Anja Soderstrom

Anja Soderstrom asked how Daktronics anticipates the third quarter softening, despite strong backlog growth, and inquired about the capacity utilization in U.S. facilities following the addition of the Mexico plant, specifically whether production would shift or if it's purely for growth. She also questioned how much revenue the new manufacturing footprint could facilitate before requiring further expansion.

Answer

Brad Wiemann, Interim President and CEO, and Howard Atkins, CFO and Chief Transformation Officer, explained that the anticipated third-quarter softening is primarily due to fewer available workdays during the holiday season, despite the robust backlog. Brad Wiemann clarified that the Mexico plant is a small, complementary facility designed to support the company's 7-10% growth objectives, not to move production from U.S. factories, which will continue to account for approximately 80% of manufacturing. He reiterated that the new footprint is part of overall expansion plans and a small addition to capacity.

Anja Soderstrom asked about the competitive process for the three live events wins and whether Daktronics replaced incumbent vendors. She also sought clarification on the primary drivers for gross margin improvement (revenue mix versus operational efficiencies) and the expected impact of digital transformation on operating expenses and gross margins. Finally, she inquired about the remaining authorization for share buybacks and discussions with the board regarding extensions.

Answer

Brad Wiemann (EVP, Interim President & CEO) explained that competition varies across markets, especially in major league sports, and Daktronics focuses on upfront specification and leveraging services/financial tools to enhance competitiveness. On gross margins, Mr. Wiemann reiterated that fixed cost leverage, a higher mix of profitable business, value-based selling, inventory management, and improved purchasing power were key drivers. Regarding digital transformation, Mr. Wiemann expects efficiencies and benefits for customers and internal teams, acknowledging associated investment expenses. Howard Atkins (Acting CFO & Chief Transformation Officer) clarified that product development aims to maintain innovation leadership for competitiveness and value pricing, while IT focuses on customer ease-of-business and internal efficiency. For buybacks, Mr. Atkins noted that just under $10 million remained on the current authorization after repurchasing over $10 million in the quarter, and the board is open to considering additional authorities.

Anja Soderstrom asked about the company's approach to share buybacks, the remaining authorization under the current program, and discussions with the board regarding an extension.

Answer

Acting CFO Howard Atkins confirmed that the company repurchased over $10 million worth of shares in the quarter, with just under $10 million remaining under the original authorization. He noted that the board has been receptive to considering additional authorizations, and the company's strong cash position allows for a flexible capital management approach.

Anja Soderstrom inquired about the competitive process for the three live events projects won in Q1 FY26, specifically if Daktronics replaced incumbent providers. She also asked for clarification on whether revenue mix or efficiency implementations were the primary drivers for the improved gross margin. Additionally, she questioned the expected impact of the ongoing digital transformation on operating expenses and gross margin, and sought an update on the share repurchase program, including remaining authorization and potential extensions.

Answer

Interim President and CEO Brad Wiemann explained that competition varies across markets, especially in major league sports, and Daktronics leverages upfront processes and financial tools to win projects and improve margins. Both Brad Wiemann and Acting CFO Howard Atkins reiterated that fixed cost leverage, a higher mix of profitable business (like HSPR), value-based selling, inventory management, and improved purchasing power were key drivers for gross margin. Regarding digital transformation, Brad Wiemann expects efficiencies and customer benefits, acknowledging an increase in IT and product development expenses during implementation. Howard Atkins clarified that product development focuses on innovation for competitiveness and value pricing, while IT aims for customer ease and internal efficiency. Howard Atkins confirmed $10.7 million in share repurchases in Q1, with just under $10 million remaining under the current authorization, and noted the board's openness to considering additional authorization given the flexible cash position.

Anja Soderstrom asked about the company's approach to share buybacks, the remaining authorization under the current program, and discussions with the board regarding an extension.

Answer

Acting CFO Howard Atkins confirmed that the company repurchased over $10 million worth of shares in the quarter, with just under $10 million remaining under the original authorization. He noted that the board has been receptive to considering additional authorizations, and the company's strong cash position allows for a flexible capital management approach.

Anja Soderstrom asked about the primary drivers for the recent strength in the international business, current order and backlog trends for the first quarter, whether to expect more one-time fees in fiscal 2026, and for clarification on the new $10 million share buyback program.

Answer

Howard Atkins, Acting CFO, explained that strong international orders late in fiscal 2025 will primarily convert to revenue in fiscal 2026, creating a positive tailwind. He noted that early Q1 business is 'still brisk' and confirmed that consulting fees for last year's major transformation projects are complete and not expected to recur. He also acknowledged there was a balance on the previous buyback program and more commentary would be provided.

Anja Soderstrom asked for an update on the International segment, questioning if the recent pickup in activity was continuing into the fourth quarter and which specific regions were performing best. She also sought clarification on the planned $40 million in annual product development spending and requested more details on the company's supply chain renegotiation efforts.

