达科电子 (DAKT) 2027财年第一季度业绩电话会议：销售额增长7.1%，重申业绩目标

达科电子（NASDAQ: DAKT）公布2027财年取得强劲开局，尽管第一财季较去年同期少了一个工作周，但销售额、营业利润和每股收益均实现增长。管理层还重申了2028财年的财务目标。

核心要点

• 尽管减少了一个运营周，2027财年第一财季净销售额仍同比增长7.1%，营业利润增长7.2%至2490万美元。
• 摊薄后每股收益达0.40美元，同比增长21.2%，创下公司三年来的最高单季每股收益。
• 毛利率扩大80个基点至30.5%。约300万美元的关税退税在很大程度上被原材料和其他投入成本的上涨所抵消。
• 经营活动现金流为3140万美元，自由现金流达2750万美元。季末现金总额为1.55亿美元，债务为1000万美元。
• 进入第二财季的积压订单金额为3.11亿美元，连续第六个季度保持在3亿美元以上。管理层预计第一财季谈判的几个重大项目的采购订单将在第二财季到位。
• 达科电子重申了其2028财年的目标，包括三年收入复合年增长率（CAGR）达到7%–10%、营业利润率达到10%–12%以及投资回报率达到17%–20%。

核心财务数据

达科电子进入本季度时的积压订单为3.56亿美元，并在第一财季完成了其中约50%。在过去五个季度中，该公司以18.04美元的成交量加权平均价格回购了2990万美元的股票。

业务与经营业绩

体育及现场活动需求保持强劲，正为伊利诺伊大学、俄亥俄州立大学、宾夕法尼亚州立大学和北卡罗来纳大学等大学橄榄球和篮球客户安装设备。管理层将新签订单同比减少主要归因于项目时间节点问题，而非项目管线发生变化。

达科电子的下一代实时2D和3D图形渲染引擎Camino 8已在天使球场全面部署。该公司计划从秋季开始在10多个NHL、MLS和NCAA场馆安装该系统。管理层将软件和服务视为深化长期客户关系和扩大经常性收入机会的途径。

墨西哥新制造工厂完成了小间距显示屏产品的首次大规模生产，管理层预计将于第二财季末出货。该工厂初期将支持体育及现场活动业务，帮助达科电子应对更紧凑的项目周期并优化其全球制造布局。

交通运输业务取得了大型智能交通系统项目订单，为该板块的积压订单提供了支撑。达科电子还收到了来自洛杉矶国际机场和斯波坎国际机场的额外小间距产品订单，以及来自萨克拉门托区域交通局、佛罗里达州SunRail和休斯顿某项目的轨道交通订单。

国际市场的订单包括哥伦比亚一家大型足球场环形屏，以及塞尔维亚一家长期户外广告客户的50块显示屏部署项目。管理层表示，进入第二财季，国际项目储备依然强劲，尤其是体育场馆项目。

达科电子还推出了针对高中体育的移动端球迷体验平台LiveWorks。该公司表示，该产品丰富了其SaaS产品组合并扩大了经常性收入机会。

运营举措包括合并直接和间接采购团队、使用人工智能分析支出、扩大生产自动化以及优化全球工厂网络。管理层预计这些项目将在2027财年下半年开始显现初步成效，并在2028财年做出更大贡献。

管理层业绩指引

达科电子重申了其2028财年的目标：

• 三年收入复合年增长率为7%–10%
• 营业利润率为10%–12%
• 投资回报率为17%–20%

管理层预计，第一财季谈判的几个重大项目将在第二财季转化为采购订单。预计这些项目将在本财年的剩余时间内产生收入，主要从第三财季开始。

部分产品的选择性提价已于第二财季初期开始实施。管理层预计对利润率的影响将在本季度内逐步显现，而采购和供应链举措旨在抵消投入成本的通胀压力。

过去三年，公司年均资本支出约为1400万至1600万美元。随着对生产自动化及其他预期高回报项目的投资，达科电子预计未来几年年度支出将增加至2000万美元左右。

风险与关注事项

第一财季新签订单同比有所下降。管理层将下降主要归因于采购订单的时间安排，但已谈判项目的转化仍取决于能否获得正式订单。

本季度原材料及其他投入成本有所增加，很大程度上抵消了约300万美元的关税退税。未来的利润率将取决于定价、采购节省、业务组合、经营杠杆以及额外关税退税的时间节点。

达科电子正考虑退出高度定制化的国际交通运输业务。该公司表示，这一决定可能会影响其在埃尼斯蒂蒙工厂的长期可行性，并已启动与员工的集体裁员协商程序。

该公司已收到美国国家篮球协会（NBA）就涉及科怀·伦纳德与洛杉矶快船队调查提出的信息调取请求。美国证券交易委员会（SEC）也在索取有关达科电子及伦纳德先生的相关信息。该公司表示正在予以配合，并拒绝作进一步评论。

分析师问答精选

管理层表示，体育及现场活动业务的项目储备依然强劲，订单延迟主要反映了谈判过程从第一财季延续到了第二财季后半段。管理层未表明竞争表现有所恶化。

关于利润率，管理层强调第一财季并未从新一轮提价中受益。选择性提价从第二财季开始实施，而进一步的关税退税预计将基于现金到账情况确认。然而，高管警告称，包括投入成本和业务组合在内的多重因素将继续影响利润率。

管理层对实现2028财年目标的信心建立在业务增长与运营执行力之上。引述的关键驱动因素包括拓展新的垂直领域、国际业务增长、提高软件和服务参与度、战略采购、制造网络优化、自动化以及精益运营流程。

业绩电话会议完整实录

完整财报电话会议逐字稿

管理层陈述

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.

分析师问答

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.