Earnings Call Transcript - DAKT Q2 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the Daktronics Second Quarter FY '26 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsey Vetter. Please go ahead, ma'am.

Lindsey Vetter, Investor Relations

Thank you, Michelle. Good morning, everyone. Thank you for participating in our second quarter earnings conference call. During today's presentation, we will make forward-looking statements 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. 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 company presentation slides, which can be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the 2026 second quarter, which was furnished to the SEC on a Form 8-K 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 Brad Wiemann, Daktronics Interim President and CEO.

Bradley Wiemann, Interim President and CEO

Well, thank you, Lindsey. And good morning, everyone. Thank you for joining our second quarter fiscal 2026 call. I'm joined on the call by Howard Atkins, Board member and acting Chief Financial Officer. We will review our fiscal 2026 second quarter results and accomplishments and then take your questions. Turning to our slide presentation on Slide 3. Here are the key messages from the second quarter. We delivered another quarter of solid results, driving revenue and profit expansion through exemplary execution through the first half of the year. The second quarter of each year is typically marked by a heavy slate of project completions and our team's performance with respect to manufacturing, installation and service execution was excellent, with overall efficient project production and delivery supporting our progressively strong results. During the quarter, we completed a number of large-scale installations, including Miami Freedom Park in Major League Soccer; Baltimore Orioles, Major League Baseball; Aramco Stadium in Saudi Arabia; Zayed Sports City, Abu Dhabi; Philly Airport; San Antonio Spurs; University of Buffalo Football; and a nice digital signage project in Cincinnati Convention Center. Our sales and marketing team secured large orders in our Live Events segment related to 3 Major League baseball stadiums and 3 Major League soccer arenas for recent project wins. We are 5 for 5 on large-scale Major League baseball projects for fiscal year 2026. We also captured strong growth in our Transportation segment with good uptake of airport and intelligent transportation system projects domestically; and our International segment also drove double-digit growth. These efforts together produced 12% fiscal second quarter order growth from last year's across all business segments. Through our efforts, we delivered our third consecutive quarter of top line growth. We continue to improve our profitability in the quarter through both value-based pricing bounded by guardrails and a sharp focus on operational and cost efficiencies. These efforts produced our second quarter of driving operating income over $20 million. While tariff expenses continue to be dynamic and impactful, we are maintaining flexibility on being responsive to this changing environment. We ended the quarter with product backlog of $321 million, which grew 36% year-over-year, giving us a multi-quarter revenue runway for revenue growth. Turning to Slide 4. In our Live Events business, as I mentioned, we won 6 Major League sports projects this past quarter, 3 Major League baseball and 3 Major League soccer, driving 26.5% order growth from last year. As I mentioned, we are 5 for 5 on large Major League baseball projects in fiscal year '26. Additionally, we won several other stadium and arena display enhancements, as customers continue to expand their digital display footprint throughout the venue. We continue to enhance our product and service offerings to align with customer needs and desires such as our narrow pixel pitch product lines, advanced control system capabilities to engage fans and improved seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. Pictured here is CHI Health in Omaha, Nebraska. In our Commercial business, growth in our on-premise advertising business remained strong and up double digit year-over-year. After a strong performance in the first quarter, as customers continue to successfully transition to next-generation fuel price products, which are short term in nature and offer quick deliveries and feature-rich enhancements. In our out-of-home business, our pipeline of opportunities is expanding as optimism and sentiment continue to rise with independent billboard operators, as we further develop their perception of our value proposition through recognition of our brand strength, image quality, reliability, service responsiveness and reputation for innovation with the release of our new billboard product offerings. The outdoor spectacular projects in city centers continue to be highly competitive and variable in available projects. However, our indoor spectacular projects sold through AV integrator channels are growing through narrow pixel pitch product line introductions with streamlined tools and services. We are seeing growth in the government and military space as well as out-of-home advertising in transportation centers. Orders in this segment decreased 5% year-over-year, primarily driven by fewer large projects awarded in the outdoor spectacular business during the quarter. Pictured here is Park Outdoors. This is their 50th install of a Daktronics digital billboard in Syracuse, New York. Transportation business orders grew 15% from last year, driven by increased demand in our Intelligent Transportation Systems and aviation, along with strong demand for whole matrix parking solutions. We were awarded a 5-year procurement contract from the Utah Department of Transportation for intelligent transportation message displays. Through focused marketing and partner network growth, we have also improved our brand position for indoor solutions, leading to quarter-over-quarter opportunity growth. Pictured here is Spokane International Airport parking application display. This is a nice combination of our strengths in roadway displays, airports and parking solutions. Our International business, which serves all the end markets of our domestic segments served outside of North America, is developing well as our efforts to realign our focus on key geographies over the past several quarters is paying off. Second quarter orders in this segment increased 23.6% from last year, with strong demand in the Middle East and European regions from advertising, stadium and transportation customers. We are also seeing strong uptake of our indoor solutions across multiple markets, especially government entities through growing AV integrator