Daktronics Inc

Carmen, Conference Operator: Please be advised that today’s conference is being recorded. Now it’s my pleasure to hand the conference to the Chief Executive Officer, Ramesh Jayaraman. Please proceed.

Lindsay, Investor Relations, Daktronics: Thank you, Carmen. Good morning, everyone. Thank you 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. These forward-looking statements reflect the company’s expectations or beliefs about future events based on information currently available to us. Of course, actual results could differ. Please refer to slide two of the presentation that accompanies today’s call, our press release, and our SEC filings for information on risk factors, uncertainties, and 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.daktronics.com. Our earnings release for the 2026 fourth 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 Ramesh Jayaraman, President and CEO, for his review.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Thank you, Lindsay, and good morning, everyone. Thank you for joining our fourth quarter fiscal 2026 call. I’m joined on the call by Howard Atkins, board member and Acting Chief Financial Officer. This morning, I’ll recap our fiscal 2026 results and operating highlights, including our business accomplishments, how we are tracking towards our fiscal 2028 objectives, and our strategic pillars for growth. Howard will review our fourth quarter and full-year financials. Finally, towards the end, I’ll discuss our fiscal 2027 outlook, then we’ll take your questions. Let’s move to next slide to recap fiscal 2026. We’re absolutely proud of the results our team generated in fiscal 2026. We delivered record annual revenues and record annual orders, drove 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% order bookings growth, nearly 11% net sales growth, a 290 basis points expansion in operating margin, and 25% growth in adjusted EPS to $1.05. We enter fiscal 2027 with a backlog of $356 million, up 4% over prior year. Howard will provide more details in the financial section. 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 2026. The handing of the baton from Brad Wiemann 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 2026, we accelerated execution of our three-year business transformation.

Our teams worked 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 drove higher margins, supported by value-based pricing actions we implemented. We accomplished several key operating objectives. First, we enhanced our customer experience with the launch of our modernized service system in May. Second, as I mentioned, we continued 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. 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 projects, including an LED refresh using our RENEW product line at the Chicago Wrigley Field, pictured here. 11,300 sq ft video display for the Seattle Mariners, among the largest in Major League Baseball. New LED displays throughout Yankee Stadium. This trend continued in college sports. We completed 11 new displays, including an end zone measuring 106 feet wide for the University of North Carolina, new AV and sound system installations for the Washington State University, including Daktronics Show Control, amongst many others.

We are already seeing great results from our strategic partnership with Grass Valley, combining Daktronics leadership in large format LED displays, Show 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 growth. 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, and lower total cost of ownership. During Q4, we added five new customers and built a pipeline for future growth. Our spectaculars business booked a large Times Square order in Q4.

Our opportunity creation is very strong coming to 2027. Pictured here is the Sunriver 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. In October, U.S. production content requirements under BABA increased, 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 Chip-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 video 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, Dak Classroom, and our other paid professional services continue to provide important competitive differentiation. Pictured here is the Madeira High School’s football in Cincinnati, Ohio. Our international business, we won 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, strengthening Daktronics’ 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 outlined in the investor day, will remain a key focus as we expand our presence. Pictured here is 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, growing scale, and adoption of video and fixed digits, and our backlog and pipeline reflect this. Let’s turn to the next page on the FY 2026 key business updates.

During the fourth quarter, we developed our global manufacturing footprint, key 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 sq ft 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 will be producing large format outdoor displays to serve customers in North America. We have the potential to add the manufacture of other displays in the future. Production is planned to begin in July 2026, and first shipments are estimated in the Q2 timeframe.

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 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 reached 100% customer adoption on the new platform. We also achieved 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 2026 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 2x-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. We are deploying capital to maximize our returns to our shareholders. Now I’ll turn over to Howard Atkins, our Acting Chief Financial Officer, to take through the financials.

Howard Atkins, Acting Chief Financial Officer, Daktronics: Thank you, Ramesh, and good day, everyone. Thank you for your interest in Daktronics. Let’s 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. The team delivered record annual revenue of $839 million, growing 10.9% over full year 2025. Operating income or EBIT 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. Fourth quarter adjusted EPS of $0.27 per share was 50% higher than the comparable $0.18 per share in the fourth 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 closer to the U.S. statutory rate, 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 and sales, and also our gross margin. Fiscal 2026 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, with 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 Business Transformation Plan and associated three-year plan from 2025 to 2028. Just to point out, if you remember, in the latter part of fiscal 2025 and early 2026, we had some anticipatory demand in front of the announced pricing changes that we instituted that year. 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 continue 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 2026 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 2026, 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 Transformation Initiative from 2025 as planned at that time.

