I'm Anja Soderstrom, a senior equity analyst here at Sidoti. And next up, we have Daktronics. We have the CFO, Sheila Anderson, with us. This will start with a presentation by Sheila, and then followed by Q&A. If you would like to submit a question, you can do so in the Q&A function at the bottom of your screen. And with that, I'm happy to hand it over to you, Sheila. Welcome.
Thank you, Anja. Good morning, everyone. My name is Sheila Anderson, Daktronics's Chief Financial Officer. Thank you for attending and for your interest in Daktronics. At Daktronics, we help inform, entertain, and persuade audiences through dynamic audiovisual communication systems. Our displays and solutions are used by a variety of customer types that can include sport venues, from high schools to professional teams, transportation, mass transit systems, advertisers, like corporate headquarters, museums, retail stores, military applications, and control centers, just to name a few. Please note that our safe harbor statement is here, and any forward-looking statements reflect our expectations and belief about future events. These can change, so please refer to our SEC filings for further information. Daktronics is the number one North American LED video display provider, and third largest by market share globally.
We are an April fiscal year end, so we just completed our first quarter of fiscal 2025, which was off to a great start. For fiscal 2024, we had about $818 million of revenue. So why should you invest in Daktronics? Our mission is to support our customers to inform, entertain, and persuade their customers and audiences. We are the best in class in our industry, and are the only U.S. manufacturer of scale with a global footprint. We have an established customer base, who trust in the value that we provide. What differentiates us from our competitors is our U.S. base, our technology leadership, the high quality of our solutions, and our high-touch service. Our target markets are large and growing, with resilient demand driven by audiences' needs for information, the experience we create with sports fans, and for advertising usage.
Our performance serves as evidence that we can continue to drive financial results and profitability by capturing the growth and market share on the strength of our long-term customer relationships, our global sales and services infrastructure, our continuous innovation, and on our displays, on control systems, and in content creation, which is becoming a greater component of the visual communication experience. To serve our growing markets, we organize by these five end markets, as we approach our customers to deliver best-in-class, interconnected systems and services. As pictured in the upper left-hand corner, our live events segment, we sell into the major arenas, like the Detroit Tigers facility pictured here, as well as to colleges and universities, and other venues that showcase live performances. These sales are generally direct. In our commercial segment, we serve customers that self-promote and advertise for others.
This would include dynamic display usages for both indoor and outdoor, at retail stores, quick-serve restaurants, casinos, and corporate headquarters. We serve customers for larger installations, like you would see in a Times Square or Las Vegas, like the Circa displays at their poolside area, as well as their sportsbook. And then also in this segment, we work with customers who purchase digital billboards for out-of-home advertising use. We're focused on customers in military, corporate headquarters, and other customers with a growing desire to use our narrow pixel pitch product type. We leverage an extensive reseller and AV integrator network channel, as well as we do direct sales for the larger projects or for the national companies that we serve, for their marketing and distribution in this business unit.
In transportation, we're pre-qualified in all fifty states to offer displays that help manage traffic for on roadways or communicate in railway stations and in airports. Our international system or segment is focused on markets outside the U.S. and Canada, with the exception of China, and for displays like those in our high school, park, and recreation market. In high school, park, and recreation, we sell increasingly sophisticated traditional scoring and video display systems for enhanced sporting applications and for other curriculum usage that emulate those used by the larger sports stadiums. These customers also purchase digital messaging centers and other displays to communicate with students, teachers, and their communities. Often, schools incorporate content and local advertising to fund the purchases and monetize their investments. Relationships in our high school, park, and recreation systems are both direct and through reseller and other sales channels.
Then, to provide an easy solution for our operators of these digital systems is to achieve that fan engagement, put up content and imagery that connects with the audiences, and also supports scheduling or live events production, we develop and provide control capabilities. These enable our customers to operate and run the displays, show content that is inviting and engaging, and actually maintain the health of the displays as well. For fiscal 2024, we achieved $818 million in revenue at a 27.2% gross profit. Those results are further broken down in that live events, excuse me, was 21% of our sales. Live events leads in size, as many of those projects are multimillion-dollar investments, and include a project of both product and on-site subcontracted services. Things like electrical, subcontracted steel and installation, and control room setup.
