Daktronics, Inc. Announces Second Quarter Fiscal 2012 Results

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| Source: Daktronics

BROOKINGS, S.D., Nov. 22, 2011 (GLOBE NEWSWIRE) -- Daktronics, Inc. (Nasdaq:DAKT) today reported fiscal 2012 second quarter net sales of $135.9 million and net income of $4.0 million, or $0.09 per diluted share, compared to net sales of $126.9 million and net income of $7.0 million, or $0.17 per diluted share, for the second quarter of fiscal 2011. Backlog at the end of the fiscal 2012 second quarter was approximately $136 million, compared with a backlog of approximately $121 million a year earlier and $154 million at the end of the first quarter of fiscal 2012.

Net sales, net income and earnings per share for the six months ended October 29, 2011 were $254.6 million, $7.3 million and $0.17 per diluted share, respectively. This compares to $227.4 million, $9.5 million and $0.23 per diluted share, respectively, for the same period in fiscal 2011.

Free cash flow, defined as cash provided by operations less net purchases of property and equipment, was $15.4 million through the second quarter of fiscal 2012 compared to $25.1 million through the same period one year ago. Cash and marketable securities at the end of the second quarter of fiscal 2012 were $90.8 million.

"We began the second quarter of fiscal 2012 with the expectation of rising sales and increasing earnings in spite of various challenges we saw in capacity due to the product mix shifting to a significantly higher percentage of surface mount LED technology (SMT) verses our through-hole technology," said Jim Morgan, president and chief executive officer. "On the positive side, we were able to overcome our capacity challenges and I commend our manufacturing group for its efforts to respond to the challenge. The shift to more SMT is a trend we see continuing in the future, as the marketplace demands higher resolution indoor and outdoor displays that require the use of SMT."

"Given the positive top line performance, we were disappointed in the gross margin performance. The good news in this regard is that much of the underperformance was due to one-time costs. These one-time costs included adjustments to reserves for preexisting warranty claims, increased cost estimates on an international project, and new product introduction costs. The impact of these and other one-time items reduced our gross profit percentage by more than two percentage points."

"Although the third quarter is traditionally a weaker quarter from a sales and earnings perspective due to the number of holidays and the seasonality of our sports business, this year our third quarter is shaping up to be relatively strong, as evidenced by the strong backlog going into the quarter. Our order bookings for the quarter were stronger than expected, led by growth in Live Events. This year, orders increased on a sequential basis in Live Events, which is counter to the typical seasonality of that business. This is a positive sign that should partially offset the tough comparable for professional baseball business this upcoming season. Orders in our International business unit were lighter than expected as a result of timing, as some orders were pushed out into the third quarter of fiscal 2012. We are investing a significant amount in our international business as we open more sales and service offices in additional countries to capitalize on the interest in our products around the world. We see the international marketplace as a key growth opportunity for us," continued Morgan.

Business Highlights

  • Orders in the Commercial business unit showed increasing strength in the reseller niche due in part to interest in the GalaxyPro product line. The GalaxyPro product was introduced this calendar year for on-premise advertising and provides all the benefits of the digital billboard product line, such as energy efficiency, superior image quality, rich diagnostic features and ease of installation. Orders for billboards remained strong, and for the fiscal year are up over 80%. The growing strength in the billboard market is due to increasing recognition of the operational benefits of Daktronics products and services by customers for their mission critical applications.
  • Orders in the Live Events business unit were the second highest level on record for the second quarter and were comprised entirely of orders of less than $3 million, demonstrating the depth and growth in the marketplace. Orders for the quarter included add-on orders for an internet protocol television (IPTV) system for the Florida Marlins' new stadium and additional displays and services for the new Barclays Center in New Jersey.
  • Orders in the International business unit included over $5 million in billboard business, as other parts of the world are demonstrating increasing interest in digital billboards. The interest in digital billboards, more sophisticated sports systems and commercial applications continues to drive opportunities for growth internationally.
  • The Transportation business operates on longer business cycles than the other business units, with typical lead times being greater than three months, and backlog being approximately nine months of sales. Orders in the Transportation business unit were up over 30% for the first half of fiscal 2012 compared to one year ago. For the quarter, orders included additional business from the New Jersey Turnpike Authority and the Maryland Transportation Authority. 
  • Orders in the Schools and Theaters business unit were down slightly in the second quarter of fiscal 2012 compared to the same period one year ago. The market continues to be constrained with the implications of school budget issues, although this has been partially offset by the growing interest in video systems at the high school level. During the quarter video systems were sold to high schools around the country, including South Carolina, Washington, Missouri, Kansas, Illinois and Texas. 

Outlook

Morgan added, "We were pleased to see growth in our backlog as we enter what is typically the slowest quarter of our fiscal year. With the strong backlog and despite the fact we have fewer work days in the quarter with the holidays, we could see net sales in the third quarter approaching to the level of the first quarter of fiscal 2012. Taking into account the non-recurring items for this quarter, we also expect that gross profit margins will improve in the third quarter of fiscal 2012." 

