, publicly traded for more than half of that time and that stability is important for our customers that are looking for long-term partners. They're buying products they expect last 10, even 15 years sometimes. For our contractors that are reselling our products, I mentioned 80% of this business goes through electrical contractors. We win with those contractors through our project support. Jody's design and project management teams, Seraservice teams and all of our well trained engineers and design staff behind them to back them up if any question comes up.

In our factories, we don't miss dates. In any of our markets, and in this market, we don't miss states either. We're predictable and we meet their schedule needs. And finally, we install and fire up quick and easy. And that makes and all these things save these contractors time and money, making us the safe and most profitable choice for their business. I'll wrap up ITS with a quick market trend that we're watching. Our ITS products are expanding from a suburban environment into urban environments. And as we push the boundaries of resolution, and have our market leadership chance to define the next generation of products will help to define the display technologies that come into more urban applications.

We're also ensuring the ruggedized high expectations of the Interstate products are brought into the space as well. And this is a nice market expansion that will grow the market and help grow our future I'll touch I'll touch on public transit, highlight some of the similarities we see to our ITS market. Our end customers here are the transit operators. But again, we see sales through reseller and integrator channels. We see maybe more of an even split here between contractor purchase and direct agency purchases. These tend to be smaller often high-volume type installations and a lot of our customers have their own capabilities to self-install and service. Our differentiators again include preference for U.S. manufacturing, Buy America requirements in this by America requirements exist in this space as well, creating a preference for Daktronics, although a bit less than in our ITS space.

The similarity is the purpose-built, ruggedized designs that create a similar barrier to entry. Maybe the most interesting takeaway or trend in this market that we're watching is a portion of this market shifted away from LED proven technology towards things like LCDs as our customers chase resolution, to display more graphics, more map type content. The problem here is LCD is a difficult technology to ruggedize enough to make last in this space. So these products are having to be replaced every 2 to 3 years. They can't be quite as bright as LED technology. Daktronics is creating a trend back towards LED as we develop on our high-resolution platforms and this will eventually obsolete these other technologies as this market grows this market grows.

And finally, here, when these customers make a product choice, their goal is to stick with that vendor as long as they can. They don't want to mix products. If we get it on the first one, we benefit from years of future builds. All right. I'll shift to aviation and highlight some exciting new things here. Aviation is our fastest-growing market within transportation. And the main reason is that airports themselves are now customers for our indoor solutions, our newer high-resolution solutions. We've sold outdoor products to airports for many years. Roadway, parking applications, curbside, airside with the airlines as they deploy technologies outside the airports.

However, for indoor applications, Jody mentioned this earlier, most of our activity has been with the advertising concessions, the JC tacos, Clear Channels, Lamar, that type of customer. And that business is still good and growing. With terminal expansions and extremely high adoption of digital across all of our public spaces, airports are now becoming customers for our high-resolution LED solutions. Airlines are also active customers as they expand their ownership of gate and ticketing spaces. And our strategy in aviation is really we try to be channel first. but we see a nice mix between direct purchase and integrator-type channel purchases.

We see our facility-wide projects, airline-directed projects that may cross multiple airports. And ad applications is often being procured directly. Smaller or stand-alone more local installations often include decision-makers and sales through our integrator type channels. Our differentiators and airports start with our chip onboard design solutions. Thanks to Brett and his team. We were the first and we are the absolute best at chip onboard. Chip on board changed everything for us in airports and many of our other markets.

It's half the power, it's brighter and it's extremely durable compared to past technologies in this type of high-resolution space. When you think about people moving through a terminal and where we want to put these products, that durability that low heat, that low power is a complete game changer for these installations. We have a strong brand reputation, but we aren't as well known yet for the indoor high res, and that's changing fast. Yesterday, we announced that Wawa is using Daktronics for their LAX, Tom Bradley International Terminal. For a huge project that will be the start of a large modernization project that they're working on for the 2028 Olympics. I really appreciate Laastrust and Daktronics, and the timing couldn't have been better for me to be able to mention that today.

We work hard in this market to support specifiers and designers. They crave support early in design phases as airports are very intentionally and difficult to plan. Daktronics does this so well as a designer and manufacturer, we have all of those skills under our roof. And that ties directly to the value of being the manufacturer not just a product broker, and that holds so much weight for our customers that are making these decisions these differentiators drive success through confidence in partnership. Again, our quality is next to none. And ship on board raised that bar even higher. Because we design and manufacture these products, we have scheduled control that our broker competitors simply don't.

And all of these things create value for our customers that tend to outshine price alone. If we look at market share, we have about a 22% share looking across our 4 market segments of ITS, aviation, public transit and parking. ITS is clearly our core Depending on which you measure us against our market share is at least 40%. And our win rate for the projects that we chase is 60% to 70%, our history in aviation has been focused on outdoor applications, but we're driving great growth through our indoor solutions. And in the public transit and parking markets, we're doing some nice things there. but we have a lot of room to grow I'm excited to see the 9% growth in our transportation markets. Our core ITS space is very consistent while demonstrating nice year-over-year growth.

I also mentioned expansion into more urban and arterial spaces that will help expand this market and create more room for us to grow. And Aviation is definitely a space with room for us to grow. I feel like we're just getting started with selling indoor applications and the market is growing quickly. Public transit and parking are broad volume-based markets, and I touched briefly on some of the technology trends that are making portions of those market segments more attractive for us. I'll start to wrap this up with 3 growth pillars for our transportation business unit. We're growing our core. I showed market growth in the core ITS space and adoption will be a large part of our future. We do business in nearly all the 50 states today, very few exceptions but our agency opportunities remaining that have yet to adopt these technologies, and that will drive growth.

We're also working to expand into high growth regions. We have targeted agencies with high volume that have just started to purchase from Daktronics or maybe even haven't purchased from Daktronics yet and gaining share with those customers will be an important part of our future. And lastly, we're expanding in the high-growth segments. I mentioned airports just getting started with indoor. We're ramping that investment with goals to reach more customers and deliver more projects. I'll leave you with these 4 themes. ITS is our core and always will be. The by Americas, updated by America standards and guidelines further solidifies our market position here. Aviation is our fastest-growing market fueled by the indoor applications that we talked about, and we are investing here. All of our transportation markets are solution support mission-critical applications and our customers are mature and they work hard to weed out low-cost competitors, and they really value our model and that values us the work that they do to weed out that competition.

And lastly, our customers prefer long-term multiyear procurement methods. This lowers our cost of sales and keeps us attached to our customers for many years. I really appreciate your time today. Thank you for all coming out join us. Next, you'll hear from our international markets.

[Presentation]

Good morning, everyone. I'm [indiscernible] conflicted when I see that video. It's like all these great accomplishments, but my life's work was condensed to I got a 10-second walk there. All right. So I'm excited to share a little bit about our international business. First of all, I'm Jud Guthmiller, Vice President of this International business unit. And so for really over 20-plus years, we have expanded our international presence to really focus on the most attractive global markets. And today, we really have a network of sales, project management and service personnel positioned in key territories around the globe.

And this structure allows us to really pursue opportunities across Europe, Middle East, Asia Pacific and Latin America. And all of that has really resulted in us having a very successful track record of completing over 100 installations in over 100 countries. During FY '25, the international LED market was sized at about $2 billion, $2.3 billion, in fact, of which $1 billion really aligns to the countries and segments fit Daktronics overall strategy. And within that $1 billion market that we play in, we have nearly a 10% market share, which obviously highlights a tremendous headroom for future growth.

Going forward, our international growth will be driven by 3 key pillars. We're going to focus on these high-growth regions and market segments. We're going to expand our customer-centric solutions portfolio. and we're going to extend our reach through new strategic partnerships. All in total, will yield a high single-digit revenue growth. Across our international regions, we have grown our business across 3 key segments: large sports venue, stadiums and arenas, out-of-home advertising and transportation. As shown in the photos, you can see that we really excel at these highly customized and demanding projects where our customers really value having something different and unique. And this is where we can bring the strength of all of our teams across the world, our engineering expertise, our product innovation, and we can really couple that with our local product execution and project execution capabilities and really deliver these solutions that is really unmatched by any of our competitors.

And these projects not only highlight the scale and the complexity of the work we do, but also our ability to execute across multiple market segments and meet different customer requirements. Our sales strategy really builds well on what we do in the U.S. we certainly lean into our heritage and brand reputation, which has a high degree of credibility no matter who we're talking to in the world. And then our sales team and our service team, when they're out there engaging the market, they reinforce that by being honest and helpful, which earns deeper relationships and instills a higher degree of trust. We then leverage our global manufacturing capabilities to take on these really large systems in these projects.

And then we deliver them very reliably day in and day out with the support from Matt's team. Depending on the market and the opportunity, we will sell direct when deep engagement is the most critical way to do so. But we'll also use strong channel partners when maybe reach or local presence matter even more. And finally, our domestic experience really translates well internationally by combining our global knowledge collectively across all of our teams and coupling that with our local team and our expertise we're able to assemble the right people toward the right opportunities and consistently execute at a really high level.

Our global footprint of sales, project management and service personnel really allows us to serve our customers all the way from the idea creation phase, as Jody mentioned, developing the vision with our customers. That's a fun phase all the way through the integration and the installation and the planning of that all the way through the life and the support of those systems with Sarah's team. And because we're able to operate across all those phases of the customer journey in all these territories, that's an advantage to us. We take all of that intel and we gather it and it gives us valuable insight into market trends and more importantly, competitor trends.

We use that intel to disseminate it across all of our teams internally so then we can rapidly and agilely adjust our strategies to protect our most lucrative and profitable markets regardless if they're in international or the U.S. Regarding our solutions, you've heard it from my other teammates hands down. We got the best products in the world. They're the most the highest quality, the most reliable. They last the longest lifetime, 10 years and beyond. And there's a set of our customers in international to value that.

But we also have another set of customers who are they're keen to be flexible on product performance, maybe a shorter lifetime, not as bright, whatever, but they certainly couple that with a lower price expectation, too. And we address that market need with a multi-tier product portfolio strategy. And by executing on so many highly complex and iconic projects around the world, we have a fantastic reputation. And we leverage it every day with our sales team. We lean into that. And the fun part of that is when you work with a customer and you complete the installation, I find it more personally satisfying to go back a few weeks, months, years later and see how successful they are and when they're achieving their objectives regardless if it was to entertain fans in a stadium or an arena, provide vital information as people are moving around their cities or their countries or earning revenue like on an out-of-home billboard or in a retail application.

Now I want to share a little bit about some of the growth drivers we see for this international business 1 of which has been and will continue to be the growth of sports and entertainment outside the U.S. market. Since 2007, the NFL play started playing 1 match outside the U.S. per year. And they did that for about 8 years in a row and then slowly added a few games. You fast forward to this upcoming season of 2026, and they'll say it.

They have a record-breaking schedule in front of them. They are planning to play 9 games in 8 different venues in 7 different countries. That's fantastic. That fuels business that we excel in, not only domestically with Jay and Jody but also in international. And the photo on the screen is a highlight to that and a testament of it. This is Totum stadium in London, which is a regular host of a match like this for the NFL. More recently, the NBA just announced plans to expand a European league of about 16 teams. That's going to fuel new construction venues as well as revitalization of other venues, all of which is going to require new LED display systems, things we're very good at.

And given our strong track record with the NBA due to all the great work of Jay and Sarah and Jody we have a fantastic reputation with the NBA, and we couple that with our strong European footprint. We're in a fantastic position to capitalize on that opportunity if it comes to fruition. Another important growth driver is the awarding of these major global events like the World Cup or the Olympics into new regions. When these large-scale sports venues come about, they are exciting, right? And we've got a great track record of capitalizing on that demand of these systems into the sporting venues.

An example I can share with you if you thought 5 for 5 was good. We and our Middle East team, who I'm extremely proud of in leading up to the Hatar World Cup in 2022, that team was successful in selling and installing 8 out of 8 stadiums. So every stadium that was hosting a World Cup match in 2022 was powered by a Daktronics solution. In addition to the growth in the event venues, which is obvious, we also have other things that get triggered, right, broader investment into other markets leading up to these global events and that could be across advertising, retail and public transportation as these host cities really want to shine bright, right? They're going to host a global audience and they want to look good to the whole world.

This leading up to these events really gives us a multiyear wave of demand that we are really well positioned to participate since they are many of our core markets. And the final growth driver I'll highlight is when governments of certain countries lead with investing into tourism when it ranks as a key strategy of theirs. As these countries look to attract more visitors they will fund large and complex installations to make a landmark in their city. And that really just drives the global visibility of everything that they do and they want to look good to the outside world. And once those investments begin on the public side, the private money almost always follows. And again, it's across typical things that you would think entertainment areas, retail areas or general open area spaces, all of which drives demand for the good things that we do, and we are very well positioned to not only pursue but to win and then to execute on.

And to wrap things up, I'll leave you with these 3 key takeaways for this international business. First off, we are dedicated to diligently focusing and pointing our capital and our resources toward the high-growth regions and high-growth market segments. One of the ways that we're going to do that is we're going to invest into growing new partnerships in key locations so they can act as an extension of our sales team while we diligently manage the expenses. We're also going to focus on developing new products to meet our customers' expectations, not only on the performance side, but also on the price side.

And we're going to continue to do that through further development of our multi-tier product portfolio strategy with Brett. And finally, we will leverage U.S.-driven expansions into these international markets, like the NBA, the NFL and the like. And we'll do that in parallel as our teams surround new upcoming world global events like the World Cup or the Olympics. I hope that gives you a little bit of a deeper insight into the international business and welcome any questions that you have might have at the upcoming Q&A. And now you'll hear about our services and software business.

[Presentation]

Five for five and eight for eight that success for us in customer service. That means that we get to take care of those customers throughout the life of their system. I'd like to talk about services as we help to light it up. we help to make sure it stays lit up and functioning and performing well over the life of the system. Thank you so much for being here today. My name is Sarah Ros, and I'm responsible for our global services, which includes software as well as our services. We are a lifetime provider. And so what does that mean as we think about it? And why is it important? It's important because our customers have a choice.

We heard from Judd. We heard from Jay Spence. And we heard Jeremy talk about it. what they're interested is getting that sale, but it's important to who they purchase from after that sale. And in the services organization, we have the opportunity to either help them to get that sale or not. It's how well we take care of our customers and how we enable them to be successful from day 1 to the day that they replace. We want to create long-term relationships with our customers in such a way they choose Daktronics over and over again.

So aftermarket services, we heard earlier today, as people talked about it, we're taking care of those customers from anywhere from 5 to 10 years of life. We are part of that product life cycle. We support our customers and it continues to evolve from the point that they installed it to the point that they will choose to replace with Daktronics. And it's critical that we're there for them. So how do we do that? What does that look like? Well, I'll talk a little bit about that. We're going to talk about our 3 areas today: technical services, professional services and our software services.

When we think about our customers, they want to do more with their systems. They want to have it operating and working well from the point that we install it, to the point that they replace it. And throughout that lifetime, throughout that 10 years things need to change with that system, technology changes, and our services team is there to help them in every step of the way. So first, it needs to work well, right? No 1 wants to buy a system, it doesn't work well. And inevitably, with any electronic, there are going to be times when there are issues, that's where our technical services comes in. We provide our customers with preventative, proactive services.

We also provide our customers with reactive services, and we do that through remote technical support, on-site services and also what's unique and a benefit to Daktronics as we have U.S. repair. So when that customer needs a part or they need to have a cart repayer, they can send it to us in the U.S. and we will repair that for them and get it back out to site. That is a critical component and differentiates Daktronics in the industry. We also have professional services. It's great that it's working. But honestly, this wouldn't have been as interesting of a presentation today with all the videos. The videos brought it to life. We got to see what Daktronics does. That's the content, and that's part of our professional services that we offer. We offer the creative services.

We are in the rooms with the teams as those productions are happening. We are either helping them to produce the shows. We are running cameras. We are clicking the buttons. We are part of their production team. We also help our customers over the life. We hear this great installation that happened. It's beautiful. It's wonderful, and you're a first time going there as a fan. And you see it and it's amazing, and you're just mesmerized by it. But by year 5, if they're still doing the same thing they did at year 1, you're going to be board. We need to help our customers to evolve the show. And that's where our technology continues to evolve, and we can go in with our customers on a regular basis, meet with them and upgrade their technology so that they can produce more shows that entertain their fans in ways they've never imagined before. The last area I'll talk about here is our software.

Our software really is the backbone to what we do. It enables our customers to be successful. Software is not new to Daktronics. Over the many, many decades, we've been creating and installing LED display as a software has been the component that our customers use to operate their systems. And we're continuing to evolve on that as you'll hear from Brett later today. We do that through licensing and subscriptions. This scope and breadth of services is very hard to replicate. We have people and competition that can do technical but can they couple a professional and they can couple the software.

And we're going to learn about some of our customers here that value these types of things. But first, let's talk about our customers. When we think about who we sell our services to and what that looks like, when we go into our professional services, which Jay talked about. Oftentimes, we're talking to the person responsible for the operations of the facility. What is their main concern, Make it easy for me and keep it working well. You don't want a downtime when you have a game going on. when you've invited 70,000 of your closest friends, it needs to work. And they can't entrust on Daktronics teams to be in the field to help them to do that.

We also well at the facility or meeting with the people or the event producers or the production team, kind of what's behind that Blackwell curtain there, the production team. That's what we're meeting with. They're making all of this happen. And we're meeting with them to provide them with the content they might need to provide them with the technology they need to put on the shows that we all love to go and see.

When we meet with the school, sometimes we're meeting with the principal of the school. Sometimes we're meeting with the superintendent of the school board, and we're helping to understand what are their needs for services and in curating the right service approach for that particular high school? We also meet with business owners, small and large. We understand their business needs, and we help to understand what is the best way that we can serve them through our technical services, through helping them create imagery that can go on their displays to even operating their displays for them. We work with system integrators who are responsible for installing and configuring the systems. We are there, and we understand our customers. We know our customers because we spend time with them. We don't spend to 1 with them and don't hear from them for 10 years. We are embedded in our customers' operations as part of our services.

And therefore, we know as their business evolves and changes, what their needs are going to be, not only for services but other also for the technology that they're going to want to invest in, in the future. So we become a critical part of their team. And that helps us and enables us to be able to curate the right products and the right services for our customers. Services is critical. It helps from leads into our sales teams it also provides insight into our engineering teams as Brett is going to be talking about. Because we are embedded with these customers, because we work with them day in and day out, we understand their business, we understand their operation. We can help to provide feedback into engineering to create the right software and the right platforms that enable our customers to be successful.

So let's talk about 1 of those customers. Maybe 6 Super Bowls were a result of ectronics will take a little bit of credit in ever sent us a ring. We will assume that part of it was our contribution because we've worked with them for over 20 years. We have supported over 100 displays on the Patriots. And so what do we do with the Patriots, you might say. First, we provide the technical services. So we're responsible for being proactive going on and providing checks before the events happen and before even the season starts. And then we are actually on site during those events. We are there to make sure that the system works well and performs as it's supposed to. That's part of our technical services.

And when they call Daktronics, they're not calling a call center in another country where they don't know anything about the system. They are calling Daktronics, and we have technicians who understand that system can pull up their unique configuration and help to support them and get them working and operating quickly. But the trust extends beyond the technical services. It extends into what we do in our professional services. They want to will their audiences. When we go on the Patriots game when we go to any game, we want to have a good experience. Part of it is the imagery we see it's that creativeness. It's that entertainment aspect, and that's where we help with our professional services. We provide them the technology and the software that's necessary, but we also provide them with the content as you see here.

So all of this makes a long-term relationship with our customers. Over 20 years of supporting over 100 displays, our customers value that we are the one-stop solution. Wawa. So many of you may know Wawa for their hogs, but they're also a Gondectronics customer, and we enjoy working with them. We've been working with Wawa for over 20 years. Over 13,000 displays. Can you imagine? And what they value from us is that we can provide that technical support. We can support them and make sure that whatever they need for parts or if they have to call us, we are there to answer that phone. We are there to be a partner with Wawa for their technical services, but it goes beyond that. Because as you see in these pictures, Wawa has 2 types of installations shown here.

One is outside as Jeremy showed and then they also have indoor. And typically in a convenience store like this, they would have different system software that would operate outdoor and indoor. So that person who's working at that convenience store needs to say, "I'm going to program this over here and put my advertisement for my Hoge here, and I need to move over to this system and put my advertisement for the whole game. I have to create it in different sizes, different colors, all of that, right? Not with Daktronics. It's a one-stop. It is that we provide this integration between our software and our services, and they can use the same software indoors as they can use outdoors. And I'm excited for Brett to come up later to talk a little bit about that. high schools.

Jeremy talked about the excitement within high schools, and I don't know about you, but I had both. I haven't a student athlete, and I also had a student who is more interested in some athletics, but also in the production and creativity of the show. So high schools are exciting to me. And it's exciting because Daktronics Yes, we help them with technical support, and we are there and we provide them with either a service agreement or we provide them with time and materials where they will pay for the services as they go.