channel partners. Pictured here is a large digital billboard installed at the Metropolitan in Dubai, in partnership with Media247. In our High School Park & Recreation business, after a record first quarter, our second quarter orders were comparable with orders in the second quarter of last year. We have expanded our presence among the 30,000-some high schools in the U.S. and continue to win projects by leveraging our strong value propositions and market differentiators. We expect continued strong uptake of our leading solutions and adoption of professional services, particularly in curriculum development and sports marketing going forward. In the picture here, we have Dak Prescott being recognized for his generous contributions to his high school alma mater, Haughton High, in Haughton, Louisiana, part of which included a Daktronics video system. Turning to Slide 5. We announced this morning that we are enhancing our global manufacturing footprint with the opening of a facility in Saltillo, Mexico, with a target for production operation in late April 2026. This location is strategic in that it offers a broadened network increasing the agility of our global production capacity, provides opportunity for growth in line with our growth projections, favorable trading relationship with the United States and trading relationships with key supplier countries. Overall, the new facility will complement our existing footprint and offer optionality as we optimize production going forward. Moving to Slide 6. Our commitment to innovation continues to drive market differentiation and value for our customers. In the second quarter, we've made significant progress in the following areas: delivering solutions that address evolving market demands. First, we expanded our narrow pixel pitch offering in the U.S. market with an additional 2.5 millimeter chip-on-board model. This new model is more robust and lighter weight than previous product offerings and delivers superior image quality at low skewing distances, making them ideal for high-end retail, corporate environments and venue applications where visual excellence is non-negotiable. Second, we introduced our new billboard product series, a next-generation entry-level digital billboard designed and cost-optimized for the out-of-home advertising market. This product brings enhanced performance and operational efficiency to outdoor applications, expanding our competitive positioning in the billboard space. Third, sports venues are demanding easy-to-use integrated and mobile technology solutions. Our new All Sport Lite mobile scoring app delivers a modern approach to entry-level scoreboard control. Designed for youth sports, practices and community events, it makes scoring simple and intuitive for everyone from coaches to volunteers. Last, we launched our Venus Control Suite Live, our cloud-hosted content management system, purpose-built for live event venues. This platform enables seamless control and management of display content from anywhere, giving venue operators greater flexibility and control over their digital assets. For the remainder of fiscal 2026, we have 3 significant product launches planned: A next-generation LED street furniture featuring our enhanced LED technology that targets the premium out-of-home advertising market and delivers improved visual performance and operational capabilities for urban environments. We are also developing a next-generation advanced indoor video display that incorporates customer and market feedback to offer improved visual experience, improved robustness and greater cost efficiency. We are also preparing for the launch of our specialized large-digit fuel price system, which expands our product line offering for high-rise signage for long-distance viewability. The photos shown here are an example of our indoor pixel pitch at a Major League soccer stadium, Sporting Kansas City's Children's Mercy Park, an 18,000-seat stadium designed specifically for soccer; and below that, a shot of our All Sport Lite mobile scoring app, which makes it easy and intuitive to run a Daktronics scoreboard with just a mobile device. Our progress down the innovation roadmap is on schedule. Turning to Slide 7. The implementation of our transformation plan remains on track and continues to deliver tangible benefits to the business and our reported results. Here is an update for the second quarter on initiatives and progress. The strategic price adjustments we have implemented align with our value selling approach allowing us to maintain our premium positioning while protecting margin in the current challenging environment. This initiative is on track, and results to date continue to show customer acceptance of our value propositions. The Software-as-a-Service product trial was launched successfully. This initiative was designed to help identify priority areas for a broader subscription management strategy that we continue to expand upon and will further develop over the next several quarters. The Software-as-a-Service initiative augments how we serve the market, developing recurring revenue subscription models and simplify customer engagement. Our disciplined approach of prioritizing high-growth international geographies and market segments is concentrating our resources where we see the strongest demand and best returns. Our digital transformation projects are improving our process efficiency, modernizing our technologies, driving data insights that improve decision-making and create value for our customers. We are overhauling our quoting platform to make it easier and more efficient for our customers to do business with us. Additionally, as part of our digital transformation, we are building out our AI experimentation roadmap and governance, upgrading our ERP system and making service platform enhancements. As part of our strategic planning process, we are proactively aligning our operations and product designs with the evolution we anticipate in the underlying technologies that drive customer experience and demand. Actions that we have completed include the following drivers of cost benefits and customer experience: Achieving faster inventory turnover and improved inventory efficiency, enhancing our customer experience with our modernized service system launched in May, deploying AI-guided troubleshooting tools with our technical services team to speed resolution of customer issues, improving our input costs through leverage of our purchasing power, reducing product complexity and time to market, and aggressively renegotiating key supply contracts to secure better terms and pricing. Now I'll turn the call over to Howard Atkins, our acting Chief Financial Officer, to review our financials.

