Daktronics (DAKT) Q1 FY2027 Earnings Call: Sales Up 7.1%, Targets Reaffirmed

Daktronics (NASDAQ: DAKT) reported a strong start to fiscal 2027, with higher sales, operating income and earnings per share despite the first quarter having one fewer week than the prior-year period. Management also reaffirmed its fiscal 2028 financial targets.

Key Takeaways

• Fiscal Q1 2027 net sales increased 7.1% year over year despite one fewer operating week, while operating income rose 7.2% to $24.9 million.
• Diluted earnings per share reached $0.40, up 21.2% and the company’s highest quarterly EPS in three years.
• Gross margin expanded 80 basis points to 30.5%. A roughly $3 million tariff refund was largely offset by higher raw material and other input costs.
• Operating cash flow was $31.4 million and free cash flow reached $27.5 million. Quarter-end cash totaled $155 million, compared with $10 million of debt.
• Backlog entering fiscal Q2 was $311 million, marking the sixth consecutive quarter above $300 million. Management expects purchase orders for several substantial projects negotiated in Q1 to arrive in Q2.
• Daktronics reaffirmed its fiscal 2028 targets of 7%–10% three-year revenue CAGR, a 10%–12% operating margin and 17%–20% return on invested capital.

Core Financial Data

Daktronics entered the quarter with a $356 million backlog and fulfilled approximately 50% of that amount during Q1. Over the past five quarters, the company repurchased $29.9 million of shares at a volume-weighted average price of $18.04.

Business and Operating Performance

Live Events demand remained robust, with installations underway for college football and basketball customers including the University of Illinois, Ohio State, Penn State and North Carolina. Management attributed weaker year-over-year bookings primarily to project timing rather than a change in the pipeline.

Camino 8, Daktronics’ next-generation real-time 2D and 3D graphics rendering engine, is fully deployed at Angel Stadium. The company plans to install the system at more than 10 NHL, MLS and NCAA venues beginning in the fall. Management views software and services as a way to deepen long-term customer relationships and expand recurring revenue opportunities.

The new Mexico manufacturing facility completed its first major production run of a narrow pixel pitch product, which management expects to ship in late Q2. The plant will initially support Live Events and help Daktronics manage tighter project schedules and its global manufacturing footprint.

Transportation produced large intelligent transportation system project wins, supporting segment backlog. Daktronics also received additional narrow pixel pitch orders from Los Angeles International Airport and Spokane International Airport, alongside transit orders from Sacramento Regional Transit, SunRail in Florida and a Houston project.

International wins included a halo display for a major football stadium in Colombia and a 50-display rollout for a long-standing out-of-home customer in Serbia. Management said the international pipeline remained strong heading into Q2, particularly for stadium projects.

Daktronics also launched LiveWorks, a mobile fan-experience platform for high school sports. The company said the product broadens its SaaS portfolio and recurring revenue opportunities.

Operational initiatives include combining direct and indirect procurement teams, using AI to analyze spending, expanding manufacturing automation and optimizing the global plant network. Management expects initial benefits from these programs in the second half of fiscal 2027, with a fuller contribution in fiscal 2028.

Management Guidance

Daktronics reaffirmed its fiscal 2028 targets:

• Three-year revenue CAGR of 7%–10%
• Operating margin of 10%–12%
• Return on invested capital of 17%–20%

Management expects several substantial projects negotiated during Q1 to convert into purchase orders in Q2. These projects are expected to generate revenue through the remainder of the fiscal year, primarily beginning in Q3.

Selective product price increases began early in fiscal Q2. Management expects their margin impact to appear progressively during the quarter, while procurement and supply-chain initiatives are intended to offset input-cost inflation.

Annual capital expenditures averaged approximately $14 million–$16 million over the past three years. Daktronics expects spending to move toward approximately $20 million annually over the next few years as it invests in manufacturing automation and other projects with expected high returns.

Risks and Watch Items

Q1 booked orders declined year over year. Management attributed the decline mainly to purchase-order timing, but conversion of the negotiated projects remains dependent on receiving formal orders.

Raw material and other input costs increased during the quarter and largely offset the approximately $3 million tariff refund. Future margins will depend on pricing, procurement savings, business mix, operating leverage and the timing of additional tariff refunds.