But what's exciting about this is when we partner with our high schools, they need more than just the display to turn on. They went and said to their community, we are buying a video board for this field, and we want it to be memorable. I know you think to yourself, well, why the high school game just as important to you Sarah as a professional game is? Because I've been at those high school games when things don't quite work as you expect it, if you don't have a scoreboard, you don't have a Friday night lights it is just as critical for this high school to make sure they have the highest quality of technical support as it is at the major league level.

And so that's what we care about high schools, and we make sure they have the right technical service package in order to make sure that things are working and operating well. But it goes beyond that. You don't want to turn a high school board on and see content that isn't desirable or text on it. No, they want it to look like the major leagues. They bought that they said, "Hey, look down the road. This is what they're doing at the major links. We're getting the same system. They turn it on for the first time and someone has put some type of graphic on it that isn't sized properly, it's distorted. That's not what they want to do. So tectonics we offer them a software solution, which is called frameworks, which they can easily edit templates so they can use templated content that looks the same as a professional level, but it's easy for them to use.

We go beyond that, though, we know that content is all part of it. It has to work well. It has to operate and it has to perform. But who is going to run it? You heard me talk a little bit about the schools today. Many times, it's a teacher who's being asked to say, can you run the system. That teacher maybe has a lot of graphics experience, maybe has some production experience, but has never run a Daktronics board before. But they're not afraid. They know that Daktronics commitment is with them through our Daktronics classroom, which is a subscription service, which not only provides like Jeremy talked about, this curriculum, how do we teach the students but it also provides a network of high school teachers just like them that they can collaborate with and they can learn from and they can work together.

The high school community is highly collaborative, especially as we get into this video because it's just growing and developing. So we provide community. We provide crew connect for the students. We provide them with a software as a service that enables them to be successful running, producing and entertaining their fans at the high school level.

And that's exciting. So high schools are important to Daktronics, and we are well positioned to be able to provide them with the services and the support that they need as well as enabling them to be successful with their students and with their operation. So I talked about these customers for a reason. I talked about them because some of these things are our differentiated capabilities.

We are this one-stop solution when they have a problem in a control room, they don't have 12 numbers to call, they have Daktronics. And we have the teams who are equipped in order to understand the issue that they're having and solve that issue for them. If needed, we can send people out into the field and if they need a part, we have a part. They're not making 1 to receive a part. We can provide that to them overnight from Daktronics.

Our software and subscription services are integrated and easy for them to use. We are not just a display provider. We also provide the software to run it. We are integrated from our engineering down to our services so that we have a full customer communication loop, Brett knows what our customers are needing from the software through our services organization, and we're able to design the systems that they need to be successful. We have a depth and scale of services that you can't find and replicate easily. Many of our service employees have been with us for decades. They have relationships with these customers. They have been at their events with them year and year again. and they are passionate about our customers and what we do. Technology combined with our creativity, builds trust.

And that's why electronics choose, that's why our customers choose Daktronics when they look to who they're going to purchase from by combining our software and our services, we are embedded with our customers. We offer expandable services and centralized solution. We make happy customers. And that drives long-term profitable growth. A few slides here or slide here as we wind it down. Service maintains a higher level of profitability as compared to our equipment orders. And Ramesh talked about this earlier, he brought this graphic up. This is the relative value as we think about the increasing margins for the different services that we offer. First, it's our equipment order than it's technical services, professional services as well as our software services. So I'll leave you with 3 things. Where do we see and where do we work? Where are we headed? We want to continue to increase our paid software subscriptions. We want to drive professional services through Camino, as Jay talked about and Brett will talk about shortly. And we want our technical service pricing uplift.

So thank you for your time. Thank you for allowing me to talk about the services, which is a critical component and a differentiator to what we offer to our Daktronics customers. We are excited, and we are really proud of our position within the industry in this space. So thank you very much.

Thank you, Sarah. If you'll bear with us for a minute or 2, we're going to do a short Q&A. We're going to bring up prepare the seats, bring up our presenters, and I will take a minute or and the first Q&A that we're going to have here is for the presenters that have already presented, we'll have another opportunity later at the end of the session to come back with everybody and field all the rest of your questions at that point. So let's get everybody up. Okay. We're ready for some Q&A. We'll take questions both from the audience here as well as any questions that come across from the webinar. Yes Please.

Very impressive presentation. I was just curious on the Orient and spectaculars business, the big projects. You mentioned there were 4 or 5 decision-makers, architects, developers engineers, consultants. I'm curious who you actually have an agreement with and more importantly, on the back end, who you actually invoice for your services.

Actually did you check this government from report would be with the team correct directly with working sorry, work and it could be state agencies. So there are tourism and associations that help fund sporting facilities getting built. So it could be any 1 of those. Any 1 of those could be the end customer for us. So it could be a public entity. It could be a state entity, it could be an actual team owner.

Is it ever the contractor Project traffic.

So our contract could become throwing a construction manager that has a larger agreement back to the end customer, which could be the team, could be the public entity but our contracts could come directly from a construction manager as well. But it funnels through to, usually, there's an agreement, there's a master contract that the construction manager points back to when they provide us with the contract as well. Other questions?

Hello. My first question is around the international segment and specifically, over the last few years from a margin perspective has sort of lagged some of the other groups. I know it's a smaller segment compared to others. But I guess, are we reaching a point where we can get those International segment margins sort of up to some of the other segments from a fixed cost perspective? Are there some of the lean initiatives and sort of reviewed focus, should we expect sort of an international margin inflection? How should we think about that segment?

Conor, let me take that question. There are 3 pieces. One is being in the right markets for us and deepening our focus in those markets. having spent the time that I have internationally and being with Jud in the marketplace. It's clear there are some markets where we have a very unique opportunity to deepen ourselves. The second goes into the product development cycle. What's very clear is some of the things that work in the U.S. for us, like NFL, NBA, those are very well tied to the U.S. standards. But as we look at some of the other sectors, we want to like get our product development regional retailer.

The third aspect we'll kind of look at is how do we look at partnerships to expand our sales cycle. And this is kind of taking a low-cost approach and basically using a method that's pretty common in the international market that will basically try and play with. So those are the 3 things we're going to go down.

Yes. On high school parks and rec, can you just kind of talk about the economics of the video boards versus the traditional boards and it seems like there's a long runway for growth there. And then also kind of tie that into college to a lot of schools, 1,300 schools, just where that adoption is and kind of as you go up that growth curve, what that can look like from an economic standpoint too.

Yes. Thank you for the question. Good question. Ramesh touched on it earlier in his presentation, we're not really replacing all the fixed-digit scoreboards out there. We're augmenting them in many cases. And I think both product lines are good profitable areas for us. We do well with both scoreboards and video boards. But it's at that growth in video is just increasing our revenue much more rapidly because they're a bigger ticket item. It's a much bigger ticket item.

And so that's really what's driving the upper mobility there. And it's been really fun to watch because it's not just big schools that have lots of money that are doing this in Texas. The Ramesh showed the picture from Watertown, I think lot of tons, 23,000 people, something like that. Spencer lies in a town of about 1,500, something like that. Yes, they've got a video board in their gym and in the football field. and fixed-digit cardboard too. And so it's nice. All levels of schools can do this. I think there was a follow-up on the college side.

Yes. On the college side, there's different divisions, and then there's segments within those divisions. So like Division 1, when you say Division 1, that's a pretty big blanket. And there's this powerf that's within Division 1. There is this other group of and then there's an FCS program. So there's 3 segments within Division 1. Most Division 1 in this Powercor segment, they've got displays and football, basketball and then they start hitting the Olympic sports as well, baseball, softball, A lot of those sports in the Olympic sports has come from donors, donors don't at money to put the baseball alumni, and putting up dollars to help put a video board in a baseball stadium. When you get to the FCS level, which is Division 1 FCS level. You see most football stadiums have it. Most basketball arenas have it. You start getting into Division 2 and Division 3, maybe football, maybe basketball, but I think they still have a desire because they think Today, when you go to a sporting bet, people want to see replay.

And it's also a revenue-generating opportunity. So if you can get the right advertising and you can get local support for advertising, you can pay for those equipment, that equipment bringing in advertising with the installation of our products. So it's a growth opportunity, and it's very similar. Jeremy, there's a lot of similarities between larger high schools and smaller colleges. -- what they do for video displays. So we're we fit perfectly into that category being able to provide it to the groups that want to do it.

Thanks for your presentation. So you guys touched upon your net cash position and M&A as a capital allocation priority. And just kind of wondering if you have any color on what types of assets are most interesting to you, whether technology or vertical integration?

Yes. We're in the early stages. All I can talk about is we're getting a criteria pretty clear, and that is important to me, just as at a Board level, we've kind of set up a strategic transactions committee so this is not speak, this is important to us in terms of where we're headed. But I'll kind of say that they're going to be either vertically product-wise or geographic focus. That's 1 lens. And clearly, as we look at the industrial logic, there are a few pieces we want to make sure. It's industrial logic. It's financially accretive and something will get the value creation out of just from my past experiences, I've been in multiple deals, and I want to make sure the motion doesn't take over, but actually the numbers take over, and that's a critical part of where we need to be.

I would add that as we look across the landscape, there's a lot of opportunity out there to consummate number one. Number two, as Ramesh indicated earlier, in terms of the cash position of the company, we're in the most resilient position we've been in many, many years to actually consummate more of an acquisition strategy than it has been the case in the past.

We have a question from our remote audience because you talk about where you have gained the most and least market share in your underlying segments over the past several years. Can you talk about where you have gained the most and least market share across your underlying segments over the past several years.

All of our businesses have been growing. We have been gaining market share. So we will continue to try to operate the company out of our bus each of our businesses has been growing over the last couple of years. That will continue. We expect fully expect to be growing at or above addressable market in each of our markets, and that's the position we're in. So we know we're gaining market share in basically each of our businesses.

So I'm going to ask that a little bit differently. You had a pretty strong win rates. But to the extent you haven't had very strong win rates, what have you been what have your customers gone to another vendor for.

Well its interesting I would say, just coming in, we're not seeing the markets are cyclical, yes. I think that's a key part of Q3 our fiscal Q3 is typically a slower installation season. But when you see our bookings, they are kind of in the high and what you see is the summer months, given we are so construction tied to what happens outdoor is an important time of the year when you will see those revenues kind of reap up. And that's a cycle that we kind of go through. That's what we are seeing overall. What I see from talking to the customers is there were people who went to other providers and they're beginning to actually come back. I use the word are you trying to buy a deal or trying to sell a deal. And in this case, they are coming back to us. And that's the positive we see because our quality, reliability, things there, I kind of expressed what the teams do -- and that's what we're beginning to see more of is this confidence level of saying, "Hey, you know what, we like our old partner, and that's the partner we want to be with. And that's a trend we do see across all the segments today.

I think I would add to that, that we are fortunate in having in each of our businesses or relationship business, as Ramesh just alluded to, for the reasons that everybody has been talking about, trust, being able to have a reliable product, products, all the things that each of our businesses have been talking about really builds relationships and those relationships continue.

We're also, at the same time, not necessarily looking to win every single piece of business on price. We're a value-based pricing selling company. We have been very successful doing that. So where we're losing business, it's not because we're doing something that doesn't satisfy a customer need. It's -- we're just not going to chase every single transaction.

Maybe one more. Just on services, can you kind of talk about how that influences growth in like revenue margins, it sounds like maybe just where is attach rates? Does kind of the services level differ between verticals? Just maybe elaborate a little bit more on that, please.

Our services business, as you've heard, is critical to the company. It affects each of our businesses. Each of our businesses is participating in the plans, the development plans. We are in the process of creating the road map across the businesses in terms of our service offerings and how that plays out. I will tell you that in terms of growth, in terms of percentage of the company's total revenue, this is going to be a journey and to significantly increase our service revenue and profitability as a percentage of the total is going to depend to a certain extent on how fast all of our businesses are growing.

So we're going to get growth on top of growth by building out the service aspect of our business. And now, as I said, that's going to be a journey. That's going to take a bit of time to get higher, but that's the direction we're heading in for all of the reasons that you, as investors, would expect. This is recurring revenue. It's a higher-margin business. captive business. So by definition, it's something that's going to help the ROIC of the company.

[indiscernible] regardless of how that customer might choose to leverage our services, it needs to work for them in their business, and we want them to be successful, but there's opportunities for revenue generation regardless of their choice.

Just a bit of a comment, and Jeremy had some good ideas on this earlier. I wanted to mention, you're in such a strong position with the quality that you produce. In this world of all media where there's so much question in terms of credibility, authenticity, believability, you are at a high level and a high standard that you could lend so much of that great quality brand essence to all of your customers, whether it be the end advertiser or it's the service station or it's the billboard company or it's the airport.

And there's a great media prognosticator, Marshall McLean is famous for his saying the media missed the message. You lend great medium quality to airports. to retail to everything you're doing. And I don't know if you put that or you inculcate that in your sales pitches, but I know Jeremy does to some degree, I think you should -- I would suggest that because in this day of Chinese screens, let's call it that way, AI fake, what's real, what's not real. When you're offering great credibility like this, it lends the essence to all of your customers down the line. So I encourage you to do that.

Okay. Let's take a 5-minute break now, if you don't mind. We'll come back at 11:30-ish and complete the program. Thank you.

[Break]

Another great entry video. These guys made manufacturing look pretty glamorous there. I appreciate that.

So I'm Matt Kurtenbach. I'm going to tell you about our manufacturing operation at Daktronics. The image on this slide was captured from our Sioux Falls factory, that factory produces our digital billboard solutions. And when you see this image and our test technician buttoning up that display, getting ready to ship to a customer, really, I think, highlights the size and scale of the products we produce in our factories. When I walk people through this factory or any of our factories, it never fails. I always hear -- I had no idea these things were this big. When you're right next to them, you really see how big they are. If they're on a pole going down the interstate, you just don't quite appreciate it.

So that is a very important foundational point in how we design our network. We build big things. So it's important to be close to our customers so we can control logistics costs and shipping times. We heard from Ramesh earlier, 90% of our revenue comes from customers in North America. So our factories in South Dakota and Minnesota are well positioned to serve this North American customer base.

As we move outside North America, our factories in Ireland and China are well positioned to serve Jud's customers in Europe, APAC, Middle East, really anywhere on the globe. Our location in China is also strategic from a sourcing perspective. Over the last decade or so, the supply base for the makers of direct view LED displays, Daktronics, all our competitors, that supply base has really concentrated in China.

Our sourcing team in our Shanghai operation, they're constantly evaluating the offerings from the supply base in terms of cost, quality, delivery and reliability. Our intimate knowledge of the supply base in China allows us to source the lowest cost components that still meet our rigorous standards.

Our production system is nimble. We produce standard products like the fuel light displays, fuel price displays that Jeremy highlighted in his presentation, all the way up to the customized displays for the Miami Heat, the flame ball that Jody and Jay talked about in their presentation.

We load balance across our network. So when Jay and his team go 5 for 5 with Major League baseball orders, we can engage our entire network to produce those displays, and we did engage our entire network to produce those displays. And we did it on time, upholding our high standards for quality and reliability and holding the line on costs.

I'll talk more about the newest addition to our network on this slide right here. Here's a couple of images from our newly leased facility in Saltillo, Mexico. For those of you that aren't aware, Saltillo is about 3 hours drive from the U.S. border. It's about an hour drive from the manufacturing hub of Monterrey, Mexico. We have 100,000 square feet of plant space. That's going to support profitable growth, and it's also going to increase our adaptability to changing geopolitical forces, tariffs, trade agreements.

Our fabrication equipment is on order for this factory. It will arrive in Q1 of our fiscal year 2027 and we'll be in production late Q1, early Q2 of the same year. The initial focus of that factory will be producing the quick turn and tailored orders for outdoor video displays for stadiums in North America, Jay and Jody's customers. That will be the initial focus of the factory. And we have the potential to add production of other displays to that factory in the future.

Our global manufacturing network is a strategic asset for our business units. We heard Spencer say earlier, we're a manufacturer, not a broker. And it's really our manufacturing network that makes that statement a reality.

Our locations across the globe allow us to control lead times for our tailored solutions. Our expanding network allows us to adapt to dynamic geopolitical conditions, supply chain variations. We build quality and reliability into our systems, not just our products. So our performance is consistent, scalable and trusted worldwide.

We're growing our capacity to produce in lower-cost geographies like China and Mexico. That's to serve our customers where acquisition cost drives their choice of display provider.

Ramesh talked earlier about operational excellence. I'm going to dive just a little bit deeper there on the next slides. First, advanced automation. we saw in the intro video how we leverage automation in our factories across the global network. We deploy off-the-shelf automation in the areas of our factories where it's available, metal fabrication, electronic assembly, cable assembly areas. This new this year, a completely automated powder paint line in one of our factories. We configure and deploy cobots like the one pictured here on this slide where off-the-shelf automation isn't available.

Advanced automation allows us to stay competitive in our higher cost geographies, allows us to scale our capacity without a proportional growth in labor expense, and it provides consistent quality that protects margins and customer trust.

Lean at Daktronics is not a onetime project or a plant-by-plant initiative. It's a repeatable operating system deployed consistently across our global network. Lean allows us to deliver tailoring at scale without sacrificing speed, reliability or margins.

Our manufacturing environment is intentionally high mix because our customers value responsiveness and solution flexibility. So lean is how we manage that complexity with discipline, so the variability doesn't translate into inefficiency or margin pressure.

When we think about footprint optimization, it's really about placing the right work at the right location. We balance the total landed cost of our solutions with responsiveness to our customers and other geopolitical factors. At scale, our footprint decisions become a strategic advantage for our business units. I think you heard that earlier. Optimizing our network supports growth, margin expansion and resilience simultaneously.

Strategic sourcing is not just about price. It's about maximizing the value across the entire spend life cycle. In a company our size, procurement is a strategic profit lever. We're focused on intentional spend management across our direct spend categories like LEDs, power supplies as well as indirect spend categories like the on-site services that Jody and Sarah provide to our customers.

Earlier this morning, we heard about the growth plans from our business unit leaders. Our manufacturing network stands ready to fuel that growth across the globe, delivering the quality and reliability that is second to none while holding the line on costs through advanced automation, lean deployment, network optimization and best-in-class sourcing.

Next, we're going to hear about innovation.

[Presentation]

And we got an impact -- having an impact on an audience, what an awesome opportunity and a privilege it is to lead the R&D teams that develop the products and the capabilities that enable our customers to have the impact that they're really trying to achieve.

I'm Brett Wendler, Vice President of Design and Development at Daktronics. And I'm going to talk about innovation. And as we talk about innovation, I'm going to highlight a few things. First, we'll talk about really how we tailor our solution for our customers with an integrated solution that's scalable. And then I'll get into some of our development priorities as we look across here through the next couple of years.

So as we think about innovation, it's really what drives the quality of our solutions, but also revenue for Daktronics. Our R&D teams at Daktronics developed the large-scale display systems that our customers depend on, our sales teams sell and Matt's manufacturing teams produce. And we heard multiple times this morning from our sales leaders -- we lead the industry in image quality. We lead the industry in reliability. We also put a real focus on how that product is going to get installed and how it's going to be serviced through its entire life cycle.

Now our customers buy so much more than a display. As I alluded to earlier, they're really buying the ability to connect and communicate and have an impact on an audience to bring these large digital canvases to life to really accomplish that impact. And for that reason, we developed the software that enable our customers to store that sporting event, to create the content and deliver the content in the right way at the right time to have the intended impact that they're looking to have on that audience.

Our R&D teams, our sales teams, service -- excuse me, software teams work also closely with our sales teams, but specifically our service teams to really understand how can we help our customers through software maximize that experience throughout its intended life cycle.

Now our customers, as we heard from Jay, also heard from Judd earlier today and others, they have a vision. They have a unique one-of-a-kind venue or location where they're really looking to connect that audience. You look at live events markets that Jay talked about and Jody talked about earlier today, that is typically a one-of-a-kind stadium, one-of-a-kind arena, and they're trying to create that one-of-a-kind experience in that venue.

And so when they come to Jody and say, we'd like to have a system like this in our facility, we can say yes because our solution team that works with Jody can take our products that we have to understand how can we tailor that because as we saw with the flame ball, creating a unique display is rarely a standard rectangle. And we do this better than anyone. But it's not just the display, it's also the software to map the image across all of those unique displays. That's a key part of what we do.

Now we don't tailor only to these unique displays and these unique venues. We also tailor for our customers' specific physical spaces where they're going to connect and communicate with their audience. And we have many examples that you saw today where those are standardized solutions.

Ramesh showed a picture earlier of Watertown, South Dakota, where in that basketball arena, they have a large center hung display and an end-all display. happens to be the town where I live, about 23,000 people, not that large of a town. And so if I attend a basketball game on a Saturday afternoon, I would see how that customer in Watertown, they have students operating the system, putting on this amazing show, energizing the crowd and the away team is going, why don't we have a system like this? They get excited about it.

