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Daktronics, Inc. Announces Fourth Quarter and Fiscal 2018 Results

BROOKINGS, S.D., May 30, 2018 (GLOBE NEWSWIRE) -- Daktronics, Inc. (DAKT) today reported fiscal 2018 fourth quarter net sales of $138.2 million, operating loss of $5.4 million, and net loss of $3.8 million, or $0.09 per diluted share, compared to net sales of $143.7 million, operating income of $1.7 million, and a net income of $0.9 million, or $0.02 per diluted share, for the fourth quarter of fiscal 2017.  Fiscal 2018 fourth quarter orders were $162.0 million compared to $178.1 million for the fourth quarter of fiscal 2017.  Backlog at the end of the fiscal 2018 fourth quarter was $171 million, compared to a backlog of $203 million a year earlier and $151 million at the end of the third quarter of fiscal 2018.

Net sales, operating income, net income, and earnings per share for the fiscal year ended April 28, 2018, were $610.5 million, $12.5 million, $5.6 million and $0.12 per diluted share, respectively.  This compares to $586.5 million, $15.4 million, $10.3 million and $0.23 per diluted share, respectively, for fiscal 2017.  Fiscal 2018 orders were $583.5 million compared to $613.5 million for fiscal 2017.

Cash flow provided by operating activities for the fiscal year ended April 28, 2018 was $30.4 million, compared to $39.4 million in fiscal 2017.  Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a positive $14.4 million for fiscal 2018, as compared to a positive free cash flow of $31.1 million for fiscal 2017.  Net investment in property and equipment was $15.9 million for fiscal 2018, as compared to $8.3 million for fiscal 2017.  We had no repurchases of shares of common stock during fiscal 2018.  We repurchased approximately 0.3 million shares of common stock at an average price of $6.42 per share for a total use of cash of $1.8 million during fiscal 2017.  Cash, restricted cash, and marketable securities at the end of the fourth quarter of fiscal 2018 were $64.3 million, which compares to $65.6 million at the end of the fourth quarter of fiscal 2017.

Fourth Quarter Fiscal 2018 Consolidated Financial Results
Orders for the fourth quarter of fiscal 2018 decreased by 9.1 percent as compared to the fourth quarter of fiscal 2017.  Orders increased in the International and High School Park and Recreation business units, decreased in the Live Events and Transportation business units, and remained relatively flat in the Commercial business unit.  The timing of orders for large projects varies according to the needs of the customer, which was the primary cause of the decrease in order volume.

Net sales for the fourth quarter of fiscal 2018 decreased by 3.8 percent as compared to the fourth quarter of fiscal 2017.  Net sales increased in International and the High School Park and Recreation business units, decreased in the Live Events and Commercial business units, and remained relatively flat in the Transportation business unit.  The decline in sales is the result of lower orders.

Gross profit as a percentage of net sales was 21.6 percent for the fourth quarter of fiscal 2018 as compared to 23.5 percent a year earlier.  The decrease in gross profit percentage was primarily due to warranty charges.  Operating expense for the fourth quarter of 2018 was $35.2 million, compared to $32.0 million for the fourth quarter of fiscal 2017.  The increase in total operating expense was primarily attributable to an increase in selling expenses and planned increases in product development activities.  Operating loss as a percentage of sales was 3.9 percent for the fourth quarter of fiscal 2018 as compared to an operating income as a percentage of sales of 1.2 percent for the fourth quarter of fiscal 2017.

Fiscal 2018 Consolidated Financial Results
Orders for fiscal 2018 decreased by 4.9 percent as compared to fiscal 2017.  Orders increased in the International and High School Park and Recreation business units, and decreased in the Commercial, Live Events, and Transportation business units.  High School Park and Recreation and International orders increase was primarily due to overall strong market demand.  The International, Live Events, and Transportation business units are large project based and are subject to volatility due to timing of large contracts.  Commercial business unit orders decrease was due to spectacular and on-premise niches order timing, offset by an increase in the Out-of-Home niche.

Net sales for fiscal 2018 increased 4.1 percent as compared to fiscal 2017.  Net sales increased in the Live Events, Transportation, High School Park and Recreation, and International business units and decreased in the Commercial business unit.  Live Events net sales increase was primarily due to the timing of demand for upgraded or new solutions for arenas, professional sports, and colleges and universities.  High School Park and Recreation increase in net sales was primarily due to the timing of shipments of scoring systems and message centers.  Transportation's increase in net sales was related to the variability of large order production timing caused by customer project schedules.  International net sales increase was mainly attributable to market demand for digital solutions in the Out-of-Home niche.  Commercial net sales decreased as a result of lower order volumes in our on-premise and spectacular niches.

