Market Overview

Daktronics, Inc. Announces Third Quarter Fiscal 2020 Results

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BROOKINGS, S.D., Feb. 26, 2020 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2020 third quarter net sales of $127.7 million, operating loss of $9.2 million, and net loss of $12.7 million, or $0.28 per diluted share, compared to net sales of $115.1 million, operating loss of $7.5 million, and net loss of $3.3 million, or $0.07 per diluted share, for the third quarter of fiscal 2019. Fiscal 2020 third quarter orders were $135.0 million, compared to $135.4 million for the third quarter of fiscal 2019. Product order backlog at the end of the fiscal 2020 third quarter was $187 million, compared to $168 million a year earlier and $182 million at the end of the second quarter of fiscal 2020.(1)

For the nine months ended February 1, 2020, net sales were $482.8 million, operating income was $3.3 million, and net income was $1.6 million, or $0.03 per diluted share. This compares to net sales of $441.9 million, operating income of $5.5 million, and net income of $9.9 million, or $0.22 per diluted share for the same period in fiscal 2019.

Fiscal 2020 is a 53-week year; therefore, the nine months ended February 1, 2020 contains operating results for 40 weeks while the nine months ended January 26, 2019 contains operating results for 39 weeks. Sales, orders and other results of operations were impacted due to the additional week of operations.

Cash provided by operating activities in the first nine months of fiscal 2020 was $6.2 million, compared with cash provided by operating activities of $32.2 million in the same period last year. Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a negative $7.2 million for the first nine months of fiscal 2020, as compared to a positive $18.4 million for the same period of fiscal 2019. Net investment in property and equipment was $13.4 million for the first nine months of fiscal 2020, as compared to $13.8 million for the first nine months of fiscal 2019. Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2020 were $42.1 million, which compares to $70.9 million at the end of the third quarter of fiscal 2019 and $62.1 million at the end of fiscal 2019.

Orders for the third quarter of fiscal 2020 were relatively flat as compared to the third quarter of fiscal 2019. Orders increased in the High School Park and Recreation and Transportation business units, decreased in the Commercial and Live Events business units, and remained relatively flat in the International business unit. The volatility of order timing for large projects and global accounts varies according to the needs of the customer and is the primary cause of the change in order volume.

Net sales increased by 10.9 percent in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019. Net sales increased in the Live Events and International business units, decreased in the Commercial and Transportation business units, and remained relatively flat in the High School Park and Recreation business unit. The higher level of backlog at the beginning of the quarter and customer delivery schedules translated to the increase in sales for the quarter.

Gross profit as a percentage of net sales was 19.2 percent for the third quarter of fiscal 2020 as compared to 21.6 percent a year earlier. Operating expenses for the third quarter of fiscal 2020 were $33.6 million, compared to $32.4 million for the third quarter of fiscal 2019. Operating loss as a percent of sales for the quarter was 7.2 percent as compared to 6.5 percent during the third quarter of fiscal 2019.

The effective tax rate for the third quarter of fiscal 2020 was negative 37.9 percent compared to an effective tax rate of 55.4 percent for the third quarter of fiscal 2019. The quarterly change in the effective tax rate was caused by discrete one-time impacts of $3.3 million recognized in the third quarter of fiscal 2019 and the change in the estimated effective tax rate for fiscal 2020. The estimated effective tax rate for fiscal 2020 of 51.6 percent is the result of the expected net taxes and credits being higher as a proportion of expected pre-tax earnings.

Sheila Anderson, chief financial officer and treasurer noted, "Our third quarter sales and profit levels are lighter than other quarters due to the seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays in the quarter. Gross profit as a percent of sales decreased for the quarter primarily due to adverse impacts of a project with cost overruns, tariff related expenses, and change in project mix. We recognized more sales relating to multimillion-dollar projects which generally earn lower gross margins due to increased competitive bidding. Our overall warranty as a percentage of sales was 1.3% for the quarter as compared to 1.6% for the third quarter of fiscal 2019. Operating expenses increased in dollars primarily due to personnel related costs.

"Year-to-date cash provided from operations differed as compared to last year primarily due to short-term and seasonal changes in cash outflows and inflows to deliver orders and due to lower net income. Cash can vary based on order timing and levels, varying contractual payment terms from customers, and payments for inventory to meet delivery and installation schedules. Cash and marketable securities have decreased on a year-to-date basis due to these differences and continued investment in capital improvements and dividend payments. We expect a total of $23 million in capital improvements for expansion of production and information system capabilities for the fiscal year."