Daktronics is considering exiting its highly customized international transportation business. The company said such a decision could affect the long-term viability of its Ennistymon facility and has started a collective redundancy consultation process with employees.

The company has received information requests from the NBA related to its investigation involving Kawhi Leonard and the Los Angeles Clippers. The Securities and Exchange Commission is also seeking information concerning Daktronics and Mr. Leonard. The company said it is cooperating and declined further comment.

Analyst Q&A Highlights

Management said the Live Events pipeline remains robust and that delayed orders primarily reflect negotiations shifting from Q1 into the latter part of Q2. It did not indicate a deterioration in competitive performance.

On margins, management emphasized that fiscal Q1 included no benefit from new price increases. Selective increases began in Q2, while further tariff refunds are expected on a cash-received basis. However, executives cautioned that multiple factors, including input costs and business mix, will continue to affect margins.

Management’s confidence in the fiscal 2028 targets rests on both growth and operational execution. Key drivers cited were expansion into new verticals, international growth, higher software and services participation, strategic procurement, manufacturing-network optimization, automation and lean operating processes.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day and welcome to the Daktronics First Quarter Fiscal Year 2027 Financial Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Lindsay Vetter. Please go ahead.

Unknown Executive

Good morning, everyone. Thank you for participating in our fiscal 2027 first quarter earnings conference call. Today's call will be Ramesh Jayaraman, our President and Chief Executive Officer, and Howard Atkins, our Acting Chief Financial Officer. As a reminder, this presentation will contain forward-looking statements under the Private Securities Litigation Reform Act. 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 statements. 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 may be found on the Investor Relations page of our website at www.daktronics.com. Our earnings release for the fiscal 2027 first 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 as 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 now turn the call over to Ramesh.

Ramesh Jayaraman

Thank you, Lindsay, and good morning, everyone. We had a strong start to fiscal 2027, and I want to thank our approximately 2,700 employees across the globe for their execution and dedication. Our strategic plan consisting of organic growth, operational excellence, and disciplined capital deployment is working, reflected in Q1's results in sales, profit expansion, and EPS growth. In Q1, we delivered 7.1% net sales growth, supported by strong demand across key end markets in a quarter that was 1 week shorter than last year's. We expanded operating income by 7.2% and grew EPS to $0.40 for the quarter. Our new business pipeline remains robust.

The year-over-year bookings and backlog comparison mainly reflects order timing as we negotiated substantial projects in Q1 that we expect to receive purchase orders for in Q2. Our focus on growth and operational efficiency generated $31.4 million in cash from operations during the quarter. We return capital to shareholders through share repurchases, and our balance sheet liquidity remains strong. Of the various numerous highlights this quarter, I'll talk about 3 today. One, our recently opened Mexico manufacturing plant is ramping up and successfully completed its first major production run of our narrow pixel pitch product, and we expect to ship this in late Q2.

Two, Camino 8, which is our next generation real-time 2D, 3D graphics rendering engine that integrates with Daktronics Show Control, debuted at the Angel Stadium for the Los Angeles Angels' home opener in early April, and is now in full deployment. Starting this fall, Camino 8 will be installed in more than 10 venues across the NHL, MLS, NCAA football, volleyball, and basketball programs. Thirdly, and most importantly, we continue augmenting our strong management team with key leadership adds in marketing and procurement and build muscle as we scale the business. Now, let's turn to the next slide on our market verticals for an update in the first quarter.

In live events, we actively installed college football and basketball projects ahead of the upcoming season, including at the University of Illinois, Ohio State, Penn State, and North Carolina. New Camino 8 systems that I mentioned earlier are being installed across a variety of customers across the NHL, MLS, and NCAA volleyball, football, and basketball programs. Live events remains a highly differentiated business for us, well positioned to benefit from the shift towards real-time graphics and video through Camino 8, and our pipeline continues to be robust in the live events business. Pictured here is the Wake Forest Allegacy Stadium in Winston-Salem, North Carolina. In a commercial business, our out-of-home segment booked a large billboard order along with an airport advertising refresh order from a national customer.