Gross profit in that segment was 28.4% for fiscal 2024. High schools accounted for 21% of our sales at 33.7% gross profit. These often are more product-focused and have less construction services. Next in size is our commercial segment, which was 20% of sales and 21.2% gross profit. Transportation was 10% of sales and was a 30.5% margin. And finally, international was approximately 9% of our revenue at 14.2% gross profit. Included in these sales statistics for fiscal 2024 are services-related revenue, which include things like services after the initial sale, such as event support, control room design or upgrade, on-site training, equipment services, and software as a service type of sales. That total services revenue approximated 8% across all segments for fiscal 2024.
As mentioned in our domestic markets, we have the leading share, and globally, we're third largest in the world. Our global footprint is a differentiator that puts us close to our customers to maximize quality, support, and service. We're headquartered in Brookings, South Dakota, with manufacturing here and in surrounding communities of Sioux Falls, South Dakota, and we operate a factory in Minnesota. These factories approximated 80% of the revenue. We also have manufacturing capabilities in both Ireland and in China, and we have sales and service team members across the country and around the world to effectively reach and support the market long-term. If we look back to fiscal 2024, it was a year of terrific accomplishment. We executed on a number of strategies and made progress towards our long-term objectives.
Some highlights for our year included: we refinanced the company to ensure we have the resources available to serve our customers and build long-term value for our shareholders. We executed consistently to incrementally raise the profitability base of the business by allocating resources to the growing segments and the most profitable segments. We generated substantially higher cash flows through our increased profitability and our management of working capital, and through efforts such as reduction of inventory levels post supply chain correction. On the product front, we continued to innovate to maintain our technology leadership, as seen in releases like the additional narrow pixel pitch product lines and chip-on-board product lines used primarily in indoor applications. With respect to our end market penetration, our teams deepened our relationships with AV integrators in new customer areas to reach those growing markets.
As an example, we delivered displays to a number of military sites this past year. We laid essential groundwork for our digital transformation strategy, making progress in our services systems area, and investing in an enterprise performance management software solution. In our facilities, we've further optimized our manufacturing and site fulfillment processes as we return to serving customers within market lead times. Our industry leadership and market share derives from the diversity of customers and applications we serve, and our growing ubiquity across our addressable market, market segments. Here are some examples, like at the Seattle Kraken Arena in that top row, the unique displays in Times Square at the bottom, the traffic displays at the Minneapolis Airport, and at hundreds of locations and high schools and businesses in your local community, like these samples here.
Overall, our target markets are large and growing, with resilient demand driven by our customers' desire to improve their audience experience in sports, commercial, and transportation environments. Futuresource predicts that our markets will grow to $20.8 billion by calendar 2027, up from $9.3 billion estimated for calendar year 2023. They predict growth in all geographies and products where Daktronics does business or has capabilities. The research also highlights growth in new technologies like in narrow pixel pitch, in which we invested in our product lines from fiscal 2018 - 2020, just prior to the pandemic. The research also highlights growth in standard displays, of which we have rich capabilities. We're focused on profitable growth by capturing more of our serviceable available market, by expanding our share of customer spend, adding new customers, developing control options, and expanding the services that we offer.
Of course, future growth is subject to lumpiness and seasonality for our business. Another best-in-class differentiator for Daktronics is our full-service offerings. This slide shows our business cycle that nurture our global relationships with repeat customers and is a selling point for new customers. The process starts with our innovative designs, often developed in collaboration with our customers, that are then proven in our reliability lab, in which we test our products with rigor under the conditions to which displays will be subject to, to ensure peak performance over the lifetime of the product. It then proceeds to manufacturing in our strategically placed facilities under strict quality controls by our highly skilled teams, and then to installation and ongoing support to ensure our customers are knowledgeable about how to use the display and to ensure that it's operating well.
