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Daktronics, Inc. Announces First Quarter Fiscal 2019 Results

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BROOKINGS, S.D., Aug. 21, 2018 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2019 first quarter net sales of $154.2 million, operating income of $4.0 million, and net income of $4.6 million, or $0.10 per diluted share, compared to net sales of $172.7 million, operating income of $11.7 million, and net income of $8.4 million, or $0.19 per diluted share, for the first quarter of fiscal 2018.  Fiscal 2019 first quarter orders were $159.6 million, compared to $153.1 million for the first quarter of fiscal 2018.  Product order backlog at the end of the fiscal 2019 first quarter was $177 million, compared to a backlog of $184 million a year earlier and $171 million at the end of the fourth quarter of fiscal 2018.(1)

Cash used in operating activities in the first three months of fiscal 2019 was $10.3 million, compared with cash used in operating activities of $4.9 million in the same period last year. Cash flow from operating activities fluctuated due to a rise in accounts receivable, contract assets, and inventories corresponding with the seasonality of our business.  Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a negative $14.9 million for the first three months of fiscal 2019, as compared to a negative free cash flow of $8.9 million for the same period of fiscal 2018.  Net investment in property and equipment was $4.6 million for the first three months of fiscal 2019, as compared to $4.0 million for the first three months of fiscal 2018.  Cash, restricted cash, and marketable securities at the end of the first quarter of fiscal 2019 were $43.3 million, which compares to $52.1 million at the end of the first quarter of fiscal 2018 and $64.3 million at the end of fiscal 2018.

Orders for the first quarter of fiscal 2019 increased 4.3 percent as compared to the first quarter of fiscal 2018.  Orders increased in the Commercial, High School Park and Recreation, Transportation, and International business units and decreased in the Live Events business unit.

Net sales decreased by 10.7 percent in the first quarter of fiscal 2019 as compared to the first quarter of fiscal 2018.  Net sales increased in the International business unit, decreased in the Commercial, Live Events, and Transportation business units, and remained relatively flat in the High School Park and Recreation business unit.  The increase in International business unit was primarily due to the timing of projects and buildable backlog coming into the quarter. Live Events sales decreased as we had completed a number of NFL stadiums in 2018, with no similar sized projects in the first quarter of 2019.

Gross profit, as a percentage of net sales, was 24.8 percent for the first quarter of fiscal 2019 as compared to 25.8 percent a year earlier.  The decrease in gross profit percentage was primarily due to lower sales volumes over relatively fixed infrastructure costs, partly offset by lower warranty expenses.  Operating expenses for the first quarter of 2019 were $34.2 million, compared to $32.9 million for the first quarter of fiscal 2018.  The increase in total operating expenses was primarily attributable to an increase in variable selling expenses.  Operating income as a percent of sales for the quarter decreased to 2.6 percent as compared to the first quarter of fiscal 2018 operating income of 6.8 percent.  We recorded a tax benefit during the quarter for estimated tax credits exceeding estimated tax expense.

Reece Kurtenbach, chairman, president and chief executive officer stated, "As expected, first quarter sales were less than the first quarter of 2018 and reflect the financial fluctuations caused by the timing of large projects.  Year to date orders have increased over last year, and we achieved a respectable gross profit margin on this level of business.  During the quarter, we installed several of the new generation of narrow pixel pitch products for high resolution indoor applications.  We continue to invest in broadening our narrow pixel pitch product line and control solutions.  Our pipeline of innovative new products and technologies is poised to meet the growing market demand for digital canvases."

(1) Backlog is not a measure defined by U.S. generally accepted accounting principles ("GAAP"), and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts.  For more information related to backlog, see Part I, Item 1. Business of our Annual Report on Form 10-K for the fiscal year ended April 28, 2018.

Outlook
Kurtenbach added, "While we remain optimistic about long-term growth in the digital display industry, most of us are aware the current global tariff and trade environment is very dynamic. The current financial impact to us is related to the volatility in pricing and demand of aluminum, electrical, and other components.  We would expect some of the measures being contemplated by various governments could have a financial impact in future quarters.  We will continue to monitor the situation and take action as necessary.  We are focused on winning more orders and continuing our velocity in product development, as well as quality and reliability programs.  In addition, we are carefully managing our operational spend as we continue on our path to long-term profitable growth."