Howard Atkins, Acting Chief Financial Officer

Thank you, Brad, and good day, everyone. Thank you for your interest in Daktronics. The Daktronics team achieved another strong quarter in the second quarter with double-digit year-over-year growth in new orders, sales revenue, and operating income. This slide compares the second quarter with last year's second quarter for year-over-year analysis and the first quarter of fiscal '26 for sequential results. Let's begin with net income. Daktronics' second quarter '26 net income after tax was $17.5 million or $0.35 per fully diluted share. Last year's second quarter net income was $21.4 million, which included a $10.3 million fair value adjustment on the converted convertible note and $2.8 million of consulting expenses related to business transformation initiatives. Adjusted net income last year was therefore $13.9 million after excluding these nonrecurring expenses and noncash benefit. Our second quarter 2026 net income increased by 25.4% on a fully adjusted basis. Our effective tax rate for the second quarter was 20%, compared to a statutory average of 25%. Due to solid earnings this year, we're able to take advantage of new tax laws allowing accelerated depreciation of R&D and other expenses. On a pretax basis, operating income for the quarter was $21.6 million, compared to $15.8 million in the second quarter of 2025, which included $3.3 million of transformation-related consulting expenses. Our strong bottom line results were driven by revenue growth at the upper end of our 7% to 10% target range, capturing pricing benefits and structural cost savings from our business transformation initiatives. Our gross profit margin was 27% in the second quarter, and our operating margin was 9.4%, both of which improved from last year, with the operating margin close to our target of 10% to 12.5%. These key margins are influenced by a number of factors, including robust order growth, backlog revenue from three consecutive quarters, and efficient order-to-revenue conversion. Additionally, we benefited from fixed cost operating leverage as total revenue increased relative to fixed costs. Our value-based pricing initiatives have been integrated into all our product and project pricing. Lastly, operational efficiencies emerged from our supply chain transformation work and initiatives aimed at reducing structural costs. However, this year's tariff expenses, which we did not incur last year, did have a negative impact. This year, our tariff expense amounted to $8.8 million in the second quarter, compared to $1.5 million in the second quarter of fiscal '25. Now I'll shift to our business segment revenue. One of our key goals has been to diversify our revenue sources, reducing reliance on any single business segment while generating more organic recurring income. The table displays contributions to our revenue growth from each segment in the second quarter of this year and last year, along with sequential data from the first quarter of fiscal '26. It also shows the gross profit margin for each segment in the second quarter. Various factors drive revenue in each segment, including strong order growth, our value-based pricing initiatives, and expanding our sales and marketing teams along with our focus on control systems and customer experience. We've experienced solid growth both year-over-year and sequentially, as indicated in this table. The data also reveals a shift from the first quarter to the second quarter, with a greater proportion of revenue coming from Live Events now. Turning to the segment product backlog, our product backlog was $321 million at midyear, reflecting a nearly 36% increase from last year. Conversion of product orders to revenue entails several variables, including mix. For instance, in the second quarter, Live Events constituted about 35% to 36% of our order mix. However, as depicted in the chart, Live Events form about half of our backlog mix currently. This suggests that major products we've announced are anticipated to begin converting next spring. Fully converting the backlog will take time but should lead to more predictable growth and improved revenue recurrence. Timing also plays a role; for example, the Tennessee Titans order we booked last year will not start until after the current third quarter. Additionally, holidays tend to slow revenue conversion in the third quarter due to Thanksgiving, Christmas, and New Year's, resulting in typically lower revenue during this period. Next, I will discuss our inventory efficiency. One initiative resulting from our business transformation analysis has focused on enhancing inventory management efficiency. The early results of this program have been successful. The chart displays our inventory-to-sales ratio over the past five quarters, illustrating that we've managed to operate with leaner inventories as revenue grows. This has strengthened our balance sheet, leading to a higher investable cash position and helping to mitigate tariff costs on excess inventory. Now, let’s review our balance sheet. Strength has consistently characterized our balance sheet, and we plan to uphold that moving forward. At the conclusion of the second quarter, our net cash balance was $138.3 million, up approximately 20% from last year's $115.5 million year-end position. The rise in our cash position stems from both strong earnings and effective working capital management. Currently, the company has the capacity to repurchase up to $25.7 million in shares, which includes $5.7 million from previously authorized unused repurchase capacity and an additional $20 million authorized recently by the Board. We also announced that in late November, we transitioned our commercial bank back-up credit line from an asset-based facility to a cash flow facility, which lowers costs and offers additional financing flexibility if needed. With an increased cash balance, the company is well-positioned to optimize capital and invest for higher shareholder returns. Importantly, we have no outstanding borrowings under our bank line of credit, and none are currently planned. In summary, we delivered a solid quarter marked by double-digit order revenue and income growth while maintaining strong operating profitability. With better sales tools and expanded sales teams, we built a strong backlog heading into Q3, providing a favorable outlook with potential revenue growth over the next few quarters. Our solid balance sheet gives us enhanced flexibility for capital optimization. Looking ahead, while the third quarter is typically slower due to holidays, we remain focused on achieving year-over-year revenue growth. We continue to invest in innovative products and services to maintain our technology leadership, aiming to increase the recurring contributions from our services suite to consolidated revenue. This shift promotes less capital-intensive revenue streams and benefits our return on invested capital. Furthermore, we have bolstered our balance sheet and raised our share repurchase capacity to minimize dilution and enhance investor returns. We plan to hold an Investor Day in early April and will provide more details as they arise. Now I'll turn the call back to Brad.