Answer

Reece A. Kurtenbach (Chairman, President and CEO) confirmed that the conversion rate of quotes to orders in the International segment has been increasing and is expected to continue, particularly in Europe, the Middle East, and Australia. He also noted that digital transformation initiatives are expected to create efficiencies in product development. Sheila Anderson (EVP, CFO, Treasurer & Secretary) added that a significant portion of the development spend is for control systems and that the company is taking a more aggressive approach to renegotiating terms with its top suppliers to maximize value.

Anja Soderstrom inquired about the revenue outlook for the second half of fiscal 2025, gross margin sustainability, the impact of the e-sales channel, the duration of consulting fees, and the potential effects of new administration tariffs.

Answer

Reece Kurtenbach, CEO, explained that while large project business can be lumpy, he expects full-year orders and sales to be on par with or exceed the prior year. He noted Q3 margins are more impacted by volume than price. He detailed that the e-sales channel for standard products should lower selling costs and improve efficiency. Kurtenbach also clarified that business transformation costs are mostly contained to the current year, but digital transformation initiatives and related costs will extend into fiscal 2026 and 2027. Regarding tariffs, he acknowledged the potential impact on sourced components but noted competitors face similar pressures, highlighting Daktronics' U.S. manufacturing as an advantage.

Anja Soderstrom asked about the expected normalization timeline for the backlog, whether any Q1 revenue was pulled in from Q2, the potential for expanding operating margin targets, and the current competitive environment.

Answer

CEO Reece Kurtenbach explained that the backlog is returning to a normal seasonal cycle and the unusually high levels from past supply chain issues have been resolved. He confirmed no significant revenue was pulled from Q2 into Q1. Regarding margins, Kurtenbach stated that management believes there is room for both top-line and operating margin growth. He also described the competitive landscape as active, emphasizing Daktronics' value proposition in system control, features, and full-service support.

Anja Soderstrom inquired about the rapid ramp-up of the Penang, Malaysia facility, asking if it would quickly reach full capacity and how this impacts future expansion plans and CapEx. She also asked about the company's expectations for a return to growth in commercial aerospace, which was not factored into the current year's revenue target.

Answer

Todd Kelsey, President and CEO, clarified that the Penang facility has enormous expansion capacity and will not reach full capacity quickly, but will achieve corporate margins efficiently. Shawn Harrison, VP of Investor Relations, added that automation efforts aim to increase revenue capacity within existing sites, reducing long-term CapEx. Oliver Mihm, COO, stated that while fiscal 2026 guidance includes some commercial aerospace tailwind, it doesn't factor in major Boeing or Airbus demand changes, as recent regulatory news has not yet translated into a demand signal.

Anja Soderstrom asked about the capacity utilization of the new Penang, Malaysia facility and the potential for further expansions and CapEx, as well as the company's expectations for a return of commercial aerospace demand, which is not currently factored into their fiscal year targets.

Answer

Todd Kelsey, President and CEO, clarified that the Penang facility has enormous expansion capacity and will not reach full capacity quickly, operating efficiently at a fraction of its potential. Shawn Harrison, VP of Investor Relations, added that investments in automation aim to increase revenue capacity within existing sites, reducing long-term CapEx. Regarding commercial aerospace, Oliver Mihm, COO, stated they anticipate some tailwind for fiscal 2026 but are not factoring in major Boeing or Airbus demand changes from recent regulatory news, as it has not yet translated into a demand signal.

Anja Soderstrom of Sidoti & Company inquired about the expected margin profile of the new Malaysia facility once fully ramped, the current impact of tariffs on customer orders, and whether the company still expects cash cycle days to decline into the low sixties.

Answer

CEO Todd Kelsey confirmed that Plexus's Malaysia sites generally perform very well, implying a strong margin profile. He also stated there has been little change regarding tariffs, with customers in a 'wait-and-see' mode and minimal impact on demand. EVP & CFO Patrick Jermain affirmed that they are guiding for cash cycle days in the mid-60s for Q4 and see a realistic path to the mid-to-low 60s in fiscal 2026 through ongoing inventory initiatives.

Anja Soderstrom asked for elaboration on the diversification efforts behind the strong engineering wins, inquired where Plexus is taking market share from, and asked about the company's currency hedging strategy.

Answer

CEO Todd Kelsey explained that engineering wins have successfully diversified beyond healthcare into all market sectors, highlighted by a record win in A&D. Executive Shawn Harrison noted that market share gains are broad-based, stemming from strong execution and relationships. CEO Todd Kelsey confirmed that the company hedges a portion of its non-U.S. currency exposure to manage volatility.

Anja Soderstrom asked for confirmation of the full-year capital expenditure guidance and the outlook for 2026, and also inquired about the gross margin trajectory for the second half of the year following the seasonal dip in Q2.

Answer

EVP and CFO Patrick Jermain confirmed the fiscal 2025 CapEx guidance of $120M-$150M, driven partly by a new facility in Malaysia, and expects spending to normalize in fiscal 2026. He also stated that while Q2 gross margin will be impacted by seasonal compensation costs, productivity improvements should allow it to return to around the 10% level for the remainder of the fiscal year.

