Daktronics, Inc. Announces Second Quarter Fiscal 2020 Results


BROOKINGS, S.D., Nov. 27, 2019 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2020 second quarter net sales of $174.9 million, operating income of $4.8 million, and net income of $7.3 million, or $0.16 per diluted share, compared to net sales of $172.7 million, operating income of $9.0 million, and net income of $8.6 million, or $0.19 per diluted share, for the second quarter of fiscal 2019.  Fiscal 2020 second quarter orders were $151.1 million, compared to $151.4 million for the second quarter of fiscal 2019.  Product order backlog at the end of the fiscal 2020 second quarter was $182 million, compared to $150 million a year earlier and $207 million at the end of the first quarter of fiscal 2020.(1)

For the six months ended November 2, 2019, net sales were $355.2 million, operating income was $12.4 million, and net income was $14.3 million, or $0.32 per diluted share.  This compares to net sales of $326.9 million, operating income of 13.1 million, net income of $13.2 million, or $0.29 per diluted share for the same period in fiscal 2019.

Fiscal 2020 is a 53-week year; therefore, the six months ended November 2, 2019 contains operating results for 27 weeks while the six months ended October 27, 2018 contains operating results for 26 weeks.  Sales, orders and other results of operations were impacted due to the additional week of operations.

Cash used in operating activities in the first six months of fiscal 2020 was $10.3 million, compared with cash provided by operating activities of $22.6 million in the same period last year.  Cash flow from operating activities fluctuated due to a rise in accounts receivable corresponding with the seasonality of our business.  Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a negative $19.9 million for the first six months of fiscal 2020, as compared to a positive free cash flow of $12.9 million for the same period of fiscal 2019.  Net investment in property and equipment was $9.6 million for the first six months of fiscal 2020, as compared to $9.7 million for the first six months of fiscal 2019.  Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2020 were $32.9 million, which compares to $67.3 million at the end of the second quarter of fiscal 2019 and $62.1 million at the end of fiscal 2019.

Orders for the second quarter of fiscal 2020 were relatively flat as compared to the second quarter of fiscal 2019.  Orders increased in the High School Park and Recreation and International business units, and decreased in the Commercial, Live Events, and Transportation business units.  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 in the Commercial, High School Park and Recreation, Transportation and International business units.

Net sales were similar for the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019.  Net sales increased in the Live Events, Transportation, and International business units, and decreased in the Commercial and High School Park and Recreation business units.  The change in sales also correlates to the timing of converting orders and backlog into sales.

Gross profit as a percentage of net sales was 22.9 percent for the second quarter of fiscal 2020 as compared to 24.8 percent a year earlier.  Operating expenses for the second quarter of fiscal 2020 were $35.3 million, compared to $33.7 million for the second quarter of fiscal 2019.  Operating income as a percent of sales for the quarter decreased to 2.8 percent as compared to 5.2 percent during the second quarter of fiscal 2019.  The effective tax rate for the second quarter of fiscal 2020 was a benefit of 63.8 percent compared to an effective tax rate expense of 5.8 percent for the second quarter of fiscal 2019.  The change in the effective tax rate, as compared to the same period one year ago, is primarily driven by differences in estimated tax credits proportionate to estimated annual pre-tax book income.

Reece Kurtenbach, chairman, president and chief executive officer stated, “We were pleased with our second quarter order and sales volumes; however, gross profit was impacted by higher project delivery costs and tariff related expenses compared to the same period last year.  As expected, operating margin was impacted due to the planned increase in product development expenses for activities to accelerate the release of new and enhanced customer solutions.”

(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.

Outlook
Kurtenbach added, “The dynamic audio-visual communication systems market is expected to grow over the long-term.  We remain optimistic about our ability to grow profitably within this business.  To support this growth, we are evaluating and engaging in operational improvements to reduce the effort of delivery and to enhance the quality of the experience for both customers and employees.  We also continue to monitor the geopolitical situation and are responding accordingly, such as actions to offset tariff impacts.  We continue to invest in new technologies and advancements in manufacturing techniques to strengthen our market position as a trusted and leading value provider in both indoor and outdoor audio-visual communication systems."

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 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 Six Months Ended
 November 2,
 2019
 October 27,
 2018
 November 2,
 2019
 October 27,
 2018
        
Net sales$174,911  $172,692  $355,167  $326,880 
Cost of sales134,824  129,935  269,575  245,876 
Gross profit40,087  42,757  85,592  81,004 
        
Operating expenses:       
Selling16,177  16,125  34,474  32,503 
General and administrative8,965  8,574  18,058  17,111 
Product design and development10,121  9,039  20,621  18,331 
 35,263  33,738  73,153  67,945 
Operating income4,824  9,019  12,439  13,059 
        
Nonoperating (expense) income:       
Interest income162  188  431  385 
Interest expense(31) (2) (66) (41)
Other income (expense), net(514) (66) (321) (220)
        
Income before income taxes4,441  9,139  12,483  13,183 
Income tax (benefit) expense(2,833) 533  (1,821) 3 
Net income$7,274  $8,606  $14,304  $13,180 
        
Weighted average shares outstanding:       
Basic45,115  44,780  45,114  44,717 
Diluted45,267  44,950  45,361  44,994 
        
Earnings per share:       
Basic$0.16  $0.19  $0.32  $0.29 
Diluted$0.16  $0.19  $0.32  $0.29 
        
