Daktronics Inc /Sd/ Q4 FY2026 Earnings Call

Good day, everyone, and thank you for standing by. Welcome to Daktronics' fourth quarter fiscal year 2026 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, please press star 1-1 again. 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.

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 2 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.dactronics.com. Our earnings release for the 2026 fourth quarter, which was furnished to the SEC on a Form 8K 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.

Thank you, Lindsay, and good morning, everyone. Thank you for joining our fourth quarter fiscal 26 call. I'm joined on the call by Howard Atkins, board member and acting chief financial officer. This morning, I'll recap our fiscal 26 results and operating highlights, including our business accomplishments, how we are tracking towards our fiscal 28 objectives, and our strategic pillars for growth. Then Howard will review our fourth quarter and full-year financials, and finally, towards the end, I'll discuss our fiscal 27 outlook, and then we'll take your questions.

Let's move to the next slide to recap fiscal 26.

We're absolutely proud of the results our team generated in fiscal 26. We delivered record annual revenues and record annual orders, drove meaningful expansion and operating margins and EPS growth. Let's focus on the left-hand side of the page. Our actions resulted in performance we strove for. For the year, we delivered 10-plus percent order bookings growth, nearly 11 percent net sales growth, a 290 basis points expansion and operating margin, and 25% growth in adjusted EPS to $1.05. We enter fiscal 27 with a backlog of $3.56 million, up 4% over prior year. Howard will provide more details in the financial section, and 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 26. The handing of the baton from Brad Weeman has been extremely smooth. I will continue to rely on his perspective and judgment over the remaining weeks until his retirement from Electronics. In fiscal 26, we accelerated execution of our three-year business transformation. Our teams work 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 as 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 continue 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. And 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, and 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, Major League projects, including an LED refresh using our renewed product line at the Chicago Wrigley Field pictured here. 11,300-square-foot video display for the Seattle Mariners, among the largest in Major League Baseball, and 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 electronics show control, amongst many others we are already seeing great results from a strategic partnership with grass valley combining diatronics 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 set up 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 roles. 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 timesquare order in Q4. Our opportunity creation is very strong coming into 2027. Pictured here is the Sun River 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. And in October, U.S. production content requirements under BABA increase, 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 ship-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 school's business, HSPR, we earn 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 datronic sports marketing support our best-in-class school curriculum that classroom and our other paid professional services continue to provide important competitive differentiation pictured here is the Madeira high school football in

Cincinnati Ohio our international business we want 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 those advertising for their premium digital out-of-home locations strengthening that chronic 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 focus growth and regionally tailored product as we outlined 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 FY26 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 square foot 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, and we have the potential to add the manufacture of other displays in the future. Production is planned to begin in July 26, and first shipments are estimated in the Q2 time frame. Next, 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 electronic show control systems, providing real-time data graphics, lighting, audio, and other venue elements for live storytelling playback directly to LED displays. It is a 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 achieve cost efficiencies through process automation, which is helping us serve our customers with the continued Datronix class-leading service.

Moving to the next slide.

Our results exiting fiscal 26 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 2 to 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. And we are deploying capital to maximize our returns to our shareholders. Now I'll turn over to Howard Atkins, our acting CFO to take-through financials.

