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DAKTRONICS INC /SD/ (DAKT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 was seasonally soft: Sales $149.5M (-12.2% YoY), gross margin 24.6% (flat YoY), GAAP operating loss $3.6M and GAAP net loss $17.2M driven by a $14.1M non-cash fair value expense on the convertible note; non-GAAP adjusted operating income $1.2M and adjusted net income $0.5M .
  • Orders were $186.9M (+5.2% QoQ), backlog rose to $273.2M (+$37.2M QoQ), including a major NFL stadium booking; management highlighted emerging booking delays linked to tariff and U.S. federal funding dynamics .
  • Leadership transition: Reece Kurtenbach stepped down as Chairman, President & CEO; Brad Wiemann appointed Interim CEO; Howard Atkins appointed Acting CFO & Chief Transformation Officer; Andrew Siegel named independent Chair .
  • Strong cash generation and balance sheet actions: cash from operations $12.0M in Q3 and $74.8M YTD; working capital ratio 2.4:1; conversion of $13.9M face value of the convertible note in Q3 with forced conversions to eliminate remaining tranches in early March; $9.0M share repurchases to offset dilution .
  • Stock reaction catalysts: leadership change and governance steps (Alta Fox cooperation, Investor Day commitment, litigation withdrawal) plus tariff commentary and cost transformation cadence .

What Went Well and What Went Wrong

What Went Well

  • Preserved gross margin despite lower volume: “we successfully preserved our gross margin and increased quarterly cash flow... through cost mitigations, favorable sales mix, and careful working capital management” .
  • Sequential order growth and diversified strength: orders +5.2% QoQ, with Commercial and International led by Out-of-Home; secured a major NFL stadium project .
  • Continued cash generation and working capital discipline: Q3 operating cash flow $12.0M; YTD operating cash flow $74.8M; inventory down 18.3% since FY2024 year-end .

What Went Wrong

  • Revenue down and deleverage: Sales fell 12.2% YoY; Live Events and Transportation volumes lower; operating expenses increased to $40.4M including $4.8M related to transformation and governance, driving GAAP operating loss .
  • GAAP net loss driven by non-cash mark-to-market: $14.1M fair value expense on the convertible note created a GAAP net loss of $17.2M; adjusted net income was $0.5M .
  • Booking delays and cost headwinds: management cited delays in U.S. bookings tied to tariffs and federal funding priorities; transformation and governance costs expected to remain elevated in Q4 .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$170.303 $226.088 $208.331 $149.507
Gross Profit ($USD Millions)$41.718 $59.698 $55.863 $36.781
Gross Margin %24.5% 26.4% 26.8% 24.6%
Operating Income ($USD Millions)$8.036 $22.716 $15.770 $(3.628)
Operating Margin %4.7% 10.0% 7.6% (2.4)%
Adjusted Operating Income ($USD Millions)$8.036 n/a$19.114 $1.213
Net Income ($USD Millions)$10.742 $(4.946) $21.406 $(17.156)
Diluted EPS ($USD)$0.09 $(0.11) $0.22 $(0.36)
Cash from Operations ($USD Millions)n/a$19.481 $43.300 $12.000
Orders ($USD Millions)$192.063 $176.170 $177.590 $186.904
Backlog ($USD Millions)$328.300 $267.200 $236.000 $273.200

Segment net sales (Q3):

SegmentQ3 2024 Net Sales ($M)Q3 2025 Net Sales ($M)
Commercial$33.292 $37.976
Live Events$73.393 $46.072
High School Park & Recreation$28.764 $29.367
Transportation$19.605 $18.789
International$15.249 $17.303
Total$170.303 $149.507

Selected KPIs:

KPIValue
Operating expenses (Q3)$40.409M
Non-cash fair value change (Q3)$(14.083)M
Cash & equivalents (Q3)$132.169M
Debt outstanding (total current + long-term, Q3)$42.5M
Working capital ratio (Q3)2.4:1
Inventory change since FY2024 year-end-18.3%
Free cash flow (9M FY2025)$60.383M
Share repurchases (Q3)~$9.0M; ~535K shares
Convertible note actions$13.9M converted in Q3; forced conversions of ~$6.9M (Feb 3) and ~$4.2M (Mar 4) to eliminate remaining tranches

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Orders growthFY2025“continues to expect order volume to increase for the full fiscal year” “anticipate year-over-year growth in order bookings,” while seeing delays in U.S. bookings due to tariffs/funding priorities Maintained, with caution
Transformation consulting costsQ4 FY2025n/a$1–2M expected in Q4 New
Corporate governance costsQ4 FY2025n/a“expect some costs related to this work in the fourth quarter” New
Long-term operating margin targetBy FY2028“expand operating margins” (strategic aims) 10–12% sustainable operating margin Clarified/Specified
ROIC targetBy FY2028“generate returns... mid-to-high-teens” ROIC 17–20% Clarified/Specified
Revenue growth targetFY2026–FY2028“grow revenue faster than addressable market (7–10%)” 7–9% CAGR over next three fiscal years Refined