And as a fan, I'm there going, this is awesome. I need to come back to the next game. That was just really uplifting. It was fun. And now as I leave the event, I'm driving out of the parking lot to the road and I see a message center. that message center reminds me that, hey, there's an event this Saturday, you might want to consider attending that as well. And I'm going to think about that. And as I drive down the street, there's a digital billboard that's advertising in a new pizza place. It turns out I like pizza. But I haven't tried this place before, but I'll consider it next time.

If I'm heading down the freeway, there's a Daktronic system informing me that there's something going on ahead, you might consider that on your route home. I stop for fuel in the way home. And I'm putting gas in the car and I'm looking over, ice cream. I love ice cream. I'm not going to pay at the pump today. I'm going to go in the store. I'm going to get some of that ice cream. And while I'm there, one of my friends calls and say, what are you doing tonight? There's a game on tonight. How do we get together and go to that new sports bar. They got this huge screen. People like to come there rather than watching a loan at home and have a shared experience.

And so through all of these examples, really, we are tailoring the display system for their physical space and what they're trying to achieve. And then for the software, we are tailoring the software for their objective. Are they trying to inform or persuade or entertain. And so through all of this, we also look at how we can bring the software and the display system together into an integrated solution that's tailored for that application and also scalable.

So if you take a look at a scalable type of example, Jay highlighted in live events market, these big systems, and we certainly see them where they're putting them over the ice over the basketball court in the arenas. And there are many displays across there, not only on the center hung, but also on the facial, the end walls, the voluntary displays. And they often want to have all of those displays come together to create a unique experience, often act as a single canvas. And our software solution, Show Control, the Daktronics Show Control Solution, we can orchestrate the content across all of those screens simultaneously to really enable them to have that impact.

Now as Jeremy mentioned, in the high school market, those customers want to put on as big a show as they possibly can. And as he mentioned, it's pretty powerful in the sales process to go in and really tell them which is the case. The same technology that we have in that center hung and the Major League venue is the same technology that we're applying and are going to install in your high school. And it's not just the display, it's also the software.

And so as Jeremy talked about this, Crew Connect, students that get the experience using the software in the high school can apply it to their college experience can apply it to even a professional career. And so scaling the solution for both display and software is important. And we do this in a way that's integrated. And integration is important because image quality is really important to our customers. We heard that from Jeremy, the Coke Red better be the right red. Green is not just green, it's got to be exactly the right green. It's pretty embarrassing the home team, football, jersey color isn't quite the right color orange.

And that's really hard to do. We manage image quality across the entire system in the end to help our customers achieve what they're really trying to accomplish. And it's not only the first day, month or year after the system has been installed. That's always exciting. But we need to ensure that they achieve that same objective through its entire life cycle, and that's really hard. And so we focus on the system reliability and serviceability to make that happen.

And if you ever have a chance to tour Broking, South Dakota, our headquarters there, we have a reliability lab that no one in our industry has replicated. We have made a significant investment over the last 2 decades, really focusing on having the right equipment to enable our engineering teams to test and understand how products perform before we ever release them to the field.

But more important than the equipment is the expertise to take those -- because those are tools. The tools in the lab, that equipment, those are tools. You have to have people that know how to use those tools to translate it to how our product will perform in the field. As we heard earlier, we've installed product in over 100 countries, and we've installed product in the hottest places and the coldest places.

And as Jay Parker mentioned, we've installed them even on cruise ships. And one of the things that I have learned is that the seas are not always calm and the sun is not always shining when you put a big digital display on the outside of a cruise ship, sometimes the wind is 100 miles an hour and you have 30-foot swells. And it turns out that salt air is really tough on electronics. I have seen putting product on a cruise ship to humble the most confident of engineers. And we do this better than anyone.

I'll talk a little bit about industry trends and some of the technology trends that we see today. And we've all experienced this trend of resolution and how resolution continues to increase all the way back to when I really purchased my first video game system back in the '80s. Any of us watching on a television back then had 300,000 pixels on our television. That was the standard. And that's what -- and the characters look like the one on the far left.

And today, my kids laugh at that and say, how could you even play a game that looks like that? They expect to look like Mario on the right because we have resolution 26x plus on our 4K televisions today and the video game systems and whatnot that take advantage of that.

Our customers have had the same experience. Back in 2010, the New England Patriots had 1 million pixels. Now they have over 20 million. And at the Intuit Dome, they have over 120 million pixels. That's just the inner ring of the halo. That doesn't even include the 120-plus million on the outer ring. So combined, we have just under 0.25 billion just on the halo, and they have facial displays and they have other displays across that entire venue as well.

What's really interesting about that is broadcast TV is only 8.3 million or almost 8.3 million pixels. So we have to have the processing to enable our customers to really magnify and amplify the impact across these amazingly large canvases. And that's one of the things that we do really well and continue to focus on how we can advance that forward.

But having resolution is not only helpful in the large live events or international markets. It's also really important in Jeremy's commercial market. It's not very helpful or I should say it's kind of helpful, but it's not as impactful to have a display that just has text. It says fresh subs made daily. What is impactful is you drive along and say, I'm kind of hungry and that lettuce and that tomato looks fresh. That's the impact that our customers want to have, and we need to make it easy for them to have that type of impact.

And so making it easier to create content and deliver that content in the right way and the right time with our Venous Control suite software, that's the key that we use, the key software platform that we use to enable them to do that.

And as Sarah talked about with Wawa, it's not just the single display that they have on roadside, it's as they expand digital to the other spaces within their venue, we are there to help them tie that all together into a cohesive experience, one content management system to really enable them to run their entire ad campaign or whatever they have in mind across the whole solution, whether it's across that venue or across multiple venues that they may be operating. And so we're focused on helping them do that well at scale.

Now as I move from commercial to more sports and in this case, live events, -- we have been and we continue to focus on how we can help our customers really amplify the fan experience. And so in addition to orchestrating all the content on the displays within the arena or the football stadium, for example, we also can orchestrate the light show, the fireworks, whatever they might do to tie it all together so that you have this overall experience going on like we see here at University of Georgia right before the fourth quarter.

And it's powerful. You start jamming the music to it and everything else, and it just -- it can't help but get excited. And we're a part of helping our customers do that. But that's not enough. We need to continue to help our customers engage the audience in that venue to create these one-of-a-kind experiences throughout the event. And increasingly, one of the opportunities to do that is to leverage all of this data that's now available to us in the sports world today.

I remember the day where I used to have to get a newspaper on Monday morning to check out all the stats to see how all my favorite players did Sunday during the football game. Those days are long past. Now that data is live happening during the event, and it creates all these opportunities to improve how we can tell a story during the event in the venue.

And so that's why we've really invested in continuing to advance the graphics that can be live rendered based on data that's happening and representing what's happening in the field or the court right now. And so when someone nudges me and says, hey, I think the quarterback is having more success throwing to the right as opposed to the left, we can show on the screen visually instantly in a way that connects with the audience what's really, really happening. And that's really powerful and engaging for their audience in those venues.

Ramesh talked about the L.A. Angels. They are the install that we just -- they had their opening day on April 3, and they are the first for our latest iteration of our advanced graphics, which we're describing as Camino 8. Jay talked about it earlier today, Sarah did as well. And so we're really excited about that, and we're going to continue to focus on advancing this capability in technology.

And as we talk about this theme of scaling, we're not going to stop with scaling this within just the live event venues. We'll look for opportunities to scale it in other parts of our business as well. And so as we think about trends, another, I would call it, a megatrend out there that impacts all of us is artificial intelligence, AI. And certainly, it's all impacting us in different ways. And we need to understand how it's going to impact work as we look forward in the future.

At Daktronics, we're really focusing on AI. AI is really a companion to our software development teams. It's a tool to help us accelerate the value that we're looking to deliver to our customers. And I could see in the future that there'll be opportunities to really simplify how we approach our customers' objectives to create content and deliver content in the right way at the right time.

As we look at our innovation priorities, we're going to continue to focus on technologies and solutions to increase the resolution and support larger canvases. And one of the areas that Spencer talked about with -- the replacement of LCD for some applications when you have walk-up pedestrian type traffic, getting enough resolution, LCD was, unfortunately, the only digital choice for quite some time.

And it doesn't last very long as he alluded to, 3 years and it starts to fail. LCD was really designed for like the indoor televisions we have in our home. And so it can work for a little while, but it's not bright enough and starts -- has to be replaced after 2, 3 years and that sort of thing.

We see LED is really approaching that tipping point where we're going to start to see some of those opportunities, certainly in Spencer's mass transit applications, but also some areas like street-level advertising where we could see things start to move towards LED. And so we're focused on that LCD alternative.

And then from the software perspective, this storytelling at scale, making that easy and then where possible, leverage data to help drive and tell the story. As we look at our key development initiatives on the display side, I alluded to the LCD replacement, we'll continue focusing on that. We're actually releasing right now this next-gen indoor video for live events and HSPR, and we'll see that extend to other market verticals here shortly.

I alluded to our work on the advanced data graphics. Yes, we installed Camino here, the most recent version at the Los Angeles Angels, where we're going to keep focusing on that. And then as we think about the opportunities that we have within schools that Jeremy talked about, HSPR, the High School Park and Rec as well as moving into the commercial space. We want to help those customers really connect with the community. We know that schools really want community support. And so we're looking for unique ways that we can help them do that by connecting with their audience across physical spaces within the school and how they can extend their message beyond the school.

And then as we think about tools that enable our customers to configure and build themselves, really, we're looking at indoor systems, in particular today where there's lots of spaces a customer want to put a display, we want to make it easy enough. They don't need a technician from Daktronics to install it. And so for those, they can get a kit and assemble it themselves with some software tools, not for every application, certainly not the most complex ones, but for the ones that are more straightforward, we want to make that very easy for them to do.

So those are a couple of key initiatives. And then overall, when I think about technology driving outcomes, really, I'd summarize it like this, amplifying the fan experience. We're going to leverage technology to help do that and really support the storytelling at scale. And as we do that, we really want to tailor to the customer application so that it really feels like it was made for them in their situation, what they're trying to accomplish.

And this integration, really bringing the software all the way through the display system, I think, is really important and really differentiates us and helps make Daktronics the clear choice when our customers are really looking to have that impact on their audience, whether they're trying to inform, persuade or entertain.

With that, next is driving EPS growth.

Thank you, Brett. I hope you've all found our presentations today to be meaningful, informative. I hope you picked up on the excitement and the enthusiasm of the team that is committed to delivering everything that we've been talking about today.

I probably should just stop right there and quit while I'm ahead, but being a finance guy, I got to get into the numbers. So that's my mission this morning with you. I'm going to try to translate what you've heard today about the company's objectives and the plans that each of our business leaders and functional teams have put together to operate within those objectives, translate that into profit and EPS specifically.

So let's start with going back and explaining how we got to the strategic financial objectives that we've talked about and disclosed publicly for the last 3 or 4 quarters. As Ramesh indicated earlier, about a year ago, the company's executive team undertook a program to put the company's profit growth trajectory on to a higher, more sustainable path. And that's what we've been operating under for the last 3 or 4 quarters and continue to operate under.

We specifically set, as you've heard today, growth targets and operating margin targets, the growth, 7% to 10% compounded growth over the 2025 to 2028 3-year period. And over the same period, getting the company into a 10% to 12% operating margin realm. Now those targets were not set in a vacuum. The way we went about setting those targets at the time we undertook the program was to first look at ROIC. And the research that we did at the time indicated that top-performing publicly traded companies in the United States were typically -- not all of them, but typically operating with ROICs in the high teens kind of range. So that's where we started our objective setting.

And as you know, for any given level of ROIC, there are different combinations of growth and operating margin that can get you there. So what we tried to do is set realistic targets for both growth and operating margin that the company felt it could achieve. We looked at things like the addressable markets. We looked at a whole variety of initiatives that were agreed to by the company 3 or 4 quarters ago on cost savings and so on. And we came up with the margin -- the ranges that I just articulated.

We purposely set our objectives in terms of ranges in part, yes, to give us a little wiggle room, but more importantly, recognizing that a large percentage of the company's business is project related, which is typically a little bit harder to predict in terms of size and timing in any given year or any given quarter.

So we've been operating under these ranges now for 3 or 4 quarters. What we haven't disclosed and what I'm now about to show you is what these ranges of growth and operating margin mean on the bottom line. So we haven't actually given you the dollars associated with these 2 target objectives that we've set. So here are the dollars. So basically, as you can see, if you look to 2028 and if you bracket the operating income that we might achieve in 2028 within the upper and lower limits of the growth target and the operating margin target, our operating income in 2028 would be between $93 million on the bottom and $121 million on the top.

So just as an example, if you take 7% revenue growth, the lower end of the revenue growth target, and 10% operating margin, we'd be at the 93%. If we got as high as 10% compound revenue growth during that 3-year period to 2028 with a 12% margin, we'd be at the 121. So essentially, what we're saying to you in this chart is by reconfirming as we've done today, Ramesh said earlier, and I'm going to say it again, we're reconfirming the 7% to 10% compounded revenue growth targets and the 10% to 12% operating margin targets, we're basically confirming to you that we expect to operate the company between $93 million and $121 million of operating -- pretax operating income in 2028, of course, absent any unexpected nonrecurring costs that we have in that particular period.

So let's take a look now at what this means or potentially may mean in terms of earnings per share. That's what this chart is showing you. So take the same operating income numbers for 2028, bracketed again by our objectives. So this is within the box of the growth and the margin objectives and the operating income numbers that I just showed you. I added one extra line on the bottom for a 9% margin since we're coming at the 10% to 12% from underneath it, whereas we're already in the range on the growth side, which I'll explain in a second.

And here, you can see what the spread of EPS would look like on the assumption that our share count would remain roughly where it was at the end of the third quarter, roughly $49 million of fully diluted shares and that our effective tax rate would be 22% -- our effective tax rate does vary from one quarter to the next. And as we go through time, our public disclosure will spend a little more time explaining how our tax rate does change from one quarter to the next.

But for purposes of analysis at this point and modeling, we think 22% going forward is probably a good estimate to use for our tax rate, along with that share count. And you can see the numbers. So again, if we operate at the bottom, the $93 million operating income, our EPS in 2028 would be at $1.46. So that's the 7% growth, 10% margin. And if we operated at the top end of the box, 10% growth rate over the time period with a 12% margin, our EPS could be as high as $1.90. So that's the range.

In terms of where we have been so far in the last -- roughly speaking, the last 9 months year-to-date numbers that we just disclosed with our third quarter results roughly corresponds to the period of time that we've been operating under this program. Our revenue growth year-over-year in that 9-month period was 8%. So we're in the range that you see here. Our operating margin during that same 9-month period was 7.5%, up from 6% in the prior period.

So our margin has been moving in the right direction and our growth rate is already within the range. So that's the math. And then the question becomes what are the key assumptions that we're planning on in terms of how to get into the range here of EPS numbers that I just showed you. And what are the key things that have to happen that we believe in, that you need to believe in, in terms of being able to operate within that box of EPS numbers.

So let me go through some of these things quickly on the -- sorry, let's go back. On the assumption side, we've talked today in each of our businesses, and Ramesh talked earlier about our growth rate and the market's growth rate. So as we think about our modeling, we are planning on growth that is either at or slightly above what each of the TAMs are in each of the markets that we operate in.

In terms of pricing, those of you who have tracked us over the last 9 months, you know that we adopted value-based selling, value-based pricing as we started this program. That has been very successfully implemented, and we will continue to do so. We are assuming here and there in our modeling some pricing increases apart from value-based just normal market increases here and there in the program, but nothing substantial. Tariff, of course, comes up. The assumptions that we would make in our modeling for tariff is no change in the current percentages, no change in the current rates simply because we just don't know which way to peg it. So we think the best assumption that we would make in our modeling is to just assume constant rates.

And in terms of refunds, similarly, until things are clarified on the refund side, our approach here would be to protect our rights for a refund, but in our modeling, not to assume any refund. Both of these things are probably more of an opportunity for us as we model going forward since we've been consistently since the reciprocal tariffs were originally instituted, looking for ways of mitigating and continue to look for ways of mitigating tariff. And on the refund side, again, that's probably more of an opportunity for us than anything else.

But to be conservative, this is kind of a tariff-neutral plan that we would evolve for ourselves here. So that brings us to what we've been talking about today and the team has been talking about, Ramesh outlined at the start. In order for us to continue to operate within this EPS box, 2 things have to happen. We have to achieve the strategic growth initiatives that we've been talking about. That means, as you have heard, continuing to grow in the core. So the program that we outlined 9 months ago, we're still on that track, continuing to operate it against it, go deeper into it and get both the growth and the margin expectations that are associated with growing the core.

That will be supplemented with, again, the initiatives you've been hearing all morning from my colleagues and particularly things like building out the software and service initiatives, which impacts each of our businesses. Sarah is working on with the team on the road map for that, which we expect to be finished very shortly here and will -- for the reasons we articulated earlier, will represent a serious opportunity to improve the ROIC of the company basically.

Recurring revenue, better margin and low capital intensity will, by definition, improve ROIC for the company as we build out the service and software side of the business. New markets we've talked about. You've heard the market shares that we have already in each of our businesses. We expect to continue to improve market share in each of the businesses. New markets will bring additional growth in areas where we know we can win, but don't yet have the kind of market shares that we have in our core businesses. So that will, by definition, add to the growth rate of the company without sort of compromising our ability to bump up against a market share.

And then on the international side, question was asked before about improving margin on the international growth. In the international side, Ramesh and Judd talked about growth. There are markets where we know we can build at good margins. This is in part a capital reallocation or portfolio management issue as we kind of reallocate capital from the lower-margin sectors in international to the markets where we can get higher margin and grow faster. So that's the story on international -- I'm sorry, on strategic growth that really underpins our confidence in being able to be within that EPS matrix. And then importantly, on the operational excellence side, very, very critical.

When I showed you the EPS matrix earlier, you might have noted that operational excellence, getting the cost savings actually has a bigger impact on incremental EPS growth than getting the growth. Both are important. We have to do both, both the growth side of it and the operational excellence side. But as you know, mathematically, $1 worth of cost savings just drops right to the bottom line.

So the things we mentioned today, automation is critical here. That will both reduce our total costs, our structural costs as well as improve the relationship between fixed and variable cost in the company. We will lower our fixed costs -- we've talked about lean deployment in our manufacturing sector. Frankly, that will be adopted throughout the company. The company is very rapidly adopting a more cost-conscious culture, and that will have a big impact on us.

We've talked about the footprint. Mexico is now in the mix. We're looking at the entire footprint, which we, quite frankly, didn't get around to the first -- a year ago when we first looked at our structural costs with a view towards making sure that we have enough capacity to grow the organization, but capacity managed as efficiently as possible and in the right places.

Procurement, we've touched upon. Those of you who may remember the program that we initiated a year ago, we did take a look at procurement. There have been things done on the procurement side. What we're talking about now is going deeper into and more aggressively into the direct procurement opportunities that we see as well as expanding the procurement program into the indirect opportunities. So we expect that to be an important aspect of our business. So that's the strategy.

Here are the key assumptions. Here are the strategies, both on the growth initiatives and the operational excellence that underpin our confidence in being able to operate in that EPS matrix that I showed you on the previous slide. That's the strategy. As you know, strategy is 1 of 2 things that are really critical for success, along with the strategy comes the ability to execute. There's a lot of things that have to be executed here, and that comes back to the team.

I hope you've heard the enthusiasm, the dedication, the confidence that we all have in executing our plans. And that, we think, is really the thing that's going to make a difference going forward for us in terms of getting to those higher EPS numbers that I showed you.

With that, I'd like to turn the floor back to Ramesh.

Well, thank you. Thank you. Thank you. I just say thank you for just your support over the last 57 years and 32 years as a public company. To thank you for being with us in the journey ahead as we build this. We are committed. And lastly, thank you to my team, to the 2,500-plus employees who make this happen every day that we could come and represent the great work that they do. So thank you.

As I get to the closing comments, we are excited and absolutely energized to be here. This is fun. This is a great business. Those who know me, I wake up at 3:44 in the morning. And every day, when I wake up, the spirit feels good. You know you can go make a difference with this team out here, with the people we have, with the support we have, we can go make that difference. And I think that starts with that winning mindset that I talk about. As we spoke before, we're committed to the 7% to 10% CAGR.

As we look at our operating margin, we're looking at the 10% to 12% range and the ROIC in the 17% to 20%. And I also talked with this about our executives, our teams being aligned. We've been through this journey of an executive aligned compensation, making sure that we're committed as we look at the different pieces of the equation as the LEGO blocks come together to build these experiences, we can pull it together. So we're committed in terms of making sure this happens.

