Company Overview
Daktronics, Inc. (NASDAQ:DAKT) is a leading global designer and manufacturer of best-in-class dynamic video communication displays and control systems, serving a diverse array of industries worldwide. With a rich history spanning over four decades, the company has established itself as a pioneer and innovator in the audiovisual solutions market, continuously pushing the boundaries of technology and customer service.
History and Growth
Founded in 1968 in Brookings, South Dakota, Daktronics has grown from a small electronics repair shop to a multinational corporation with a strong global footprint. The company's humble beginnings trace back to the vision of brothers Duane and Al Sander, who recognized the potential of electronic displays and set out to revolutionize the industry. Initially focusing on custom electronic products, including LED scoreboards for the emerging video display market, Daktronics quickly expanded its product offerings in the 1970s to include larger video displays and control systems for sports arenas and other commercial applications.
Throughout the 1980s and 1990s, Daktronics faced and overcame significant challenges, such as the 1980s farm crisis in the Midwest, which impacted many of its customers in the agricultural industry. The company responded by diversifying its customer base and expanding into new markets, including transportation, commercial, and international sectors. This strategic move helped Daktronics weather economic downturns and industry changes, solidifying its position as a leading provider of electronic display systems.
A pivotal moment in Daktronics' history came in 1994 when the company went public on the NASDAQ stock exchange. This move allowed Daktronics to further invest in research and development, manufacturing capabilities, and global expansion. Over the next two decades, the company opened international offices and manufacturing facilities to better serve customers worldwide. Daktronics also made strategic acquisitions to strengthen its product portfolio and technological capabilities, further enhancing its market position.
Innovation and Technology
At the heart of Daktronics' success lies its commitment to innovation and technological advancement. The company has consistently invested in research and development, enabling it to stay at the forefront of the industry and introduce groundbreaking solutions that cater to the evolving needs of its customers. From cutting-edge LED display technology to advanced control systems and data analytics capabilities, Daktronics' products have been instrumental in enhancing the audience experience and driving digital transformation across various sectors.
Resilience and Adaptability
Despite the challenges posed by the COVID-19 pandemic, Daktronics has demonstrated its resilience and adaptability. The company navigated the uncertain environment by implementing cost-saving measures, optimizing its operations, and maintaining a strong focus on customer relationships. As a result, Daktronics has emerged from the crisis positioned for continued growth and success.
Financials
In the fiscal year 2024, Daktronics reported total revenue of $818.08 million, an 8.4% increase from the previous year. The company's net income for the same period stood at $34.62 million, showcasing its ability to generate consistent profitability. Daktronics' strong financial performance is underpinned by its diversified revenue streams, with contributions from its Commercial, Live Events, High School Park and Recreation, Transportation, and International business segments.
For the first nine months of fiscal 2025, Daktronics reported a 3% decrease in sales levels compared to the same period in the previous year, which was a record sales year. The company's operating margin for this period was 6%, or 7.7% when adjusted for one-time consulting and corporate governance expenses.
In the third quarter of fiscal 2025, Daktronics reported revenue of $149.51 million, a 12.2% decrease year-over-year due to lower volumes in the Live Events and Transportation business units, partially offset by increases in Commercial and International segments. The company reported a net loss of $17.16 million, a significant decrease from the net income of $10.7 million reported in the same period of the previous year. This decline was primarily attributed to lower sales volumes and increased operating expenses related to the company's ongoing business transformation and corporate governance initiatives.
Despite the challenges in the third quarter, Daktronics maintained a similar gross profit margin of 24.6% compared to 24.5% in the prior year quarter, demonstrating the company's ability to manage costs effectively even with lower sales volumes.
Performance by Geographic Markets
The majority of Daktronics' revenue comes from the United States market. In fiscal 2024, $545.70 million (72.3%) of total revenue was generated from the United States, with the remaining $56.50 million (7.7%) from international markets.
Segment Performance
Daktronics operates through five reportable segments: Commercial, Live Events, High School Park and Recreation, Transportation, and International. Each segment has shown varying performance in the first nine months of fiscal 2025:
The Commercial segment reported net sales of $115.61 million, representing 19.80% of the company's total net sales, with a gross profit margin of 24.10%. The increase in net sales was driven by fulfilling orders in the digital billboards niche and spectacular LED video display projects.