Our on-premise business is shipping a large fuel digit replacement program, order received in the prior year. Pictured here is the La Crosse Sign Group, the Kwik Trip in [ Bondville ], Wisconsin. In transportation in Q1, we won large intelligent transportation systems or ITS projects which helped to grow the backlog in the segment. Our airport business won additional narrow pixel pitch orders from Los Angeles International and Spokane International Airports. A transit business won large orders from Sacramento Regional Transit, the SunRail in Florida, and a project in Houston. We are seeing strong acceptance of new products and our backlog and pipeline remains solid. Pictured here is the Union Station in Los Angeles, California.

In the high school park and recreation business, we booked several large projects this quarter, including Round Rock and Northside Independent School Districts in Texas, Los Angeles Harbor College, and Harrisburg High School in South Dakota. We held our annual video summit for high school users of our control systems, an event for the high school market that connects educators with industry professionals and producers of scholastic, collegiate, and professional live events. The event gives educators practical skills they can apply immediately. Youth sports and the shift to video remain strong secular drivers of demand, further supported by a competitive differentiation through Daktronics Sports Marketing's school curriculum, classroom and other paid professional services. Our pipeline in the high school sports and information business continues to remain strong. Pictured here is the Massillon City Schools in Massillon, Ohio.

In the international segment, we won a large order in Colombia for a major football stadium for an outdoor halo display. A long-time out-of-home customer in Serbia awarded us a large order for an additional 50 display rollout, and our international pipeline remains strong heading into Q2, especially in stadiums. We continue expanding our presence in specific international markets with regionally tailored solutions. Pictured here is the [ iMedia 24-7 ], the Metropolitan in Dubai, UAE. In our services business, our control upgrade orders grew, driven by Camino 8 adoption across our installed customer base. We also launched LiveWorks in late July, a mobile-based fan experience platform built for high school sports that delivers a professional, polished experience on the video board and can be run by 1 person. A QR code lets fans join and engage live instantly.

LiveWorks expands our recurring revenue opportunities and strengthens our SaaS portfolio ahead of the fall demand season. Our growth strategy remains underpinned by large, attractive end markets, benefiting from long-term secular demand, increasing complexity, growing scale, the adoption of video and fixed-digit displays, and increasing software and content requirements. And our results, backlog, and pipeline reflect that. Let's move to the next slide to provide more specifics about our forward-looking strategy. Our strategy rests on 3 priorities: Accelerating organic growth, strengthening operational excellence, and deploying capital with discipline to expand profitability and improve returns. On organic growth, we are focused on our core businesses where we are uniquely positioned to benefit from the secular shift towards greater complexity, scale and video.

We're also selectively expanding into new vertical markets in North America, growing through software and services, and focusing on driving international growth. But operational excellence, we're getting leaner and sharper every quarter, improving procurement through data-driven strategic sourcing, optimizing our global manufacturing footprint, investing in factory automation, and deploying lean principles across the business, with proven leaders directing each effort. On capital deployment, we are making high return investments in organic growth and operational efficiency, including our plant network improvements and automation, while sharpening our focus on the M&A pipeline to evaluate complementary products/solutions vertical markets, and geographies. And we continue to return excess capital to shareholders while preserving flexibility to act when opportunities arise.

Let's turn to the next slide for more detail on these initiatives in the first quarter. We will talk to the strategic execution status under the 3 key pillars, growth, operational excellence, and capital demand deployment. In addition, we will provide an update on the talent augmentation to our strong management team. Starting with our growth initiatives, our new order pipeline in our core markets remain strong, as our sales, marketing, and development teams capture customer demand. We are also recruiting to expand into new verticals and channels, which allow us to enter the unserved, addressable market in North America. And third, as I mentioned, our Camino 8 expansion earlier, we are continuing to make strong progress. LA Angels now using Camino Advanced Visualizations in Stadium. And starting this fall, Camino 8 will be installed at 10 plus venues for the NHL, MLS, and NCAA volleyball and basketball.

As we look at our operational excellence initiatives, we hired a new global procurement leader and combined our direct and indirect procurement teams. We are leveraging AI to analyze our spend cube across product categories, business segments, and vendors, with results applied to optimize direct and indirect procurement starting in the second half of the year. We're optimizing our manufacturing network. Our Mexico ramp up is progressing per schedule. We are increasing automation and manufacturing with initial focus on the U.S. transportation facility, and our China facility planning is underway. In addition, Daktronics is considering a proposal to exit the highly customized international transportation business. A decision to exit such business would impact the long-term viability of our Ennistymon facility. So today, we inform employees in our Daktronics Ennistymon facility that we are entering into a collective redundancy consultation process.

