BROOKINGS, S.D. – A Texas asset management company that says it is the largest shareholder in Brookings-based Daktronics issued a scathing assessment of the company’s leadership this week, prompting a tit for tat exchange.
Alta Fox Capital Management, based in Fort Worth, Texas, vowed to use its 11.7 percent shareholder stake to nominate new board members for the company, a world leader in high-tech scoreboards and video displays. Alta Fox contends the company should be trading at about $40 a share, but because of “ineffective governance” the company’s share value is being dragged down.
The stock closed at $18.69 Wednesday, well above its 52-week low of $7.20.
“Despite the company’s position as an undisputed market leader with revenues fueled by the expanding sports and live events market, Daktronics’ second-generation leadership under Chief Executive Officer and Chairman Reece Kurtenbach has driven a culture of complacency and nepotism that has resulted in significant long-term underperformance,” the capital management firm said in a presentation it issued Tuesday.
That prompted Daktronics to issue a reply. The company accused Alta Fox of threatening to sue it three times and attempting to force its position as a holder of debt to retire the note at three times its face value.
“Recognizing that those threats would not convince the Board to repurchase Alta Fox’s debt at an unreasonable price, Alta Fox has now issued a press release and presentation rife with innuendo and misleading statements,” Daktronics charged. “Alta Fox’s public communications yesterday are also concerning because they fail to disclose that Alta Fox has been seeking to secure an economic windfall for itself as a creditor of Daktronics at the expense of our common shareholders.”
The storied South Dakota company was founded in 1968 by South Dakota State University engineering professors Aelred Kurtenbach and Duane Sander. They hoped to create a business that could retain SDSU students in South Dakota.
Ten years later, Daktronics was doing $1 million a year in sales. The company went public, with its stock starting to trade on NASDAQ in 1994. The company has built video display scoreboards for some of the biggest sports leagues and sporting events in the world, and it has opened offices around the world.
But hard times have also come for the company. In 2022, it filed paperwork with the Securities and Exchange Commission expressing doubt about its future viability. In a subsequent call with investors, Reece Kurtenbach said the company had been severely harmed by supply chain shortages and China’s strict reaction to the Covid-19 pandemic.
The company sought an infusion of investment money, which included $25 million in convertible debt to Alta Fox in May of 2023, part of a broader $100 million package that Alta Fox has called a “bailout.” Daktronics contends that it engaged in a “competitive process” with several financing partners, selling $25 million in debt to Alta Fox.
Last month, Daktronics announced that its board had decided to convert the debt held by Alta Fox into the company’s common stock. The company said it had delivered “outstanding financial results” over the past year, recording record revenue, gross profits and operating income.
“This performance is the result of several initiatives implemented by the management team and board, including strengthening the company’s financial position, reducing order backlog, and improving margins through operational enhancements and strategic cost reductions,” the company said in its announcement.
But Alta Fox contends the long-term management issues that it tried repeatedly to address have been a drag on shareholders.
“The board has failed to hold Mr. Kurtenbach and his family members accountable for their disappointing long-term performance and has enabled the company’s broken culture to go unfixed,” Alta Fox said.
Board members will be selected at the company’s 2025 annual shareholder meeting.