We spoke about capital priorities. Deploying our cash for us is critical. Getting the right return for you is very critical. And I want to reiterate our strong cash position, a lack of debt allows us to be forward thinking and where we need to get to. combination of organic, combination of our inorganic areas, which we are -- and I want to openly say we're open for deals that we want to kind of like go start looking at, start working through.

And third, making sure we do the right appropriate stock buybacks in order to ensure the EPS, but also our long-term growth is kind of taken care of is important to us. I'm going to again state that going back through our high-level views, we look at a high single-digit to low double-digit growth rates in our CAGR. And clearly, margin improvement is a combination of our growth as well as operational excellence. I call them the 2 sides of the coin.

It is important as we look at both of these to ensure we can bring you the right return. Again, we commit back to the numbers that we just stated before, and this is something the management team and I are very, very committed towards to jointly make sure we bring this back as value to you.

When I talk about the management team, we had a set of presenters here, but we actually got our entire management team present here because what we want to represent is that each and every one of us needs to come together to ensure we can bring this out and working through our amazing employee base that is customer-centric, that is focused on delivering what's needed for the customer. This is an important vision where we need to take to. strategy, the execution, but the people all need to come together to make this successful for us. And that is something we take accountability on.

On behalf of the team, I'm here to say that's what we are standing up for. And we want to make sure that at the end of the day, we have this mutual sense of purpose to you as shareholders in making sure we can get to where we need to. So thank you again for your trust in what you placed in us and for the years ahead. We are energized and excited, and we wouldn't do this without you, and thank you for making this fun. We enjoy doing this every day.

With that, we will kind of have the -- give us about a minute. We'll go to the last round of the Q&A. And I know everyone is getting hungry, but we'll make sure we do the question and answers fast. And get us in about a minute or so, we'll get it set up, and we'll pull all the presenters who presented so far. So we have a quorum for you guys. Thank you again.

Okay. We have 20, 25 minutes of questions. We'll have a hard stop around 1:00 for lunch. So please ask questions. If you don't mind, identify yourself before you ask the question would be helpful.

This is [ Connor Haley ] from Alta Fox. I guess on sort of one of the last slides sort of showing the EPS matrix, obviously, the EPS matrix shown, as you pointed out on the slide, was slightly below consensus. but it doesn't assume any -- assumes a flat share count. So no buybacks, also no M&A activity presumably.

So I guess the question is, what is sort of the plan? We've heard about sort of capital allocation for a while. Like I understand we're building a corporate development group, but the business is generating a lot of cash. We have close to record backlogs. Like why not be more aggressive with the buyback here? We could push that EPS above consensus. We'd still have significant cash for M&A. We used to be a dividend payer. There's -- are we going to ever bring back the dividend?

Like it seems like there's ample opportunity today to return cash to shareholders, and we could get a big shareholder authorization. So I guess what is holding back being more aggressive on buybacks today given we presumably could still do M&A, we could still do a dividend. We have a lot of firepower.

There's nothing holding us back, Connor. The question is where do we get the best returns. And what we're saying here is, yes, we have the flexibility to do all of the above. And as we evolve our plans in the next few months, it depends on where we think the best opportunities are. Yes, we're generating a lot of cash. That mathematically is the case. If you look back at the last year, -- our pretax income in the last 9 months is roughly $50 million. The numbers that we're showing you here are obviously above that.

So we're going to be generating cash at a higher rate than we have generated cash even to get to this point. But we're also going to be reinvesting some of that cash, at least in more CapEx, for example. So there is going to be reinvestment into the company. We are going to be doing acquisitions that make sense for the organization, and we will be doing share repurchase. So how much at any moment in time is the relative amount is going to depend where we get the best opportunity for you.

I guess just one follow-up. How do you think about the optimal capital allocation for the business, really the leverage profile, right, as we get through this period. And we have a strategic plan where we have a lot of momentum. We're pushing towards that. But we got $150 million or so cash on the balance sheet. We're generating a lot of cash. Are we always going to run a net cash balance? What's sort of the level of cash you want to keep on the balance sheet? Could we run at 1x leverage over time to do an acquisition as you guys think about the pipeline? How do we think about the optimal sort of leverage or cash on the balance sheet as we think about optimizing shareholder returns within the context of the 3-year transformation plan?

Okay. So a couple of things on that. Number one, we never want to run out of cash. right? And the company, as you know, 3 years ago, had a going concern problem. We're not ever going to go back to that. Having come from the banking system where banks fail for running out of cash, weren't going there. Judgmentally, we think that we should keep $40 million, $50 million at a minimum of cash on the balance sheet.

In terms of leverage, depending upon M&A again, I wouldn't want to see and I don't think we can see given our -- we have debt covenants in our backup credit line, for example, -- on the other side, 3x is probably way too much. So we're talking about at most 2.5 leverage on one side and at least keeping $50 million worth of cash on the balance sheet would be the parameters on both sides. But again, how much and how quickly we spend that is going to depend on where the right returns are going to be.

Yes, and you and I have talked about this before, if you believe the range of EPS numbers that we showed you, share buyback makes sense from a financial point of view. The flip side of that is that reinvesting in the business and doing M&A not only can generate the returns, but also build a better and bigger company, which share repurchase doesn't do. So again, it comes down to a combination of where do you get the best returns and how can we build the best company possible.

Anja Soderstrom with Sidoti. So what do you see as the biggest driver for the margin expansion?

Biggest driver for the margin expansion?

Yes. Is it going to be revenue growth or deficiency. So which -- how do you that?

Well, it depends on which margin you're talking about, operating margin or gross profit margin.

The operating margin, that's your guidance. The operating margin, that's your guidance.

Operating margin. So again, both growth and the expense programs we've talked about will improve the operating margin. Growth will improve the operating margin, both because we're putting extra dollars of revenue on the books, but also because we do have fixed costs. So as we get growth, our revenue will tend to grow faster than our overall costs just as a fact, that will help improve margins.

But the bigger issue is the 4 vectors that Ramesh outlined and my colleagues have outlined in terms of procurement, automation, lean and the network. That will make a big difference in terms of operating margin for the company. We're going to be concentrating on that quickly as one of our most important priorities and hope to get that margin expansion as quickly as we can.

Now margin will also come about because of improvement in gross profit margin as we build out the businesses, continue to value-based pricing as the higher-margin businesses grow. And again, there is a certain amount of fixed cost and gross profit margin. So as we build revenue -- the revenue side of GP margin, we should get some margin expansion just from that.

[ Jenny ] from Gabelli Funds. I guess what is the market missing here? I think you guys presented a very compelling case and what's being underappreciated that's going to drive the stock price here. It seems like more of a growth compounding earnings growth compounder story, but is there anything that -- I know there's the SaaS story line. Is there anything that might drive like a multiple re-rating or any catalysts coming up?

What is the market missing? I'm not sure the market is missing anything, but I think we can do -- we can provide better disclosure around the factors that people are asking questions about, the business mix the growth rate, what specifically we're doing on expenses, how things are evolving from one quarter to the next will all help, I think, get the market better educated. And as we've tried to do today with you, explain really how the businesses operate and where the businesses are heading and track that for you as we go from one quarter to the next.

We have a question from the online audience. Do the software and services economics and pricing change depending on the end market they're being deployed into, for example, HSVR versus pro sports deployments?

Absolutely. I think as we go into our different markets into our different customers, as I presented earlier today, each one has a unique value proposition. It might be similar when we think across sports. They all want to achieve the same thing. They want to entertain fans. But how a high school might go to do it would look different than a pro level. High schools have different resources, have different levels of equipment.

So you would see a difference in, one, how we might go to market and then also on what that Software-as-a-Service revenue would look like depending on the size and the scale of the different customers that we would be approaching. So we're on a journey to continue to understand each one of those market segments, really truly identify what it is that those customers value and what they're willing to pay for and then aligning the right software and services to match that to really maximize not only use for our customers, but also the value proposition for Daktronics.

Aaron Spychalla, Craig-Hallum. Can you just kind of talk a little bit about some of the factors that get you to the high end of the revenue outlook, certain verticals that might drive that? And then just any more granularity on the investments from a capital investment standpoint as we think about just kind of CapEx in the next couple of years?

So I think the factors would be basically executing the strategic initiatives and the operational excellence initiatives. When we do our planning, we always start with a base and some conservative assumptions around what that might mean. We could be more aggressive in doing that. Again, that involves accelerated and more larger reinvestment in the business. So more CapEx along with that.

But as Connor has mentioned and others have mentioned, we are generating -- planning on generating cash at a fairly substantial rate. But it's just on these trajectories the strategic initiative trajectories, both growth and margin, pursuing that, pursuing that quickly and getting the most out of that would really be the opportunities on the upside. And then whatever we decided to do on M&A, I would add to that. Because none of what we showed you before would include any specific M&A programs, but we know there are opportunities.

And just again, any more granularity on kind of some of the capital needs as you think about building out the services platform or capacity on the manufacturing side? Just any other thoughts there?

There will be needs, automation, for example, will need CapEx. So I think the -- you've got it there, you've got the service initiatives. As the company grows, obviously, its working capital requirements are going to go up. So we've got lots of different places in the organization where more capital is going to be needed to be expended internally.

And I think as we outlined it, really, the capital is going to go towards areas like automation, factory other areas that we truly believe are important to create a geopolitical balance. This is also being amplified by the geopolitical changes that happen all the time. So as we go through our calculations, we want to make sure we are well balanced to go cater to the customer. So that's one.

Two is, I think for software and hardware development, that is a critical component of our build. Some will be OpEx and some is going to be a just as we try to ensure we're able to, a, globally balance, but to also build towards what each of these segments needs. So we are catering, as Sarah mentioned, to the customer base and being close to what they kind of want.

Any other questions? Carolyn?

Okay. How will increasing software and services share be accomplished? How are you changing your pricing and contracting strategy to increase the amount of software and services included in the initial contract when a system is sold?

You want to start?

I think I can start. I think we look at major league sports, it depends on the capabilities and the functionalities that they're looking for in the software, and that helps us with our pricing modules. But model, but there will be -- there will be a software fee we currently charge a software fee today. Camino 8 will take this next advanced graphic feature, which will be another fee and then there will be software service agreements into the future. So it gives us a great opportunity to expand what we're currently doing with our customers.

And a lot of our customers value what we're doing, and we want to make sure that we keep giving them updates to the software, new features to functionalities because there's competition for entertainment dollars and they got to put on a great show to try and encourage their customers to come back whether the team. 1 they're losing, they want to make sure they continue to encourage the team. We encourage people to come back to their facilities and watch their events. So I think we'll do well with that.

I would say broadly across the platforms that we offer, we have offered software as a service for many years we haven't necessarily always monetized it in the way that we potentially can, and we're recognizing that as we're seeing the shift into monetization of software as there's an opportunity for Daktronics there. And so that's one of the areas we're continuing to explore and to move into. In fact, over the last 1.5 years, we released -- 2 different platforms, and we're working on the third one.

One would be what Jeremy talked about, which is the stack classroom, which is an online subscription for our ISOs. And in addition to that, we've also released a program called Framework which is a content creation tool that can be used both for our high schools as well as our on-premise. So there's this appetite for our customers to consume software in a different way than they have in the past through a software-as-a-service model, which is promising for us not only today but out into the future.

I think to kind of add to that, our customers have come to us, right? So part of what we are looking at is a customer advisory council that kind of sits across each of these different areas where they're actually sitting with us or develop what's needed. So there is an ownership coming from a customer perspective, where they want to have the best hardware, the best quality but also kind of have the reliability of the software that they trust.

And then I think that we see as a very, very big positive where it's not just pushing it to a customer. This is actually a lot sports venue or others who are coming to us to say, we would love for you to go build this and create this environment that will take us forward. And we see that at the high school level, we see that at the live events level when you start looking at the spectrum and that we believe is a very, very big positive. It's not just a push. It's also a pull. And that's a great place for us to be.

Okay. Well, thank you. If there are no more questions, I hope that the day has been informative for you. And let's enjoy some lunch together.

Them kind of comes off. Just want to say, as you walk out, we talk about all the experiences where things are as you walk out, as you just step into Times Square today. Most of the displays, the software that runs it is us. So all I'm going to say is as you walk out and you are here at home tonight, and I wouldn't be as good as Brett in explaining the ice cream in the pizza. But I would surely say, look up and you will see Daktronics. We're just grateful for you guys. Thank you for being here with us. As more questions come up, we are available, and we're excited about the journey ahead. So thank you once again.

Thank you for standing by, and welcome to the Daktronics Third Quarter Fiscal Year 2026 financial results conference call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Lindsey Vetter. Please go ahead.

Thank you, Jonathan. Good morning, everyone. Thank you for participating in our third 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 2 of the presentation that accompanies today's call, our press release and our SEC filings for information on risk factors, uncertainties and expectations 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 the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the appendix to the company's presentation slides, which may be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the 2026 third quarter, which was furnished to the SEC on Form 8-K this morning also contain certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial 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 on the Investor Relations page of our website.

I'll turn the call over to Brad Wiemann, Interim President and CEO for the third quarter, for his review.

Well, good morning, everyone. Welcome to our call. Thank you for joining our third quarter fiscal 2026 call. I'm joined on the call by Howard Atkins, Board member and acting Chief Financial Officer; along with Ramesh Jayaraman, CEO and President, who is officially in the role as of February 1. We will review our fiscal 2026 third quarter, which ended on January 31, 2026, along with the results and accomplishments, and then take your questions.

Turning to our slide presentation on Slide 3. Here are the key messages for the third quarter. The team delivered another quarter of solid results, driving revenue growth of 21.6% year-over-year despite the effectively shorter work period due to the 3 major holidays as well as adverse weather conditions throughout the quarter. Our manufacturing team did a superb job in efficiently converting the order book we have built over the past few quarters.

During the quarter, we progressed with several large-scale installations, including 5 Major League Baseball stadiums such as the Seattle Mariners, as well as the University of Illinois Football's video scoring system. Orders in the quarter were once again over $200 million. Our sales and marketing team secured large orders in our Live Events segment.

Our Transportation segment had a record [ quarter to quarter ] with a good uptake in airport and in intelligent transportation system projects. With new order growth in the quarter at 7.6%, our product and services backlog grew to $342 million coming into Q4 and is 25% higher than it was this time last year.

In December, we announced our acquisition of the intellectual property and the absorption of associated engineering teams from X Display Company, or XDC, expanding our microLED and micro integrated circuit capabilities. XDC advances our high-resolution narrow pixel pitch product offerings and provides us a cost-effective pathway to service small volume display opportunities with medium-sized display solutions. While the Supreme Court decision on reciprocal tariffs is now known, the market outcome with respect to refunds is likely to be highly uncertain for the foreseeable future.

Turning to Slide 4. In our Live Events business, as I mentioned, we won another Major League Baseball project in the quarter, making us 6 for 6 on large Major League Baseball projects in fiscal '26. Additionally, we won some other stadium and arena display enhancements as customers continue to expand their digital display footprint throughout their venues. We continue to enhance our product and service offerings to align with customer needs, such as our narrow pixel pitch line, advanced control system capabilities to engage fans and improved seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. Pictured here is the Seattle Mariners [ side ].

In our Commercial business, on-premise advertising business remains strong. Customers continued to successfully transition to next-generation [ fuel price ] products, which was supported by a large order from a national customer. In our out-of-home business, we added several new customers this quarter, but were down overall due to purchase delays from a key account, which we expect to recover in the fourth quarter. Our pipeline of opportunities continues to expand with independent billboard operators as more and more customers recognize our value proposition based on brand strength, image quality, reliability, service responsiveness and reputation for innovation with the release of our new billboard products.

In our Outdoor Spectacular segment, we booked a large order in Times Square, and we grew our pipeline of projects. We also expanded our indoor business sold through audiovisual integrator channels, through our offerings of narrow pixel pitch chip onboard products. Pictured here is the Miami Beach Convention Center.

Transportation business orders for the -- for both intelligent transportation systems and aviation were up a record 130% from last year. We secured a very significant project with 1 of the top 5 airports in the U.S., along with new orders from Caltrans in California. Pictured here is a rendering of that top 5 airport win.

In International, a great -- after a great order year in the third quarter of 2025, our International business was down from last year. However, we've secured sizable orders from 2 stadium customers in Spain and Australia as they are expanding their systems. We also see a strong uptake in indoor solutions across multiple markets, especially government entities through growing our audiovisual integrator channel partners. Pictured here is an indoor video display at the United Arab Emirates University.

High School Park and Recreation continues to have a solid year, with third quarter order growth of 13.4% over last year. We have expanded our presence among the 37,000 high schools in the U.S. and continue to win projects by leveraging our position in the communities we serve and enhancing our differentiating financial service offerings through Daktronics sports marketing. We expect continued strong uptake in our leading solutions and adoption of professional services, particularly in high school curriculum development and DakClassroom service offerings. Pictured here is Marathon High School in Florida.

Turning to Slide 5. Key product releases, our commitment to innovation continues to differentiate us as a value provider among our customers. In the third quarter, we introduced our next-generation indoor video solution for high school arenas as well as a next-generation digital audio facade for outdoor audio solutions. For the remainder of fiscal 2026, we have 2 additional product launches planned: our next-generation LED street furniture, as well as specialized large-digit fuel price system offerings, which expands our product line for high-rise signage for long-distance [ memory ]. The photos here show an example of our indoor narrow pixel pitch at Eldon High School in Eldon, Iowa and our new digital audio facade installed at Dallas Independent School District in Dallas, Texas.

Turning to Slide 6. Our plan to achieve a sustainably higher profit growth for the company remains on track in the third quarter. Here's an update of the third quarter on initiatives and progress with strategic price adjustments we have implemented aligned with our value selling approach. The development of our Software-as-a-Service initiative augments how we serve the market, developing a recurring revenue subscription model, simplifying our customer engagement. We are digitizing most aspects of our business to make it easier and faster for customers to do business with us and to improve internal operating efficiency and are actively applying auto -- artificial intelligence to improve productivity throughout the company.

I will now turn it over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

Thank you, Brad, and good day, everyone. Thank you for your interest in Daktronics. The Daktronics team produced another solid quarter in the third quarter. We anticipated the usual seasonal pattern with fewer days to complete order bookings and to fulfill revenue and also typical adverse weather conditions that did prevail in the quarter. But because this was anticipated, we took steps in the field and in our manufacturing management to continue the year-over-year growth that we've now produced over each of the last 4 quarters.

As Brad mentioned, orders grew about 8%. But remember, last year in the third quarter, we booked a $30 million stadium order. This year in quarter 3, we also had a number of larger orders, including 1 stadium order on the last day of the quarter, but the single largest deal in the third quarter of this year was $13 million. Importantly, our orders have now been relatively broad-based at or over $200 million in each of the last 5 quarters, including a record Transportation quarter in the third quarter.

As orders have grown, so has revenue, which at $182 million in the quarter, grew more than 20% year-over-year, mostly due to [ addition ] order conversion by our manufacturing teams during the quarter, which included working more than 1 shift at times to fulfill the extra order flow around the holidays. Gross profit margin in the quarter was essentially flat to the year ago quarter at 24%, reflecting a variety of factors. One, the benefit of operating leverage as revenue rose year-over-year relative to fixed costs and our cost of goods sold. Secondly, the efficiencies we've achieved up and down the supply chain as a result of the business transformation initiatives that have been undertaken in the last year. Thirdly, mix on new business was a little bit better in the third quarter, [indiscernible]. These margin benefits were offset by the fact that the backlog fulfillment in the quarter was largely from the lower-margin Live Events business line. And more importantly, last year did not contain any reciprocal tariff or any other of the newer tariffs that were only introduced late in the fourth quarter of 2025. We had an extra $6 million for example, of total tariff expense in the third quarter of this year.

The sequential gross profit margin declined from 27% to 24%. The main factor there was fixed cost operating leverage again, which, as previously described, when revenue is going up, it typically goes up faster than our fixed costs. And gross profit margin COGS on the way down, it just has the opposite effect. So our revenue decline is a little faster than in the fixed cost side of cost of goods sold.

Daktronics' third quarter '26 net income after tax was $3 million or $0.06 per fully diluted share. This quarter included nonrecurring expenses related to management transition and acquisition expenses of $1.6 million or adjusted net income of $4.6 million. Last year's third quarter net loss of $17.2 million included a $14 million fair value adjustment on the convertible note that has since been converted and also contained $3.6 million of consultant-related expenses associated with the business transformation initiatives and corporate governance matters that pertained to last year. Adjusted net income a year ago, therefore, was about $0.5 million, so we're up quite substantially from there.

