Release Date: June 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Daktronics Inc (DAKT, Financial) achieved record revenue and solid expansion in operating profitability and cash flow generation for fiscal 2024.
- The company successfully refinanced to ensure resources are available to serve customers and build long-term shareholder value.
- Innovations in product lines, such as the Narrow Pixel Pitch products, have maintained technology leadership and opened new market opportunities.
- Orders increased by 14.6% in the fourth quarter, driven by strong demand in live events and international business units.
- Gross margin improved to 27.2% for the year, reflecting strategic pricing actions, manufacturing efficiencies, and supply chain stabilization.
Negative Points
- The commercial business unit continues to see softness in large projects, impacting overall sales growth.
- International sales declined in the fourth quarter, despite an overall increase in orders, indicating potential market instability.
- High executive variable compensation and employee profit-sharing expenses increased operating costs by $6.4 million.
- The geopolitical and economic uncertainty in international markets has delayed customer buying decisions, affecting order conversion rates.
- The company faces strong competition from firms that source products from China, necessitating careful pricing adjustments to maintain profitability.
Q & A Highlights
Q: You're targeting some recurring revenue opportunities in control systems and content. Are you marketing these services to new orders and existing customers? Would you expect this to be a meaningful part of the business over time?
A: Yes, we are marketing these services to both new orders and existing customers. These services are crucial as customers grow their capability to operate and program their systems. This is relevant across sports, commercial, and transportation sectors. Over time, as systems age, there is a continual opportunity to sell different services, including software and hardware refreshes.
Q: You highlighted new military shipments. Are these new customers, and do you expect to expand into more military business?
A: The military business is promising due to our differentiated product line with Made in America control systems. We partner with AV system integrators focused on this market. Our Narrow Pixel Pitch product is increasingly replacing older technologies, unlocking new uses and expanding opportunities in military and other control center applications.
Q: How has the new flip-chip technology been received, and what can we expect in terms of revenue and margins?
A: The Chip On Board technology, enabled by flip-chip, has been well received due to its enhancements in our Narrow Pixel Pitch product line. It offers higher durability, contrast, and performance in high-brightness situations. While it's too early to predict its impact on profitability or revenue, customer and partner feedback has been positive.
Q: Is the recurring revenue from control systems and content higher margin than the overall business?
A: Yes, it is higher margin and significantly enhances customer satisfaction, increasing the likelihood of repeat business. Although currently a smaller portion of our overall revenue, it is an exciting area with room for future growth.
Q: What are your thoughts on the international markets, given the recent increase in orders?
A: We are hopeful that geopolitical situations will stabilize, allowing the market to pick up. Despite previous challenges in converting interest into orders, recent months have shown positive signs. Our market share internationally is relatively small, providing room for growth. We have invested in sales, service, and fulfillment teams to handle this growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