Note: No quantitative quarterly revenue/EPS guidance ranges were provided; management emphasized backlog/orders trajectory and transformation investments .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2025)Current Period (Q3 FY2025)Trend
Digital transformationQ1: EPM & service tools targeted by FY-end; Show Control enhancements . Q2: progress, go-lives in 2H FY2025; e-sales improvements .Testing/training; EPM consolidation/reporting go-live in May; service system launching spring; sales/quoting tool vendor selected; ERP upgrade planned .On schedule; expanding scope
Tariffs/macroQ2: macro uncertainties; active quoting .Noted delays in U.S. bookings due to tariff policy and federal funding priority changes; tariffs likely hit competitors harder .Near-term headwind
Live EventsQ2: marquee installs (Intuit Dome, Kaseya Center) .MLB upgrades softer; secured major NFL stadium order; revenue conversion late FY26/FY27 .Variable near term; strong pipeline
High SchoolsQ1: strong orders; record quoting .Orders down slightly in Q3 timing; record pace YTD; new higher-margin product; <10% of ~10,000 high schools converted .Secular growth runway
InternationalQ1/Q2: softer orders .Conversion rate improving; strength in Europe/Middle East/Australia .Improving
Supply chain/costsQ2: supply chains stabilized; backlog mix normalizing .Aggressive renegotiation of suppliers; scrubbing entire supply chain for cost and terms .Structural cost-down underway
R&D/Product dev—~$40M annual product development spend; focus on mission-critical high-return initiatives; control systems enhancements .Sustained investment
Recurring revenueQ1: Show Control enhancements .Cloud access features to drive recurring revenue and margin expansion .Building recurring stream

Management Commentary

  • Reece Kurtenbach: “Our orders grew sequentially... securing a major NFL stadium order... we successfully preserved our gross margin and increased quarterly cash flow compared to last year through cost mitigations, favorable sales mix, and careful working capital management” .
  • Sheila Anderson: “Adjusted for one-time consulting and corporate governance-related expenses, operating margin was positive at 1%... we expect to invest $1–2 million more in the fourth quarter for the business and digital transformation initiatives” .
  • Howard Atkins: “We’re aiming for ROIC in the 17% to 20% range by no later than 2028... 7% to 9% compounded annual revenue growth... about $18 million in cost savings by fiscal ’28 from tighter inventory, product simplification, procurement and manufacturing efficiency” .
  • Strategic positioning: “We are the only U.S. manufacturer of scale with a global footprint... world-leading technology leadership, high-quality solutions and world-class service” .

Q&A Highlights

  • Booking delays and tariffs: Management attributed booking delays to timing and large-project lumpiness, with tariffs/funding priorities as a near-term headwind; being a U.S. manufacturer, prior semiconductor tariffs lessen incremental impact vs some competitors .
  • High School market conversion: Fewer than 10% of ~10,000 high schools have converted to video; significant runway with new higher-margin products and control systems .
  • Capital allocation: Board evaluates quarterly; pursuing high-return CapEx, selective tuck-in M&A, and buybacks (Q3 repurchases ~$9M) to offset convertible note dilution .
  • International momentum: Conversion rates improving across Europe, Middle East, Australia; expecting continued improvement absent geopolitical shocks .
  • Cost actions and supply chain: Aggressive supplier renegotiations and supply chain “scrubbing” to maximize terms/conditions and reduce costs .

Estimates Context

  • Wall Street consensus estimates from S&P Global were not retrievable at the time of request due to a daily limit constraint, so we cannot provide a quantitative comparison vs consensus for Q3 FY2025 (EPS/revenue/EBITDA). As a result, estimate comparison is unavailable at this time. Management reported GAAP diluted EPS of $(0.36) and revenue of $149.5M for Q3 FY2025 .

Key Takeaways for Investors

  • Near-term softness is primarily seasonal and project timing; sequential orders rebounded and backlog increased, underpinned by NFL stadium and Out-of-Home demand .
  • Reported GAAP loss was driven by non-cash convertible note fair value; adjusted net income was positive ($0.5M), and operating cash flow remained solid ($12.0M in Q3) .
  • Transformation program has clear targets (10–12% operating margin; 17–20% ROIC; 7–9% CAGR) and tangible cost initiatives (~$18M by FY2028); expect Q4 consulting/governance costs to be elevated ($1–2M) .
  • High School and International provide multi-year growth runways; new control systems and cloud access aim to build recurring revenue and expand margins .
  • Supply chain and pricing discipline are active levers; renegotiated supplier terms and value-based pricing guardrails support structural margin improvement .
  • Governance overhang easing: leadership transition, independent Chair, Acting CFO/CTO, and Alta Fox cooperation (litigation withdrawal, Investor Day commitment) should improve investor confidence and strategic execution .
  • Watch catalysts: tariff/funding policy developments, pace of order conversion (Transportation, MLB/Live Events), execution on digital tools go-live (May), Investor Day disclosures, and Q4 transformation spend cadence .