After removing the nonrecurring expenses and noncash benefit, our third quarter 2026 net income rose significantly on an adjusted basis. Since we have solid earnings, we're able, starting this year, to take advantage of the new tax laws omitting accelerated depreciation for R&D and other expenses. On a pretax basis, operating income for the quarter was $1.9 million compared with an operating loss of $3.6 million in the third quarter of 2025. In addition to the nonrecurring items, the company incurred a $400,000 expense for the first time as it absorbed the expert developers that Brad mentioned before from XDC. The impact of the intellectual property adjustments and the -- on the Daktronics balance sheet is negligible. We had a small gain offset by a write-down of the remaining loan that we had [ through ] XDC from Daktronics. So negligible balance sheet impact, about $400,000 impact on expenses, operating expenses for the 1 month that we absorbed so far, the new team.

Let me now turn to segment revenue. This table, if you remember, shows at the business line level over a period of time last year and then sequential quarters as well. The percentage of our revenue coming from each of our business lines and the margin, most currently, they were earning on each of those businesses. It also shows, as I said, gross profit margin earned in the third quarter. I'll give you some sense of how business impact -- business mix is impacting our revenue.

As indicated a couple of times, most of our revenue growth this past year has derived from the fulfillment of the Live Events projects, which typically are lower margin projects. So that's what's coming through on the revenue line. We did have a small amount of revenue in the quarter coming through from new orders, but as Brad alluded to before, this quarter, in particular, we had a little bit of a skewing towards the back end of the quarter in terms of the new order growth. And as a result, the revenue contribution from that will land in the fourth quarter as opposed to the third quarter. So again, most of the revenue coming through in the third quarter was from backlog fulfillment. I should mention that in Live Events, the fulfillment that we have is heavily engineered with high dependence on indirect installation costs.

Next slide shows you our segment product backlog. And last quarter, we highlighted for you again that most of the revenue coming through from the backlog was [ locked pence ]. The product backlog stood at $342 million at the end of the third quarter, continued to be up 25% from a year ago. Particularly with the recent major wins, our backlog remains high and remains weighted towards Live Events. We are now starting to convert the major projects that we have talked about over the past couple of quarters, which will be a feature of our revenue growth in the fourth quarter and into the early part of fiscal '27.

This gives us, as you would imagine, a multi-quarter runway on our revenue and a more predictable growth pattern and stronger revenue recurrence over the next couple of quarters. The combination of a high backlog, as I've just alluded to, coming into the fourth quarter with what we're seeing as a good pipeline already in the fourth quarter, good order momentum sets us up well for good top and bottom line finish to the year.

Let me now move to the next slide and talk about our balance sheet, which, as you may remember, has been potentially strengthened over the last 3 or 4 quarters. This slide shows you how we are managing working capital and capital allocation. First, our inventory levels have moderated relative to revenue over the past several quarters. Our manufacturing teams did a really good job efficiently managing inventory. This is one of the initiatives that we undertook, the business transformation projects [ last ] year. And this reflects, again, better alignment and improving efficiency in our working capital management.

During the first 9 months of the year, we repurchased approximately $1.3 million -- 1.3 million shares of common stock at a volume-weighted average price of $17.6. That leaves us with about $17 million of open share repurchase volume. Since the company reinstituted its share repurchase program in late 2024, the company has repurchased 3.36 million shares of stock at a [ VWAP ] of about 15.5%.

We ended the quarter with a cash balance of $144 million, an increase of 13% in the fourth quarter of fiscal 2025. So we continue to run a relatively strong cash balance even with the share repurchase activity. And we potentially are keeping a very strong balance sheet to give us the resiliency and adaptability to continue to generate strong returns for our shareholders going forward as we use cash and capital of the company for shareholder benefit.

We have converted our commercial bank backup credit line from an asset-based facility to a cash flow facility, reducing its cost, providing the company with additional financing flexibility as necessary. We, of course, have no borrowings under the company's bank line of credit, and none are contemplated at this point in time.

Let me now turn the floor over to Ramesh.

Thank you, Howard, and good morning, everyone. It's an exciting time to officially join and serve as the Daktronics CEO. I'm honored to lead a great company at this pivotal time and to work with the talented team that has accomplished a great deal in strengthening a resilient platform for sustainable and profitable growth.

As we move to the next slide, I want to start by thanking Brad Wiemann, who presented earlier today, who has served very capably as the Interim President and CEO. Brad has been instrumental in my onboarding, and we have completed a smooth transition and handover of the CEO role. Brad will stay with Daktronics as Executive Vice President and adviser, and I will continue to rely on his knowledge and judgment as we move forward. Thank you again, Brad.

Moving to the next slide. My first priority as I joined Feb. 1st officially was to come up to speed quickly. And I have been on a learning journey, what I call as a look, listen, learn tour. As I settle into Brookings, South Dakota to be closer to the team and to our business, it has been an absolute warm welcome by the past management, the team and the community as a whole.

I've had a chance to travel both domestically and internationally, visiting sites and [ bidding ], as well as completed stage to understand our offerings, meet our customers and suppliers, including at a global trade show. In addition, I've spent time in some of our factories and repair centers to look at the operational excellence work that's in progress and with our front line, our sales and field service technicians, and in addition, spend time on reviewing plans for our talent development as we look at the growth that we are planning ahead. This journey continues to teach me as we continue defining our strategies, all with an intent of being a market-led technology-driven and customer-focused difference maker in the AV market space.

Turning to the next slide. I have to say, as I get around the company, I've been personally able to witness firsthand the dedication, the focus and the drive of our team members and the results they can produce, as you just saw with Q3 results. We are entering into the final quarter of the year with very strong momentum, strong end market demand and a strong backlog tailwind. We are driving towards a strong finish of fiscal '26 through efficient revenue conversion and expense and productivity management to deliver strong results and continued cash flow generation.

We're in parallel also formulating our next strategic steps from a customer-led and market-first perspective with the lens on growth. Developing products, services and solutions that extend our competitive lead and building a lens on operational excellence to optimize the profitability and cash generation we deliver. I would like to personally invite you all to our Investor Day on April 9 at the NASDAQ MarketSite, where the leadership team and I will present our joint plans to drive the next phase of Daktronics' growth. We will offer updates on our vertical market growth opportunities, execution initiatives, innovation priorities as well as our capital allocation and financial frameworks. We look forward to having you join us.

With that, we'll turn the call over for your questions. Operator?

[Operator Instructions] And our first question comes from the line of Aaron Spychalla from Craig-Hallum Capital Group.

Maybe first for me on the win rates. They've been really impressive on the large-scale side of Live Events. You talked about 6 for 6. Can you just talk about how that pipeline is shaping up here as seasons kind of wrap up in the next few months? And then just maybe how would you characterize win rates across the overall business versus historical?

Aaron, this is Brad. Yes. We were -- won another Major League Baseball project, which is excellent. Our pipeline continues to be robust, strong going into this next year. So we're happy about that. Of course, you've seen our backlog. So we have a nice backlog in the business.

And then we have the college university side. We've talked about that in the past. And some of the headwinds that are in that market that are being worked out, and that's really around the NIL money that's been spent on coaches and players. We think that all gets worked out. But as you saw, we had the university -- or the Illinois project that we worked out, the largest football stadium build that we had. There's others in the pipeline. So we're excited that, that opportunity still exists. So pipeline overall looks good.

And win rate, of course, as you mentioned, we were 6 of 6 this last year. So we're excited about that. And that's partly to play with one of our competitors taking a little bit of a backseat in the marketplace this last year, which we've talked about before. Is that helpful, [ Craig ]?

I'm also able to add to it from my perspective. Yes, I mean, I think we've got a strong wins in Live Events, as Brad just mentioned, but our High School market, our Transportation market, they also continue to be strong. And I think it's important to kind of have the fact that as we look at our growth, we are looking with the balanced portfolio and the appropriate portfolio management as we kind of move ahead to gain market share.

As Brad earlier mentioned, we had a massive win in Transportation that was -- we just announced. And really, as you look at our high school markets, they continue to be strong, just driven by this change from scoreboards to video. And I think we see that trend continuing to be strong in the marketplace. So I would say it's balanced overall as we try and look at our growth story, just going through the quarters as they do in terms of how high school spend and the college in the football or the NFL or NBA kind of spend. So that's what we are doing.

I appreciate the color on that. And then maybe on the Commercial market. I know you've been making inroads, expanding the reseller and integrated channel. Just maybe an update there? And it seems like demand trends are pretty good in that market as well?

Yes. They continue to remain strong. I talked about our on-premise as well as our public spectaculars and out-of-home market. Those are still looking promising, the overall buying position of out-of-home customers, that's -- the advertising segment that is strong. We did mention one customer that's pulled back a little bit in the third quarter, one of our national customers, we believe that recovers this next quarter. So nothing concerning there.

Our products that we're bringing to the marketplace for the on-premise segment continue to help us to win projects there so that we're seeing growth on that side of it. But on the spectaculars side, we had a nice win in Times Square, as I mentioned, but the signing part for me is the audiovisual integrator space. And we continue to see growth there, and that's on our indoor product line, which is really a big part of our overall growth strategy.

And just, I mean, on that, kind of reseller and integrator channel, I mean, maybe an update on just kind of efforts there, where you are in kind of that journey?

Yes. On the reseller side, we've been in that business for some time, and we continue -- we have sales people all across the U.S. continue to work and develop sales channel partners and to promote more of our products through that channel. So that's going well.

The AV integrator is a newer area for us. And we are seeing continued growth. I think this is our -- I can't quite go back to the numbers because I don't have them on the top of mind, but we're seeing continued growth expansion in that space in both in terms of number of integrators, number of orders and the number of quotes. So the pipeline continues to grow.

And that's really aligning around our indoor product lines and the chip on board offering that we -- that's really doing quite well for us. That's helping us both in the AV space as well as some of these large projects which we mentioned across Transportation, airports and other things. So yes, overall, we continue to invest in that area to expand our presence in that particular market space or through that channel partner AV integrators.

And then maybe one last question on margins. I know you highlighted the tariff impact, so excluding that, and another good quarter. Maybe just talk what inning you think you're in from these operational initiatives and just trying to understand where margins can go from here? And just -- and then any thoughts kind of more broadly on any oil impact and just kind of what's going on macro lives, what that could mean for the supply chain, if anything?

On the first issue, Aaron, in terms of where we are, we've either started or well on the way on the vast bulk of the initiatives that sort of came out of the project we did last year. And all of what we've either started or are in the process of completing has either been built into or is about to be built into our regular strategic planning process. So that's how we're embracing everything and sort of tracking to make sure that everything gets completed going forward. So I would say from a starting and along the way point of view, we're well into the game.

In terms of the realization of the benefit, I'd also say we're a year into the effort at this point. And again, we're more than 1/3 to half into the actual realization of the benefit. But again, the important thing is we're taking what we've done and now building it into a sort of more comprehensive strategic plan. Because if the world changes, there's more things that we are thinking of doing for sure, both strategically and operational efficiency things as well. And we'll continue to talk about that, and we'll have some detail around that at the Investor Day.

As far as the geopolitical situation in the world, we're monitoring it. There is risk out there. And a lot of uncertainty, obviously, uncertainty level has gone up. But as we've described in the past, where we intentionally keep things in the company reasonably adaptable. And as the world changes, we'll adapt to the world. We have a great manufacturing network that allows us to do that. We have a team that works well together to make sure that it happens effectively. And so being adaptable and resilient here is very important, and also having cash is important. So that's kind of how we're trying to deal with uncertainty.

Great. I'm looking forward to the Investor Day. I will turn it over.

[Operator Instructions] And our next question comes from the line of Anja Soderstrom from Sidoti.

I have some follow-ups, and then I have some other questions. So on the gross margin, you also mentioned it was due to revenue mix and the Live Events being softer. And given Live Events is a big part of your backlog, how should we think about the impact of that going forward?

Anja, there is a table in the presentation which shows you as of the end of the quarter, the revenue -- the mix of revenue in the backlog, so you can see actually, the number. And we try to give you what might be left of the revenue after the fourth quarter is finished. So we have somewhat of a hint, if you will, if not a calculation of what you might expect coming through from the backlog and how Live Events might impact that.

The point that we would make about revenue on the GP margin declining sequentially, again, has to do with the fact that in our gross profit margin, the cost of goods sold side of the margin does have some fixed cost in it. So when revenue is going up, we get the benefit of that on the gross profit margin. When revenue is going down as it's seasonally quarter, the opposite effect happens. So that -- and we'll have more to say about that as well to help you understand that in the Investor Day.

Okay. And then in terms of the Mexico facility, is that on track? And would that have any sort of impact on the margins?

I'm sorry, Anja. Say again?

The Mexico facility, is that on track to be up and running in April? And would that potentially have an impact on the gross margin as well?

Yes, not a significant impact on the gross margin. Our overall capital expenses are -- they have to be capitalized, and we're reaching the facility there. But your question about being on track, yes, it is. We expect to be up and operating in the first quarter of this -- FY '27. So that's coming next fiscal year. But that's all progressing well and expect to be wholly operational certainly by the second quarter.

Okay. And then you mentioned the delay from a key account in the Commercial. What gives you confidence that, that is temporary? And do you expect maybe that to -- that shortfall in the [ actual ] to be made up in the fourth quarter? Or...

Yes, what I'm referencing there without naming the account itself, but there was an acquisition made in the [indiscernible] this past year. So that they're going through that acquisition phase, and we expect that to fully be in place in order to continue to come in -- coming in the fourth quarter. So nothing new there. We'll certainly keep you apprised if something changes, but we don't expect that to be the case.

Okay. Great. And then just as we have entered 2026 and with everything that's going on and uncertainty, have you felt that the sentiment among your customers has changed at all? Or...

Yes. We work in big projects, large projects that are well capitalized and have been moving along. So the opportunities that are out there, we don't -- we're not foreseeing any reduction, speaking of the U.S. market, which is the majority of our business, right? So we get to the international side, but we do some business throughout the Middle East and Australia, of course, and Europe. So we'll see how that plays out. But overall, I think the sentiment is projects are moving forward, they're funded. We're part of a larger overall project, and we're typically on the back end of the project. So it's -- those are usually well funded and moving forward. So we're not expecting anything to be delayed at this point.

Okay. And then in terms of M&A, what we expect -- what are you looking at there? And how is the market for M&A?

No, as we've said in the past, Anja, we continue to believe there are opportunities to do tuck-ins and fill-ins in each of our businesses. But we're obviously looking at that. But the [ author's ] message I would give you on that is just our flexibility. Again, we've got a strong cash position. We -- as you know, from everything that we do, we're return focused. We're not going to do anything that doesn't make sense strategically. It doesn't have industrial logic to it, but also it's got to meet our financial return criteria, and we have to be able to integrate properly. So those are important characteristics. But along the strategic path, there inevitably will be some opportunities for us.

I think to add too, Howard, this is part of our strategic consideration. Clearly, as Howard mentioned, the industrial logic largely has to make sense. And as we look at it through all phases, whether it be product verticals or geographies, this is something we are considering actively on a daily basis, just given our cash position. But at this stage, we don't have anyone that we could go and say we're right behind. But it is clear that once one of these comes to fruition, we will be able to talk about it [ history ].

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Ramesh for any further remarks.

Thank you. Again, thank you, everyone, for participating. Thank you for joining our call today. We will be appearing, as I mentioned, at the Investor Day on April 9, but also at the [ Rock ] Conference in March. And we look forward to seeing you there. And we clearly look forward to speaking with you all on our fourth quarter call. So thank you again, and just have a great day. Thank you.

Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day and thank you for standing by. Welcome to the Daktronics Second Quarter FY '26 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, [indiscernible]. Please go ahead, ma'am.

Thank you, Michelle. Good morning, everyone. Thank you for participating in our second quarter earnings conference call.

During today's presentation, we will make forward-looking statements reflecting our expectations and plans about 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 2 of the presentation that accompanies today's call, our press release and our SEC filings for information on risk factors, uncertainties and expectations 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 the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the appendix to the company presentation slides, which can be found on the Investor Relations page of our website at www.daktronics.com.

Our earnings release for the 2026 second quarter, which was furnished to the SEC on a Form 8-K this morning, also contain certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial 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 Brad Wiemann, Daktronics Interim President and CEO.

Well, thank you, [ Lindsay ]. And good morning, everyone. Thank you for joining our second quarter fiscal 2026 call. I'm joined on the call by Howard Atkins, Board member and acting Chief Financial Officer.

We will review our fiscal 2026 second quarter results and accomplishments and then take your questions.

Turning to our slide presentation on Slide 3. Here are the key messages from the second quarter. We delivered another quarter of solid results, driving revenue and profit expansion through exemplary execution through the first half of the year. The second quarter of each year is typically marked by a heavy slate of project completions and our team's performance with respect to manufacturing, installation and service execution was excellent, with overall efficient project production and delivery supporting our progressively strong results.

During the quarter, we completed a number of large-scale installations, including Miami Freedom Park in Major League Soccer; Baltimore Oreos, Major League Baseball; Zayed Sports City, Abu Dhabi; Philly Airport; San Antonio Spurs; University of Buffalo Football; and a nice digital signage project in Cincinnati Convention Center.

Our sales and marketing team secured large orders in our Live Events segment related to 3 Major League baseball stadiums and 3 Major League soccer arenas for recent project wins. We are 5 for 5 on large-scale Major League Baseball project [indiscernible] fiscal year 2026. We also captured strong growth in our Transportation segment with good uptake of airport and intelligent transportation system projects domestically, and our International segment also drove double-digit growth.

These efforts together produced 12% fiscal second quarter order growth from last year's across all business segments. Through our efforts, we delivered our third consecutive quarter of top line growth. We continue to improve our profitability in the quarter through both value-based pricing bounded by guardrails and a sharp focus on operational and cost efficiencies. These efforts produced our second quarter of driving operating income over $20 million.

While tariff expenses continue to be dynamic and impactful, we are maintaining flexibility on being responsive to this changing environment. We ended the quarter with product backlog of $321 million, which grew 36% year-over-year, giving us a multi-quarter revenue runway for revenue growth.

Turning to Slide 4. In our Live Events business, as I mentioned, we won 6 Major League sports projects this past quarter, 3 Major League baseball and 3 Major League soccer, driving 26.5% order growth from last year. As I mentioned, we are 5 for 5 on large Major League baseball projects in fiscal year '26.

Additionally, we won several other stadium and arena display enhancements, as customers continue to expand their digital display footprint throughout the venue. We continue to enhance our product and service offerings to align with customer needs and desires such as our narrow pixel pitch product lines, advanced control system capabilities to engage fans and improve seamless control and management of display content from anywhere giving venue operators greater flexibility and control over their digital assets.

Pictured here is CHI Health in Omaha, Nebraska. In our commercial business, growth in our on-premise advertising business remained strong and up double digit year-over-year. After a strong performance in the first quarter, as customers continue to successfully transition to next-generation [indiscernible] products, which are short term in nature and offer quick deliveries and feature-rich enhancements.

In our out-of-home business, our pipeline of opportunities is expanding as optimism and sentiment continue to rise with independent billboard operators, as we further develop our perception, their perception of our value proposition through recognition of our brand strength, image quality, reliability, service responsiveness and reputation for innovation with the release of our new billboard product offerings.

The outdoor spectaculars projects in city centers continues to be highly competitive and variable and available projects. However, our indoor spectacular projects sold through AV integrator channels are growing through narrow pixel pitch product line introductions with streamlined tools and services. We are seeing growth in the government and military space as well as out-of-home advertising in transportation centers.

Orders in this segment decreased 5% year-over-year, primarily driven by fewer large projects awarded in the outdoor spectacular business during the quarter. Pictured here is park outdoors. This is their 50th install of a Daktronics digital billboard in Syracuse, New York.

Transportation business orders grew 15% from last year, driven by increased demand in our intelligent transportation systems and aviation along with strong demand for whole matrix parking solutions. We were awarded a 5-year procurement contract from the Utah Department of Transportation for intelligent transportation message displays.

Through focused marketing and partner network growth, we have also improved our brand position for indoor solutions, leading to quarter-over-quarter opportunity growth. Pictured here is Volcan International Airport parking application display. This is a nice combination of our strengths in roadways display -- roadway displays, airports and parking solutions.

Our International business, which serves all the end markets of our domestic segments served outside of North America is developing well as our efforts to realign our focus on key geographies over the past several quarters is paying off. Second quarter orders in this segment increased 23.6% from last year, with strong demand in the Middle East and European regions from advertising, stadium and transportation customers.

We are also seeing strong uptake of our indoor solutions across multiple markets, especially government entities, through growing AV integrator channel partners. Pictured here is a large digital billboard installed at the Metropolitan in Dubai, in partnership with Media 247.

In our High School Park & Recreation business, after a record first quarter, our second quarter orders were comparable with orders in the second quarter of last year. We have expanded our presence among the 30,000-some high schools in the U.S. and continue to win projects by leveraging our strong value proposition and market differentiators. We expect continued strong uptake of our leading solutions and adoption of professional services, particularly in curriculum development and sports marketing going forward.

In the picture here, we have Dak Prescott being recognized for his generous contributions to its high school Almamoter, Botton, Louisiana, part of which included a Daktronics video system.