Bradley Wiemann, Interim President and CEO

All right. Thank you, Howard. Moving to Slide 14. The forward-looking plan that we created 3 quarters ago was designed to materially improve our sustainable growth, market penetration, overall profitability and return on invested capital that our business model delivers. To date, our efforts are successfully accruing margin benefits, and we are tracking overall toward our objectives of operating margins of 10% to 12%, operating it in the top quartile return on invested capital target of 17% to 20% and achieving a compound annual growth rate of 7% to 10% by fiscal year 2028. Our plan is in place. We are executing on it. We have work to do, and our team is committed to its success. Going forward, we will continue to implement improved financial planning protocols and incentive compensation plans that better align compensation with shareholder value and with annual operating performance, enhancing our ability to drive business results and compensate accordingly. Turning to Slide 15. As we look forward to the second half, our product backlog, as Howard mentioned, is $321 million, up 36% year-over-year, capturing demand and driving multi-quarter revenue tailwind. We have demonstrated our increased efficiency and revenue conversion and successful inventory, supply chain, manufacturing and cost management. Our pipeline of market opportunities is supporting our growth objectives. We are adding manufacturing capacity in Mexico and in Ireland to increase our flexibility and complement the 80% of product fulfillment currently completed in the U.S. We are staying responsive and flexible in a dynamic environment. We are focused on differentiated industry-leading product introductions and supporting growth through high-return product research and development, and we are executing our transformation plan with its benefits demonstrated in our results. We are on track with our road map and our 3-year growth, profitability and return targets. I want to thank the entire Daktronics team for their continued focus, strong performance, ingenuity and dedication. I'll now turn the call over to Andrew Siegel, Chairman of the Board, for some further remarks.