Anja Soderstrom asked for details on the Penang, Malaysia expansion, including its scale, product focus, and completion timeline. She also inquired about the motivation for attaining the NQA-1 nuclear energy compliance and its expected impact.

Answer

President and CEO Todd Kelsey stated the new facility in Malaysia will be the sixth on the campus, supporting all sectors with a focus on SemiCap and Healthcare/Life Sciences, with first shipments expected late in the fiscal year. He explained the nuclear compliance was driven by a specific customer award. EVP and CFO Patrick Jermain added that the rigorous certification has already attracted interest from other customers.

Anja Soderstrom of Sidoti asked about the significance of international wind rotor sales, particularly outside the U.S., and how they compare to the overall market opportunity. Soderstrom also inquired about the expected capital expenditures for the year, considering expansions in LaFox and the new Texas design center.

Answer

Greg Peloquin, General Manager of Power and Microwave Technologies Group, explained that while the international market is smaller than North America, it's a strong growth area. He highlighted the introduction of new platforms for turbines like Nordex, Senvion, Suzlon, and SSB, with alpha/beta testing and initial orders from Australia, India, France, and Italy in Q1, indicating significant international upside. Wendy Diddell, Chief Operating Officer, estimated CapEx to be in the $4 million to $5 million range, slightly higher than the previous year due to programs pushed into FY2026. She clarified that the REV Illinois program's CapEx requirements are not significant this fiscal year, with focus on equipment for manufacturing efficiencies and ESS solutions, as well as engineering and program management resources. Peloquin added that the company plans to leverage Illinois' green energy subsidies and tax incentives.

Anja Soderstrom from Sidoti asked about the significance of wind rotor sales outside the U.S. and how they compare to the overall market opportunity. She also inquired about the expected capital expenditures for the year, considering expansions in LaFox and the new Texas design center.

Answer

Greg Peloquin, General Manager of Power and Microwave Technologies Group, explained that while the international market for wind products is smaller than North America, the company is gaining traction with new platforms and has received orders from Australia, India, France, and Italy. He noted that 70% of GES business is currently in North America, indicating significant international upside. Wendy Diddell, Chief Operating Officer, estimated CapEx for the year to be in the $5 million range, slightly higher than last year, primarily for manufacturing efficiencies and ESS solutions. Mr. Peloquin added that the REV Illinois program's CapEx requirements are not significant this fiscal year, with the focus on engineering resources and program managers.

Asked about the competitive landscape for the PMT segment and the company's current stance on strategic acquisitions.

Answer

In PMT, competitors are large distributors, but Richardson differentiates with a design-in model and in-house manufacturing. For legacy tubes and semi-fab parts, they have dominant market share or are sole-source. The company's current priority is organic growth in green energy; acquisitions are a longer-term, opportunistic consideration for technology tuck-ins.

Anja Soderstrom of Sidoti & Company inquired about the competitive landscape for the Power and Microwave Technologies (PMT) segment and the company's current approach to strategic acquisition opportunities.

Answer

Greg Peloquin, EVP, and Edward Richardson, CEO, detailed PMT's competitive advantages, including a demand-creation model, niche technology partners, and sole-source status on many high-margin semiconductor wafer fab products. Wendy Diddell, COO, added that the near-term focus is on organic growth in green energy, with acquisitions being a longer-term, opportunistic strategy for technology tuck-ins.

Anja Soderstrom inquired about the shipping timeline for recent multimillion-dollar orders, their specific application within the wind turbine business, the potential for follow-on orders, and other near-term growth opportunities.

Answer

Gregory Peloquin, General Manager of Power & Microwave Technologies, confirmed that shipping for the large GE wind turbine platform orders began in December and will continue through calendar 2025. He emphasized significant follow-up potential, describing the current orders as 'Phase 1' for customers. Peloquin also highlighted that being listed on the bill of materials for repower programs should accelerate sales growth. Near-term opportunities include multi-brand products gaining traction in Europe and Asia, IGBT modules in testing, and the finalization of an Energy Storage System (ESS) strategy.

Inquired about the progress of the wind turbine program in India, other products in beta testing with near-term potential, and the future direction of inventory levels.

Answer

The India program is progressing well, with production orders for retrofitting 9,000 turbines expected this quarter and a deal for new turbines starting in 2025. Several other products are in late-stage testing, including locomotive starter modules, inverters, and emergency lighting, with shipments expected to begin soon. Overall inventory is expected to continue growing due to a strategic last-time buy from a key supplier, though this will be partially offset by reductions in other areas.

Anja Soderstrom asked for an update on the wind turbine program with Suzlon in India, inquired about other products in beta testing with near-term order potential, and questioned the future direction of inventory levels.

Answer

Gregory Peloquin, GM of PMT & GES, described the India program as 'fantastic,' expecting production orders this quarter with a full rollout in 2025, plus a partnership with KEBA for new turbines. He listed several other products moving from beta to production, including starter modules, inverters, and emergency lighting. Regarding inventory, COO Wendy Diddell explained that while they are managing it tightly, inventory will continue to grow for a key legacy tube supplier through calendar 2025 due to a planned production halt, and may also increase to support new green energy programs.