We entered fiscal 2026 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 used 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 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 stronger 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 contributed 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 discussed. 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 up 4% from last year’s fourth quarter. With the exception of 2024, which was basically a bounce back from COVID, the average quarter end backlog during fiscal 2026 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 backlog will convert to revenue in the first quarter. Again, that will be supplemented by same quarter book-to-bill. Let’s talk about expenses and efficiency and productivity.

The combination of depreciation and 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, 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 2026 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. Our results have now already begun to include startup costs associated with the addition of 110,000, 111,000 sq ft 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 next chart on slide 11 shows our growth and intra-year quarterly pattern of various earnings metrics, including operating income, EBITDA, which is the sum of operating income and depreciation and amortization, and earnings per share. All of which were up double digit in fiscal 2026. As mentioned, annual adjusted earnings per share rose 27%. Quarterly adjusted earnings per share rose 50%, reflecting the growth and operating margin increases that I’ve discussed during 2026. Let’s turn to our balance sheet and capital management. In fiscal 2026, 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 2025, we have repurchased approximately $46 million of common shares. In fiscal 2026, just for the year, the company returned approximately 56% of its net income to its shareholders, through approximately $25.5 million repurchased at a volume-weighted average price of $17.80 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 2027, we’re starting from a position supported by a $356 million backlog and continuing 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 award timing, product production schedules, installation milestones, and seasonal patterns. As a reminder, the first quarter of fiscal 2027 will include 13 weeks this coming year, with 14 weeks in the first quarter of fiscal 2026. That will be, of course, a factor in considering comparing year-over-year results as we move through the early part of 2027. 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 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 2028 growth and margin targets. I’ll turn the call back to Ramesh. Thank you.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Thank you, Howard. I want to reiterate our fiscal 2028 guidance on slide 12. Our fiscal 2026 performance and our position entering fiscal 2027 keeps us on track with our fiscal 2028 targets. We are reaffirming each of them today. As we look at growth, we are looking at 7%-10% revenue CAGR. Second, from an operating margin perspective, being in the 10%-12% range, and ensuring our ROIC will be in the 17%-20% range. Building on Howard’s outlook, we enter fiscal 2027 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 2028 financial targets.

While project timing and customer demand can vary by quarter and by end market, the underlying drivers of our strategy remain intact, and we remain focused on executing with discipline to drive sustainable growth, margin expansion, and attractive returns. Let’s move to the last slide to discuss more specifics on our fiscal 2027 outlook and going forward strategy. We enter fiscal 2027 with a robust pipeline. The strength of our operating foundation, clarity of our execution roadmap, and backed with a $356 million backlog. Fiscal 2027 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 at Investor Day, our strategy is focused on three priorities designed to create shareholder value. One is accelerating organic growth. Two strengthening operational excellence. 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 our 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 our 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 at 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 via share buybacks. We enter fiscal 2027 with momentum, energy, and focus.

I’m very proud of the executive team, our nearly 2,700 Daktronics family members, for their continued dedication, execution, focus, and delivering to our customers. We’ll turn the call over to the operator to take questions.

Carmen, Conference Operator: As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. One moment while we compile the Q&A roster. One moment for our first question, please. It comes from the line of Aaron Spicola with Craig-Hallum Capital. Please proceed.

Aaron Spicola, Analyst, Craig-Hallum Capital: Good morning, Ramesh and Howard. Thanks for taking the questions. Maybe first for us, you kind of noted strong pipeline multiple times, 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 FY 2027, just kind of confidence in that growth as you pursue those FY 2028 targets? Then, talk a little bit about just margins that you’re seeing today, bookings backlog related as we think about the next year.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: 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 do some of these. The big question 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. 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. That stands across all of our vertical markets.

Aaron Spicola, Analyst, Craig-Hallum Capital: Got you. Then, just maybe kind of margins that you’re seeing today as you kind of go to bid, really good performance there. Any still kind of lingering tariff impacts and just how you’re thinking lean and automation can help-

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Wouldn’t say

Aaron Spicola, Analyst, Craig-Hallum Capital: expand that.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Wouldn’t say tariffs so much, Aaron. There’s a couple of crosscurrents 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 Investor Day 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 so on. We’re very focused on both the margin side of the equation as well as the growth side of the equation.

Aaron Spicola, Analyst, Craig-Hallum Capital: Just any kind of guidepost 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?

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Well, if you remember coming out of the original transformation program, we had a couple of things there that 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.

Howard Atkins, Acting Chief Financial Officer, Daktronics: 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. There’s more to come that’s sort of just getting on the way on the indirect and deeper on the direct side of procurement, and then beginning to develop or complete our plans on lean and automation and the network.

Aaron Spicola, Analyst, Craig-Hallum Capital: Understood. Then maybe just one last quick one on free cash flow. Looked like you consumed a little bit there in the fourth quarter, working capital. Can you just maybe talk about the dynamics there as we think about FY 2027?