Turning to Slide 5. We announced this morning that we are enhancing our global manufacturing footprint with the opening of a facility in Saltillo, Mexico, with a target for production operation in late April 2026. This location is strategic in that it offers a broadened network increasing the agility of our global production capacity provides opportunity for growth in line with our growth projections, favorable trading relationship with the United States and trading relationships with key supplier countries. Overall, the new facility will complement our existing footprint and offer optionality as we optimize production going forward.

Moving to Slide 6. Our commitment to innovation continues to drive market differentiation and value for our customers. In the second quarter, we've made significant progress in the following areas: delivering solutions that address evolving market demands. First, we expanded our narrow pixel pitch offering in the U.S. market with an additional 2.5 millimeter chip onboard model. This new model is more robust and lighter weight than previous product offerings and deliver superior image quality at low skewing distances, making them ideal for high-end retail, corporate environments and venue applications where visual excellence is nonnegotiable.

Second. We introduced our new billboard product series, a next-generation entry-level digital billboard designed and cost optimized for the out-of-home advertising market. This product brings enhanced performance and operational efficiency to outdoor applications, expanding our competitive positioning in the billboard space.

Third. Sports venues are demanding easy-to-use integrated and mobile technology solutions, our new All Sport Light mobile scoring app delivers a modern approach to entry-level scoreboard control. Design for youth sports, practices and community events, it makes scoring simple and intuitive for everyone from coaches to volunteers.

Last. We launched our Venous Control Suite Live, our cloud-hosted content management system, purpose-built for live event venues. This platform enables seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets.

For the remainder of fiscal 2026, we have 3 significant product launches planned: A next-generation LED street furniture featuring our enhanced LED technology that targets the premium out-of-home advertising market and delivers improved visual performance and operational capabilities for urban environments. We are also developing a next-generation advanced indoor video display that incorporates customer and market feedback to offer improved visual experience, improved robustness and greater cost efficiency.

We are also preparing for the launch of our specialized large-digit fuel price system, which expands our product line offering for high-rise signage for long-distance viewability. The photos shown here are an example of our indoor pixel pitch at a Major League soccer stadium, sporting Kansas City's Children's Mercy Park, an 18,000-seat stadium designed specifically for soccer; and below that, a shot of our All Sport Light mobile scoring app, which makes it easy and intuitive to run a Daktronics scoreboard with just a mobile device. Our progress down the innovation road map is on schedule.

Turning to Slide 7. The implementation of our transformation plan remains on track and continues to deliver tangible benefits to the business and our reported results. Here is an update for the second quarter on initiatives and progress.

The strategic price adjustments we have implemented aligned with our value selling approach, allowing us to maintain our premium positioning while protecting margin in the current challenging environment. This initiative is on track, and results to date continue to show customer acceptance of our value propositions. The Software-as-a-Service product trial was launched successfully. This initiative was designed to help identify priority areas for a broader subscription management strategy that we continue to expand upon and will further develop over the next several quarters.

The Software-as-a-Service initiative augments how we serve the market, developing recurring revenue subscription models and simplify customer engagement. Our disciplined approach of prioritizing high-growth international geographies and market segments as concentrating our resources where we see the strongest demand and best returns. Our digital transformation projects are improving our process efficiency, modernizing our technologies, driving data insights that improve decision-making and create value for our customers.

We are overhauling our [indiscernible] platform to make it easier and more efficient for our customers to do business with us. Additionally, as part of our digital transformation, we are building out our AI experimentation road map and [indiscernible] upgrading our ERP system and making service platform enhancements. And as part of our strategic planning process, we are proactively aligning our operations and product designs with the evolution we anticipate in the underlying technologies that drive customer experience and demand.

Actions that we have completed include the following drivers of cost benefits and customer experience, achieving faster inventory turnover and improved inventory efficiency, enhancing our customer experience with our modernized service system launched in May, deploying AI-guided troubleshooting tools with our technical services team to speed resolution of customer issues, improving our input costs through leverage of our purchasing power, reducing product complexity and time to market and aggressively renegotiation of key supply contracts to secure better terms and pricing.

Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

Thank you, Brad, and good day, everyone. Thank you for your interest in Daktronics. The Daktronics team produced another solid quarter in the second quarter with double-digit year-over-year growth in new orders, in sales revenue and in operating income.

This slide compares the second quarter with both last year's second quarter for the year-over-year comparison and also the first quarter of fiscal '26 for the sequential quarter results.

Let's start with the bottom line net income. Daktronics second quarter '26 net income after tax was $17.5 million or $0.35 per fully diluted share. Last year's second quarter net income of $21.4 million included a $10.3 million fair value adjustment on the convertible note that has since been converted and also contained $2.8 million of consulting-related expenses associated with the business transformation initiatives.

Adjusted net income a year ago, therefore, was $13.9 million after removing these nonrecurring expenses and noncash benefit. So our second quarter 2026 net income rose 25.4% on a fully adjusted basis. Our effective tax rate in the second quarter was 20% compared to an average statutory tax rate of 25%.

Since we've had solid earnings so far this year, we're able to starting this year to take advantage of the new tax laws that permit accelerated depreciation of R&D and other expenses. On a pretax basis, operating income for the quarter was $21.6 million compared with $15.8 million earned in the second quarter of 2025, which, if you remember, included $3.3 million of transformation-related consulting expenses.

Our bottom line results were driven by revenue growth at the top end of our 7% to 10% target range, and our capture of the pricing benefit and structural cost savings from the implementation of our business transformation initiatives. Our gross profit margin was 27% in the second quarter and operating margin was 9.4%, both improved from last year and operating margin within striking distance of our target 10% to 12.5% range.

These key margins are being driven by several factors. First, the impact of strong order growth, the backlog revenue tailwind we have generated off of 3 consecutive quarters and our efficient order to revenue conversion.

Second. The benefit of fixed cost operating leverage as total revenue grows relative to fixed costs.

Third. Of course, we've talked about value-based pricing initiatives, which are now built into our product and project pricing across the board. And finally, operating efficiencies, as Brad mentioned previously, up and down the supply chain from the business transformation work started late last year and other initiatives to reduce structural costs.

These benefits, of course, were offset in part by the tariff expense we have this year that we didn't have last year. This year, we incurred $8.8 million tariff expense gross in the second quarter compared with $1.5 million of tariff expense in the second quarter of fiscal '25.

Let me now turn to Slide 9, which shows you our business segment revenue. One of our key objectives has been to diversify our revenue sources, making us less dependent on any one business segment and generating more organically recurring total income. This table shows you the contributions to our revenue growth from each of our business segments in the second quarter of this year and last year and sequentially from the first quarter of fiscal '26.

It also shows you, all the way on the right, the gross profit margin earned by each business segment in the second quarter. There are a number of factors, of course, which drive revenue in each of the business segments in various ways, including, among other things, order growth, which, as you know, has been very strong; our value-based pricing initiatives; increases in the size and breadth of our sales and marketing teams; our ongoing focus on control systems, servicing and customer experience efforts; and of course, as Brad mentioned earlier, our leading edge in product innovation.

We've had solid growth in either or both of the year-over-year and sequential revenue, as you can see in this table. The table also shows you as our mix has changed from the first quarter to the second quarter, if you remember, we had a higher concentration of HSPR revenue in the first quarter and a higher margin. As we go forward, as you'll see in a second, we're going to have a little bit greater concentration in live events.

Let me now turn to the segment product backlog experience. In terms of order to revenue conversion, product backlog stood at $321 million at midyear, up nearly 36% from a year ago. Now our product order to revenue conversion is a factor of a number of variables, including, for example, mix. As our mix changes, the product backlog can even take longer or shorter to come through.

I just reported that our order mix in the second quarter, for example, was -- live events was about 35%, 36% of our order mix. But as you can see on this chart, live events will be currently -- is currently about half of our backlog mix. What that means is that as it's weighted towards a lot of events, some of the major products will be -- that we've announced and Brad talked about earlier, will be expected to start converting through next spring. And converting that full backlog will take some time but also result in more predictable growth and better revenue recurrence, giving us a multi-quarter revenue runway.

Another factor here is timing. As we've previously disclosed, the Tennessee Titans order, for example, that we took -- booked in the late last year, will only start up and -- won't start up until after the third quarter that we're in right now. So time when the orders start actually has an impact on this revenue conversion.

The third factor I'd point out would be holidays as technical matter. In the third quarter, as you may remember, our third quarter revenue and income patterns typically are seasonally low. We have, as you know, in the third quarter, the Thanksgiving holiday, the Christmas holiday and New Year's, all of which reduce the time in which orders actually do get converted to revenue. So that's the principal reason why we have this typically slower third quarter.

Now I'll move to Slide 11, which discusses our inventory efficiency. One of the key initiatives undertaken as a result of our business transformation analysis late last calendar year has been a program of increasing the efficiency of our inventory management. This was an early win idea and the results have been very successful. This chart shows you our inventory to sales ratio over the past 5 quarters and indicates that as revenue has grown, we have successfully operated the company with leaner inventories.

This has in turn improved our overall balance sheet strength, giving us a higher investable cash position and has also helped contain tariff costs on excess inventory.

Let me now turn to our balance sheet. Balance sheet strength has been a hallmark of the company and will remain a hallmark of the company going forward. At the end of the second quarter with a net cash balance of $138.3 million, an increase of about 20% from the comparable quarter comparable year-end position of $115.5 million.

The increase in our cash position, of course, as a consequence of our strong earnings as well as our working capital management, as I previously disclosed. As of today, the company can repurchase up to $25.7 million worth of shares, including $5.7 million of previously authorized unused share repurchase capacity plus an additional $20 million of share repurchase capacity just authorized by the Board.

We also announced in an 8-K that in late November, we have converted our commercial bank back-up credit line from an asset-based facility to a cash flow facility, which reduces its cost and provides the company with additional financing flexibility if necessary.

So all in all, as our cash balance has increased, the company is in a terrific position to optimize its capital position and invest the higher returns for our stakeholders and particularly for our shareholders.

We have no borrowings, by the way, under our capital companies bank line of credit and noncontemplated. Let me now summarize our financial position and give you some ideas about the outlook. Again, we delivered a solid quarter of double-digit order revenue and income growth while maintaining strong levels of operating profitability.

With the help of improved sales tools and processes and having more sales boots on the ground, we've built a strong backlog entering Q3, that gives us a good tailwind with a lot of capacity and potential revenue runway for the next few quarters and smoothing out our revenue generation over time.

Our strengthened balance sheet offers us increased flexibility for capital optimization. Looking ahead, the third quarter of our fiscal years, as I mentioned earlier, are typically seasonally slower largely due to the fact, as I mentioned before, on the holidays, that we continue to target year-over-year revenue growth.

We continue to invest in innovative products and services to extend our technology leadership. And our focus on increasing the contribution that our services suite makes to consolidated revenue creates more recurring and less capital-intensive revenue streams, which is additive to our return on invested capital.

Finally, we've, again, strengthened the balance sheet and have increased our share repurchase capacity to minimize the evolution of shares and contribute to investor returns. We are planning an Investor Day in early April, and we'll provide you with more specifics as they become available.

Now I'll turn the call back to Brad.

All right. Thank you, Howard. Moving to Slide 14. The forward-looking plan that we created 3 quarters ago was designed to materially improve our sustainable growth, market penetration, overall profitability and return on invested capital that our business model delivers. To date, our efforts are successfully accruing margin benefits, and we are tracking overall toward our objectives of operating margins of 10% to 12%, operating it in the top quartile return on invested capital target of 17% to 20% and achieving a compound annual growth rate of 7% to 10% by fiscal year 2028.

Our plan is in place. We are executing on it. We have work to do, and our team is committed to its success. Going forward, we will continue to implement improved financial planning protocols and incentive compensation plans that better align compensation with shareholder value and with annual operating performance, enhancing our ability to drive business results and compensate accordingly.

Turning to Slide 15. As we look forward to the second half, our product backlog, as Howard mentioned, is $321 million, up 36% year-over-year, capturing demand and driving multi-quarter revenue tailwind. We have demonstrated our increased efficiency and revenue conversion and successful inventory, supply chain, manufacturing and cost management.

Our pipeline of market opportunities is supporting our growth objectives. We are adding manufacturing capacity in Mexico and in Ireland to increase our flexibility and complement the 80% of product fulfillment currently completed in the U.S. We are being responsive and flexible in a dynamic environment. We are focused on differentiated industry-leading product introductions and supporting growth through high-return product research and development, and we are executing our transformation plan with its benefits demonstrated in our results.

We are on track with our road map and our 3-year growth, profitability and return targets. I want to thank the entire Daktronics team for their continued focus, strong performance, ingenuity and dedication.

I'll now turn the call over to Andrew Siegel, Chairman of the Board, for some further remarks.

Brad, thank you, and thanks to you and Howard for leading the team to another strong quarter as we'll execute on our plan to drive growth and shareholder returns.

Both of you talked about the outlook, so it's an appropriate time for me to introduce who officially starts to work at Daktronics today and will assume the President and CEO role as of the start of the fourth quarter in February.

The Board's most important job is to make sure the person running the company has the energy, ambition, skills, experience, character and talent to lead the team to achieve the company's potential. Clearly, the step the Board has taken over the past 2 years demonstrate how much your Directors believe in and are committed to that potential.

You saw last week's announcement, so I don't need to repeat any of that except to summarize that the Board selected [ Ramesh ] from among many highly qualified and interested candidates for this physician because he is a transformational leader. He's proven an operator, he's a business grower, he's built distribution channels all over the world, he's a high-energy guy who's at the site and build teams that deliver.

He knows our industry well, at Harman and Bosch. He's managed P&L our size and bigger, and he's driven growth organically and through M&A and higher than market growth rates. So although we just started today, it isn't in a place to start answering questions just yet, we wanted to use this opportunity to have and begin to introduce himself to all of you, but more to come over the next few months, including at the Investor Day. Welcome,

Thank you, Andrew. Good morning, everyone. I just want to take this opportunity to introduce myself and say how honored and energized I'm to join Daktronics. I have known Daktronics for the past nearly 10 years of association in the AV industry. I'm excited to join Daktronics at this pivotal time as we continue the journey of transformation for sustainable and profitable growth.

I'm looking forward to working with the very talented Daktronics team and serving the team as their CEO. I'll be officially starting in the CEO role from February 1. And my time between now and then will be to be on a look less and learn more. So I can hit the ground running in the fourth quarter.

Thank you again for your interest in Daktronics, and I look forward to meeting you at the upcoming Investor Day in April. Brad, back to you.

Okay. Thank you, Ramesh, and thank you, Andrew. I'll now turn the call back over to the operator for questions.

[Operator Instructions] Our first question will come from the line of Aaron Spychalla with Craig-Hallum.

First, I appreciate the continued disclosures in the presentation this quarter, especially on the backlog by segment. Can you just maybe talk about how you expect that to convert to revenue over the fiscal year and just kind of the margin profile in there? I know it can kind of vary by segment. And then just you talked a little bit about order conversion. Just how does kind of book to ship how does that look if we kind of think about backlog plus that?

Well, a lot of factors go into what is a revenue conversion. The one that we try to highlight in this particular call is the idea, and we've talked about this before, that a higher percentage of our backlog is now in the Live Events segment. I mentioned statistically, our orders -- Live Events orders in the second quarter were 36% of our total orders, but in terms of the backlog, it's about 50%.

So that gives you some idea of how the backlog is skewed a little bit more towards Live Events. Live Events orders, as you may remember, are -- they typically don't start right away, so they're not standard orders, they're customized orders, and they have different starting dates. We mentioned that the Titans order does it even start until after the third quarter, so that's not going to be revenue in the third quarter yet.

And at the stadium orders that Brad has talked about, which are fantastic and give us a good -- great runway, those will be spread out through the spring actually. So it takes a while to get to order sometimes, but the good news is that, that gives us more recurring revenue over a longer period of time and more predictable revenue over a period of time. So that's one big factor.

I mentioned seasonally slow third quarter. We'll have that again this year because we always have those holidays and same holidays occur every third quarter. And so that will be a factor. And then, of course, the remaining factor is our potential order growth. So on top of the chart, I want to make sure we're not misleading you by showing you that chart. That chart just speaks to the backlog conversion. Of course, we're going to get new orders every quarter, and that is also going to be converted to adding to revenue growth and revenue recurrence.

So lots of factors, Aaron, go into this. The one that we try to highlight for you here is the distinction, if you will, between orders and and when they will start occurring as it pertains to Live Events, in particular.

Maybe just to add on to that, Aaron. Our standard order business typically turns in weeks 4, 6, 8 weeks in our large project business has all those variables that Howard mentioned. So we have room in our third quarter yet to bring in orders and convert it to revenue in our standard order business.

Understood. And then maybe can you just touch on the margins that you've been adding to backlog? And maybe just looking at like year-over-year, the kind of margin improvements. Any way to at a high level, roughly quantify the breakdown between some of the value-added pricing or operating efficiencies, just kind of to get a better idea and really good performance, especially considering the tariff impact as well.

Well, that is the story. Value-add pricing and the operating efficiencies coming off of the work that we've already done on structural cost savings have positively contributed to -- mostly to the operating margin. I focus your attention to that because our gross profit margin has a number of other factors connected to it that change from quarter-to-quarter.

But the storyline here is that we got pretty close again to a 10% operating margin. And that really is a value-based pricing, order growth, structural cost efficiencies coming off of the work that we did already last year, offset in part by the extra tariff. So -- and that's a big item because our extra tariff expense this year is almost another $8 million of tariff expense that we had in the quarter of this year that we didn't have a year ago, and we -- our margin is still up from where it was a year ago.

Yes. understood. Yes, I was just trying to understand if you did kind of ex the tariff impact, it's almost 13% operating margin, up 400 basis points year-over-year. I was just trying to understand any kind of breakdown of what that split could be between value-added pricing and just maybe some breakdown of the operating initiatives, but maybe third on the Mexico plant, can you just talk about how much that expands capacity by maybe in percentage terms or dollar terms?

Are there any kind of segments this is focused on, in particular, and it seems like there's some benefits to the business from a tariff perspective. Just how much investment might be needed for that plant?

Yes. It's a small investment. We're leasing the facility in Mexico. We're putting some equipment in there. what we build and how we go about it is going to be determined over time, but this is complementary to our plants here in the U.S. as well. So we're able to bring product in, have it assembled, manufactured and brought into the states. It's a small operation at this time. We have room for growth if we need to do that, and that leads into that comment I made about optionality earlier today optionality into the future about our overall production capacity and where it's at and how it plays into tariffs and all the other things that come our way. So it's a small operation at this time.

No, I appreciate that. And then just maybe one last quick one. I appreciate again the slide on inventory management and just good to see the working capital management over the last year getting the cash conversion cycle down to kind of pre-COVID levels. Just how do you see that trending moving forward? How much more room for improvement do you see from those types of initiatives on working capital?

It's going to remain a focus of the company, but we're pretty much where we try to get to as a result of the analysis that we did last year and basically pairing off excess inventory and putting in place the processes to keep it managed sufficiently. So it'd be misleading to say it's going to improve a lot more what it is right now. But as revenue grows, that's going to have a positive impact.

[Operator Instructions] Our next question comes from the line of Anja Soderstrom with Sidoti.

Congrats on the nice performance here and welcome on board Ramesh. I'm curious, given the strong backlog growth that we saw, how should we think about the third quarter softening?

Well, you mentioned it. We have a great backlog coming in. The softening, Howard talked about it as far as the holidays. We have fewer days, fewer available workdays to to convert inventory or convert our backlog over into revenue. So that's the primary thing. But we are sitting in a nice backlog, and we'll use the factories to the extent that we can and plan to have employees take some time off during the holidays.

Okay. And then in terms of the capacity, I know you are adding the Mexico plant, how should we think about the capacity utilization in the U.S. and in the other facilities? Are you continue some production from there to Mexico or are you seeing the growth going into Mexico?

No, this is really fitting into our growth objectives. So we -- that's the overall plan, the 7% to 10% that we talked about over the next 3 years. This is complementary to that. So we don't plan to move any work from the U.S. factories over to Mexico, and so this is part of our expansion plans.

And how far is this expansion is going to bring in terms of revenue before you need to expand further? Or is there other way you could expand in terms of -- no, how much revenue can this footprint facilitate before you need to expand further?

Yes. This is a small footprint that we're bringing in over there and about 80% of what we manufacture for our customers worldwide comes out of our U.S. factories. And that hasn't -- this isn't changing with that. So this is a part of our overall expansion plans of revenue, and it's a small footprint, like I mentioned. So I would still foresee us being around that 80% here in the U.S. So just making up part of that growth expansion.

And I am showing no further questions at this time. And I would like to hand the conference back over to Brad Wiemann for closing remarks.

Well, thank you, everyone, for joining the call today, and we will be appearing at the Sidoti conference in January. Have a wonderful holiday season, as we have on our employees to do as well. And we look forward to speaking with you on our third conference call, our third quarter call. Have a great day.

