Daktronics, Inc. Announces Third Quarter Fiscal 2020 Results


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 sales103,175  90,200  372,750  336,076 
Gross profit24,482  24,869  110,074  105,873 
        
Operating expenses:       
Selling16,552  15,537  51,026  48,040 
General and administrative8,640  8,574  26,698  25,685 
Product design and development8,442  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 income233  328  664  713 
Interest expense13  (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:       
Basic45,189  45,018  45,139  44,834 
Diluted45,189  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 cash60  359 
Marketable securities1,727  26,344 
Accounts receivable, net80,143  65,487 
Inventories80,206  78,832 
Contract assets35,242  33,704 
Current maturities of long-term receivables5,208  2,300 
Prepaid expenses and other current assets8,093  8,319 
Income tax receivables203  1,087 
Property and equipment and other assets available for sale1,838  1,858 
Total current assets253,036  253,673 
    
Property and equipment, net66,368  65,314 
Long-term receivables, less current maturities1,650  1,214 
Goodwill7,934  7,889 
Intangibles, net3,817  4,906 
Investment in affiliates and other assets14,568  5,052 
Deferred income taxes11,352  11,168 
Total non-current assets105,689  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 liabilities49,870  47,178 
Accrued expenses34,588  32,061 
Warranty obligations9,545  9,492 
Income taxes payable949  468 
Total current liabilities139,798  134,072 
    
Long-term warranty obligations16,170  14,978 
Long-term contract liabilities10,676  10,053 
Other long-term obligations8,000  1,339 
Long-term income taxes payable576  578 
Deferred income taxes530  533 
Total long-term liabilities35,952  27,481 
TOTAL LIABILITIES175,750  161,553 
    
SHAREHOLDERS' EQUITY:   
Common stock59,276  57,699 
Additional paid-in capital44,096  42,561 
Retained earnings88,407  93,593 
Treasury stock, at cost(4,163) (1,834)
Accumulated other comprehensive loss(4,641) (4,356)
TOTAL SHAREHOLDERS' EQUITY182,975  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 amortization13,197  14,054 
Loss on sale of property, equipment and other assets(6) (130)
Share-based compensation1,734  1,867 
Contingent consideration adjustment  (956)
Equity in loss of affiliate430  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 activities6,190  32,187 
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment(13,646) (14,081)
Proceeds from sales of property, equipment and other assets244  255 
Purchases of marketable securities  (25,337)
Proceeds from sales or maturities of marketable securities24,665  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 activities10,034  (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 CASH4,634  3,552 
    
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:   
Beginning of period35,742  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 Events40,571  29,995  10,576  35.3  159,196  134,566  24,630  18.3 
High School Park and Recreation14,775  14,798  (23) (0.2) 75,433  74,498  935  1.3 
Transportation13,916  15,390  (1,474) (9.6) 53,264  50,624  2,640  5.2 
International21,515  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 Events41,484  45,767  (4,283) (9.4) 149,461  128,803  20,658  16.0 
High School Park and Recreation20,447  17,034  3,413  20.0  73,852  73,928  (76) (0.1)
Transportation16,203  11,541  4,662  40.4  55,410  54,736  674  1.2 
International19,992  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  $32,187 
Purchases of property and equipment(13,646) (14,081)
Proceeds from sales of property and equipment244  255 
Free cash flow$(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.