Cash dividends declared per share$0.05  $0.07  $0.10  $0.14 



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

 
 November 2,
 2019
 April 27,
 2019
 (unaudited)  
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$29,265  $35,383 
Restricted cash59  359 
Marketable securities3,618  26,344 
Accounts receivable, net103,417  65,487 
Inventories79,237  78,832 
Contract assets34,395  33,704 
Current maturities of long-term receivables4,567  2,300 
Prepaid expenses and other current assets9,943  8,319 
Income tax receivables4,301  1,087 
Property and equipment and other assets available for sale1,860  1,858 
Total current assets270,662  253,673 
    
Property and equipment, net67,163  65,314 
Long-term receivables, less current maturities1,758  1,214 
Goodwill7,974  7,889 
Intangibles, net4,204  4,906 
Investment in affiliates and other assets15,458  5,052 
Deferred income taxes11,190  11,168 
TOTAL ASSETS$378,409  $349,216 
    



Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
 November 2,
 2019
 April 27,
 2019
 (unaudited)  
LIABILITIES AND SHAREHOLDERS' EQUITY   
CURRENT LIABILITIES:   
Accounts payable$48,432  $44,873 
Contract liabilities48,387  47,178 
Accrued expenses36,817  32,061 
Warranty obligations9,837  9,492 
Income taxes payable638  468 
Total current liabilities144,111  134,072 
    
Long-term warranty obligations16,148  14,978 
Long-term contract liabilities10,578  10,053 
Other long-term obligations8,295  1,339 
Long-term income taxes payable735  578 
Deferred income taxes531  533 
Total long-term liabilities36,287  27,481 
TOTAL LIABILITIES180,398  161,553 
    
SHAREHOLDERS' EQUITY:   
Common stock59,276  57,699 
Additional paid-in capital43,546  42,561 
Retained earnings103,397  93,593 
Treasury stock, at cost(3,516) (1,834)
Accumulated other comprehensive loss(4,692) (4,356)
TOTAL SHAREHOLDERS' EQUITY198,011  187,663 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$378,409  $349,216 



Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Six Months Ended
 November 2,
 2019
 October 27,
 2018
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$14,304  $13,180 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization8,724  9,300 
Gain (loss) on sale of property, equipment and other assets30  (93)
Share-based compensation1,184  1,263 
Contingent consideration adjustment  (956)
Equity in loss of affiliate241  265 
Provision for doubtful accounts(535) 51 
Deferred income taxes, net(64) (85)
Change in operating assets and liabilities(34,156) (368)
Net cash (used in) provided by operating activities(10,272) 22,557 
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment(9,768) (9,833)
Proceeds from sales of property, equipment and other assets149  182 
Purchases of marketable securities  (9,209)
Proceeds from sales or maturities of marketable securities22,775  12,034 
Purchases of and loans to equity investment(896) (854)
Acquisitions, net of cash acquired  (2,250)
Net cash provided by (used in) investing activities12,260  (9,930)
    
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from exercise of stock options  57 
Principal payments on long-term obligations(1,931) (431)
Dividends paid(4,500) (6,252)
Payments for common shares repurchased(1,682)  
Tax payments related to RSU issuances(199) (246)
Net cash used in financing activities(8,312) (6,872)
    
EFFECT OF EXCHANGE RATE CHANGES ON CASH(94) 73 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(6,418) 5,828 
    
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:   
Beginning of period35,742  29,755 
End of period$29,324  $35,583 
    



Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
 Three Months Ended Six Months Ended
 November 2,
 2019
 October 27,
 2018
 Dollar
Change
 Percent
Change
 November 2,
 2019
 October 27,
 2018
 Dollar
Change
 Percent
Change
Net Sales:               
  Commercial$39,651  $46,069  $(6,418) (13.9)% $83,686  $76,638  $7,048  9.2%
  Live Events59,319  55,099  4,220  7.7  118,625  104,571  14,054  13.4 
  High School Park and Recreation30,193  31,580  (1,387) (4.4) 60,658  59,700  958  1.6 
  Transportation20,330  18,077  2,253  12.5  39,348  35,234  4,114  11.7 
  International25,418  21,867  3,551  16.2  52,850  50,737  2,113  4.2 
 $174,911  $172,692  $2,219  1.3% $355,167  $326,880  $28,287  8.7%
Orders:               
  Commercial$43,513  $46,731  $(3,218) (6.9)% $82,161  $82,523  $(362) (0.4)%
  Live Events41,008  43,641  (2,633) (6.0) 107,977  83,036  24,941  30.0 
  High School Park and Recreation22,853  18,445  4,408  23.9  53,405  56,894  (3,489) (6.1)
  Transportation16,992  21,279  (4,287) (20.1) 39,207  43,195  (3,988) (9.2)
  International26,756  21,260  5,496  25.9  55,835  45,318  10,517  23.2 
 $151,122  $151,356  $(234) (0.2)% $338,585  $310,966  $27,619  8.9%


Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)
 Six Months Ended
 November 2,
 2019
 October 27,
 2018
Net cash (used in) provided by operating activities$(10,272) $22,557 
Purchases of property and equipment(9,768) (9,833)
Proceeds from sales of property and equipment149  182 
Free cash flow$(19,891) $12,906 

*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.