Anja Soderstrom of Sidoti & Company questioned the primary drivers of margin improvement, the expected level of SG&A, changes to the go-to-market strategy for the Medical segment, the competitive landscape, and the role of automation in the new Indiana facility.

Answer

CFO Jana Croom stated that margin improvement will come from both gross margin (via restructuring and utilization) and SG&A discipline, though she noted SG&A will normalize around 3.5% of revenue, not the current 3%, due to growth investments. CEO Richard Phillips added that the medical go-to-market strategy includes new business development hires and a comprehensive marketing plan. He highlighted that the new Indiana facility will be highly automated and is expected to be accretive to margins over time.

Anja Soderstrom inquired about the timeline for when the declining automotive braking program in Mexico will completely phase out. She also asked about the future impact on gross margin from the closure of the Tampa facility and the opening of the new Indianapolis facility. Lastly, she questioned the remaining potential for investments in automation and other efficiencies.

Answer

COO Steven Korn stated the Mexico braking program will be complete by the end of the current quarter (Q4), with a new braking program in Romania ramping up. He anticipates gross margin improvement from the Tampa closure, which is on track to be completed by the end of June, and noted the new Indianapolis facility is not expected to have a major negative impact on margins. CFO Jana Croom added that while the Tampa closure is beneficial, the company faces broader margin pressure from the tariff environment and consumer price sensitivity. CEO Richard Phillips confirmed the company continues to see opportunities and invest in automation.

Anja Soderstrom of Sidoti inquired about any organizational changes related to the company's increased focus on the medical vertical. She also asked for an outlook on the smart metering business and whether the competitive environment or outsourcing trends have changed.

Answer

Chief Executive Officer Ric Phillips explained that the company made a structural change by combining its drug delivery (CMO) business with the core EMS medical vertical to leverage complementary capabilities. Chief Operating Officer Steve Korn stated that the smart metering business, representing 2-3% of revenue, is likely at its bottom. He described the overall competitive environment as consistently intense but noted unique opportunities arising to take business from competitors. He also confirmed an increasing appetite for outsourcing, particularly for high-level assemblies in the medical space.

Anja Soderstrom of Sidoti & Company sought clarification on the expected Q2 revenue decline, inquired about inventory related to a canceled auto program, and asked about the timing and expected savings from the Tampa facility closure.

Answer

Chief Financial Officer Jana Croom clarified the Q2 year-over-year revenue decline would be similar to Q1's, but with improved margins. She explained that auto inventory has long lead times but confirmed they will fully recover inventory from the canceled program. She expects some of the $8-$11 million in exit costs to be incurred in Q2 but declined to quantify savings yet, calling them a 'meaningful pickup.' Chief Executive Officer Ric Phillips added that they are working with the customer on recovery for the canceled program.

Anja Soderstrom from Sidoti & Company asked for clarification on the annual recurring revenue (ARR) guidance, noting the $8 million contribution from Knock Knock Labs versus the $6 million net increase. She also inquired about the general health of the sales pipeline.

Answer

CFO Jorge Martell clarified that the $2 million difference in the ARR guidance resulted from two customer contractions: one from a bank selling operations in the Middle East and another from a large customer delaying implementation. CEO Victor Limongelli added that first-half bookings were strong, the second half is seasonally stronger, and the pipeline is shaping up well, bolstered by the new Knock Knock offering despite some hardware business headwinds.

Anja Soderstrom of Sidoti & Company asked for clarification on the updated ARR guidance, noting the $8 million contribution from Knock Knock versus the net $6 million increase. She also inquired about the general health of the sales pipeline.

Answer

CFO Jorge Martell explained that the $2 million difference in the ARR guidance resulted from two main factors: an accelerated contraction from a bank selling operations in the Middle East, and a conservative decision to remove a large customer that is delaying implementation. CEO Victor Limongelli added that first-half bookings were strong and the pipeline for the second half is shaping up well, supported by the new Knock Knock offering, despite some expected headwinds in the hardware business.

Anja Soderstrom asked for clarification on the updated ARR guidance, noting the $8 million contribution from Knock Knock versus the $6 million net increase, and also inquired about the general sales pipeline.

Answer

CFO Jorge Martell clarified that the $2 million gap in the ARR guidance was due to a faster-than-expected contraction from a bank selling assets and a conservative decision to remove a large customer from the forecast due to their internal implementation delays. CEO Victor Limongelli added that bookings were strong in the first half, with Q3 and Q4 being seasonally stronger, and noted that the new Knock Knock offering provides a positive counterbalance to expected hardware headwinds.

Anja Soderstrom from Sidoti & Company asked for clarification on the annual recurring revenue (ARR) guidance, noting that while the Knock Knock acquisition added $8 million, the full-year guidance was only raised by $6 million. She also inquired about the general health of the sales pipeline.

Answer

CFO Jorge Martell clarified that the $2 million difference in the ARR guidance resulted from two customer-specific situations: an accelerated contraction from a bank selling operations in the Middle East and a delayed implementation by another large customer. CEO Victor Limongelli added that the bookings pipeline was strong in the first half, with the second half being seasonally stronger, and noted particular strength in the Americas.