The Live Events segment generated net sales of $231.89 million, accounting for 39.70% of total net sales, with a gross profit margin of 21.50%. The decrease in net sales was due to the absence of a large project fulfillment from the prior year and lower order volumes.
The High School Park and Recreation segment reported net sales of $125.44 million, representing 21.50% of total net sales, with a gross profit margin of 35.40%. The decrease in net sales was driven by the conversion of a high level of backlog related to supply chain disruptions in the prior year.
The Transportation segment generated net sales of $62.76 million, accounting for 10.70% of total net sales, with a gross profit margin of 37.20%. The increase in net sales was driven by fulfilling orders in backlog and continued order bookings, especially in large intelligent transportation system projects.
The International segment reported net sales of $48.22 million, representing 8.30% of total net sales, with a gross profit margin of 14.50%. The decrease in net sales was driven by the timing of order conversion due to lower backlog in the prior period.
Liquidity
Daktronics' order backlog as of the end of the third quarter stood at $273.2 million, a decrease from the $328.3 million reported in the prior-year period. The company noted that the decline in backlog was due to fulfilling orders at a faster, more normalized pace as supply chain conditions stabilized and production lead times improved.
As of January 25, 2025, Daktronics reported cash and cash equivalents of $132.17 million. The company has a $60 million asset-based revolving credit facility, of which $33.40 million was available after $3.50 million was used to secure letters of credit. The debt-to-equity ratio stood at 0.16, while both the current ratio and quick ratio were 0.86.
Future Outlook and Strategic Initiatives
Despite the challenges faced in the third quarter, Daktronics remains optimistic about the long-term potential of its end markets. The company is actively implementing strategic initiatives to drive profitable revenue growth, improve operational efficiency, and enhance its competitive position. These initiatives include a comprehensive business transformation program, digital transformation efforts, and ongoing investments in product development and customer relationships.
Daktronics has set ambitious targets for fiscal 2028, aiming for revenue growth above their addressable market (currently estimated at 7-10% CAGR), operating margins in the 10-12% range through structural cost reduction, and return on invested capital (ROIC) in the 17-20% range, which would place them in the top quartile of publicly traded manufacturing companies.
The company expects to invest an additional $1-2 million in the fourth quarter of fiscal 2025 for their business and digital transformation initiatives. However, Daktronics acknowledges that they are currently seeing some delays in order placements, especially in the transportation segment, likely due to recent actions by the U.S. government.
Leadership Transition
Daktronics' leadership transition, announced alongside its third-quarter results, reflects the company's commitment to positioning itself for future success. The departure of long-time Chairman, President, and CEO Reece Kurtenbach, and the appointment of Brad Wehman as interim CEO, signals the board's desire to accelerate the company's transformation and capitalize on the significant opportunities in its target markets.
Industry Trends
The digital display industry is expected to continue growing, driven by new indoor LED product availability and customers' desire to use dynamic mediums to inform, entertain, and persuade their audiences. Daktronics sees long-term demand for digital displays as a positive industry trend, which aligns with their strategic focus and growth initiatives.
Conclusion
As Daktronics navigates the evolving landscape, it remains steadfast in its pursuit of excellence. The company's focus on innovation, customer service, and operational excellence has been the driving force behind its success, and it remains well-positioned to continue delivering value to its shareholders, employees, and the communities it serves. Throughout its history, Daktronics has supplied products and services for high-profile events and venues, including the 2008 Beijing Olympics, the Times Square Ball Drop in New York City, and numerous professional and collegiate sports stadiums, showcasing its ability to meet the demands of prestigious and large-scale projects.
With its diversified product portfolio, strong market positions across various segments, and strategic initiatives aimed at driving growth and efficiency, Daktronics is poised to overcome current challenges and capitalize on the long-term opportunities in the dynamic video communication display market. The company's commitment to innovation, coupled with its financial discipline and customer-centric approach, positions it well for sustainable growth and success in the years to come.