Webcast Information
The company will host a conference call and webcast to discuss its financial results today at 10:00 a.m. (CST).  This call will be broadcast live at http://investor.daktronics.com and available for replay shortly after the event.

About Daktronics
Daktronics has strong leadership positions in, and is the world's largest supplier of, large-screen video displays, electronic scoreboards, LED text and graphics displays, and related control systems.  The company excels in the control of display systems, including those that require integration of multiple complex displays showing real-time information, graphics, animation, and video.  Daktronics designs, manufactures, markets and services display systems for customers around the world in four domestic business units:  Live Events, Commercial, High School Park and Recreation, and Transportation, and one International business unit.  For more information, visit the company's website at: www.daktronics.com, email the company at investor@daktronics.com, call (605) 692-0200 or toll-free (800) 843-5843 in the United States, or write to the company at 201 Daktronics Dr., P.O. Box 5128, Brookings, S.D. 57006-5128.

Safe Harbor Statement
Cautionary Notice: In addition to statements of historical fact, this news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and is intended to enjoy the protection of that Act.  These forward-looking statements reflect the Company's expectations or beliefs concerning future events.  The Company cautions that these and similar statements involve risk and uncertainties which could cause actual results to differ materially from our expectations, including, but not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, and other risks noted in the company's SEC filings, including its Annual Report on Form 10-K for its 2018 fiscal year.  Forward-looking statements are made in the context of information available as of the date stated.  The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

For more information contact:    
INVESTOR RELATIONS:    
Sheila Anderson, Chief Financial Officer    
(605) 692-0200    
Investor@daktronics.com    
     



 
Daktronics, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
    Three Months Ended
    July 28,
 2018
  July 29,
 2017
         
Net sales   $ 154,188     $ 172,728  
Cost of sales   115,941     128,082  
Gross profit   38,247     44,646  
         
Operating expenses:        
Selling   16,378     14,939  
General and administrative   8,537     8,935  
Product design and development   9,292     9,047  
    34,207     32,921  
Operating income   4,040     11,725  
         
Nonoperating income (expense):        
Interest income   197     211  
Interest expense   (39 )   (86 )
Other (expense) income, net   (154 )   145  
         
Income before income taxes   4,044     11,995  
Income tax (benefit) expense   (530 )   3,566  
Net income   $ 4,574     $ 8,429  
         
Weighted average shares outstanding:        
Basic   44,638     44,244  
Diluted   44,831     44,461  
         
Earnings per share:        
Basic   $ 0.10     $ 0.19  
Diluted   $ 0.10     $ 0.19  
         
Cash dividends declared per share   $ 0.07     $ 0.07  
                 



Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)

 
  July 28,
 2018
  April 28,
 2018
  (unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 15,915     $ 29,727  
Restricted cash 26     28  
Marketable securities 27,352     34,522  
Accounts receivable, net 100,362     77,387  
Inventories 78,983     75,335  
Contract assets 41,283     30,968  
Current maturities of long-term receivables 1,435     1,752  
Prepaid expenses and other assets 7,712     9,029  
Income tax receivables 6,280     5,385  
Total current assets 279,348     264,133  
       
Long-term receivables, less current maturities 1,552     1,641  
Goodwill 8,115     8,264  
Intangibles, net 6,729     3,682  
Investment in affiliates and other assets 5,248     5,091  
Deferred income taxes 7,938     7,930  
  29,582     26,608  
PROPERTY AND EQUIPMENT:      
Land 2,142     2,161  
Buildings 67,776     67,773  
Machinery and equipment 94,841     93,439  
Office furniture and equipment 5,987     5,878  
Computer software and hardware 53,117     53,004  
Equipment held for rental 287     287  
Demonstration equipment 6,971     7,035  
Transportation equipment 7,675     7,632  
Property and equipment 238,796     237,209  
Less accumulated depreciation 171,506     169,150  
  67,290     68,059  
TOTAL ASSETS $ 376,220     $ 358,800  
       



Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
  July 28,
 2018
  April 28,
 2018
  (unaudited)    
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable $ 48,726     $ 48,845  
Contract liabilities 50,629     39,379  
Accrued expenses 30,778     27,445  
Warranty obligations 13,468     13,891  
Current portion of other long-term obligations 2,453     1,088  
Income taxes payable 360     660  
Total current liabilities 146,414     131,308  
       
Long-term warranty obligations 15,777     16,062  
Long-term contract liabilities 8,073     7,475  
Other long-term obligations 2,307     2,285  
Long-term income tax payable 3,599     3,440  
Deferred income taxes 604     614  
Total long-term liabilities 30,360     29,876  
TOTAL LIABILITIES 176,774     161,184  
       
SHAREHOLDERS' EQUITY:      
Common stock 55,608     54,731  
Additional paid-in capital 40,979     40,328  
Retained earnings 108,559     107,105  
Treasury stock, at cost (1,834 )   (1,834 )
Accumulated other comprehensive loss (3,866 )   (2,714 )
TOTAL SHAREHOLDERS' EQUITY 199,446     197,616  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 376,220     $ 358,800  



 
Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
    Three Months Ended
    July 28,
 2018
  July 29,
 2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 4,574     $ 8,429  
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization   4,488     4,460  
Gain on sale of property, equipment and other assets   (69 )   (17 )
Share-based compensation   651     672  
Equity in loss of affiliate   134     85  
Provision for doubtful accounts   (29 )   14  
Deferred income taxes, net   (65 )   30  
Change in operating assets and liabilities   (19,944 )   (18,580 )
Net cash used in operating activities   (10,260 )   (4,907 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment   (4,727 )   (4,092 )
Proceeds from sales of property, equipment and other assets   106     63  
Purchases of marketable securities   (1,986 )    
Proceeds from sales or maturities of marketable securities   9,181     7,643  
Purchases of equity investment   (426 )   (607 )
Acquisitions, net of cash acquired   (2,250 )    
Net cash (used in) provided by investing activities   (102 )   3,007  
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Borrowings on notes payable   3,000      
Payments on notes payable   (3,000 )    
Proceeds from exercise of stock options   57     211  
Principal payments on long-term obligations   (458 )   (1,018 )
Dividends paid   (3,121 )   (3,094 )
Net cash used in financing activities   (3,522 )   (3,901 )
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH   70     52  
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   (13,814 )   (5,749 )
         
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:        
Beginning of period   29,755     32,839  
End of period   $ 15,941     $ 27,090  
         



Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
  Three Months Ended
  July 28,
 2018
  July 29,
 2017
  Dollar
Change
  Percent
Change
Net Sales:              
  Commercial $ 30,569     $ 32,863     $ (2,294 )   (7.0 )%
  Live Events 49,472     77,612     (28,140 )   (36.3 )
  High School Park and  Recreation 28,120     28,479     (359 )   (1.3 )
  Transportation 17,157     18,912     (1,755 )   (9.3 )
  International 28,870     14,862     14,008     94.3  
  $ 154,188     $ 172,728     $ (18,540 )   (10.7 )%
Orders:              
  Commercial $ 35,792     $ 29,937     $ 5,855     19.6 %
  Live Events 39,395     61,605     (22,210 )   (36.1 )
  High School Park and Recreation 38,449     32,180     6,269     19.5  
  Transportation 21,916     9,269     12,647     136.4  
  International 24,058     20,090     3,968     19.8  
  $ 159,610     $ 153,081     $ 6,529     4.3 %


 
Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)
  Three Months Ended
  July 28,
 2018
  July 29,
 2017
Net cash used in operating activities $ (10,260 )   $ (4,907 )
Purchases of property and equipment (4,727 )   (4,092 )
Proceeds from sales of property and equipment 106     63  
Free cash flow $ (14,881 )   $ (8,936 )

*In evaluating its business, Daktronics considers and uses free cash flow as a key measure of its operating performance.  The term free cash flow is not defined under U.S. generally accepted accounting principles ("GAAP") and is not a measure of operating income, cash flows from operating activities or other GAAP figures and should not be considered alternatives to those computations.  Free cash flow is intended to provide information that may be useful for investors when assessing period to period results.

 

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