"We continue to see strength in our Commercial and International business units driven by our billboard products and our new indoor and outdoor high resolution video display technology. Our Schools and Theatres business unit is feeling the effects of the tougher economy, although we continue to see interest in video systems for high schools and anticipate that this will be an ongoing growth opportunity for this market. In our Live Events business, although we will have a tough comparable in order bookings in the third quarter of fiscal 2012 due to the magnitude of professional baseball contracts last year, we remain optimistic that conditions are showing the potential for more improvement. For the long-term, we would like to see more growth in stadium and arena investment to drive more significant growth in Live Events. The Transportation business unit has a strong backlog and we are seeing increasing strength in the pipeline for the second half of fiscal 2012," said Morgan.

"We continue to introduce to the marketplace new high resolution video displays at improved performance and price points. We are also continuing to build out our family of architectural lighting products, and are seeing more IPTV system opportunities. Our growth and profitability opportunities rely on the strength of our product development and quality of manufacturing, both of which are second to none in the industry. We are confident that with some top line growth and continued efforts on cost reduction through process improvement and spending controls, we can achieve and maintain higher operating margins in the future," said Morgan. 

Strategy

"Our focus continues to be on winning orders to grow the top line, while reducing costs by improving our processes across the company and further lowering the manufactured costs of our products through product development initiatives and leveraging a global supply chain. We will continue with initiatives to improve reliability and quality, maintain a high level of on-time delivery, and strengthen our after-sales service delivery. Finally, we will continue to focus on free cash flow, with our priorities for cash being funding operations, including developing new and improved product offerings, expanding markets for existing products, and investing in business process improvement initiatives to create shareholder value over time," concluded Morgan.

Webcast Information

The company will host a conference call and webcast to discuss its financial results today at 10:00 am (Central Time). 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 the 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, Schools and Theatres, and Transportation, and one International business unit. For more information, visit the company's World Wide Web site at: http://www.daktronics.com, e-mail 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., PO Box 5128, Brookings, S.D. 57006-5128.

The Daktronics logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5476

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 2011 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.

Financial tables are included on the following pages.

Daktronics, Inc. and Subsidiaries
Consolidated Statements of Operations 
(in thousands, except per share amounts)
(unaudited)
 
  Three Months Ended Six Months Ended
  October 29,
 2011 
October 30,
 2010 
October 29,
 2011 
October 30,
 2010 
         
Net sales  $ 135,910  $ 126,919  $ 254,607  $ 227,421
Cost of goods sold  104,440  94,102  193,631  168,017
 Gross profit  31,470  32,817  60,976  59,404
         
Operating expenses:        
 Selling expense  12,926  12,600  25,135  24,936
 General and administrative  6,972  5,624  13,436  11,212
 Product design and development  5,636  4,561  11,353  9,114
   25,534  22,785  49,924  45,262
 Operating income  5,936  10,032  11,052  14,142
         
Nonoperating income (expense):      
 Interest income  457  383  892  838
 Interest expense  (95)  (41)  (171)  (77)
 Other (expense) income, net  (47)  167  (193)  262
         
 Income before income taxes  6,251  10,541  11,580  15,165
 Income tax expense  2,292  3,534  4,253  5,715
 Net income  $ 3,959  $ 7,007  $ 7,327  $ 9,450
         
Weighted average shares outstanding:      
 Basic  41,792  41,387  41,759  41,440
 Diluted  41,934  41,647  41,938  41,788
         
Earnings per share:        
 Basic  0.09  0.17  0.18  0.23
 Diluted  $ 0.09  $ 0.17  $ 0.17  $ 0.23
         
Cash dividend paid per share $ --   $ 0.50  $ 0.11  $ 0.60
 
Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets 
(in thousands)
 
  October 29,
 2011 
(unaudited)

April 30,
2011
ASSETS    
CURRENT ASSETS:    
 Cash, cash equivalents and restricted cash  $ 65,135  $ 55,854
 Marketable securities  25,663  22,943
 Accounts receivable, less allowance for doubtful accounts  58,469  61,778
 Inventories  52,825  46,889
 Costs and estimated earnings in excess of billings  25,684  24,193
 Current maturities of long-term receivables  6,180  5,343
 Prepaid expenses and other assets  6,727  6,253
 Deferred income taxes  9,644  9,640
 Income tax receivables  2,002  4,870
 Property and equipment available for sale  40  59
 Total current assets  252,369  237,822
     
 Advertising rights, net and other assets  1,157  1,276
 Long-term receivables, less current maturities  13,795  13,558
 Goodwill  3,332  3,384
 Intangibles  1,523  1,761
 Deferred income taxes  283  180
   20,090  20,159
PROPERTY AND EQUIPMENT:    
 Land  1,497  1,497
 Buildings  55,905  55,457
 Machinery and equipment  60,207  58,233
 Office furniture and equipment  15,640  15,648
 Computer software and hardware  39,279  37,754
 Equipment held for rental  1,318  1,283
 Demonstration equipment  8,717  8,086
 Transportation equipment  3,869  3,688
   186,432  181,646
 Less accumulated depreciation  119,411  111,780
   67,021  69,866
TOTAL ASSETS  $ 339,480  $ 327,847
     
Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued) 
(in thousands)
 
   October 29,
 2011 
(unaudited)
 
April 30,
2011
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT LIABILITIES:    
 Notes payable, bank  $ 3,140  $ 2,316
 Accounts payable  35,472  29,223
 Accrued expenses  20,975  21,748
 Warranty obligations  14,543  14,474
 Billings in excess of costs and estimated earnings  19,213  20,284
 Customer deposits  12,249  11,288
 Deferred revenue (billed or collected)  9,178  8,770
 Current portion of other long-term obligations  405  273
 Income tax payable  809  880
 Deferred income taxes  481  406
 Total current liabilities  116,465  109,662
     
Long-term warranty obligations  8,814  8,508
Long-term deferred revenue (billed or collected)  4,045  4,559
Other long-term obligations, less current maturities  1,684  2,010
Long-term deferred income taxes  10  6
 Total long-term liabilities  14,553  15,083
TOTAL LIABILITIES  131,018  124,745
     
SHAREHOLDERS' EQUITY:    
 Common stock  33,677  32,670
 Additional paid-in capital  22,828  21,149
 Retained earnings  152,030  149,291
 Treasury stock, at cost  (9)  (9)
 Accumulated other comprehensive income  (64)  1
TOTAL SHAREHOLDERS' EQUITY  208,462  203,102
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 339,480  $ 327,847
     
Daktronics, Inc. and Subsidiaries 
Consolidated Statements of Cash Flows 
(in thousands)
(unaudited)
 
  Six Months Ended
  October 29,
2011
October 30,
2010
CASH FLOWS FROM OPERATING ACTIVITIES:    
 Net income  $ 7,327  $ 9,450
 Adjustments to reconcile net income to net cash provided by operating activities:    
 Depreciation  8,879  9,777
 Amortization  131  152
 Amortization of premium/discount on marketable securities  101  --
 Loss (gain) on sale of property and equipment  (7)  33
 Stock-based compensation  1,669  1,733
 Equity in losses of affiliates  --  36
 Provision for doubtful accounts  (337)  249
 Deferred income taxes, net  (26)  278
 Change in operating assets and liabilities  3,738  6,426
 Net cash provided by operating activities  21,475  28,134
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
 Purchase of property and equipment  (6,236)  (3,195)
 Purchases of marketable securities  (7,739)  --
 Proceeds from sales and maturities of marketable securities  4,975  --
 Insurance recoveries on property and equipment  --  114
 Proceeds from sale of property and equipment  147  168
 Other investing activities, net  --  482
 Net cash used in investing activities  (8,853)  (2,431)
     
CASH FLOWS FROM FINANCING ACTIVITIES:    
 Borrowings on notes payable  782  --
 Proceeds from exercise of stock options  330  660
 Excess tax benefits from stock-based compensation  10  30
 Principal payments on long-term debt  --  (14)
 Dividends paid  (4,588)  (24,794)
 Net cash used in financing activities  (3,466)  (24,118)
     
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (4)  1
INCREASE IN CASH AND CASH EQUIVALENTS  9,152  1,586
     
CASH AND CASH EQUIVALENTS:    
 Beginning of period  54,308  63,603
 End of period  $ 63,460  $ 65,189
 
Daktronics, Inc. and Subsidiaries
Net Sales and Orders By Business Unit
(in thousands)
(unaudited)
 
  Three Months Ended Six Months Ended
  October 29,
 2011 
October 30,
 2010 
October 29,
 2011 
October 30,
 2010 
Net Sales:        
 Commercial  $ 43,704  $ 31,879  $ 76,407  $ 55,010
 Live Events  46,664  44,025  85,181  84,708
 Schools & Theatres  17,239  21,351  35,721  37,999
 Transportation  12,439  11,482  23,939  19,028
 International  15,864  18,182  33,359  30,676
 Total net sales  $ 135,910  $ 126,919  $ 254,607  $ 227,421
         
Orders:        
 Commercial  $ 33,358  $ 25,666  $ 80,599  $ 58,712
 Live Events  44,488  26,864  83,823  64,000
 Schools & Theatres  13,475  14,030  31,648  35,602
 Transportation  12,342  9,408  28,016  21,036
 International  14,132  26,211  33,899  39,691
 Total orders  $ 117,795  $ 102,179  $ 257,985  $ 219,041
     
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
(in thousands)
(unaudited)
 
  Six Months Ended
  October 29,
2011
October 30,
2010
Net cash provided by operating activities  $ 21,475  $ 28,134
Purchase of property and equipment  (6,236)  (3,195)
Proceeds from sale of property and equipment  147  168
 Free cash flow  $ 15,386  $ 25,107

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 and management when assessing period to period results and may not be computed the same as similarly titled measures used by other companies.

INVESTOR RELATIONS:
Bill Retterath, Chief Financial Officer
(605) 692-0200