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 IBT, 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, and 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, and we are able now to take advantage of the new tax laws this year permitting accelerated depreciation for research and development. We've turned to the slide on our orders of sales and also our gross margin. Fiscal 26 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 an associated three-year plan from 2025 to 2028 just to point out if you remember in the latter part of fiscal 25 and early 26 we had some anticipatory demand in front of the announced pricing changes that we instituted that year so 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 continued 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 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 26 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 26, 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 26 with a more challenging input cost environment, including tariff headwinds and continued uncertainty around tariff rates, timing, exemptions, and competitive responses. Now, against that backdrop, our teams use 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 focus again on 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 remain relatively consistent at approximately 62% of total revenue. As we have 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 of 4% from last year's fourth quarter. With the exception of 2024, which was basically a bounce back from COVID, the average quarter and backlog during fiscal 26 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 the year-end backlog will convert to revenue in the first quarter. And again, that will be supplemented by the same quarter book, the bill. Let's talk about expenses and efficiency and productivity. A combination of depreciation, 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. I'll point out that product development expenses in 2006 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. And our results have now already begun to include startup costs associated with the addition of 110, 111,000 square feet 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 chart shows, this next chart on slide 11 shows our growth and inter-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 percent, quarterly adjusted earnings per share rose 50 percent, 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 26, 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 dollars average cash balance in 2025. Since the fourth quarter of fiscal 25, we have repurchased approximately 46 million dollars of common shares. In fiscal 26, just for the year, the company returned approximately 56 percent of its net income to its shareholders to approximately 25 and a half million dollars were purchased at a volume weighted average price of seventeen point eight dollars a share these were purchase or purchases reflect our discipline capital allocation framework and our confidence in the long-term value creation opportunity for datronix as we look to fiscal 27 we're starting from a position supported by 356 million dollar 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 reward, timing, product production schedules, installation milestones, and seasonal patterns. As a reminder, the first quarter of fiscal 27 will include 13 weeks this year, this coming year, with 14 weeks

in the first quarter of fiscal 26. That will be, of course, a factor in considering comparing year-over-year results

as we move through the early part of 27. 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 28 growth and margin targets.

Now I'll turn the call back to Ramesh. Thank you. Thank you, Howard. I want to reiterate our fiscal 28 guidance on slide 12.

Our fiscal 26 performance and our position entering fiscal 27 keeps us on track with

our fiscal 28 targets, and we are reaffirming each of them today. As we look at growth, we're looking at 7% to 10% revenue CAGR, second, from an operating

margin perspective being the 10% to 12% range, and ensuring our ROIC will be in the 17% to 20% range. We enter Fiscal 27 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 28 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 27 outlook

to the going forward strategy. We enter fiscal 27 with a robust pipeline, the strength of our operating foundation, clarity of our execution roadmap, and back with the $356 million backlog. Fiscal 27 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 it in yesterday, our strategy is focused on three priorities designed to create shareholder value. One is accelerating organic growth. Two, strengthening operational excellence. And 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 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

while share by funds.

We enter fiscal 27 with momentum, energy, and focus. I'm very proud of the executive team, our nearly 2,700 Dattronics family members for their continued dedication, execution, focus, and delivering to our customers now we'll turn the call over to the operator

to take questions so much and as a reminder to ask a question press star 1 1 on your telephone and wait for your name to be announced to remove yourself press star 1 1 again one moment while we compile the Q&A roster one moment for our first question, please. It comes from the line of Aaron Spicciolo with Craig Hallam Capital.

Please proceed. Yeah. Good morning, Ramesh and Howard. Thanks for taking the questions. Maybe first for us, you kind of noted strong pipeline multiple times and sounds like it's, you know, across the business. Can you just maybe talk about any areas of you could see some outsized growth as we think about FY27, just kind of confidence in that growth as you pursue those FY28 targets. And then talk a little bit about just margins that you're seeing today, you know, bookings, backlog related as we think about the next year. Yeah, thank you, Aaron.

Look, across the board, what we see is the pipeline continues to be strong. You know, Bigger question here is just related to conversion and when the conversions will happen. You know, as we keep close proximity to the customers, what we know is, you know, it is clearly their intent to go ahead and do some of these. And the big question right now for us is, you know, how they will convert into bookings and then eventually transform into revenue, you know, and how the timing would kind of be. But, you know, what we can say is as we just look at the overall pipeline metrics and where we stand, you know, we'll say they are robust at this stage. And that stands across all of our vertical markets.

Gotcha. And then maybe kind of margins that you're seeing today as you kind of go to bid and, you know, really good performance there. Any still kind of lingering tariff impacts and just, you know, how you're thinking lean and automation can expand that.

I wouldn't say tariff so much, Aaron. You know, there's, you know, a couple of cross currents in the market. You know, 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.

So we're very focused on both the margin side of the equation as well as the growth side of the equation.

And then just any kind of, you know, guidepost where you're at, kind of lean automation efforts, you know, what inning is we maybe think about the performance so far and what's to come?

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. But 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. So there's more to come that's sort of just getting underway on the indirect and deeper on the direct side of procurement and then, you know, beginning to develop or complete our plans on lien and automation and the network.