Anja Soderstrom of Sidoti questioned why the strong Q1 adjusted EBITDA margin didn't lead to a higher full-year forecast, asked for the revenue percentage from outside the U.S., and inquired about strategies for acquiring new logos versus expanding existing contracts.

Answer

CFO Jorge Martell explained that Q1 is seasonally the strongest for margins due to a favorable revenue mix, and he expects margins to moderate in Q2 before gradually increasing, similar to last year's pattern. CEO Victor Limongelli noted that nearly 90% of Security revenue is from outside the U.S., while the Digital Agreements business is more North America-focused. He added that new logo efforts involve online lead generation for Digital Agreements and a classic field sales approach for the Security segment's large banking clients.

Anja Soderstrom asked about new logo acquisition trends, noting that recent growth appeared to be driven by existing customer expansion. She also inquired about the company's approach to inorganic growth and the current M&A market.

Answer

CEO Victor Limongelli explained that new logo growth is historically stronger on the Digital Agreements side and that the company sees new opportunities in the workforce space via channel partners. Regarding M&A, he stated the company would consider 'targeted M&A,' likely focusing on acquiring technology that adds value for their existing customer base rather than large-scale revenue acquisitions.

Anja Soderstrom of Sidoti & Company questioned whether the cost-cutting initiatives were completed ahead of schedule or yielded more savings than planned, the outlook for gross margin, and the drivers behind the strong sequential growth in Security Solutions subscription revenue.

Answer

CFO Jorge Martell confirmed the cost savings program benefited from both faster execution and identifying unplanned efficiencies. He projected the full-year gross margin would now be in the low 70s, an improvement from prior expectations. Martell attributed the Security subscription revenue growth to strong demand for authentication products, cross-selling, and price uplifts from converting perpetual licenses to term agreements. CEO Victor Limongelli added that 2024 marks the first year security subscription revenue will surpass hardware revenue.

Anja Soderstrom from Sidoti & Company inquired about initiatives to improve the events business, current trends in multi-year contracts, and the status of the sales force build-out and productivity.

Answer

Chief Product Officer Carrie Johnson detailed plans to modernize event sponsorship offerings and upskill sales teams. CEO George Colony added that relocating events, such as moving a conference to Amsterdam, is also expected to boost sponsorship. Chief Sales Officer Nate Swan confirmed positive trends in multi-year contracts, with a focus on three-year deals. CFO Chris Finn quantified this, noting 72% of contract value is now multi-year, an 8-point increase YoY. Swan also stated that while the sales force is still growing, 75% of reps are tenured, and attrition is aligned with expectations.

Anja Soderstrom sought confirmation that sales cycles were lengthening despite an expanding pipeline. She also asked about the status of the two large events scheduled for the second quarter and which industry sectors were proving most challenging.

Answer

CSO Nate Swan confirmed that deal closure times have extended by 10-12 days due to increased client scrutiny. CPO Carrie Johnson (referred to as Carrie) reported that the upcoming CX events in Europe and North America are shaping up well, with strong audience growth for the North America event. Nate Swan and CEO George Colony identified manufacturing, financial services, and retail as challenging sectors, with tariff impacts felt most in Asia and Europe.

Anja Soderstrom from Sidoti & Company asked for more details on the sales challenges in India. She also questioned the strategies being used to improve sales to C-level executives at larger customers and how new product releases are driving customer engagement.

Answer

CEO George Colony characterized the issues in India as a one-time Q4 execution miss with smaller vendors, not a long-term market problem. He explained that to reach the C-suite, the company is using its 'FAST' sales methodology and has seen 30% growth in early renewals when senior executives are engaged. Chief Product Officer Carrie Johnson added that new offerings like the flexible Reprints product and interactive tools within Forrester Decisions are designed to increase value and personalization for clients.

Anja Soderstrom inquired about the implications of the revised contract value guidance on revenue growth for 2025. She also asked for a timeline on when the company will finish shedding smaller clients and see client count increase, and questioned the current readiness and training status of the sales team.

Answer

CFO Chris Finn stated that while a formal 2025 outlook is pending, he expects CV to stabilize and grow, leading to improved results from 2024's double-digit declines, but not 'significant material growth.' Chief Sales Officer Nate Swan indicated the negative impact from shedding smaller clients would lessen in 2025. He also confirmed the sales team has completed the heavy lifting on new methodology training and is now in a phase of continuous development and reinforcement, with the team responding well to the changes.

Anja Soderstrom of Sidoti & Company inquired about the future tax rate following new revenue contributions, potential impacts from proposed IP tariffs, and whether the updated full-year guidance assumes additional catch-up payments.

Answer

CFO Richard J. Brezski stated that the long-term tax rate is expected to be in the mid-to-high teens but is still under evaluation. CEO Liren Chen commented on the potential IP tariff proposal, noting they are monitoring the situation but lack specific details. Brezski confirmed the updated guidance uses a 'multi-path approach' that includes potential opportunities for catch-up revenue.