Howard Atkins, Acting Chief Financial Officer, Daktronics: Absolutely. We had in the fourth quarter a little bit longer time gap between the completion of our orders, a couple of orders and project-related orders, 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. That’s just a timing thing. We should see the reversal of that early in the fiscal 2027 year.

Aaron Spicola, Analyst, Craig-Hallum Capital: Understood. Thanks for taking the questions. I’ll turn it over.

Carmen, Conference Operator: Thank you. Our next question comes from Tom Hayes with Roth Capital Partners.

Tom Hayes, Analyst, Roth Capital Partners: Hey, good morning, guys. Thanks for taking my questions.

Howard Atkins, Acting Chief Financial Officer, Daktronics: Hey, Tom.

Tom Hayes, Analyst, Roth Capital Partners: Hey, Howard, maybe just 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?

Howard Atkins, Acting Chief Financial Officer, Daktronics: It’s been running at $50 million. Again, there’s ins and outs on that. What I would try to signal to you is we continue to focus on sort of pairing off expenses that 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 CapEx, for example. 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 spent on things that are actually going to generate the right ROIC for us.

Tom Hayes, Analyst, Roth Capital Partners: Okay, that makes sense. Maybe, Ramesh, for you on the Camino 8 rollout, just kind of high level, maybe just describe how that differs from products on the market currently. Associated with that, is there a reoccurring revenue component to the Camino 8?

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Yeah. There’ll be a combination that will sit with the 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. I think we had our first showcasing in April. We’ve got a pipeline that’s beginning to build. I feel very energized with the pipeline that’s beginning to build. Also just given the tiebacks and the other things we’re doing with other technologies, there seems to be a pretty good interest in terms of where we are headed. I think the biggest advantage here is for the customer in terms of making it seamless. What we are doing 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.

Tom Hayes, Analyst, Roth Capital Partners: Okay. Appreciate that. Maybe just one follow-up for Howard. Just again, still kind of new to the story. If you go back to Q1 of last year, gross margin of 29.7%, kind of an outlier for the year. Was there anything specific that kind of drove that, and then just so we kind of model it correctly for this year?

Howard Atkins, Acting Chief Financial Officer, Daktronics: Yeah, I alluded to that a little bit today. Last year, remember, tariff had just been announced in April. We had announced pricing increases. We saw a little bit 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. That occurred particularly in HSPR. If you go back and you look at the last quarter of fiscal 2025 and the first quarter of fiscal 2026, we had a decent increase in HSPR orders, which then impacted revenue in the first quarter and somewhat into the second quarter of fiscal 2026. The other thing I would point out is that the pricing increases that we introduced in the early part of 2026 kind of led the effect of the tariff increases, right?

Because we were supplying or 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. We did have some positive benefit late 2025, early 2026, both orders and revenue connected primarily with HSPR.

Tom Hayes, Analyst, Roth Capital Partners: Great. Appreciate the color. Thanks for the questions.

Carmen, Conference Operator: Thank you so much. As a reminder, if you do have a question, simply press star one to get in the queue. Our next question is from Anja Soderstrom with Sidoti. Please proceed.

Anja Soderstrom, Analyst, Sidoti: Hi, everyone. Thank you for taking my question, and congrats on the nice performance. Just curious for the Mexico facility, what kind of impact do you think that will have on the margin? Will it sort of mute the margins before you ramp and then help it improve?

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Yeah. I think the Mexico facility, first of all, Anja, is to, as you can see with our growing demand across all the businesses, we need production capacities. Two, I think tied back to our customer needs. 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. That gives us constricted timelines to go deliver to the stadium. 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, provided how all tariffs and other stuff work, this should result in better margins over a period of time. I don’t think it’ll be initially, but 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. This will be a combination effect that we’ll basically see in the P&L.

Anja Soderstrom, Analyst, Sidoti: Okay, thank you. 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?

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Can you repeat that question again? Sorry, Anja.

Anja Soderstrom, Analyst, Sidoti: For commercial, what kind of initiatives can you take to sort of drive a higher interest there? It seems like that’s been a little bit challenged.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: Yeah. Look, the commercial business, I think it’s out of home, looks pretty positive in terms of the pipeline that’s building up, and spectacular is seeming to be better. We kind of see 2026 as a period of a little bit of a dip in terms of where customers invested. Overall, the pipeline seems to be strong. That coupled with, 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. 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. We are monitoring this very closely and is a focus for us as a company.

Anja Soderstrom, Analyst, Sidoti: Okay, thank you. That was all for me.

Carmen, Conference Operator: Thank you so much. 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.

Ramesh Jayaraman, President and Chief Executive Officer, Daktronics: 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, & 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.

Carmen, Conference Operator: Thank you. This concludes our conference. Thank you for participating, and you may now disconnect.