Alta Fox Sends Letter to Daktronics’ Independent Committee Regarding the Urgent Need for Governance Improvements, Leadership Changes and an Immediate and Certain Liquidity Solution
January 26 2023 - 8:00AM
Business Wire
Asserts Chairman & CEO Reece Kurtenbach
has Received Millions in Compensation and Perpetuated Sustained
Nepotism While Presiding Over Hundreds of Millions of Dollars in
Value Destruction
Highlights Alta Fox is Firmly Aligned with
All of Daktronics' Stakeholders, Including the Many South Dakotans
Depending on the Company to Provide Jobs and Retirement Security
Through its 401K
Urges Independent
Directors to Fully Engage with Alta Fox—Daktronics’ Largest
Shareholder—to Catalyze a Sustainable Turnaround That Benefits
Shareholders and South Dakota’s Economy
Alta Fox Capital Management, LLC today released the below letter
sent to Daktronics, Inc.’s (NASDAQ: DAKT) Strategy and Financing
Review Committee of the Board of Directors.
***
January 26, 2023
Daktronics, Inc. Attn: The Strategy and Financing Review
Committee of the Board of Directors 201 Daktronics Drive Brookings,
South Dakota 57006
Subject: Alta Fox’s Increased
Investment and Full Alignment with Daktronics’ Stakeholders
Members of the Strategy and Financing Review Committee,
Alta Fox Capital Management, LLC (together with its affiliates,
“Alta Fox” or “we”) is now the largest shareholder of Daktronics,
Inc. (“Daktronics” or the “Company”), with ownership of more than
5.8% of the Company’s outstanding common shares. While we commend
the Strategy and Financing Review Committee of the Board of
Directors (the “Board”) for securing a credit agreement amendment,
we are extremely disappointed that it is not taking decisive action
to address deep-rooted issues related to the Company’s corporate
governance, management team and value creation efforts. We believe
these long-standing issues culminated in the Company’s auditor
issuing “substantial doubt about the Company’s ability to continue
as a going concern,” as disclosed in the recent 8-K filed with the
SEC. Alta Fox has been adamant about the urgent need for governance
improvements, leadership changes and an immediate and certain
liquidity solution during our private interactions with the Board,
but no substantive changes have been made.
Therefore, it is with deep regret that we have to file a
Schedule 13D this week without being able to disclose a cooperation
agreement with Daktronics or any indication of a productive
relationship with you—the very individuals whom the Company’s
stakeholders are depending on to protect them from further
Kurtenbach-driven missteps, nepotism and value destruction.
Daktronics has seen its equity market capitalization decline by
hundreds of millions of dollars
during the tenure of Chairman and Chief Executive Officer Reece
Kurtenbach, making your apparent loyalty to the Kurtenbach family
and resistance to Alta Fox’s good faith engagement truly
confounding.
As we have told you previously, Alta Fox—now the Company’s
largest shareholder—has no confidence in Mr. Kurtenbach and Chief
Financial Officer Sheila Anderson. The Company’s shares have
declined in value by more than 60% under Mr. Kurtenbach’s executive
leadership, in stark contrast to the Russell 2000’s more than 100%
long-term appreciation. That fact alone should be grounds for
announcing a plan for replacing him. Meanwhile, Ms. Anderson
oversaw increased discretionary capital spending and a massive
build of net working capital, which greatly contributed to a
liquidity crisis. In addition, we were shocked to see Mr.
Kurtenbach and Ms. Anderson working from home during our video call
the morning Daktronics disclosed that its auditor had issued doubt
about the Company as a “going concern.” Perhaps we should not be
surprised given that when we traveled to the Company’s Brookings,
South Dakota headquarters to meet with Mr. Kurtenbach and Ms.
Anderson last year, they took us to the Company grill—only to
discover it was not open on Mondays. It seems they were hardly in
the office as the business was deteriorating under their noses—and
your own—during the fall of 2022. This indicates a complete lack of
leadership, and suggests management is not being held accountable
(let alone properly supervised) by the current Board.
Daktronics’ hard-working employees have been coming into the
office for the last two decades. Many of them have also put the
bulk of their life savings into Daktronics through the Company’s
401K plan, which represents the fourth largest shareholder of the
Company. That investment has been a disaster based on the fact it
is worth less today than it was for employees who invested twenty
years ago.
We are writing today to once again request a substantive
response to Alta Fox’s past private offers to provide certain,
immediate capital and collaborate on necessary governance and
leadership changes. Despite yesterday’s announcement that the
Company was “reviewing several financing proposals” and “engaging
with other potential financing sources,” you have failed to engage
in a good faith negotiation over the proposal we submitted over a
month ago. It should not take this much time for you to give us
specific feedback or mark-up our term sheet, especially given our
status as a major shareholder. Our offers should facilitate a
dialogue—not sporadic communication that amounts to stonewalling.
Your seemingly aloof posture is all the more troubling when
considering that you are the very individuals who allowed
management to recently drive Daktronics to the brink of financial
distress months after we made Mr. Kurtenbach and Ms. Anderson aware
of our willingness to provide liquidity. At this point, we question
whether our good faith proposals have been disregarded because a
growing number of insiders are putting their own interests ahead of
what is best for all shareholders, employees, customers and
relevant communities in South Dakota. Although our major concerns
previously pertained to Mr. Kurtenbach’s desires to perpetuate a
culture of nepotism and retain his roles, we now fear a broader
boardroom bias exists against our proposals merely because it would
challenge the status quo. This is no justification, in our view,
for keeping the Company and all of its stakeholders mired in
unnecessary risk.
The reality is Alta Fox is fully
aligned with all of Daktronics’ stakeholders, including the many
South Dakotans who depend on the Company to provide jobs and
retirement plan security. Alta Fox has continued to
invest in Daktronics’ common shares, and may increase its equity
stake further in the future. Alta Fox is also willing to put a
significant amount of its own capital at risk in order to solve the
immediate Daktronics liquidity crisis, while also working alongside
you to appoint competent leadership that can help the Company
thrive for decades to come. We want to be part of the solution at
Daktronics.
In closing, please know Alta Fox has been receiving an
outpouring of unsolicited support from fellow Daktronics
stakeholders. It appears that many individuals who are dependent on
the Company share our frustrations, support us and want the
leadership changes we are advocating for, including Mr.
Kurtenbach’s departure from his current roles. We urge you to put aside your apparent biases and
preferences in favor of finally engaging in good faith with the
Company’s largest shareholder. If you do not, we will
have no choice other than to proceed with a sustained public
campaign to expose the underlying dysfunction at Daktronics and
ultimately install new leadership that is committed to transforming
the Company into a value-generating business that can be a gem of
the South Dakota economy.
Sincerely,
Connor Haley
Managing Partner Alta Fox Capital Management, LLC
***
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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Alta Fox Investor Relations ir@altafoxcapital.com
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