Andrew Siegel, Chairman of the Board

Brad, thank you, and thanks to you and Howard for leading the team to another strong quarter as we'll execute on our plan to drive growth and shareholder returns. Both of you talked about the outlook. So it's an appropriate time for me to introduce Ramesh Jayaraman, who officially starts work at Daktronics today and will assume the President and CEO role as of the start of the fourth quarter in February. The Board's most important job is to make sure the person running the company has the energy, ambition, skills, experience, character and talent to lead the team to achieving the company's potential. Clearly, the steps that Board has taken over the past 2 years demonstrate how much your Directors believe in and are committed to that potential. You saw last week's announcement, so I don't need to repeat any of that except to summarize that the Board selected Ramesh from among many highly qualified and interested candidates for this position because he is a transformational leader. He's a proven operator, he's a business grower, he's built distribution channels all over the world, he's a high-energy guy who sets the sights high and build teams that deliver. He knows our industry well through his time at Harman and at Bosch. He's managed P&Ls our size and bigger, and he's driven growth organically and through M&A at higher than market growth rates. So although he just started today and isn't in a place to start answering questions just yet, we wanted to use this opportunity to have him begin to introduce himself to all of you with more to come over the next few months, including at the Investor Day. Welcome, Ramesh.

Ramesh Jayaraman, Incoming President and CEO

Thank you, Andrew. Good morning, everyone. I just want to take this opportunity to introduce myself and say how honored and energized I'm to join Daktronics. I have known Daktronics for the past nearly 10 years of association in the AV industry. I'm excited to join Daktronics at this pivotal time as we continue the journey of transformation for sustainable and profitable growth. I'm looking forward to working with the very talented Daktronics team and serving the team as their CEO. I'll be officially starting in the CEO role from February 1. And my time between now and then will be to look less and learn more, so I can hit the ground running in the fourth quarter. Thank you again for your interest in Daktronics, and I look forward to meeting you at the upcoming Investor Day in April. Brad, back to you.

Bradley Wiemann, Interim President and CEO

Okay. Thank you, Ramesh, and thank you, Andrew. I'll now turn the call back over to the operator for questions.

Operator, Operator

Our first question will come from Aaron Spychalla with Craig-Hallum.

Aaron Spychalla, Analyst

First, I appreciate the continued disclosures in the presentation this quarter, especially on the backlog by segment. Can you just maybe talk about how you expect that to convert to revenue over the fiscal year and just kind of the margin profile in there? I know it can kind of vary by segment. And then just you talked a little bit about order conversion, just how does kind of book to ship how does that look if we kind of think about backlog plus that?

Howard Atkins, Acting Chief Financial Officer

A lot of factors contribute to converting orders into revenue. One key aspect worth highlighting in this call is that a larger percentage of our backlog is now in the Live Events segment. Statistically, Live Events orders made up 36% of our total orders in the second quarter, while they account for about 50% of our backlog. This indicates a shift in our backlog towards Live Events. It's important to remember that Live Events orders typically don't begin immediately; they are customized orders with varying starting dates. For example, the Titans order won't start until after the third quarter, meaning it won't generate revenue in that period. Additionally, the stadium orders that Brad mentioned will be distributed throughout the spring. This means that it can take time for orders to generate revenue, but on the positive side, it leads to more recurring and predictable revenue over a longer timeframe. Another aspect to consider is the seasonally slow third quarter, which we expect again this year due to the holidays that consistently fall in this quarter. Lastly, we also have the potential for order growth to factor in. I want to ensure that the chart we presented isn't misleading; it focuses on backlog conversion. We will receive new orders each quarter, which will contribute to our revenue growth as well. Many elements play into this process, and we've tried to emphasize the distinction between when orders begin and their impact on revenue, particularly for Live Events.

Bradley Wiemann, Interim President and CEO

Yes. Maybe just to add on to that, Aaron. Our standard order business typically turns in weeks 4, 6, 8 weeks and our large project business has all those variables that Howard mentioned. So we have room in our third quarter yet to bring in orders and convert it to revenue in our standard order business.

Aaron Spychalla, Analyst

Understood. And then maybe can you just touch on the margins that you've been adding to backlog? And maybe just looking at like year-over-year the kind of margin improvements, any way to just, at a high level, roughly quantify the breakdown between some of the value-added pricing or operating efficiencies just kind of to get a better idea and really good performance, especially considering the tariff impact as well?

