Daktronics (DAKT) Q2 2026: Backlog Climbs 36%, Securing Multi-Quarter Revenue Tailwind
Daktronics delivered double-digit order and revenue growth, powered by a 36% surge in backlog and disciplined cost execution. Strategic wins across live events, transportation, and international segments are driving a more diversified and predictable revenue base. With a new CEO incoming and a Mexico facility set to open, the company is signaling sustained growth ambitions and operational agility for fiscal 2026 and beyond.
Summary
- Order Momentum Across Segments: Backlog strength and new wins in live events and transportation underpin multi-quarter revenue visibility.
- Margin Expansion Through Transformation: Value-based pricing and cost discipline offset tariff headwinds, driving operating margin improvement.
- Strategic Capacity and Leadership Changes: Mexico facility and new CEO set the stage for the next phase of growth and operational flexibility.
Performance Analysis
Daktronics posted another quarter of double-digit year-over-year growth in both orders and revenue, with operating income exceeding $20 million for the second consecutive quarter. Gross margin reached 27% and operating margin hit 9.4%, marking clear progress toward the company’s stated 10% to 12.5% margin target. These gains reflect a combination of volume leverage, disciplined value-based pricing, and ongoing structural cost reductions from the transformation plan launched last year.
Segment performance was notably strong in live events, which accounted for 36% of orders but nearly half of backlog, reflecting a shift toward longer-duration, higher-value projects. Transportation orders rose 15%, while international posted 23.6% growth, led by demand in the Middle East and Europe. Commercial segment performance was mixed, with continued strength in on-premise advertising offset by a pullback in outdoor spectacular projects. Tariff expenses remain a material drag, rising to $8.8 million from $1.5 million a year ago, but were more than offset by pricing and efficiency gains.
- Backlog Expansion: $321 million in backlog, up 36% year-over-year, provides a revenue runway into future quarters.
- Live Events Pipeline: Major league sports wins and stadium projects anchor backlog and support recurring, predictable revenue conversion.
- Working Capital Discipline: Inventory-to-sales ratio improved, boosting cash balance and reducing working capital drag.
With a net cash position up 20% year-over-year and no outstanding borrowings, Daktronics is positioned to invest in growth and return capital to shareholders, as evidenced by its expanded share repurchase authorization.
Executive Commentary
"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."
Brad Wieman, Interim President and CEO
"Our bottom-line results were driven by revenue growth at the top end of our 7% to 10% target range and our capture of the pricing benefit and structural cost savings from the implementation of our business transformation initiatives. Our gross profit margin was 27% in the second quarter, and operating margin was 9.4%, both improved from last year, an operating margin within striking distance of our target 10% to 12.5% range."
Howard Adkins, Acting Chief Financial Officer
Strategic Positioning
1. Backlog-Driven Revenue Visibility
A 36% year-over-year backlog increase to $321 million provides multi-quarter visibility and underpins the company’s 7% to 10% compound annual growth target through 2028. The shift in mix toward live events, which now make up half the backlog, extends revenue conversion timelines but supports recurring, predictable growth as major stadium projects are delivered over several quarters.
2. Value-Based Pricing and Cost Transformation
Management’s focus on value-based pricing, cost discipline, and operational efficiency continues to pay off. The transformation plan has yielded margin expansion and improved cash generation, even as tariff expenses surged. Key levers include reduced product complexity, renegotiated supply contracts, and enhanced inventory management, all contributing to improved structural profitability.
3. Innovation Pipeline and Product Differentiation
Daktronics is investing in new product launches—such as narrow pixel pitch displays, next-generation billboards, and cloud-based control systems—to maintain its technology leadership. The expansion of SaaS offerings (software as a service, recurring revenue from subscription-based digital solutions) and the launch of AI-guided service tools are designed to deepen customer relationships and drive higher-margin, recurring revenue streams.
4. Global Manufacturing Agility
The upcoming Saltillo, Mexico facility, set to open in April 2026, is a strategic move to increase global production agility, mitigate tariff exposure, and support growth. While the initial footprint is small, management frames it as a lever for future optionality and capacity expansion, complementing the 80% of fulfillment currently based in the U.S.
5. Leadership Transition and Strategic Continuity
Incoming CEO Ramesh Jayaraman brings a track record of global distribution and operational excellence, signaling continuity in the transformation agenda and a potential acceleration in international and channel-driven growth. The board’s emphasis on “transformational leadership” and global experience aligns with the company’s evolving growth ambitions.
Key Considerations
Daktronics’ second quarter underscores a business in transition, balancing backlog-driven growth with operational discipline and strategic investments. The following considerations frame the quarter’s strategic context:
Key Considerations:
- Backlog Mix Shift: Live events now dominate backlog, extending revenue conversion but increasing predictability and smoothing revenue volatility.
- Margin Resilience: Transformation initiatives are offsetting tariff headwinds and input cost volatility, with further runway as new products and SaaS models scale.
- Capacity Expansion: Mexico facility provides future-proofing and tariff mitigation, but initial impact on revenue is modest; U.S. remains primary production base.
- Leadership Inflection: Incoming CEO’s global and M&A experience may accelerate international and channel growth, enhancing the company’s competitive position.
Risks
Tariff volatility remains a material risk, with Q2 expenses up sharply year-over-year and ongoing uncertainty around trade policy. Seasonality and project timing, especially in live events, introduce revenue conversion variability. While transformation initiatives are delivering, execution risk persists as the company scales new products and expands internationally. Leadership transition adds another layer of uncertainty, though the board frames it as a growth catalyst.
Forward Outlook
For Q3, Daktronics expects:
- Seasonally lower revenue and income due to holiday-related production slowdowns.
- Continued backlog conversion, especially in standard order business with shorter cycles.
For full-year 2026, management reaffirmed:
- 7% to 10% compound annual growth rate target through 2028.
- Operating margin trajectory toward 10% to 12% range.
Management highlighted several factors that will shape results:
- Backlog mix and timing of large live events projects will drive revenue cadence into spring and beyond.
- Transformation and innovation initiatives are expected to further improve margins and recurring revenue mix.
Takeaways
Daktronics is executing on its transformation plan, driving backlog-fueled growth, margin expansion, and improved capital efficiency. The company’s multi-segment order wins, innovation pipeline, and prudent cost management provide a foundation for sustained performance, while the Mexico facility and leadership transition position the business for future agility and global expansion.
- Backlog-Driven Growth: The 36% backlog increase offers multi-quarter visibility and reduces revenue volatility risk, especially as live events projects convert through 2026.
- Margin Expansion Despite Tariffs: Value-based pricing and cost initiatives are outpacing input inflation and tariff headwinds, with further upside as SaaS and new products scale.
- Leadership and Capacity Optionality: The new CEO and Mexico plant signal readiness for continued transformation, international growth, and operational flexibility.
Conclusion
Daktronics’ Q2 results reflect a company in disciplined transformation, leveraging backlog strength, operational execution, and innovation to drive sustainable growth. With a robust pipeline, improved margins, and strategic investments in capacity and leadership, the business is positioned for continued momentum and resilience in a dynamic market.
Industry Read-Through
Daktronics’ performance highlights the growing importance of backlog-driven visibility and value-based pricing in capital equipment and display technology markets. The company’s ability to offset tariff and input cost pressures through transformation initiatives offers a blueprint for peers facing similar headwinds. Segment diversification—especially into transportation, government, and international markets—signals where future growth and margin resilience may emerge across the sector. The shift toward SaaS and integrated digital solutions is a broader industry trend, with recurring revenue models and customer experience enhancements becoming increasingly critical for sustainable growth.