Reece Kurtenbach, chairman, president and chief executive officer stated, "We successfully grew sales and held operating expenses as a percent of sales this quarter, though not sufficiently to cover fixed ongoing costs and strategic investments. We remain confident in our strategies to improve operations, which will lead to long-term profitable growth."

Outlook
Kurtenbach added, "Sales opportunities in the marketplace are growing, resulting in an increase in active project bids this year as compared to last year in all of our business units. We are optimistic in our ability to convert these bids into orders and grow our business in the coming year. In the near-term, orders and sales timing may be impacted by the coronavirus situation ("COVID-19") potentially causing customer order delays and supply chain disruptions.

The dynamic audio-visual communication systems market is expected to grow over the long-term for both traditional and narrow-pixel pitch (NPP) applications. We are seeing growth in our current markets, as well as access to new markets with increased capabilities of NPP displays. To capitalize on this opportunity, we continue to invest in new technologies and market development. Our teams are engaging in operational improvements to reduce the effort and fulfillment costs and are working on initiatives to enhance the quality of the experience for both customers and employees. These activities strengthen our abilities and support our optimism that we will continue to grow, profitably, over the coming years."

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 and orders, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation and other risks described in the company's SEC filings, including its Annual Report on Form 10-K for its 2019 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 M. Anderson, Chief Financial Officer    
Tel (605) 692-0200    
Investor@daktronics.com    
     


Daktronics, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
  Three Months Ended   Nine Months Ended
  February 1,
 2020
  January 26,
 2019
  February 1,
 2020
  January 26,
 2019
               
Net sales $ 127,657     $ 115,069     $ 482,824     $ 441,949  
Cost of sales 103,175     90,200     372,750     336,076  
Gross profit 24,482     24,869     110,074     105,873  
               
Operating expenses:              
Selling 16,552     15,537     51,026     48,040  
General and administrative 8,640     8,574     26,698     25,685  
Product design and development 8,442     8,280     29,063     26,611  
  33,634     32,391     106,787     100,336  
Operating (loss) income (9,152 )   (7,522 )   3,287     5,537  
               
Nonoperating (expense) income:              
Interest income 233     328     664     713  
Interest expense 13     (45 )   (53 )   (86 )
Other income (expense), net (331 )   (203 )   (652 )   (423 )
               
(Loss) income before income taxes (9,237 )   (7,442 )   3,246     5,741  
Income tax expense (benefit) 3,497     (4,123 )   1,676     (4,120 )
Net (loss) income $ (12,734 )   $ (3,319 )   $ 1,570     $ 9,861  
               
Weighted average shares outstanding:              
Basic 45,189     45,018     45,139     44,834  
Diluted 45,189     45,018     45,412     45,139  
               
(Loss) earnings per share:              
Basic $ (0.28 )   $ (0.07 )   $ 0.03     $ 0.22  
Diluted $ (0.28 )   $ (0.07 )   $ 0.03     $ 0.22  
               
Cash dividends declared per share $ 0.05     $ 0.07     $ 0.15     $ 0.21  
                               


Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands) 
  February 1,
 2020
  April 27,
 2019
  (unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 40,316     $ 35,383  
Restricted cash 60     359  
Marketable securities 1,727     26,344  
Accounts receivable, net 80,143     65,487  
Inventories 80,206     78,832  
Contract assets 35,242     33,704  
Current maturities of long-term receivables 5,208     2,300  
Prepaid expenses and other current assets 8,093     8,319  
Income tax receivables 203     1,087  
Property and equipment and other assets available for sale 1,838     1,858  
Total current assets 253,036     253,673  
       
Property and equipment, net 66,368     65,314  
Long-term receivables, less current maturities 1,650     1,214  
Goodwill 7,934     7,889  
Intangibles, net 3,817     4,906  
Investment in affiliates and other assets 14,568     5,052  
Deferred income taxes 11,352     11,168  
Total non-current assets 105,689     95,543  
TOTAL ASSETS $ 358,725     $ 349,216  
       


Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
  February 1,
 2020
  April 27,
 2019
  (unaudited)    
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable $ 44,846     $ 44,873  
Contract liabilities 49,870     47,178  
Accrued expenses 34,588     32,061  
Warranty obligations 9,545     9,492  
Income taxes payable 949     468  
Total current liabilities 139,798     134,072  
       