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

Good day, and thank you for standing by. Welcome to Daktronics First Quarter FY '26 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Whitney Jacobson, Corporate Administration Supervisor. Please go ahead.

Thank you, Michelle. Good morning, everyone. Thank you for participating in our first 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 2 of the presentation that accompanies today's call, our press release and our SEC filings for information on risk factors, uncertainties and actions 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 the 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 2026 first quarter, which was 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 financial measures as well 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 Brad Wiemann, Interim President and CEO.

Good morning, everyone, and thank you. Thank you for joining our first quarter 2026 -- fiscal 2026 call. I'm joined on the call this morning by Howard Atkins, Board member and acting Chief Financial Officer. We will review our fiscal 2026 Q1 results and accomplishments and then take your questions.

Turning to our slide presentation on Slide 3, the main message we will be sharing with you today is emphasized here, we delivered a strong beginning to fiscal 2026 and to our 3-year plan, ending cash balance of $136.9 million and backlog of $360 million, which sets us up well for future revenue generation. Our selling teams are capturing customer demand and drove strong growth led by Live Events, High School Park and Recreation and International. We were successful in winning 3 of the 3 large major league sports projects in Q1 along with several college and university projects.

In addition, we experienced record order growth from our High School Park and Recreation business. This supported 35% order growth year-over-year, strengthening our backlog and setting us up well as we head into the remainder of fiscal 2026.

We continue our work to preserve gross margins through improved value-based pricing strong fixed cost leveraging as well as cost control. The mix of revenue across businesses also contributed to improved gross margins. The business and digital transformation plan is in place, and our execution of that plan is on track and is driving results. We also generated cash in the quarter and expanded our cash flow from operations by 34% year-over-year.

Now turning to Slide 4. This is our market verticals, and I'll start with our Live Events business. We won 3 of the 3 large major like sports projects, 2 Major League Baseball and 1 NHL arena. In addition to multiple collagen university orders, driving orders 81% year-over-year and plus 10% sequentially. These projects include a variety of applications from main video, auxiliary video, fascia, ribbon and scoring displays.

We continue to enhance our products and service offerings as we expect continued growth in the Live Events business for both in bold applications but also outside the ball. As more emphasis is placed on entertaining and informing fans through digital technology throughout the venue. This aligns with our control system capabilities, our service and subscription offerings and our narrow pixel pitch product offerings. Our teams continue to focus on winning business aligned with our corporate transformation objectives on long-term profitable growth. Pictured here is David Booth, Kansas Memorial Stadium at the University of Kansas.

In our commercial business, overall demand for digital advertising solutions across the on-premise and out-of-home advertising market saw an increase of orders by 5% from last year and a decline of 10% from the fourth quarter of fiscal 2025 This business is conducted primarily through signed company resellers and an AV integrator channel. In the on-premise area, customers are continuing to successfully transition to the next-generation fuel price products, which offer quick deliveries and feature-rich enhancements.

Demand in our out-of-home has been strong throughout the year, which reflects greater optimism that has been developing in both the national and independent billboard operators who are more often choosing Daktronics due to our recognized brand strength in image quality and reliability as well as service responsiveness. The new generation digital billboard product released in the fourth quarter of fiscal 2025 is being well received by customers. Our investments in AV integrator channel continue to pay off, which is important to our indoor application growth. Pictured here is from QuickStar, which is part of the quick trip chain of full-service convenience stores.

In our transportation business, orders tend to be large, which creates order variability from quarter-to-quarter. Orders decreased 4% from last year and decreased 7% from the fourth quarter of fiscal 2025 due to large order variability. We secured key aviation orders at Philadelphia, Volcan and Southwest Wyoming Airports. We are also strengthening the airport market pipeline developed through strategic partnerships. This growth is being driven by customers interested in our chip-on-board solutions, which provide better overall performance over legacy surface mount technology products. Going forward, we are focused on growing our ITS market by winning new agency approvals. The Buy America Act, or BAA goes into effect in October 2026. We expect to benefit as a U.S. manufacturer, and our teams are actively promoting the Buy America Act. Pictured here is from Texas DOT, El Paso District.

Moving on to international. Our international business, which serves all end markets, our domestic segments serve outside of North America, has been an area of concentration and focused development for the past several quarters. These efforts are paying off with orders growing 22% from last year, and declining 32% from a strong fourth quarter of 2025. Our largest growing market in this quarter were government and advertising. On the indoor solutions, demand for indoor solutions continues -- remains high for both government, retail and industry customers. Picture here is a recent installation at El Arabia in Dubai.

Moving on to High School Park and Recreation. In our High School Park and Recreation business, we drove record order bookings for the quarter. Orders grew 36% year-over-year and 7% sequentially. Industry-leading value propositions allow the sales team to implement value selling, which separates us from our competition. We are experiencing strong adoption of professional services particularly in curriculum developing a development and sports marketing.

Two notable wins for the high school market include Mobile, Alabama County School District project for 9 stadiums across the entire district for video display systems that included audio, Daktronics frameworks, services and Dak classroom subscriptions. The second project highlighted is for Pat McAfee and in support of his home high school, the Plum Mustangs in Plum, Pennsylvania through his partnership with FanDuel. This included a video display system for football and basketball. Pat McAfee specifically mentioned how much our employees cared about the project and how much he generally appreciate genuinely appreciated that, an endorsement that is very gratifying for our team.

The High School Park and Recreation market continues to convert traditional scoreboards to full indoor and outdoor video. Schools of all sizes are purchasing video with the help of Daktronics towards marketing. In addition, Daktronics curriculum, a SaaS product teaches students career-ready production skills. Pictured here is Plum High School in Plum, Pennsylvania.

Turning to Slide 5. New products and services are essential for continued market growth and value-added differentiation. In the first quarter, we added new models of our indoor narrow pixel pitch product to our offering, and we enhanced our indoor and outdoor facial ribbon displays. We plan to release additional display products in the fiscal year, including LED street furniture for the out-of-home advertising market, a next-generation indoor video display a large-digit fuel price system for convenience store market and additional narrow pixel pitch products for the U.S. market. Photos shown are for our narrow pixel pitch product from the Extron -- from [ extRON ] in Australia as well as an outdoor facial ribbon display for the Charlotte Knights baseball team in Charlotte, North Carolina.

Turning to Slide 6. With respect to business transformation, we made progress on these initiatives in the first quarter, and our implementation plan is on track in driving results. action we have taken to date include price adjustments on some products and services aligned with value selling, allowing us to preserve our value-based products and services positioning. Launch of Software as a Service, SaaS trials to target customers, focused approach on prioritized growth areas, both business verticals and geographies, driving faster inventory turnover and improved inventory efficiency by leveraging our platform designs to reduce complexity.

We released a modernized service software system that will help us to enhance customer experience through better service management and enablement of self-service options. Further utilization of previously released artificial intelligence, guided troubleshooting and technical services, making increased use of our purchasing power to improve our input costs and simplifying some of our products which allows us to bring them to market more quickly. And notably, we improved our operating cash flow in the first quarter, supported by the business transformation efforts.

Turning to Slide 7. Significant progress was made in digital transformation during first quarter of 2026. We are successfully operating on our modernized service offer system that was released in May and continued technical build-out of our corporate performance management tooling was accomplished. Our digital transformation goals are to build our systems to scale our operations for our growth ambitions while increasing internal efficiency and improved business engagement for customers and partners.

During the remainder of 2026, we have slated these items in the digital transformation journey. Quoting platform tool change as part of our road map for driving faster, more efficient quotes while capturing the data that the system generates for capacity planning an AI experiment experimentation road map and government -- governance development, tool updates for project management to scale our teams for continued growth, continued service platform enhancements for customers, tool update for subscription management and preparation for an ERP system upgrade.

Additionally, we have made plans to make -- we have plans to make further progress in our enablement of subscription management and corporate performance management, initial release for the fulfillment performance reporting and furthering our data and analytics ecosystems road map and making progress on it to enhance and drive data-driven culture and build up data management practices.

With that, I will now turn this over to Howard Atkins, our acting Chief Financial Officer, to renew our financials. Howard?

Thank you, Brad, and good morning. Good day to everybody. Thank you for your continued interest in Daktronics I will go over our first quarter financial results, including some key references to the year-over-year quarterly comps and where relevant, the company's sequential trends.

This first slide includes both last year's first quarter as well as last year's fourth quarter actual results to highlight these particular references. Working up from the bottom line on this slide, Daktronics net income rose to $16.5 million or $0.33 per fully diluted share in the first quarter of '26. Last year's first quarter loss was largely the result of the $21.6 million fair value adjustment on the convertible notes that have since been converted and the fourth quarter of '25 loss was largely a result of an allowance for credit losses on affiliate loan of $15.5 billion as well as $5.6 million of nonrecurring consulting legal and management transition expenses as specified in last quarter's release.

We did not have any material onetime expenses in the first quarter results just released. Our effective tax rate continues to run at about 25.9%. Now on a pretax basis, our operating results for the quarter were a solid $23.3 million. The prior quarter result was impacted by the same nonrecurring items I just mentioned. A key difference between this year's $23.3 million operating income and last year's $22.7 million in operating income as the tariff expense before manufacturing mitigation, which was $6 million in the first quarter compared with only $1 million in a year ago comparable period.

I should also mention that this year's first quarter benefited from having 14 weeks of profit instead of just 13 weeks of profit. If you do the math on that, 14 divided by 13x the result, you get about $1.5 million worth of extra profit in the first quarter of this year. So what drove this year's solid result? A couple of things. First, we had another quarter of strong orders, as Brad mentioned. $239 million, orders in the first quarter were up 35% from a year ago. and were our third consecutive quarter of year-over-year order growth in excess of 10%.

Just to mention this, the $479 million in total orders over the last 2 quarters, that would be the fourth quarter of fiscal '25, first quarter just ended, was the second highest orders for 2 consecutive quarters in the company's history. Second, as described in last quarter's report, we ended last year and came into this year with a revenue tailwind from the growth in orders that I just described during the last 2 quarters of fiscal '25.

Now the tailwind benefit that I just alluded to coming into the first quarter of this year was supplemented by 2 important items. First, as I mentioned, we had strong new orders in the first quarter of fiscal '26. Second, while orders and revenue in the quarter were broad based, particularly revenue was broad-based, the revenue in the quarter contained a little bit higher percentage of higher-margin businesses like HSPR, which had a record quarter, as Brad mentioned, and which also tend to produce their revenue a little bit quicker in relationship to the orders than some of the longer-lived businesses such as live events.

So we had, as a result of all that, the third consecutive quarter of sequential revenue growth Revenue was down slightly about 3% from last year. But remember that in last year's first quarter, a number of multi-period revenue-producing projects were coming to completion whereas this year, the order backlog in the first quarter went up by $18.7 million during the quarter.

I'd finally mention while the increase in the orders backlog does maintain now a good revenue tailwind coming into the rest of this year. I would remind you that some of the quarter end backlog won't go into installation and revenue production until later this year or even early fiscal 2027. And again, that's a result of the backlog containing a higher percentage of the longer-lived later start projects like in live events.

Third, we made very good progress on completing the business transformation initiatives, including value-based pricing, which is reflected in revenue, of course, and supply chain management, particularly tighter inventory and labor manufacturing capacity. This resulted in improved project gross profit margin along with the revenue mix and growth items I mentioned before, although as revenue comes on board from the backlog, the amount of inventory and labor we may need may be stepped up to complete the projects and obtain that revenue.

As mentioned, gross tariff expense in the quarter totaled $6 million, including prereciprocal tariff of about $1 million. Now tariff expense remains, of course, a highly uncertain aspect of our income statement. We're currently in pause with China, but don't yet know what rates will be or how markets, our competitors and customers will react post the pause such as when it occurs.

Let me now turn to the balance sheet and investments on Slide 9. We ended the first quarter with a cash balance of $137 million, an increase of 7% from the fourth quarter of fiscal '25. And that's after taking into account million worth of shares repurchased in the quarter and the conversion of the convertible note since last year. Our operating cash flow was $26 million, up 4% on solid earnings and the completion of our initiative to better utilize spare inventory. Inventory sales ratio is now at 49%. Inventory levels are likely to increase somewhat perhaps as we position for fulfillment of the high backlog.

As mentioned, we repurchased $10.7 million worth of shares in the quarter at a volume weighted average price of $16.43. We have had no borrowings of course, under the company's bank line of credit and not contemplated. In terms of investment spend, the combined information technology and product development spend was $17.2 million in the quarter. The combination of IT and product development spend will remain high as the company completes its digital transformation work and its critical new product development for the future for future growth occurs.

Daktronics legacy was founded on leadership in product development and innovation, and we are carrying that date forward. CapEx, depreciation and amortization in the quarter was $4.8 million, in line with the prior 4 quarter average of $4.9 million.

On the next slide on our transformation plan. We embarked on this journey, as you know, to generate better returns for our [indiscernible] shareholders. We are targeting performance aligned with higher operating margins of 10% to 12% on average over time. Operating in the top quartile ROIC target of 17% to 20% and achieving a compound annual growth rate of 7% to 10% by fiscal year '28. Our plan is in place. We're executing on it, and we have work to do. Our team is committed to its success. We remain on track with the many, many objectives and initiatives and most importantly, on track with our growth and margin objectives.

We've also continued to introduce new best practice initiatives throughout the company, including improved financial planning protocols as well as incentive comp plans, as previously announced a week or so ago. that better align the compensation of the company with shareholder value and without annual operating performance.

And with that, I'll turn the call back over to Brad.

Okay. Thank you, Howard. Turning to Slide 11. We'll talk about our outlook. As for fiscal 2026, demand for our best-in-class dynamic video communication displays and control systems remained strong. Our teams are winning and have created a large and growing backlog, providing for a revenue tailwind. We are executing on efficient revenue conversion and successful inventory, supply chain and manufacturing cost management. Our balance sheet strength supports our growth objectives, including very strong cash position. Although there continues to be tariff uncertainty, we remain agile and ready to pull levers from our management system toolkit to mitigate impacts.

We are the global industry leader in best-in-class video display, communication displays and control systems. We are the only U.S. manufacturer of scale with a global footprint and servicing by geographic market. We remain focused on differentiated leading product introductions and supporting growth through high return product development investment spend. We are excited and commit to our future and are executing toward our growth and return objectives outlined in our transformation plan. I want to thank the entire Daktronics team for their hard work and dedication.

And with that, I will now turn this back over to the operator for questions.

[Operator Instructions] First question is going to come from the line of Aaron Spychalla with Craig-Hallum Group.

Maybe first for me on live events, good to see the pickup in order activity there. Can you maybe just talk about the pipeline and what that looks like for order growth the rest of the year? And then any thoughts on just cadence of kind of revenue. You mentioned some potentially in FY '27 just given scheduling. But can that segment get to that high watermark we saw a couple of years ago given activity levels?

Yes. So as I mentioned in the call, we were 3 for 3 in large projects, 2 major league baseball and on NFL -- or excuse me, NHL's Arena project. And we're excited about that and excited to win all 3. And I also mentioned in there that we continue to see growth and expect growth in the live events space, both from our in-bull opportunities and outside the bowl. So we continue to expand on our product offerings and service offerings to provide that expansion, both in control systems and displays and services that we offer throughout the venue.

And we're seeing some growth in that -- seeing a nice growth in the audible side of it. So our MPP products, provide new opportunities to expand and bring the in-bull experience to the outside of the bowling throughout the concourse. So we continue to see growth there. Our pipeline can't get into specifics about the pipeline, but we're excited about the what the live events business, both in the college university space as well as the major league sports side of the business is providing.

Howard, anything additional you wanted to add to that?

No, I think that's key. I mean, as you said, the pipeline is good, and we'll see how quickly everything comes in.

All right. And then maybe second, good strong gross margin performance. Just curious if you kind of highlighted the mix. Was there any other any onetime items, it sounds like not. But just curious on we have some seasonality, obviously, in the business later this year, but just how sustainable those gross margin trends are as we kind of move forward.

We did have a mix benefit, as I alluded to. So going forward, it depends on what the mix is going to look like. And we'll have to see about that. We did, as Brad mentioned, continue to have better alignment between particularly our manufacturing expenses and revenue production that helped, and that's where we intend to operate going forward. We had a small benefit this quarter, I shouldn't say benefit.

We had a benefit -- we had a cost a year ago in the margin from some unusually high warranty expenses, which normalize this quarter. So it was a little bit of that. But yes, I mean, what we saw in the quarter was a combination of kind of fixed cost leverage on revenue as well as the mix effect that I just mentioned.

Understood. And then maybe last for me. Just given the balance sheet, can you just maybe talk a little bit about thoughts on M&A, what you're seeing in the market, any areas of interest, valuations? Just some color there would be helpful.

Brad, do you want to start that, and I'll chime in.

Yes. We've been presenting many M&A opportunities in the past and those continue to come towards us. We're being very strategic about it. about what we want to do. But certainly, the cash position, which is in a place where we could take a little more serious look at that opportunity. Nothing specific to talk about at the moment. but we continue to be open to opportunities as they come forward.

Our next question will come from the line of Anja Marie Soderstrom with Sidoti.

Congrats on the nice progress here. I'm just curious with 3 live events that you won. How is the competitive process there? And did you replace anyone for that or...

Sorry, Anja, missed that last part of your question. The competitive space and what else?

Yes. And where they currently using someone else and decided to use [indiscernible] that.

The question being asked about the competitive factors at our the consideration for other companies and whether or what our competitive factors might be?

Yes.

Yes. And that varies across each of our businesses and each of our markets. We -- the opportunities and especially when we hit the major league sports markets, there's a lot of competition across all our spaces. We put a lot of effort in, of course, in the upfront process to get specified and put ourselves in a position to -- for our products and services to win those projects. But there is competition on almost every bit we have out there.

Now in certain markets, we see opportunities where we can lead in with our services and great financial the process, which are highly beneficial. So that reduces that overall competitive mix and improves our margin space.

Okay. That's -- I don't think that's on my end. Going to ask about the gross margin as well. You touched on it already in the Q&A. But was the main driver for the better improvement there, their revenue mix? Or was that more the efficiencies that you've been implementing?

Yes, certainly, Howard, I should let Howard talk about this, but the fixed cost leverage is very important, of course, having plants loaded up and operating at a high rate. That was very positive. The mix was also a key thing, and you've seen that in our revenue mix as you look back over the quarters, a higher mix of higher profit business was beneficial to that. But not to doubtly, the things that we've been working on and improving upon value by selling bringing some of that to the table, both in products and services notably, but across certain areas have improved that overall gross margins.

But the work that we've done in the plants around inventory management working with our vendors to improve our overall purchasing power. Those are all coming into fruition and helping us a lot of that road map.

Okay. And then are you still in the process of implementing systems and undergoing this digital transformation, is that then going to help driving the operating expense is lower? Or is it also going to aid the gross margin?

Well, we expect to see efficiency certainly and improved benefits to our customers and internal teams. So the efficiencies derived for many of those both the business transformation and the digital transformation. There was added expense during these and we kind of laid out a time line for that in multi IT as well as product development and Howard alluded to that in the call. We expect to invest in those as we bring those on, and those are part of our plan that we've laid out. So a little bit of expense increase but also benefits on the other side of it through efficiencies that we expect to gain.

I'd say, Anja, most of the product development is of a nature of remaining on the leading edge of product innovation in our markets, which has been a hallmark of the company for a long time, and our effort is to stay ahead of that curve as a means of both making our product more competitive as well as being able to value price for our products. On the IT side, I think it's a combination of things like making it easier for our customers to do business with us by having front-end pricing availability and things like that. as well as helping make the company internally more efficient. So you've got the combination of on the IT side.

Okay. And then you touched on the strong balance sheet here already in terms of M&A. But how do you think about the buybacks, how much do you have left on the current authorized program. And are you in talks with the Board to extend that?

Yes. The -- as I mentioned in the quarter, we bought back a little over $10 million worth of shares we have at the end of the quarter, we had about just under $10 million under that original authority. And our Board has been very open to considering additional authorities as we've requested them, and we'll see how that goes. But we will certainly have a cash position to have a very flexible approach to managing our capital position and our share count.

[Operator Instructions] Our next question is going to come from the line of Eric Larger with Halfmoon Capital LLC.

Last couple of quarters, you've had some consulting and other associated costs related to the transformation plan were there any of those costs can procedurally been born in Q1 here that maybe are onetime in nature, we should consider handing back.

No. I mentioned that before. The bulk of the transformation consulting costs were connected with a consultant that we had in last year for close to half the year, almost maybe a little bit longer than that. And those consulting fees are now behind us.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Brad Wiemann for further remarks.

