On September 2, Daktronics (NASDAQ:DAKT) reported fiscal first-quarter results that included its highest quarterly earnings per share in three years. Diluted EPS jumped 21.2% year over year to $0.40, even though the quarter ran just 13 weeks against 14 a year earlier. Net sales still grew 7.1% to $234.6 million, and gross margin expanded 80 basis points to 30.5%. For a company that spent years grinding through thin margins, that combination is worth a closer look.
Growth Firing On More Cylinders
The strongest growth came from outside Daktronics’ traditional wheelhouse. International sales surged 66.1% to $28.4 million, fueled by a major football stadium order in Colombia and a 50-display rollout for a longtime out-of-home customer in Serbia. Transportation sales climbed 29% to $21.4 million, as airports in Los Angeles and Spokane ordered narrow pixel pitch displays and transit agencies in Florida and Houston signed on for new systems. Those two segments carry higher margins than the company’s legacy scoreboard business, which helps explain why margins moved even as headline revenue growth looked modest.
Daktronics is also layering recurring revenue on top of hardware sales. Camino 8, its real-time graphics engine, debuted at Angel Stadium in April and is set to land in more than 10 NHL, MLS, and NCAA venues this fall. In July, the company launched LiveWorx, a mobile fan engagement platform for high school sports that adds a subscription layer to a business that has historically sold a board once and moved on. The balance sheet backs up the story too: as of August 1, Daktronics held $154.6 million in cash against just $10.5 million in debt, generated $27.5 million in free cash flow for the quarter, and carried a backlog that has topped $300 million for six straight quarters. Management used some of that cash to repurchase 225,500 shares at $19.56 apiece, on top of $29.9 million in buybacks over the last five quarters.
Cracks Beneath The Headline Numbers
Not every line moved in the same direction. New orders fell 19.6% year over year to $191.8 million, which management attributed to large project negotiations still being finalized rather than lost business, with purchase orders expected in the second quarter. High school, park and recreation sales dropped 7.8% to $54.7 million and commercial sales fell 5.3% to $43.7 million, both tied to the timing of project completions. That leaves investors trusting that revenue currently sitting outside the backlog shows up on schedule.
Input costs are also creeping higher. Rising RAM and other component prices pushed cost of goods sold up, largely canceling out $3 million in tariff refunds booked this quarter, and Daktronics has started raising prices to offset the pressure. Separately, the company disclosed that the Securities and Exchange Commission is seeking information about Daktronics and NBA player Kawhi Leonard as part of a league investigation into the Los Angeles Clippers, a matter management declined to detail further. Daktronics is also weighing an exit from its customized international transportation business, a move that could threaten its Ireland facility and has already triggered a collective redundancy consultation with employees there.
What The Market Is Pricing In
Hedge fund ownership slipped from 25 funds to 21 in the most recent quarter, a modest pullback rather than an exodus. Short interest sits at just 5.12% of float, pointing to limited organized skepticism toward the stock. Shares trade at a forward P/E of 15.43 as of September 10, a multiple that does not obviously price in 21% EPS growth or the margin expansion already underway. That gap between a still-modest valuation and accelerating profitability is the tension worth watching.
Where This Leaves Investors
Daktronics enters its fiscal second quarter with record quarterly profitability, a backlog that has held above $300 million for a year and a half, and new growth engines in international and transportation sales. It also enters that quarter with an order book that shrank on paper, rising input costs, and two open-ended risks in the Kawhi Leonard inquiry and the potential Ireland restructuring. For the growth story to hold, the delayed orders need to convert into purchase orders as management expects in the second quarter.
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