Understood. And then maybe just one last quick one on free cash flow. You know, look like you consumed a little bit there in the fourth quarter, you know, working capital. Can you just maybe talk about the dynamics there as we think about FIA 27?

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, which 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. So that's just the timing thing. So we should see the reversal of that earlier.

Thanks for taking the questions. I'll turn it over.

Thank you. our next question comes from Tom Hayes with Roth Capital Partners. Hey, good morning, guys. Thanks

for taking my questions. Hey, Tom. Hey, Howard, maybe 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? It's been running at $50 million. And again, there's, you know, 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, you know, are not really contributing to either the growth rate or the margin of the company. By the same token, we are, you know, coming through a period now where things like automation will involve some more CAPEX. So 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, you know, the right ROIC for us.

Okay. That makes sense. May, Rebesh, for you on the Camino 8 rollout, just kind of high level, maybe just describe how that differs from products on the market currently and associated with that. Is there a reoccurring revenue component to the Camino 8?

Yes. So there will be a combination that will sit with 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. You know, I mean, I think we had our first showcasing in April. You know, we've got a pipeline that's beginning to build, so I feel very energized with the pipeline that's beginning to build. And also just given the time backs and the other things we're doing with other technologies, you know, there seems to be a pretty good interest in terms of where we are headed. And I think the biggest advantage here is for the customer. in terms of making it seamless you know so what we are doing is focusing on the operator of a stadium and helping it make it seamless for them and that's a big

value act from their standpoint okay appreciate that maybe just one follow up for Howard just got again so kind of new to the story if you go back to q1 of last year gross margin of 29.7 percent coming out later for the year was there anything specific that kind of drove that and then just so you kind of model correctly for

for this year yeah I alluded to that a little bit today but last year remember tariff tariff had just been announced in April we had announced pricing increases we saw a little bit of a kind of anticipatory demand in front of the pricing increases as well as in front of the the tariff changes and those two things are in some sense connected and that occurred particularly in an HSPR so we go back and you look at the last quarter of fiscal 25 in the first quarter of 26 we had a decent increase in HSPR orders which then impacted revenue in the in the first quarter and somewhat into the second quarter of fiscal 26. The other thing I would point out is that pricing increases that we introduced in the early part of 26 kind of led the effect of the tariff increases right because we were we were supplying or fulfilling those standard orders which are which are quick turns in terms of revenue of production with inventory that we already had on hand that weren't impacted by the tariff increases. Tariff increases followed. So we did have some positive benefit late 25, early 26, both orders and revenue connected primarily with HSPR. Great. Appreciate the call. Thanks for the

questions thank you so much and as a reminder if you do have a question simply press star 1 1 to get in the queue our next question is from Anya Sonderstrom with CIDOTI please proceed everyone thank you for taking my

question a congrats on that nice performance just curious for the Mexico facility what kind of impact do you think that will have on the margin and And will it sort of mute the margins before you ramp and then help it improve?

I think the Mexico facility, first of all, Anya, is to, you know,

as you can see with our growing demand across all the businesses, we need production capacities to, I think, tie it back to our customer needs. And, you know, 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. And that gives us constricted timelines to go deliver to the stadium. So 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, you know, provided how all tariffs and other stuff work, this should result in better margins over a period of time. I don't think it will be initially, but it will happen over a period of time. And 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. So this will be a combination effect that we'll basically see in the P&L.

Okay, thank you. And then it seems like commercial is a little bit of a challenge at the moment. What initiatives can you take there to sort of drive that demand?

Can you repeat that question again? Sorry, Anya.

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.

Yeah, so look, the commercial business, you know, 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. So we kind of see 26 as a period of a little bit of a dip in terms of where customers invested. But 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. and I think it's yet to be seen. You know, what we see is the pipeline is strong. What we have to see is, you know, how the conversion kind of works through. But we are monitoring this very closely and is a focus for us as a company.

Okay, thank you. That was all for me.

Thank you so much. And 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.

Well, first of all, thank you to 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 and 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.

Thank you, and this concludes our conference. Thank you for participating, and you may now disconnect.