Howard Atkins, Acting Chief Financial Officer

Well, that is the story. Value-add pricing and the operating efficiencies from our previous work on structural cost savings have positively impacted the operating margin. I emphasize this because our gross profit margin is influenced by various factors that can change from quarter to quarter. The key point is that we approached a 10% operating margin again, which is a result of value-based pricing, order growth, and structural cost efficiencies from last year's efforts, partially offset by the additional tariff. This is significant because our extra tariff expense this year is nearly $8 million more than what we incurred in the same quarter last year, yet our margin is still higher than it was a year ago.

Aaron Spychalla, Analyst

Yes. Understood. Yes, I was just trying to understand if you did kind of ex the tariff impact, it's almost 13% operating margin, up 400 basis points year-over-year. I was just trying to understand any kind of breakdown of what that split could be between value-added pricing and just maybe some breakdown of the operating initiatives. But maybe third on the Mexico plant, can you just talk about how much that expands capacity by maybe in percentage terms or dollar terms? Are there any kind of segments this is focused on, in particular, and it seems like there's some benefits to the business from a tariff perspective. Just how much investment might be needed for that plant?

Bradley Wiemann, Interim President and CEO

Yes. It's a small investment. We're leasing the facility in Mexico. We're putting some equipment in there. What we build and how we go about it is going to be determined over time, but this was complementary to our plants here in the U.S. as well. So we're able to bring product in, have it assembled, manufactured and brought into the States. It's a small operation at this time. We have room for growth if we need to do that, and that leads into that comment I made about optionality earlier today, optionality into the future about our overall production capacity and where it's at and how it plays into tariffs and all the other things that come our way. So it's a small operation at this time.

Aaron Spychalla, Analyst

No, I appreciate that. And then just maybe one last quick one. I appreciate again the slide on inventory management and just good to see the working capital management over the last year getting the cash conversion cycle down to kind of pre-COVID levels. Just how do you see that trending moving forward? How much more room for improvement do you see from those types of initiatives on working capital?

Howard Atkins, Acting Chief Financial Officer

I'd say it's going to remain a focus of the company, but we're pretty much where we try to get to as a result of the analysis that we did last year and basically pairing off excess inventory and putting in place the processes to keep it managed efficiently. So it'd be misleading to say it's going to improve a lot more from where it is right now. But as revenue grows, that's going to have a positive impact.

Operator, Operator

Our next question comes from Anja Soderstrom with Sidoti.

Anja Soderstrom, Analyst

Congrats on the nice performance here, and welcome on board Ramesh. I'm curious, given the strong backlog growth that we saw, how should we think about the third quarter softening?

Bradley Wiemann, Interim President and CEO

Well, you mentioned it. We have a great backlog coming in. The softening, Howard talked about it as far as the holidays. We have fewer days, fewer available work days to convert inventory or convert our backlog over into revenue. So that's the primary thing. But we are sitting in a nice backlog, and we'll use the factories to the extent that we can and plan to have employees take some time off during the holidays.

Anja Soderstrom, Analyst

Okay. And then in terms of the capacity, I know you are adding the Mexico plant, how should we think about the capacity utilization in the U.S. and in the other facilities? Are you continuing some production from there to Mexico or are you seeing the growth going into Mexico?

Bradley Wiemann, Interim President and CEO

No, this is really fitting into our growth objectives. So that's the overall plan, the 7% to 10% that we talked about over the next 3 years. This is complementary to that. So we don't plan to move any work from the U.S. factories over to Mexico, and so this is part of our expansion plans.

Anja Soderstrom, Analyst

How much revenue can this footprint support before further expansion is necessary?

Bradley Wiemann, Interim President and CEO

Yes. We are establishing a small footprint in that location, and approximately 80% of our production for customers globally continues to come from our U.S. factories. This situation remains unchanged. This initiative is part of our broader revenue expansion strategy and, as previously mentioned, it's a modest footprint. Therefore, I anticipate that we will maintain that 80% production level in the U.S., contributing to our growth expansion.

Operator, Operator

And I am showing no further questions at this time. And I would like to hand the conference back over to Brad Wiemann for closing remarks.

Bradley Wiemann, Interim President and CEO

Well, thank you, everyone, for joining the call today. And we will be appearing at the Sidoti conference in January. Have a wonderful holiday season, as we want our employees to do as well. And we look forward to speaking with you on our third conference call, our third quarter call. Have a great day.

Operator, Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.