Looking at the 3rd pillar on capital deployment, beginning to invest in manufacturing automation to raise efficiency, improve productivity, and reduce production costs. We are planning to have automated welding machinery installed, intended to reduce motion, processing, and wait time for metal fabricated enclosure elements used across many of our products. This is a good example of the operational discipline underpinning a margin expansion. We're committed to testing and expanding automation with a strong view on business case and return on invested capital. We are increasing our focus on inorganic growth. At the board level, we have a strategic transactions committee that meets biweekly to review acquisition opportunities in complementary products and solutions, and geographies that can strengthen our organic growth strategy. We have a search underway for a corporate development leader to support this effort.

We continue to return capital to investors. Of our $40 million stock buyback authorization, we purchased $4.4 million in Q1. Lastly, but most importantly, building on talent is continued focus for strategic execution. I'm proud of our executive team and our employee base as we continue to build the business together. In Q1, we further aligned key executive compensation tied to performance and long-term shareholder value. We have strengthened capabilities with key additional leadership in procurement, marketing, and IT, and we anticipate having a new international leader join us in Q2. Developing key talent is an integral part of our growth and scaling story. Executive team and I met on identifying the highest potential talent within the company. Now I turn it over to Howard Atkins, our Acting CFO, to take us through the financials.

Howard Atkins

Thank you, Ramesh, and good morning everyone. I'm pleased to say that the first quarter was another great quarter, carrying forward the momentum we had at the end of fiscal 2026 into the first quarter with a really good tailwind. The bottom line, if you will, the company earned earnings per share of $0.40 on the quarter, an increase of 21.2% from the first quarter a year ago, and our highest quarterly earnings per share in the past 3 years. This result reflects solid operating earnings of $24.9 million, up 7.2% from a year ago, even with 1 less week this quarter than the year-ago quarter. This also reflects the cumulative effect of having repurchased an additional 225,000 shares equal to $4.4 million at economically attractive yields during this last quarter.

Our net sales rose 7.1%. Revenue growth would have been well above that if we would have had the extra week this quarter like we had in the first quarter of last year. Remember, we came into this quarter with one of our highest quarterly backlogs, $356 million. Our manufacturing and fulfillment teams did a great job efficiently completing revenue over time project orders and standard immediate revenue orders, approximately 50% of the $356 million backlog was fulfilled in the first quarter. Gross profit rose 10% this quarter, with gross profit margin rising to 30.5%, up 80 basis points from last year. Several factors contributed to the higher gross profit margin. First, as you may remember, gross profit margin does tend to rise when revenue rises due to some fixed cost operating leverage within gross profit.

Second, we also had some mixed lift this quarter from sales increases in higher margin transportation and international businesses. Third, we began receiving tariff refunds during the quarter and expect several more quarters of refunds. We will be recording refunds on a cash basis net of client payments going forward as well as we did in the first quarter. And fourth, raw material and sensitive input prices put some upward pressure on cost of goods sold, largely offsetting the tariff refunds of the quarter. We began selectively raising product prices early in the second quarter, the quarter that we're in, and we expect to manage through a period of market disruption, and input cost inflation by raising prices with the market and achieving cost savings from procurement and other cost savings initiatives across the supply chain.

As mentioned by Ramesh earlier, while orders actually booked in the first quarter were down from a year ago, we did arrange a few substantial orders, which we expect to be booked when we receive the regular purchase orders, forward. Our backlog coming into the second quarter was $311 million. This was the 6th consecutive quarter in which our product backlog exceeded $300 million. This amount does not yet include the substantial orders that I mentioned earlier, which should also generate revenue throughout the balance of the year, mostly beginning in the third quarter. Our operating expenses, expense trends with respect to operating expenses, our selling expense rose $2.2 million in the quarter in part due to the $2 million commission expense on a large international order. Selling costs as additional producers are onboarded for new market and sales channel rollouts during the course of the year.