Gross profit as a percentage of net sales was 23.9 percent for fiscal 2018 and fiscal 2017, respectively.  Operating expenses for fiscal 2018 were $133.2 million, compared to $125.0 million for fiscal 2017.  The increase in total operating expenses was primarily attributable to an increase in planned product development activities.  Annual operating income as a percentage of sales decreased to 2.0 percent for fiscal 2018 as compared to 2.6 percent for fiscal 2017.

The effective tax rate for fiscal 2018 was 55.2 percent as compared to 33.7 percent.  The change in rates was primarily due to the accounting adjustments triggered by the U.S. Tax Cuts and Jobs Act that provided significant changes to the U.S. tax code.  We estimate an effective tax rate of approximately 21 percent for fiscal 2019.

Reece Kurtenbach, chairman, president and chief executive officer, stated, "While the overall results of fiscal 2018 were below expectations, we remain optimistic for the future.  We proactively increased product development activities during fiscal 2018 and introduced additional narrow pixel pitch solutions and control features to our broad array of offerings.  Our development spend increased $6.4 million year over year.  Warranty charges were approximately $10 million more than our forecast.  Additional spends related to warranty were targeted at preserving customer relationships, as well as a few isolated site issues.  Warranty as a percent of sales was 3.5 percent as compared to 2.5 percent last year.  Sales increased slightly and included completion of more Transportation business unit projects and premier global installations like the Mercedes-Benz Stadium and Piccadilly Lights.  We also sold our non-digital division assets for a gain.  The new U.S. tax law negatively affected fiscal 2018 net income.  All taken into account, we were profitable for the year and our balance sheet remains strong.  We generated positive free cash flow for the year and invested over $18 million into our manufacturing capabilities and information systems infrastructure.  Investments made in product development in fiscal 2018 will provide on-going benefits well into the future."

Outlook
Kurtenbach continued, "As we enter into fiscal 2019; sport, commercial, and governmental entities continue to choose digital applications to support their needs.  This demand is driving long-term growth in LED video displays as well as other digital applications.  Our range of solutions and global capabilities make us the industry's most experienced digital display provider.  We are focused on winning more orders and will continue our velocity in product development to serve the industry's growing demand.  We expanded our quality and reliability management programs and invested in resources over the past years to strengthen our overall quality.  In addition, we are focused on carefully managing our operation 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 am (Central Time).  This call will be broadcast live at http://investor.daktronics.com and be 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 2017 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   Twelve Months Ended
  April 28,
2018
  April 29,
2017
  April 28,
2018
  April 29,
2017
Net sales 138,177     143,682     610,530     586,539  
Cost of sales 108,325     109,958     464,861     446,124  
Gross profit 29,852     33,724     145,669     140,415  
               
Operating expenses:              
Selling 17,200     15,859     62,760     61,687  
General and administrative 8,781     8,219     34,919     34,226  
Product design and development 9,236     7,939     35,530     29,081  
  35,217     32,017     133,209     124,994  
Operating (loss) income (5,365 )   1,707     12,460     15,421  
               
Nonoperating income (expense):              
Interest income 203     192     723     751  
Interest expense (44 )   (56 )   (217 )   (230 )
Other (expense) income, net (108 )   (104 )   (537 )   (354 )
               
(Loss) income before income taxes (5,314 )   1,739     12,429     15,588  
Income tax (benefit) expense (1,504 )   830     6,867     5,246  
Net (loss) income $ (3,810 )   $ 909     $ 5,562     $ 10,342  
               
Weighted average shares outstanding:              
Basic 44,569     44,184     44,457     44,114  
Diluted 44,569     44,360     44,873     44,303  
               
Earnings per share:              
Basic $ (0.09 )   $ 0.02     $ 0.13     $ 0.23  
Diluted $ (0.09 )   $ 0.02     $ 0.12     $ 0.23  
               
Cash dividends declared per share $ 0.07     $ 0.07     $ 0.28     $ 0.31  
                               



 
Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands) (unaudited)
  April 28,
2018
  April 29,
2017
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 29,727     $ 32,623  
Restricted cash 28     216  
Marketable securities 34,522     32,713  
Accounts receivable, net 77,387     78,846  
Inventories 75,335     66,486  
Costs and estimated earnings in excess of billings 30,968     36,403  
Current maturities of long-term receivables 1,752     2,274  
Prepaid expenses and other assets 9,029     7,553  
Income tax receivables 5,385     611  
Total current assets 264,133     257,725  
       
Property and equipment, net 68,059     66,749  
Long-term receivables, less current maturities 1,641     2,616  
Goodwill 8,264     7,812  
Intangibles, net 3,682     4,705  
Investment in affiliates and other assets 5,091     4,534  
Deferred income taxes 7,930     11,292  
TOTAL ASSETS 358,800     355,433  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable 48,845     51,499  
Accrued expenses 27,445     25,033  
Warranty obligations 13,891     13,578  
Billings in excess of costs and estimated earnings 12,195     10,897  
Customer deposits (billed or collected) 14,532     14,498  
Deferred revenue (billed or collected) 12,652     12,137  
Current portion of other long-term obligations 1,088     1,409  
Income taxes payable 660     1,544  
Total current liabilities 131,308     130,595  
       