Okay. Thanks, everyone, joining our call today. we plan to present next week at the Sidoti Conference and in November at the Craig Hallum Elfa Select Conference. We look forward to speaking with you on our second quarter call. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Daktronics Fourth Quarter Fiscal Year '25 Financial Results Conference Call. [Operator Instructions] 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. Today's presentation -- 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 2 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 the 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 contain certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly GAAP measures -- GAAP financial 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. [indiscernible] maybe I'll just take a few brief minutes to set the stage 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 Wiemann 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 -- and while you're hearing my voice today asked me to step up to become Chairman of the Board.

Why does that matter? Well, I'm an on insider shareholder who first invested on the conviction that the company was undervalued. I continue to view the stock is significantly undervalued, and I'm committed to closing that gap. Secondly, at the time we announced that we had reached an agreement with our largest shareholder, Alta Fox, pursuant to which the company terminated our poison pill, converted to 9% subordinated debt, undertook a comprehensive review of our exec compensation and added Alta Fox' appointee Peter Fagan, President of the Milwaukee Bucks [indiscernible] to our Board.

Peter is 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 of Alta Fox for that recommendation for providing the financing and like many of you have reached out for 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 reflect its importance due to supporting our ongoing business transformation plan while flexibly protecting shareholder interests. Then on top of this transition and transformation, another key word was thrown into the mix during the past almost 3 months for us, well, along with most U.S. manufacturers, not taking it personally. That created many in multivariate challenges. Those challenges were managed by the executive team extraordinarily well.

Seeing how quickly and often the landscape changed since liberation day it was really remarkable how the potential impact on some many vectors and just the overall uncertainty was expertly met by this team. So I can report to you that our fourth fiscal quarter was in addition to being transitional transformation and reactive to the tariff policy uncertainty was, in fact, a quarter of strength, stability and optimism. There actually aren't sufficient words that I can come up with at least to describe what Brad and Howard and the entire team managed to accomplish in these few short months, but you can glean from our order and backlog growth and absence of upheaval.

Further, as you'll hear about shortly from Brad and Howard, our Business and Digital Transformation remains on track to achieve the objectives we said on the last quarter call. I want to thank the entire senior leadership team for their diligence and their steadiness, navigating this transition. Personally, I can tell you that I've come to appreciate the character of this team, the loyalty of the company and its stakeholders and their openness to executing the change that this transformation plan is now driving. It doesn't show up on the balance sheet, but it's an incredible asset, nonetheless. And I think the team -- our fourth quarter results reflect this focus and determination.

The Daktronics Board remains committed to the shareholders. It represents just as our executive team remains committed to our customers and to maintaining and further developing the unique qualities that make Daktronics the best in the business. And yes, the transforming our operations in order to achieve our revenue growth, margin expansion and ROIC targets.

I mentioned a moment ago that the company had undertaken a comprehensive exec compensation review. That's now been completed. And you will have seen this morning some detail of the plan the Board has adopted in the 8-K we filed, most basically, we're making our compensation more competitive. Obviously, we're in the market with a search for CEO and to follow a CFO, so we do have an appreciation for where market is. But more than just making sure comp is competitive, so we attract first-rate talent.

The objective is to align the comp plan with the goals of the transformation. So primarily, the principles of the plan are meant to further incent our sales leaders to driving revenue and for functional leaders to achieve the margin expansion and shareholder return goals about the transformation. So we've now implemented a new exec compensation philosophy, again, with the help of nationally recognized consultants who match best practices to the company's culture. That philosophy uses a full range of compensation incentive tools to maximize company-wide performance.

On the CEO search, in particular, we don't yet have anything to announce with respect to that. But the search committee is very pleased with the quality and quantity of candidates who have responded positively to the opportunity and express or excitement about the company and the possibilities before us. So we're on track. And personally, I'm feeling good about the temporal progress here.

So with those preliminaries, let me turn the call to Brad Wiemann, our President -- our interim President and CEO. Brad?

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 3 of the presentation, and we'll 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% and 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, replenish our backlog and is setting us up well as we head into fiscal 2026.

Additionally, we worked 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 segment's contribution margins. This minimized the effect of year-over-year volume decrease resulting from lower Q3 orders will be related to an atypical delayed baseball ordering season and resulted in adjusted operating income of $6 million.

The business in Digital Transformation plan is in place. Our execution of the plan is on track in driving results and we more than doubled the fourth quarter operating cash flow year-over-year.

Turning to Slide 4. 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 facia, [indiscernible] interior displays, a wide variety of products and applications. These are repeat customers, the one and only on this one, University of Illinois, a very large multimillion dollar system. You may have seen that in our news release. The [indiscernible] are new customers, all of which are multibillion-dollar systems, including Charles Schwab Field in Omaha, as you likely know it as the home of College World Series; Miami Freedom Park, home of the Inter Miami Football Club; the University of Nebraska football. Surprisingly, this is our first install at the University of Nebraska. We're happy to do it. We're replacing a competitor's display on the north end. And this is, like I said, first video at that stadium.

Cincinnati Convention Center purchased 7 15-millimeter exterior displays. Due to the atypical delay in baseball activity, and that was industry-wide, not just us, during the first year -- during the year, orders for fiscal 2025 decreased 12% year-over-year and for Q4 decreased 11% year-over-year, following a record FY '24 and fourth quarter. We continue to enhance our products and services as we expect continued growth in the Live Events business for both in ball applications but also outside the ball as more emphasis is placed on entertaining and informing faster digital technology throughout the venue which aligns with our control system capabilities, our service and subscription offerings, our narrow pixel pitch product offerings. Our teams continue to focus on winning business aligned with our corporate transformation objectives on long-term profitable growth.

In the picture here is Jack Tri Stadium at the University of Iowa, [indiscernible] will be welcomed with new products. We're switching [indiscernible] our previously installed 15-millimeter high-definition technology to a 13-millimeter high-definition technology. The large screen in this project will be 36 feet by 157 feet.

In our Commercial business, all areas saw demand and success in order wins with orders for the year increasing 31% from last year and for the fourth quarter, increasing 44% and from the fourth quarter of 2024. This business consists of out-of-home and on-premise advertising sales and larger advertising displays, which we call spectaculars, conducted primarily through channel partners such as signed company resellers and AV integrators.

In the on-premise area, customers are successfully transitioning to our next-generation fuel price products which offer quick deliveries and feature-rich enhancements. Demand in the [indiscernible] market has been strong throughout the year, which reflects greater optimism that has been developing both in the national and independent billboard operators who are more often choosing Daktronics due to our recognized brand strength and image quality and reliability as well as our service responsiveness. We released the next-generation billboard product in the fourth quarter which has been well received by customers.

Our investments in independent channel continue to pay off. We continue to bring additional AV partners on and are seeing double-digit order growth from this channel. This is a focus area for our indoor application growth. In the picture here is Syracuse University eSports facility. This is a direct view LED video wall bringing eSports and gaming to life at Syracuse.

In our transportation business, orders tend to be large, which creates order variability from quarter-to-quarter. Orders decreased 10% from last year but increased 14% for the fourth quarter driven by notable wins, a multimillion dollar roadway project for an airport, intelligent transportation system win in California which drives the implementation and deployment of transportation technology in California, where we are gaining acceptance of our products for intelligent transportation over the [indiscernible].

We're also strengthening the airport market pipeline developed through our strategic relationships. This growth is being driven by customers interested in our Chip-On-Board solutions. In the picture here is a rather typical display for our Vanguard ITS World way displays at Texas Department of Transportation. Going forward, we are focused on growing our ITS market by winning new agency approvals. The by America Act BAA, continues to go into full effect in October of 2026. We expect to benefit as a U.S. manufacturer and our teams are actively promoting the By America Act. Our adjacent growth plans are on track as we deliver chip onboard solutions across multiple markets.

International. Our International business, which serves all the end markets of our domestic markets which we serve outside of North America has been an area of concentration and focused development for the past several quarters. These efforts are paying off with orders growing 32% from last year and more than doubling from Q4 of last year. Our International orders increased every quarter throughout FY '25, and we reached a peak in the fourth quarter coming in nearly at $25 million.

Our largest growing market in FY '25 were advertising. Fourth quarter from this was the largest quarter for advertising orders. This was driven by orders from customers in Saudi Arabia, UAE Germany, Serbia, U.K., Georgia, Australia for both new and replacement displays.

In our Events segment, we had -- we won a very large multimillion dollar project Aramco Stadium at [indiscernible], Saudi Arabia, a planned multipurpose facility. Our products were specified into those projects.

In the Industry segment, we won multiple command and control projects across the Middle East throughout fiscal year '25. Pictured here is a recent installation at El Arabia in Dubai in out-of-home company there.

In our High School Park & Recreation business, we drove record orders for the year and the quarter. Orders grew 19% for the year and 33% for the fourth quarter. Industry-leading value propositions allow the sales team to implement value selling, which separates us from our competition. We are experiencing strong adoption of professional services, particularly in curriculum development and sports marketing. The market continues to convert to full video indoor and outdoor. Schools of all sizes are purchasing video with the help of Daktronics sports marketing. In addition, Daktronics curriculum, a software-as-a-service product, which brings in recurring revenue, [indiscernible] students career-ready production skills. Pictured here is Frederick School District in Frederick, Wisconsin.

Turning to Slide 5. Of course, new products and services are essential for our continued growth and value-added differentiation. In the fourth quarter, we released and sold new products, a digital billboard product and an outdoor video display system. These products leverage platform technology to reduce product complexity, leverage supply chains and simplify both manufacturing and installation processes. On to the right is the new digital billboard in New Orleans for LAMAR. In addition, we are in the process of rolling out control system solutions. These include Live Switch, which provides video switching and replay for high school venues. In our fiscal year 2016, our current year, we will continue to add capabilities to enable expansion into college and university applications.

The following are cloud-based software as a solutions control solution, which drives further recurring revenue. Venus Live, which brings new capability to our show control solution for Live Events; Show Control next-generation, scorings, statistics, graphics, content creation and display control and the photo in this picture shows a view of Display Studio, which is an in-game tool to display content across all the displays within the venue. Display Studio is a tool that is part of Daktronics events-focused show control solution. The photo from this picture is Acrisure Stadium, home of the Pittsburgh Steelers.

Turning to Slide 6. With respect to business transformation, we made strong progress on these initiatives in the fourth quarter, and our implementation plan is on track and driving results. Actions we have taken to date include taking price adjustments, which I mentioned a moment ago, allowing us to preserve our value-based products and services positioning, launch of SaaS trials to target customers focused approach on prioritized growth areas, business verticals and geographies, driving faster inventory turnover and improved inventory efficiency by leveraging our platform designs to reduce complexity, released a modernized service software system that will help us to enhance customer experience through better service management and enablement of self-service options.

We are working on launching an AI-guided troubleshooting and technical services, making increased use of our purchasing power to improve our input costs and simplifying some of our products, which allows us to bring them to market more quickly.

We more than doubled our operating cash flow in the fourth quarter and drove 54.5% growth in operating cash flow for the year, supported by the business transformation efforts as outlined.

Turning to Slide 7. Significant progress was made in digital transformation during fiscal year '25, the goal of which is increase internal efficiency and ease of purchasing for our customers. Our e-sales channel is in place, and we're adding new products and services. We're testing of our enterprise performance management, which is now in the implementation phase. We launched new control systems, as mentioned. Sales to development is on track for configure price quote, which we plan to have in an initial release in the latter part of FY '26.

Additionally, our plan over the next 6 to 12 months is to enable subscription management, upgrade our ERP, the enterprise performance management release for fulfillment performance reporting, customer data unification across all systems and data governance for better decision-making and regulation compliance.

Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials. Howard?

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 8. 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 break down as follows. First, we 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 as 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 in 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 the quarter and year, respectively, for the change in fair value of the convertible note due to its conversion and changes in the stock price over the fair value measurement period in the third and the fourth quarter.

At year-end, we recorded a noncash provision for possible loan losses of $15.5 million on a loan to an affiliate in which we have a minority position. This was done at year-end 2025. The -- these asset valuation impacts went through other income and therefore, impacted reported net income but not operating income.

Finally, on the GAAP, we reviewed all of our estimated costs for open warranties and overtime project contracts in effect as of our year-end reporting date for any additional expected costs due to the significantly higher reciprocal tariff rates that would have been in effect at that time at year-end, which impacted over time revenue recognition and warranty expense. These tariff estimates impacted operating income negatively in the fourth quarter by $1.2 million. At the substantially lower tariff rates now under discussion in the recent pause period, this impact would largely be reversed.

On Slide 9, making the adjustments for these nonrecurring expenses, adjusted operating income for 2025 was $50 million, still down from our record $87 million operating income in '24, but nevertheless, the second highest adjusted operating income year in the company's history. And more importantly, the second highest year in orders and net sales. As a percentage of revenue, adjusted operating income margin was 6.6% in 2025 versus 10.6% in 2024.

Let me talk a little bit now on Slide 10 about revenue and particularly the revenue tailwind that we see coming into 2026. For those of you who haven't been tracking the company over time, let me first try to provide some perspective on orders and revenue.

As the world returned to some symbols of normality, as COVID receded, several years ago, pent-up demand for our products and services resulted in significant post-COVID order growth between 2021 and 2024. Combined with our resolution of supply chain bottlenecks during that period, a recapitalization of the company, selective value-based price increases and new product introductions, the company emerged from that period a larger, healthier organization, which produced record sales and record profits in 2024 with some of that revenue completed in early 2025.

Now with orders in early '25 dipping below revenue for a bit, our revenue declined, bottoming out and seasonally soft third quarter of 2025. The team began rebuilding order flow in the third quarter of last year, and particularly in the fourth quarter, with fourth quarter orders up 17% year-over-year from the fourth quarter of 2024. This growth was broad-based, resulting in a more diverse revenue mix and resulting in a product backlog at year-end 2025 of $342 million, up 8% from a high year-end 2024 backlog.

Now while this order growth did produce a 17% sequential increase in fourth quarter revenue from the third quarter, about $70 million of the third and fourth quarter orders will start generating revenue only when the projects have started in fiscal '26. The good news here is this is setting the stage for what is shaping up to be a solid revenue growth throughout the coming year. And we are encouraged additionally by the revenue trends that we see at the beginning of the new fiscal year.

Let me now turn to Slide 11, which addresses our balance sheet strength and talks a little bit about our capital allocation. We very firmly believe that maintaining a strong balance sheet is important to building a resilient business. Our balance sheet today is stronger than ever. In 2025, inventory was efficiently reduced, one of the quick win ideas from the business transformation project that we undertook last year. Over the year, manufacturing groups reduced inventory by 23%. Now as sales revenue grows going forward, we would expect to begin adding to inventory again but obviously now from a lower base than otherwise would have been the case.

As previously reported, we converted the 9% subordinated note to common for the terms of that note and neutralize the additional common shares via open market share purchases. The retirement of the note, net-net, will save about $1 million in annualized net interest expense versus today's short-term investment rates. We monitor our credit exposure to past due customer and vendor receivables on the balance sheet and to date, have not seen any discernible weakening.

Now through our efficient working capital management and efforts to preserve adjusted margin, we generated $97.7 million in operating cash flow and ended 2025 with $128 million in cash, up 57% from last year. The significant increase in cash has provided us added flexibility to invest capital for value creation.

We've been maintaining product development and selected IT investments, as we previously disclosed in the third quarter, at relatively high levels as we invest in high-growth wider-margin business products and projects and digital transformation to improve selling effectiveness and internal efficiency. We will continue to review product development and IT regularly to make sure we are prioritizing the highest return investments.

And in 2025, we repurchased $29 million of common shares in the market at a volume-weighted average price of $14.23 per share, in part to neutralize the shares issued to retire the convertible note. And today, we announced board approval for an additional $10 million share repurchase program.

Let me conclude by touching on tariff facts and impacts as much as we can talk about them and understand them. Ultimately -- the ultimate cost of the tariff is not yet reliably determinable because the ultimate rates, of course, have not been set and keep on changing. It's unclear at this point whether imports for both finished products and imports and inputs will ultimately be subject to tariffs, although tariffs on both types of imports, finished products and inputs are currently on the table. Specific import codes are actually unclear.

There are exceptions, correct import codes are still uncertain and applicability. One of these things are still up in the air. And of course, competitor reactions are all over the place and ultimately also not known. What I can tell you in terms of relevant Daktronics facts are the following: first, as we previously mentioned, about 80% of Daktronics finished product is manufactured in our U.S. factories; second, less than 50% of inputs used by Daktronics U.S. factories are from imports from all countries into the United States, including China, but many other countries as well; third, the pre reciprocal tariffs, these are tariffs that we've been incurring since 2018, have been running at approximately $0.5 million per month since 2018. And since those are already in effect, have already been reflected over time in our operating costs and pricing.

Next, new steel and metals tariffs, which were introduced in February, in our case, are very negligible. And finally, in the first 5 weeks so far in fiscal 2026, the higher tariff rates that have been invoiced to us have cost us about $2 million and I want to be really clear about what that means, that is gross. It's not -- it's before any pricing or manufacturing or operating expense mitigation efforts that are already underway. And more importantly, almost all of that $2 million is at the highest rates that were imposed by the United States on Chinese imports at the end of 2025, which were more than 3x the rates currently being discussed between the 2 countries. So basically, things that were on the water after the April 2 Liberation Day announcement that have now initially come in but before the U.S. and China paused the pre -- the reciprocal tariffs as of April 2, in that short 1-month period, the $2 million is refers to that particular initial piece. And as we know, the -- we're currently in a pause. So we would expect that number to come down in any event for the time being. Brad will touch on tariff mitigating strategies in a moment.

So now let me turn the call back to Brad.

Okay. Thank you, Howard. Turning to Slide 13. We embarked on this journey really to 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 '28. 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.

Turning 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 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. We find that, as is true of all of us, our customers are becoming acclimated to 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 on 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 U.S. 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 and 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.

[Operator Instructions] And our first question is going to come from the line of Aaron Spychalla with Craig-Hallum Group.

Yes. Andrew, Brad and Howard, thanks for all the good color and commentary so far. First for me, I guess, on the top line, as we think about revenue growth for FY '26, 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 '28 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 in the 7% to 10% compound annual growth that we talked about through FY '28. There's going to be some lumpiness year-over-year in that. But all in all, we think we can achieve that. We think FY '26 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.

All right. And then on margins, I appreciate the color on the tariffs and that it's an uncertain kind of outlook there. Can 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 just how you're thinking that can impact margins here as we think about the growth in FY '26 and potential margin expansion from here?

Yes. 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 '26 further.

In addition to that, we're bringing on new markets, new services that -- they're additive. They take time and 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 here.

All right. 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, where are we in that conversion? And how much kind of green space is there for you as that market kind of shifts in the coming years?

Yes, a really good question. As you know, in our Commercial business, we serve really 3 -- we'll call it, 4 customer groupings. We have on-premise that serves primarily in the retail space. We participate mostly in the outdoor solutions for on-premise advertising and out-of-home, we're seeing a lot of optimism in that market from both 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 as 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. So 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, primarily to DOGE. I think just some slowdown in the military spending market, although that's been small overall. I see 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. And then just maybe last, thinking about the working capital efforts underway so far, a lot of nice cash generation in the year. Just curious on additional kind of levers there. Where can that cash conversion -- can it get back to where it was a few years ago? And then any thoughts on capital allocation, just given the balance sheet would be helpful?

Well, balance sheet, I'll ask -- to answer the second question first. As we -- our objective here is to grow and grow at obviously profitable margins. So our first use of capital is going to be getting the growth. We talked about product development 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 economic for our shareholders to do that. So it's a little bit of all of the above.

But the good news is we have the cash and the capital and our objective is to get it deployed in the highest return way as we can.

[Operator Instructions] Our next question comes from the line of Anja Soderstrom with Sidoti.

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

The strength in -- what are you saying or what which?

Yes.

We had a 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 '26, 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 opportunity for us to get the kind of revenue growth that we're looking for, for '26 and beyond.

And the projects will start throughout the year, so it's not all going to happen in the first quarter necessarily, but it gives us a good start to the year and a mechanism for continued revenue growth throughout the year as the projects come on board.

And the [indiscernible] orders and backlog trending in the first quarter? Just in general -- overall.

Early indications are business is still brisk.

Okay. And then in terms of the onetime fees, should we expect more of those in fiscal 2026 or...

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 2 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 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 in multiple times in terms of the transformation results that we expect over the next 3 years.

Okay. Got it. And then lastly, you mentioned the Board approved a $10 million buyback program. Did you have anything left on the [indiscernible]?

We did, yes. So -- but we'll provide some further commentary on that shortly.

[Operator Instructions] And our next question is going to come from the line of Mac Furst with Sinclair Research.

This is Mac Furst with Singular Research. Congratulations on the quarter. This is a question for either Howard Atkins or Brad Wiemann. 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 or?

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

At this point, as I said, we don't -- on the business transformation, 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 the team comes up within 2025 would require some outside help. But again, as far as the major project that we had last year, that's behind us now that engagement has ended.

Okay. So consulting fees for digital and business transformation in fiscal 2026 will be quite low.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Brad Wiemann 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.