As a percentage of revenue, selling expenses remained at about 8%. Product development expenses increased $1.4 million from a year ago, in part due to having absorbed about $1 million per quarter of labor costs of XDC for the development of our micro-LED. [ CapEx, ] depreciation and amortization at $4.7 million this quarter. This will gradually increase as we invest more capital in automation during the course of the year. During the last 3 years, the company averaged about $14 million to $16 million of annual CapEx. We expect that to be in the $20 million range over the next few years, given the high expected returns on these investments. Our G&A expense increased $1.3 million in the first quarter in part due to consulting and additional management expenses associated with the execution of our business initiatives and our operational excellence programs, which are expected to yield solid results starting in the second half of this year, more fully in 2028.

In terms of our earnings, overall growth trend in the various earnings metrics over the last 5 quarters showed solid growth, with operating income at $24.9 million, as I mentioned earlier, exceeding the lower end of our 10% to 12% target rate range. EBITDA rising to $29.6 million. As I mentioned earlier, our earnings per share at $0.40 per share. Another key aspect of our first quarter, importantly, we continue to maintain a resilient balance sheet to profitably and flexibly manage growth and risk. Operating cash flow in the quarter was $31.4 million, with free cash flow at $27.5 million after CapEx cash spend. The result of the solid earnings I mentioned in the quarter and the continued efficient management of working capital. Working capital did increase approximately $16 million in the quarter compared to the last quarter of last year. I'm sorry, the last quarter of a year ago, but that was in line with a higher revenue, so the ratio remained basically constant.

During the quarter, we purchased $4.4 million of shares at a volume weighted average price of $19.56 per share, roughly 23% of our net income in the quarter. In the last 5 quarters, the company repurchased $29.9 million worth of shares at a volume weighted average price of $18.04 per share. As a result, primarily of cash generation and excessive CapEx, our end-of-period cash balance reached $155 million after share repurchases with only $10 million in debt. Let me now briefly address a matter that has been in the media concerning the NBA's investigation of Kawhi Leonard and the Clippers in connection with the league's collective bargaining agreement that many of you may have heard about. As you might expect, we have received requests for information from the NBA. Additionally, the Securities and Exchange Commission is seeking information from us concerning the company and Mr. Leonard. We take these requests seriously and are cooperating.

At this point, out of respect for the respective processes, we will not be providing further comment. Now let me turn the floor back over to Ramesh.

Ramesh Jayaraman

Thank you, Howard. We're off to a strong start for fiscal 2027 with continued momentum in sales, operating margin, EPS. Daktronics is the leading end-to-end solution provider and I'm absolutely proud to serve the company. As outlined in our Investor Day, we are the market leader in the large format LED industry with a skilled and committed team. Our large end markets are driven by secular demand trends, all growing at 2x to 3x GDP. We're executing well on our strategic growth and operational excellence plans towards our committed profitability goals. We are deploying capital responsibly and with discipline to achieve more profitable, sustainable growth with improved resiliency, reliability, and efficiency. And we are deploying this capital to maximize returns to our shareholders.

Moving to the next slide, as we move deeper into fiscal 2027, we continue to track toward our fiscal 2028 targets, which we reaffirmed today. First, 7% to 10% revenue 3-year CAGR. Second, operating margin in the 10% to 12% range. And ensuring our ROIC is in the 17% to 20% range. We are pleased with our progress. And really excited about our forward plan. We have a strong backlog, continued demand across major end markets, and a clear set of carefully considered execution priorities that support our path forward and our confidence. I will turn the call over to the operator to take your questions.

Operator

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from Aaron Spychalla with Craig-Hallum Capital Group.

Question-and-Answer Session

Aaron Spychalla

Yeah, good morning, Ramesh and Howard. First for us on live events, sounds like some order timing there. Can you just speak to the confidence in closing some of those here in the second quarter? And then, you know, performance has just been really solid there. You know, any changes you're seeing in win rates or competitive performance? Obviously, dynamics in the market.

Ramesh Jayaraman

Aaron, good to have you on the call. So live events, we had, you know, as you know, it's timing-oriented business and really it's a timing of some of the negotiations that are in progress that we expect to be slightly delayed, you know, from Q1 into latter part of Q2. So that's where we kind of stand. With regards to all the other businesses, you know, what we can say is a pipeline continues to be robust across the board and, you know, we are beginning to see the pipeline beginning to shape up as the weeks and months take shape. So that's where we stand.

