Alta Fox Sends Letter to Daktronics' Independent Directors, Urging Them to Immediately Announce an Orderly Leadership Transition
Asserts Independent Directors are Placing Shareholders, Customers and Employees at Unacceptable Risk by Allowing Chairman and CEO Reece Kurtenbach to Continue in his Roles
Highlights that Mr. Kurtenbach has Presided Over Years of Abysmal Governance, Dismal Capital Allocation, Pervasive Nepotism Involving Family Members and Sustained Value Destruction
Notes Mr. Kurtenbach and his CFO Allowed Daktronics to Become a "Going Concern" Months After Alta Fox Privately Conveyed a Willingness to Provide Certain and Immediate Capital
Questions Independent Directors' Motivation for Failing to Respond to Alta Fox's Most Recent Proposal to Promptly Deliver Affordable Capital, Provided Leadership Changes and Governance Enhancements Were Enacted
Alta Fox Capital Management, LLC today released the below letter sent to Daktronics, Inc. (NASDAQ:DAKT).
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January 19, 2023
Daktronics, Inc.
Attn: The Independent Members of the Board of Directors
201 Daktronics Drive
Brookings, South Dakota 57006
Subject: Management's Unacceptable Failures and the Need for Urgent Leadership Changes
Independent Directors,
Alta Fox Capital Management, LLC (together with its affiliates, "Alta Fox" or "we") is the fourth largest shareholder of Daktronics, Inc. ("Daktronics" or the "Company"), with ownership of approximately 4% of the Company's outstanding common shares. We are among the many Daktronics shareholders who no longer have any confidence in Chairman and Chief Executive Officer Reece Kurtenbach and Chief Financial Officer Sheila Anderson. In recent months, Mr. Kurtenbach and Ms. Anderson have demonstrated a level of business and financial ineptitude that we have never before encountered in the public market. Their evident inexperience and poor judgement have put Daktronics' customers, employees and shareholders at unacceptable risk, as evidenced by the Company needlessly becoming a "going concern" in late 2022. While you may believe that Mr. Kurtenbach and his allies have important commercial value, we believe their continued involvement in the Company's governance and stewardship presents far greater risk than potential reward.
The purpose of this letter is to inform you that Alta Fox will no longer wait for a substantive response to the month-old proposal we made pertaining to governance enhancements and a financing solution. Your silence leads us to believe you are either unable or unwilling to make the difficult – albeit necessary – decision to move on from both Mr. Kurtenbach and Ms. Anderson. As such, we intend to make the market aware of the following:
- In September 2022, Mr. Kurtenbach and Ms. Anderson were informed that Alta Fox was available to be a good faith partner if Daktronics ever needed liquidity.
- Subsequent to Daktronics becoming a "going concern" in December 2022, Alta Fox overcame shock and quickly contacted management to reiterate its willingness to provide certain, immediate capital.
- More than a month ago, Alta Fox sent a term sheet to the Company that provided for governance enhancements, including providing us representation on the Board, and affordable and immediate liquidity.
- Over the past month, despite the Company's dire situation, we have not received a single mark-up to the term sheet from the Company.
- Meanwhile, the Company has hired a chorus of advisors while its cash balance dwindles.
We question how you can be so tone deaf to shareholder feedback when the Company's total returns are approximately -60% since Reece Kurtenbach took over as Chief Executive Officer on September 1, 2013. Meanwhile, the Russell 2000 is up roughly 110% over the same period. It is equally notable that over the past twenty years, Daktronics' total returns are approximately -30% versus exponential market outperformance. How many decades must Daktronics lose money for shareholders before the Kurtenbachs are removed from key leadership roles?
Under the Board's watch, the Kurtenbach family has been allowed to run the Company with the worst possible governance practices and complete disregard for independent shareholders – the very parties who are owed fiduciary duties. Daktronics has:
- Allowed Mr. Kurtenbach to make millions in compensation during his tenure, with most of that being paid in cash.
- Tolerated rampant nepotism, including three named executive officers who are part of the Kurtenbach family.
- Maintained a staggered Board.
- Maintained a defensive "poison pill" to cap ownership.
- Permitted excessive capital expenditures and wasteful spending.
With all this context in mind, Daktronics makes great products and has incredible talent throughout the organization. We saw firsthand the many South Dakota employees who have worked hard to be at the cutting edge of their industry. It is very unfortunate that many of these employees have seen their retirement investments in Daktronics decline over a 20-year period due to seemingly incompetent leadership.
We have run out of patience. Short of you informing us that Mr. Kurtenbach and Ms. Anderson will be transitioning out of their current executive roles, we intend to take our case to shareholders over the coming weeks and months. It is regrettable that you have forced us to take this step and, in turn, make other market participants aware of the Kurtenbach-driven damage caused at Daktronics. We simply hope the damage is not irreversible.
Sincerely,
Connor Haley
Managing Partner
Alta Fox Capital Management, LLC
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About Alta Fox
Founded in 2018 by Connor Haley, Alta Fox is a Texas-based alternative asset management firm that employs a long-term focused investment strategy to pursue exceptional risk-adjusted returns for a diverse group of institutions and qualified individual clients. Alta Fox focuses on identifying often overlooked and under-the-radar opportunities across asset classes, market capitalization ranges and sectors. Learn more by visiting www.AltaFoxCapital.com.
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