Anja Soderstrom from Sidoti & Company, LLC inquired about the timeline for the Samsung arbitration, the status of the Disney litigation, and the company's current view on pursuing inorganic growth opportunities.

Answer

President and CEO Liren Chen reported no new updates on the Samsung arbitration since the hearings concluded in October 2024 but remains confident in the case. He also confirmed that court dates for the Disney litigation are now set for Q4 2025 and early 2026. CFO Rich Brezski clarified that his mention of inorganic opportunities was a standard part of their capital allocation strategy and not a signal of any imminent M&A activity.

Anja Soderstrom of Sidoti & Company inquired whether the company's 2025 guidance reflects a conservative approach similar to its initial 2024 outlook. She also asked about any change in sentiment from international counterparts due to the new U.S. administration.

Answer

President and CEO Liren Chen described the guidance process as a holistic view of all opportunities with associated probabilities and valuation ranges, which is updated as the year progresses. He did not characterize it as modest but as the company's best estimate. Regarding the new administration, Chen noted that Republicans have historically been strong on IP protection, which is generally positive, and that the company maintains strong relationships and expects continued support for its business model.

Anja Soderstrom questioned how the addition of large OEMs like OPPO would affect the ratio of fixed-fee contracts within the smartphone revenue stream. She also asked about the expected tax rate going forward given the step-up in recurring revenue.

Answer

President and CEO Liren Chen confirmed that while specific terms of the OPPO agreement are confidential, the vast majority of InterDigital's large accounts are structured as fixed-fee contracts. CFO Rich Brezski addressed the tax question, stating that the revenue increase does not significantly alter their long-term outlook, with the cash tax rate expected to remain in the mid-to-high teens.

Anja Soderstrom of Sidoti & Company inquired about the License and Support (L&S) revenue outlook for 2026, the drivers of its outperformance in 2025, and the company's ability to acquire new logos in the current market environment.

Answer

CEO Mike Thomson confirmed the 2026 L&S revenue forecast remains at $400 million and stated the 2025 outperformance is driven by increased client consumption, not pull-ins from future years. CFO Deb McCann added that the current forecast significantly exceeds prior expectations. Regarding new logos, Thomson highlighted that new business TCV was up 15% in the first half of 2025 versus the prior year, with a strong pipeline for differentiated offerings, though contract negotiations remain complex and lengthy.

Anja Soderstrom questioned management's confidence level in achieving its 2026 targets and asked whether they are observing any customer hesitation or project delays due to macroeconomic uncertainties.

Answer

CEO and President Mike Thomson reiterated confidence in meeting the long-term cash flow expectations outlined at the 2023 Investor Day, stating that the company's trajectory has not changed. He acknowledged that while macro volatility causes some delays in contract signings, it has not impacted the front end of the sales pipeline, which continues to grow. Thomson also highlighted Unisys's relative resilience due to its low exposure to at-risk sectors, China, and the U.S. federal government.

Anja Soderstrom of Sidoti & Company, LLC questioned how the stronger L&S revenue expectation for 2026 would affect cash flow projections and inquired about current demand trends across commercial industry verticals.

Answer

CFO Deb McCann explained that while the higher 2026 L&S revenue will contribute positively to cash flow, the more significant driver of improvement will be continued Ex-L&S gross margin expansion of approximately 150 basis points, alongside SG&A efficiencies. Michael Thomson, President and COO, addressed vertical demand by stating there were no negative areas to highlight and that the company's diverse mix across public sector, travel and transportation, and financial services provides stability.

Anja Soderstrom asked for the specific magnitude of the L&S revenue increase for 2025-2026, the reason for the DWS goodwill impairment, and the key drivers of margin expansion in the Ex-L&S business.

Answer

Chair and CEO Peter Altabef and CFO Deb McCann clarified that the average annual L&S revenue outlook for 2025 and 2026 is being raised to $370 million, a slight increase. McCann explained the DWS goodwill impairment was a noncash charge triggered by broader market dynamics impacting the pace of client signings. Altabef detailed that Ex-L&S margin expansion is driven by three factors: selling higher-value solutions, improving delivery efficiencies, and reducing SG&A costs over time.

Anja Soderstrom from Sidoti & Company asked for details on how Benchmark is achieving its inventory improvements. She also inquired about the strategy behind winning the 'competitive lift and shift' program in the Medical sector and sought an update on the commercial air market within the Aerospace & Defense segment.

Answer

CFO Bryan Schumaker and CEO Jeff Benck attributed inventory improvements to strong operational focus, disciplined processes, and system enhancements. EVP & CCO David Moezidis explained the Medical win resulted from a revamped go-to-market strategy featuring a proactive proposal team that brings creative solutions to customers. On Aerospace & Defense, CEO Jeff Benck noted that commercial air travel has stabilized with solid demand, and added that Benchmark has relatively less exposure to Boeing.

Anja Soderstrom of Sidoti asked if inventory levels in the Medical sector have normalized, questioned the current capacity utilization in North America, inquired about targets for the cash conversion cycle, and asked about the company's currency hedging practices.