Aaron Spychalla

All right, thanks. And then on software and services, you talked about Camino 8. You know, maybe can you just talk a little bit about some of the goals there, you know, whether it's attach rates or just how, you know, you see margin impact there as that business grows for you?

Ramesh Jayaraman

Sure. Yes, I think for us, fundamentally, when you look at it, we have been, I would say, in the CapEx side of a stadium build or, you know, a new construction that kind of goes on. Really what we see is as we look at our 10-year association with the customer from software services, it really gives us a unique opportunity to go and to start working with them on 2D, 3D graphics, integrating with our show control, and that's a unique opportunity that allows for our customers to be able to deploy and use the solutions across the board. We are beginning to see this more and more from our customers to be involved as a part of the operations, and that's where we are playing. And that's giving, I would say, amplification to Camino 8 as we kind of spoke about.

Aaron Spychalla

Great. And then maybe one last one on margins. How much was the tariff impact? In the first quarter, sounds like expecting some more there. And it does just seem early in some of these operational excellence initiatives. Yes. Sounds like some balance between ASPs and costs, but just how are you thinking about margins trending from here?

Howard Atkins

Yes, so Aaron, we did in our release and in our comments here, talk about the pluses and the minuses. To answer your question specifically, the tariff refund on a cash basis in the first quarter was about $3 million. As we said, we should, again, that's going to change from 1 quarter to the next, but we expect to get some more in coming quarters because we are accounting for it on a cash basis and when received, but as I say, there were pluses and minuses in the quarter, including, you know, cost increases that we referred to, which largely offset the $3 million.

Aaron Spychalla

All right, thanks. I'll turn it over.

Operator

One moment for our next question. Our next question comes from Tom Hayes with Roth Capital Partners. Your line is open.

Thomas Hayes

Hey, good afternoon, guys. Ramesh, I was wondering if you provide a little bit more color on the new Mexico facility, kind of progress in Q1, your expectations as we progress through the year. Market or opportunity does that really kind of provide you when it's fully up and running?

Ramesh Jayaraman

Yes, so Tom, you know, we are being look at our manufacturing network just across the board. So as we kind of start looking at geopolitical movements, commodity movements, supplier movements, we are looking at the entire stuff to say, how do we basically keep the company rolling? As we really look at our customer demand cycle, you know, build up. I think in the Investor Day, we spoke about some of the installations happening in 14 days. So, you know, what we're also beginning to see is tighter schedules that are happening for us to go cater. So, a combination of a worldview footprint plays a part and Mexico will play a part. To start with Mexico will play a bigger part with the live events business just in ensuring we are able to cater to the global timeline. So a combination for U.S., China, Mexico, and obviously other facilities as we kind of come together to go live with those projects will be the first priority. As we get started. So that's where Mexico will be leveraged.

And I think as time kind of builds up and we kind of get comfortable with Mexico and the supply chain and, you know, how it builds out, you know, we will see the best use of the best plan to ensure we get cost leverage to get it in terms of landed cost per square meter.

Thomas Hayes

Okay, I appreciate that. And then, Howard, on the margin commentary you provided earlier, I just wanted to kind of dig into that a little bit. It sounds like you expect more tariff refunds this year. Put in some price increases that should offset some of the rising raw material prices. So, does that kind of equate to holding margin flat to maybe upward as you guys progress?

Howard Atkins

Uh, again, margin depends on lots of other things, but in terms of those 2 impacts, I think the messaging we're talking about here is we do expect on a cash basis several more quarters worth of tariff refund. And on the raw material and other input costs, I'm sure you understand that's happening now and our expectation is that we will manage in a variety of different ways, including some price increases with market. As you know, we also have a major procurement effort going on right now. So it's something that we monitor on a day-to-day basis, frankly, with a view towards, you know, offsetting the cost as much as we can. Okay, so that's where we are. The price increases I referred to started the second quarter, not in the first quarter, so there was no offset to the input cost inflation in the first quarter. That'll start coming through this quarter.