Our delivery of innovation, collaboration, quality, and high-touch service solidifies our customer relationship around the world, many of whom have come back to us time and time again, sometimes over decades, or come to us after having tried a lower-priced competitor. Our customers use our displays on average between seven to ten years, sometimes as long as 15... and then come back to us for the replacement as technology and the customer experience evolves. We continue to foster our relationship with repeat customers and resellers, and have and are building out ways for them to engage through automation and online solutions. Over time, we've been successful in driving our growth through innovation and technology leadership, either ahead of or in lockstep with our addressable market's growth. Development and increasing sophistication as visual communication has really permeated every aspect of our customer experience.
Today, we're enjoying the growth and returns of our investment in narrow pixel pitch product line, as well as other high-resolution outdoor solutions. We're also investing in future potential technologies to position us for further narrow pixel pitch and more micro LED, as well as reflective low-power displays, intelligent power management systems, and software-as-a-service control solutions. Future opportunities include transportation, international, manufacturing, street-level advertising markets, along with furthering our AV integrator applications. To capitalize on the growth and past initiatives, we're also focused on digital and business transformation, improving our overall cost structure, and further growing our markets. On the digital transformation front, we're investing in foundational enterprise performance management tools that will strengthen our management system and improve data available to guide capital allocation decisions, and focus our investments in the most profitable business segments.
During fiscal 2025, we're also planning to launch a modernized service and solution and tools, which will improve both internal operations and customer experiences. Another focused effort will be planning automation in our front-end quoting and sales processes, which we plan to launch in phases beginning in fiscal 2026. We're also making investments to drive profitable growth and accelerate the lowering of our overall structural and product costs to increase our market competitiveness. Not only do we see the digital transformation efforts as foundational to lowering our structural costs, but we're also investing in people capabilities and working with consultants to accelerate strategies expected to increase operational efficiencies, which will lower overall costs and increase that market competitiveness. Excuse me. Finally, we continue to execute on our strategies to both grow and capture a larger portion of the SAM.
These strategies include the accelerating of our control system capabilities I previously mentioned, and adding professional services and other content to drive monthly recurring revenues, ensuring we deliver enhanced returns as we help our customers achieve success in their investments in our offerings. To accelerate these strategic plans in fiscal 2025 and beyond, we're investing in these transformational resources, both in world-class consulting support and in information technology capabilities. While these costs will impact fiscal 2025's operating income between roughly $8 million-$10 million, we expect that the investments will accelerate our generation of returns meaningfully in excess of this investment, as we structure our business for the expected growth on a higher profit base.
With these initiatives, we'll continue to advance many existing elements of our strategy and our competitive differentiation, including that premier value proposition, our U.S. design, fulfillment, and high-touch services, our key investments in control systems, and our unique culture of that lifetime service to all of our customers. To visualize that milestone along the roadmap, we put this in our slide deck, because we believe that the world-leading offerings and efficiencies, plus our optimized structural and product costs, plus making enhancements in our product offerings, will provide durable profitability and return on invested capital. So in conclusion, we're a global industry leader in best-in-class video communication displays and control systems, and we continue to bring focused value to our customers. Our markets are large and growing, with resilient demand drivers. We're differentiated by our U.S. scale, our global manufacturing and services footprint, and our technology leadership.
Our consistent performance serves as evidence we're on a sustainable trajectory of growth and profitability. We are investing for long-term success. Our multi-year strategies and near-term progress of these goals demonstrates our commitments to improve and consistently earn returns above our cost of capital. We're focused on the right allocation of resources and capturing growth in the existing profitable SAM, and developing growth in additional areas. We are focused on accelerating digital transformation and other business initiatives to lower structural and product costs, and we're extending our technology leadership, high-quality solutions, and world-class service. Thank you for your attention. I'll now turn it back over to Anja to open it up for questions.