Answer

CEO Jeff Benck confirmed the company believes medical OEM inventory has largely normalized, which supports the forecast for a second-half recovery. He also noted that Benchmark has significant available capacity in its North American footprint to accommodate reshoring. Regarding the cash conversion cycle, both CEO Jeff Benck and CFO Bryan Schumaker stated the goal is to improve inventory turns from 4 to over 5. Schumaker also explained that with 80% of revenue in USD, the company has natural hedges and also engages in active hedging for other currencies.

Anja Soderstrom inquired about the specific drivers of the expected weakness in the communications business through the first half of the year. She also asked about Benchmark's revenue exposure to Europe and the general trends in outsourcing.

Answer

CEO Jeff Benck attributed the weakness in the AC&C sector to two factors: a lull in the high-performance computing (HPC) space during a transition to a next-gen platform, and the ramp-up time required for a new product line with a communications customer. He stated that Europe accounts for just over 10% of revenue and has been softer, particularly in the industrial market. Benck affirmed that the overall outsourcing trend remains a tailwind for Benchmark, with a healthy pipeline of new opportunities.

Anja Soderstrom from Sidoti & Company asked about the long-term operating margin expectations following the ZT acquisition, the progress of the India joint venture, and the potential impact of tariffs on the business and customer behavior.

Answer

Chairman & CEO Jure Sola stated that with the ZT acquisition, they are targeting operating margins greater than 6% with potential for upside. He described the India JV as an exciting project with significant expansion opportunities. EVP & CFO Jon Faust added that on tariffs, Sanmina's global footprint allows it to help customers regionalize supply chains for new programs, with costs typically passed through. He also noted the India JV is progressing well and is a key investment area for the company.

Anja Soderstrom asked about the primary end markets for recent new customer wins and the nature of the competitive environment. She also questioned the company's current worldwide capacity utilization and its ability to shift production if tariffs necessitate it.

Answer

Chairman and CEO Jure Sola explained that new customer wins are broad-based, with strength in energy, communications networks, cloud infrastructure, defense, and medical, where the company is expanding in Europe. He emphasized that Sanmina competes on technology, quality, flexibility, and total cost, positioning itself as a secure partner. Regarding capacity, Sola stated the company could increase output by an additional 30% by adding staff and some equipment, and is already adding capacity for new technologies. EVP and CFO Jon Faust reiterated that the company's agility, geographic footprint, and proactive customer outreach are key competitive advantages in navigating potential tariff impacts.

Anja Soderstrom asked which end markets are expected to be the primary drivers for the fiscal 2025 revenue target. She also inquired about the timeframe for achieving the long-term 6%+ operating margin goal and whether there have been any recent changes in the competitive landscape.

Answer

Jure Sola (executive) responded that growth in fiscal 2025 is expected to be broad-based, highlighting strength in Industrial & Energy and significant opportunities in Defense & Aerospace. Regarding the margin target, he suggested a revenue run rate above $9 billion would help achieve 6%+, while CFO Jonathan Faust noted they are making strategic OpEx investments for long-term growth. Jure Sola also commented that the competitive landscape shows more discipline.

Speaking on behalf of Anja Soderstrom, an analyst from Sidoti & Company inquired about the potential for further improvements in cash flow and its key drivers. They also asked how Sanmina is internally utilizing AI to enhance business operations and margins, and requested an update on the performance of the Reliance Industries joint venture in India.

Answer

EVP and CFO Jon Faust stated there is significant room for cash flow improvement, targeting inventory turns above 6x and reducing the cash conversion cycle from 68 days toward the historical mid-50s range. Chairman and CEO Jure Sola explained that Sanmina is integrating AI to improve manufacturing efficiencies and supply chain management. Regarding the India JV, Sola described the partnership with Reliance as very successful, ahead of plan, and a focus for major investment to support growth in the Indian market and for future exports.

Anja Soderstrom of Sidoti & Company, LLC inquired about the drivers behind the muted Q1 gross margins, the profitability of new programs, the company's ability to pass on tariff costs, and the outlook for the large deal pipeline.

Answer

Interim CEO Cameron Pforr attributed the temporary gross margin dip to three factors: an unfavorable product mix which is expected to reverse, initial production inefficiencies on new high-margin space and oscillator products, and approximately $100,000 in new tariff costs. Pforr stated that margins should improve as production yields increase and shipments of higher-margin programs resume. He confirmed M-tron has the contractual ability to pass on tariffs but anticipates some initial pushback. Pforr also highlighted a strong pipeline for large deals in missiles, avionics, and drones for the remainder of the year.

Asked about the potential impact of tariffs, the recovery of the avionics market, the backlog and pipeline for large contracts, the motivation for the recent warrant dividend, and the company's growth outlook and guidance for 2025.

Answer

The company is monitoring tariffs but has seen no impact to date. The avionics market is expected to strengthen by the end of the year. The pipeline for large orders looks good, with sizable orders expected in Q1 and Q2. The warrant dividend was a way to reward shareholders without a cash dividend. While no formal guidance was given for 2025, the company believes 10% organic growth is achievable and that the analyst's own research report estimates are reasonable.