Long-term warranty obligations 16,170     14,978  
Long-term contract liabilities 10,676     10,053  
Other long-term obligations 8,000     1,339  
Long-term income taxes payable 576     578  
Deferred income taxes 530     533  
Total long-term liabilities 35,952     27,481  
TOTAL LIABILITIES 175,750     161,553  
       
SHAREHOLDERS' EQUITY:      
Common stock 59,276     57,699  
Additional paid-in capital 44,096     42,561  
Retained earnings 88,407     93,593  
Treasury stock, at cost (4,163 )   (1,834 )
Accumulated other comprehensive loss (4,641 )   (4,356 )
TOTAL SHAREHOLDERS' EQUITY 182,975     187,663  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 358,725     $ 349,216  
               


Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
  Nine Months Ended
  February 1,
 2020
  January 26,
 2019
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 1,570     $ 9,861  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 13,197     14,054  
Loss on sale of property, equipment and other assets (6 )   (130 )
Share-based compensation 1,734     1,867  
Contingent consideration adjustment     (956 )
Equity in loss of affiliate 430     392  
Provision for doubtful accounts (477 )   180  
Deferred income taxes, net (223 )   (445 )
Change in operating assets and liabilities (10,035 )   7,364  
Net cash provided by operating activities 6,190     32,187  
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property and equipment (13,646 )   (14,081 )
Proceeds from sales of property, equipment and other assets 244     255  
Purchases of marketable securities     (25,337 )
Proceeds from sales or maturities of marketable securities 24,665     22,341  
Purchases of and loans to equity investment (1,229 )   (854 )
Acquisitions, net of cash acquired     (2,250 )
Net cash provided by (used in) investing activities 10,034     (19,926 )
       
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from exercise of stock options     1,318  
Principal payments on long-term obligations (2,140 )   (440 )
Dividends paid (6,756 )   (9,403 )
Payments for common shares repurchased (2,329 )    
Tax payments related to RSU issuances (199 )   (246 )
Net cash used in financing activities (11,424 )   (8,771 )
       
EFFECT OF EXCHANGE RATE CHANGES ON CASH (166 )   62  
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 4,634     3,552  
       
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:      
Beginning of period 35,742     29,755  
End of period $ 40,376     $ 33,307  
       


Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
  Three Months Ended   Nine Months Ended
  February 1,
 2020
  January 26,
 2019
  Dollar
Change
  Percent
Change
  February 1,
 2020
  January 26,
 2019
  Dollar
Change
  Percent
Change
Net Sales:                              
Commercial $ 36,880     $ 37,159     $ (279 )   (0.8 )%   $ 120,566     $ 113,797     $ 6,769     5.9 %
Live Events 40,571     29,995     10,576     35.3     159,196     134,566     24,630     18.3  
High School Park and Recreation 14,775     14,798     (23 )   (0.2 )   75,433     74,498     935     1.3  
Transportation 13,916     15,390     (1,474 )   (9.6 )   53,264     50,624     2,640     5.2  
International 21,515     17,727     3,788     21.4     74,365     68,464     5,901     8.6  
  $ 127,657     $ 115,069     $ 12,588     10.9 %   $ 482,824     $ 441,949     $ 40,875     9.2 %
Orders:                              
Commercial $ 36,898     $ 41,114     $ (4,216 )   (10.3 )%   $ 119,059     $ 123,637     $ (4,578 )   (3.7 )%
Live Events 41,484     45,767     (4,283 )   (9.4 )   149,461     128,803     20,658     16.0  
High School Park and Recreation 20,447     17,034     3,413     20.0     73,852     73,928     (76 )   (0.1 )
Transportation 16,203     11,541     4,662     40.4     55,410     54,736     674     1.2  
International 19,992     19,973     19     0.1     75,827     65,291     10,536     16.1  
  $ 135,024     $ 135,429     $ (405 )   (0.3 )%   $ 473,609     $ 446,395     $ 27,214     6.1 %


Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)
  Nine Months Ended
  February 1,
 2020
  January 26,
 2019
Net cash provided by operating activities $ 6,190     $ 32,187  
Purchases of property and equipment (13,646 )   (14,081 )
Proceeds from sales of property and equipment 244     255  
Free cash flow $ (7,212 )   $ 18,361  

*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.

(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 27, 2019.

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