Thank you, Sheila. That was a good overview. To the audience, if you would like to participate in the Q&A, you can submit your question in the Q&A function at the bottom of your screen. While we wait for those to populate, I'm gonna kick it off with some questions on my own. So Sheila, you mentioned you expect to invest about $8 million-$10 million in efficiencies that should more than pay off in the future. Do you expect those investments in fiscal 2025 to be front-end loaded, and when do you expect to see tangible results from those investments?
Sure. We expect more in our Q2 and Q3 timeframe for those spends. And then from a return on that investment, we might see a little bit of that in fiscal 2025, but more into fiscal 2026 and beyond is where we'd see that return come at us.
And that return should come then both in terms of faster revenue growth and also operating expenses slowing, right? Or
We're focused on both our market penetration, as well as improving our overall cost structure, to be able to leverage and grow faster, but yet at a lower percent of sales with the operating costs.
Okay. And in terms of the backlog, that seems to be continuing to holding up, but it's been lowered from the fiscal 2024 levels. Can you just sort of explain that to new investors that are maybe not familiar with how that's flowing?
Sure. We'll go back a little bit in time. During the pandemic timeframe, we had an expansion. Well, first, we had a pullback in overall demand in our market. People weren't gathering, so there was less entertainment spend. Then, as the pandemic started to relieve, the overall demand increased rapidly. At the same time as that increase came back, we also had a supply chain challenge, and parts and pieces and components were difficult to come by. So it was hard for us to convert those orders into the revenue generation and earn profits. We've anniversaried those supply chain challenges, and really starting in mid-fiscal 2023, and then we had a record fiscal 2024 Q1. We started to anniversary those issues and got back to producing at regular lead times.
And so that brought the overall backlog down, and we're serving our customers on a more normalized basis now that when a customer for a large sports venue, for example, may place an order this quarter, over the next couple of quarters, we'll be able to deliver that for them, depending on their schedule. If you go back 18 months, that might have been a year out before we were able to actually deliver on that. Same thing in our more standards type of business. We now are delivering in four to eight week lead time, and back in the constrained supply chain challenges, those lead times extended beyond 12 weeks and often could move into a half-year type of perspective. So it was a challenging time period. We're now back to normal, and that overall backlog is normalizing.
Okay, thank you. There's some questions here from the audience. In terms of the future potential opportunities, which ones have the most potential?
Some of the interesting things that we see are the high school market. We're seeing a transition to video display usage. Schools traditionally were using a traditional scoreboard, and now are moving into a video type of application, which is at a higher selling price, and there's lots of schools across the country. We're in good position to help them transition to that new technologies. I also mentioned our investments in the indoor product line and narrow pixel pitch and chip-on-board technologies. That's helping us expand overall spend with our current customers. A large sports facility, for example, will use a narrow pixel pitch display in their concourses or in pub areas, pub viewing areas, so we're using it in that technology.
But also then in these control room applications, military applications, we see expanding use of this indoor technology, and we're growing our capabilities, so that's interesting. And then finally, I would highlight that in our international segments, that has been a muted recovery in international based on economic conditions, certain wars around the world. We do believe that there's a will be a growth area in that segment of our business, as well as international segments and geographies recover from different economic events.
Okay, thank you. And with the narrow pixel coming on board and maybe other new advanced technologies, do you see the sort of renewal cycle shorten because of that?
Those technologies generally will also be in place for seven to ten years, so we think that renewal will be similar at this point, but there will be static applications that now will be able to go more digital because of the advanced technologies, the nice viewing angles, and the price points that these technologies are at. Also, where there used to be LCD screens, now that will be replaced with LED screens that we are able to provide, so we do think there's a growth opportunity there, an expansion of use of digital, but the replacement cycle will be similar.
Okay, thank you. And given the current macroeconomic and geopolitical uncertainty, are you seeing any meaningful changes to the length of your sales cycles?
We have not seen a large change in the length of the sales cycles. Our pipeline is active, our quoting pipeline is active, our orders were strong and have been strong for the last number of quarters. So we're not seeing any implications to this point.
Okay, and can you talk about your manufacturing capacity and utilization rate?