Anja Soderstrom from Sidoti & Company inquired about the potential impact of tariffs, the recovery trend in the commercial avionics market, the softness in the year-end backlog, the rationale behind the recent warrant dividend, and the company's revenue growth outlook for 2025.

Answer

Interim CEO Cameron Pforr stated that tariffs have not yet impacted the business, but the supply chain is being monitored. He expressed optimism for the avionics market, anticipating an upturn by year-end. Pforr clarified that the backlog was affected by the timing of a large $10 million order that was received in January 2025 instead of late 2024, and noted the pipeline for large orders remains strong. He explained the warrant dividend serves as a non-cash method to reward shareholders. While withholding official 2025 guidance, he affirmed that long-term double-digit organic growth is achievable and that the estimates in Sidoti's recent research report are reasonable.

Anja Soderstrom inquired about the impetus for the capital raise and the shift to a warrant dividend, asking if an M&A deal was imminent. She also asked for details on recent large contract wins, the function of the new Connectivity Partnership, and expectations for future revenue growth and gross margins.

Answer

Interim CEO Cameron Pforr clarified the warrant dividend's primary goal is to distribute value to shareholders, with the added benefit of placing capital on the balance sheet to facilitate potential M&A, though no deal is imminent. He confirmed the two recent large contracts were with different major customers. Pforr explained the Connectivity Partnership provides a window into new markets and potential deal flow. He guided for conservative 10% revenue growth but noted the potential for higher performance, and expects gross margins to remain in the high 40s.

Anja Soderstrom of Sidoti & Company, LLC inquired about the economic and margin profile of the SIM card business, the expected composition of the company's $200 million revenue target, and the potential for securing more distribution partnerships.

Answer

Executive Kevin Cox provided a detailed breakdown of the projected $200 million in revenue over the next 12 months. He stated that LinkUp Mobile would contribute about 37% of revenue with margins of $8-$15 per subscriber, Lifeline would account for 24%, the wholesale MVNE business for 13% (at $1-$2 per sub), and the top-up platform for the remaining 24%. Cox emphasized that the recent completion of key development tools, such as eSIM capability, number portability, and device compatibility lookup, now positions the company to pursue the largest distributors in the country, suggesting significant partnership opportunities ahead.

Anja Soderstrom inquired about the expansion of the Tier 1 customer pipeline and the company's capacity to onboard another major customer, given the expanded rollout with Burger King.

Answer

CEO and President Savneet Singh confirmed the Tier 1 pipeline remains strong and that the company has the capacity for new rollouts. He explained that the Burger King expansion involves a new module, which doesn't impact the core POS implementation pipeline, and that the company is investing heavily in its rollout capabilities to ensure success and pull revenue forward.

Anja Soderstrom asked for commentary on the current M&A environment and any changes the company is seeing.

Answer

CEO Savneet Singh characterized the M&A environment as "very robust," with more companies for sale than historically. He noted that PAR's focus is on bolt-on, tuck-in modules. He observed that while some large transactions have occurred in the market, he expects an increase in smaller and medium-sized transactions to be next.

Anja Soderstrom inquired about the typical time lag for product revenue growth to translate into services revenue growth. She also asked for the reason behind the softer gross margin for products in the quarter and whether the company is affected by tariffs.

Answer

CFO Brian Becker explained that with an average contract term of two years, product sales growth is a leading indicator for future services growth. He attributed the softer product gross margin to geographic and product mix. Regarding tariffs, Becker stated that while A10 is not impervious, they are anticipated headwinds that the company plans for and actively manages with countermeasures. CEO Dhrupad Trivedi added that the company has no market exposure in China.

Anja Soderstrom asked if the new solutions resulting from increased R&D would be an upsell and how they might impact the company's margin profile. She also questioned whether A10 might become more aggressive with its share buyback program given its strong cash position.

Answer

Executive Dhrupad Trivedi responded that the new solutions are intended to expand the product categories sold to customers and that the company remains confident in maintaining its 80% to 82% gross margin target. Regarding buybacks, Executive Brian Becker and Trivedi reiterated that while reinvesting in the business is the top priority, share repurchases are an important part of their capital strategy, balanced against organic and strategic investments and subject to market constraints.

Anja Soderstrom inquired about the composition of the strong backlog growth, asking to quantify the split between new business and supply chain-related advanced orders. She also asked about new customer penetration, margin pressures from raw materials, the status of the avionics market recovery, strategies for combating inflation, and the timeline for the MTronPTI spin-off.

Answer

CEO Michael Ferrantino explained that approximately 10% of the backlog is from new products, with a small amount from supply chain-related advanced orders, and that it is largely driven by existing customers. He confirmed there is room to pass on cost increases with a lag of 8-12 weeks. Ferrantino characterized the avionics market recovery as being in its early stages with more potential. He also stated the company is managing inflation by working with sources and has maintained its workforce. Regarding the spin-off, he targeted a Q2 shareholder vote, a Q3 completion, and noted the new management team would be disclosed in the proxy.