Long-term warranty obligations 16,062     14,321  
Long-term deferred revenue (billed or collected) 7,475     5,434  
Other long-term obligations 2,285     2,848  
Long-term income tax payable 3,440     3,113  
Deferred income taxes 614     836  
Total long-term liabilities 29,876     26,552  
TOTAL LIABILITIES 161,184     157,147  
       
SHAREHOLDERS' EQUITY:      
Common stock 54,731     52,530  
Additional paid-in capital 40,328     38,004  
Retained earnings 107,105     113,967  
Treasury stock, at cost (1,834 )   (1,834 )
Accumulated other comprehensive loss (2,714 )   (4,381 )
TOTAL SHAREHOLDERS' EQUITY 197,616     198,286  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 358,800     $ 355,433  
 


 
Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
    Year Ended
    April 28,
2018
  April 29,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 5,562     $ 10,342  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   17,784     18,562  
Impairment of intangible assets       830  
(Gain) loss on sale of property, equipment and other assets   (1,252 )   36  
Share-based compensation   2,635     2,914  
Equity in loss of affiliate   481     136  
Provision for doubtful accounts   140     1,426  
Deferred income taxes, net   3,148     (2,043 )
Change in operating assets and liabilities   1,863     7,204  
     Net cash provided by operating activities   30,361     39,407  
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment   (18,127 )   (8,502 )
Proceeds from sales of property, equipment and other assets   2,179     199  
Purchases of marketable securities   (17,438 )   (24,159 )
Proceeds from sales or maturities of marketable securities   15,273     15,928  
Purchases of equity investment   (1,450 )   (1,646 )
     Net cash used in investing activities   (19,563 )   (18,180 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on notes payable       (8 )
Principal payments on long-term obligations   (1,046 )   (921 )
Dividends paid   (12,424 )   (13,651 )
Proceeds from exercise of stock options   519     343  
Payments for common shares repurchased       (1,825 )
Tax payments related to RSU issuances   (311 )   (261 )
     Net cash used in financing activities   (13,262 )   (16,323 )
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (620 )   (591 )
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
  (3,084 )   4,313  
         
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:        
Beginning of period   32,839     28,526  
End of period   $ 29,755     $ 32,839  
         



 
Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands) (unaudited)
  Three Months Ended   Twelve Months Ended
  April 28,
 2018
  April 29,
 2017
  Dollar Change   Percent Change   April 28,
 2018
  April 29,
 2017
  Dollar Change   Percent Change
Net sales:                              
Commercial $ 31,812     $ 35,731     $ (3,919 )   (11.0 )%   $ 134,535     $ 148,073     $ (13,538 )   (9.1 )%
Live Events 44,901     56,950     (12,049 )   (21.2 )%   236,333     213,982     22,351     10.4 %
High School Park and Recreation 18,025     13,821     4,204     30.4 %   87,627     82,798     4,829     5.8 %
Transportation 13,001     12,909     92     0.7 %   59,578     52,426     7,152     13.6 %
International 30,438     24,271     6,167     25.4 %   92,457     89,260     3,197     3.6 %
  $ 138,177     $ 143,682     $ (5,505 )   (3.8 )%   $ 610,530     $ 586,539     $ 23,991     4.1 %
Orders:                              
Commercial $ 37,547     $ 37,236     $ 311     0.8 %   $ 135,363     $ 151,562     $ (16,199 )   (10.7 )%
Live Events 57,790     87,445     (29,655 )   (33.9 )%   203,036     222,965     (19,929 )   (8.9 )%
High School Park and Recreation 26,875     22,550     4,325     19.2 %   87,243     83,605     3,638     4.4 %
Transportation 12,426     16,348     (3,922 )   (24.0 )%   50,581     62,638     (12,057 )   (19.2 )%
International 27,335     14,570     12,765     87.6 %   107,244     92,734     14,510     15.6 %
  $ 161,973     $ 178,149     $ (16,176 )   (9.1 )%   $ 583,467     $ 613,504     $ (30,037 )   (4.9 )%
 


 
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
(in thousands)(unaudited)
  Twelve Months Ended
  April 28,
2018
  April 29,
2017
Net cash provided by operating activities $ 30,361     $ 39,407  
Purchases of property and equipment (18,127 )   (8,502 )
Proceeds from sales of property, equipment and other assets 2,179     199  
Free cash flow $ 14,413     $ 31,104  
 

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.