Sure. We have capacity, as I mentioned, in the U.S. and Ireland and in China. And I would say we're. If you look back to Q1, we were fiscal 2024, we were more near capacity, but we do have available capacity today to fulfill these orders, and we're, as I mentioned, maintaining the lead times that we have. But we're in good shape from a manufacturing perspective.
Okay, and another question here: How is the competitive landscape, and what are your competitive advantages?
Sure. So we primarily compete with competitors that build their product out of China, so it's mostly a price-based picture that these other companies are offering. Our competitive advantages are, like I mentioned earlier, we have a full-service solution for our customers. We design systems that will survive or last through the test of time through the different conditions that these displays go through. We help teach our customers how to use their display throughout the use of their products, so they can really monetize their investment. We have the control capabilities, like I discussed, that help schedule content or create live events as well, and that's best in class. And then finally, ongoing service and support just really again helps our customers get the value out of their displays.
Okay.
We haven't seen any other competitor at that scale that we can do both in the U.S. and then also outside the U.S.
Okay, thank you and you mentioned the revenue and earnings can be lumpy due to the range of the project sizes. How... where does this range sort of stretches from and to?
Maybe I'll highlight as well our seasonality of our business. Oftentimes, in the first half of our business, that's when we're installing and finishing manufacturing for sports-related events, which was a large piece of our pie, as mentioned. So we're putting and installing in football stadiums and arenas, and then we move into the indoor applications for basketball, volleyball, and other events. Then our third quarter, there's less days available for us to manufacture. That's a part of our holiday season in the U.S. And then in our fourth quarter, spring sports start to rebound, and we also we bring back up the types of projects that I mentioned for sports-related. So there's a natural seasonality to our business, and that's how we manage and monitor our capacity, as well as what projects are coming at us.
Some of those large projects, then we can schedule in and work with our customers to best fit it into our schedule and fit theirs as well.
Okay. And in terms of when you get a really large project, like the Las Vegas project, do you book all that revenue in one quarter then? Or is it like, how do you book the revenue from a larger project like that?
Yeah, good question. The larger projects, we recognize revenue over time, and it's based on how much cost we've incurred compared to our estimated cost for that installation. So during our manufacturing process, as we're creating the displays, we'll recognize revenue. When we're on site installing and incurring the cost to install, we'll recognize more revenue. So often that revenue is recognized over one or two quarters for many of these projects. For more standard display systems, like in high school, that standard video products, we'll book that order day one, and then in eight weeks, when we deliver that order, is when we'll recognize that revenue. So that's more what we call a point-in-time revenue recognition.
Okay, thank you, and I have one final question here. You've been talking before that you see a path to about one billion in annual revenue in three to five years, with an operating margin at the upper end of the mid-single-digit range. You're already at that range in terms of the operating margin, and with all the initiatives you're taking now, I would assume there's upside to that target, and also you're also taking initiatives to accelerate your revenue generation, so how should we think about these targets with this in mind?
Yeah, as we're working through our digital and business transformations, we do, as a management team, believe we can stretch our goals in both of those areas, in the revenue targets as well as profitability targets. We haven't stated anything different publicly yet, but are working on that, and we'll update our investors and you all as we get more refined in our thinking on the future opportunities. But still very much focused on achieving consistently over that upper mid-single-digit operating income with revenue growth as well.
Okay, great. Thank you so much, and thank you, Sheila, for joining us today and telling the Daktronics story. It seems like a very solid story. We cover them here at Sidoti under our company-sponsored research program, so you can access the reports on our website. And I know you have a pretty solid one-on-one schedule during our conference, but if anyone would like to have a follow-up meeting with you, they can reach out to us at Sidoti, and we'll be happy to put you in touch. And with that, I'll hand it over to you, Sheila, for some closing remarks.
Yeah. Thanks, Anja, and yes, we are very open to investor outreach and would be available and would work with Anja to schedule that. I appreciate everyone's time today, and if you have any further questions, please reach out. Have a gre at conference.
Thank you. Thank you, everyone.