Thomas Hayes

Okay, great. And maybe just lastly, Ramesh, I think in the early part of the presentation you discussed the strong order activity in transportation. Maybe just kind of talk about some of the drivers of that.

Ramesh Jayaraman

Yes, transportation overall as you see the ITS platform, which is the intelligent transportation system, the stuff on top of roadways, we go through a cycle and we've got a decent cycle with the ITS stuff that's building up. Uh, I think on air which is where we kind of forayed into. We've always done the outside of airports, departure places as people come in. As we forayed into the inside, what we are beginning to see is we are beginning to get new orders from more airports, 1, 2 also, you know, expansion orders from the same airports that we've spoken about before. So L.A. Airports, a great example. We went through that before. Now we are kind of in the phase 2, phase 3 of the build that's beginning to happen. So we feel pretty good about what's kind of building.

And clearly from mass transit perspective, we're beginning to see some upgrades happening as I just spoke about Florida, and other places like Houston, and that is beginning to come and I think it's coming because of 2 elements. One, you know, it is a proven fact that our stuff lasts for a very long time and that's a durability question that happens in transportation. That is evident. Two is, you know, as some of the new product developments kind of come through with our narrow pixel line and everything else, we are actually able to expand, share to these customers. And that's where we are.

Operator

Appreciate the call, Eric. Thank you. Again, ladies and gentlemen, [Operator Instructions] One moment for our next question. Our next question comes from Anders Österlund with Citi. Your line is open.

Unknown Analyst

So, um, Howard, I just want to – you said you, um, the price increases came through in the second quarter, so there's a lag of that.

Howard Atkins

I'm sorry, Anders, I didn't get the second half of your question.

Unknown Analyst

So you're only increasing the prices in the second quarter to offset the higher input. So there's a lag of that. But is that going to be an ongoing thing or is there going to continue to be a lag?

Howard Atkins

Okay, but it's not going to be an ongoing thing.

Unknown Analyst

So price increases are getting impacted in the second quarter.

Howard Atkins

The point I'm trying to make is that the first quarter did not include any offset to the cost increases from new price increases. We did start raising prices selectively so far this quarter and you will see progressively as we go through the quarter, the effect of that in the quarter.

Unknown Analyst

Okay, so that should help the margins further in the second quarter.

Howard Atkins

Well, again, there are all kinds of other things going through the margin, as we mentioned. The refunds will go through if they continue. You know, cost increases will need to be managed properly. But, yes, starting this quarter, we'll start seeing some price increases impacting the margin.

Unknown Analyst

Okay, thank you. And then in terms of just your longer term targets with all the moving parts, what gives you confidence in that you're going to be able to achieve that longer term margin profile?

Ramesh Jayaraman

Yes, I think it's a few areas, right? One, I think looking at, you know, going back to what we spoke about, Anders, you know, in the organic side, it is clearly driven by the growth as well as operational excellence. We look at both sides of the coin and building towards a growth, but also an operational excellence part. So on the growth side, as you guys have seen, things have been going pretty fast. Stable in terms of where we are to what we've been kind of expecting. You know, and I think overall the secular trends remain strong. We are expanding into new vertical markets that we alluded to. The software services gives us stickiness and clearly our plan is also for more international growth. As we look at building that segment of the business.

I think what also gives us confidence is the operational excellence side. And I mean, as we start looking at procurement and what we are beginning to do with the data cube and what it's beginning to show us, we have clear opportunities in direct and indirect with the manufacturing network optimization, we will see opportunities as we try to automate. That clearly gives us really good returns on investments, invested capital that we can see, and the lean processes. So, you know, we are seeing both sides kind of working down that execution line, and that's going to be critical focus for us as we build the business.

Unknown Analyst

Okay, thank you. That was all for me.

Operator

And I'm not showing any further questions at this time. I turn the call back over to Ramesh for any further remarks.

Ramesh Jayaraman

Well, thank you everyone for joining our call today. We will be participating at the November Raymond James Symposium as well as other investment events coming up. And thank you again for your trust you have in place for us. We are excited about what is to come. Enjoy the last few days of summer and we'll speak to you all again in the fall. Have a great day.

Operator

Thank you, ladies and gentlemen. We thank you for your participation. This does conclude today's presentation. You may now disconnect and have a wonderful day.