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Daktronics, Inc. Announces Second Quarter Fiscal 2019 Results

BROOKINGS, S.D., Nov. 21, 2018 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2019 second quarter 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, compared to net sales of $169.3 million, operating income of $9.4 million, and net income of $7.1 million, or $0.16 per diluted share, for the second quarter of fiscal 2018. Fiscal 2019 second quarter orders were $151.4 million, compared to $142.3 million for the second quarter of fiscal 2018. Product order backlog at the end of the fiscal 2019 second quarter was $150 million, compared to a backlog of $155 million a year earlier and $177 million at the end of the first quarter of fiscal 2019.(1)

Net sales, operating income, net income, and earnings per share for the six months ended October 27, 2018, were $326.9 million, $13.1 million, $13.2 million, and $0.29 per diluted share, respectively. This compares to $342.0 million, $21.2 million, $15.6 million, and $0.35 per diluted share, respectively, for the same period in fiscal 2018.

Cash provided by operating activities in the first six months of fiscal 2019 was $22.6 million, compared with cash provided by operating activities of $9.3 million in the same period last year. Cash flow from operating activities fluctuated due to changes in net operating assets and liabilities offset by decrease in net income. Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a positive $12.9 million for the first six months of fiscal 2019, as compared to a positive free cash flow of $3.6 million for the same period of fiscal 2018. Net investment in property and equipment was $9.7 million for the first six months of fiscal 2019, as compared to $5.7 million for the first six months of fiscal 2018. Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2019 were $67.3 million, which compares to $61.5 million at the end of the second quarter of fiscal 2018 and $64.3 million at the end of fiscal 2018.

Orders for the second quarter of fiscal 2019 increased 6.4 percent as compared to the second quarter of fiscal 2018. Orders increased in the Commercial, High School Park and Recreation, and Transportation business units, decreased in the International business unit, and remained relatively flat in the Live Events business unit.

Net sales increased by 2.0 percent in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018. Net sales increased in the Commercial, High School Park and Recreation, Transportation, and International business units, and decreased in the Live Events business unit. The increase in the Commercial business unit was primarily due to the timing of large custom projects in the spectacular niche, increased order volumes in the on-premise niche, and an increase in the out-of-home niche shipments. Live Events sales decreased primarily due to the decrease of orders on a year to date basis.

Gross profit, as a percentage of net sales, was relatively flat at 24.8 percent for the second quarter of fiscal 2019 as compared to 25.2 percent a year earlier. Operating expenses for the second quarter of fiscal 2019 were $33.7 million, compared to $33.2 million for the second quarter of fiscal 2018. Operating income as a percent of sales for the quarter decreased to 5.2 percent as compared to the second quarter of fiscal 2018 operating income of 5.6 percent. In the first quarter of fiscal 2019, we recorded a tax benefit and in the second quarter we recorded a tax expense, which resulted in a zero-tax expense for year to date as our estimated effective tax rate is based on our estimate of permanent research and development tax credits which offsets the estimated tax expense for the year.

Reece Kurtenbach, chairman, president and chief executive officer stated, “The diversity of our end-markets and competitive solution portfolio enabled us to increase orders for the first half of the year. Strong market demand continued for larger sized spectacular projects, larger sports systems in high schools, after-sale service offerings, and signage for transportation infrastructure. And while the order volume was down for the first half of the year internationally, we were successful in winning transportation and global out-of-home advertising projects. Fewer large project opportunities were available in Live Events so far this year, causing orders and related sales to be down on a year to date basis. Warranty as a percent of sales for the quarter decreased to 2.5 percent as compared to the second quarter of fiscal 2018 warranty as a percent of sales of 3.9 percent. However, this improvement was offset by higher commodity costs and increases in selling expenses.

(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 28, 2018.

Outlook
Kurtenbach added, “As we enter into the second half of our fiscal year, we remain optimistic about our long-term outlook. Our portfolio of innovative products and technologies positioned us to capitalize on the growing market demand for digital canvases. In the short term, the current global tariff and trade environment has created cost headwinds on commodity and components used in the production of our solutions. We continue to monitor the situation and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments. Our teams are focused on the continued development of industry leading solutions and global sales channels to support long-term profitable growth.”

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, 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 2018 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

Six Months Ended

October 27,
2018

October 28,
2017

October 27,
2018

October 28,
2017

Net sales

$

172,692

$

169,309

$

326,880

$

342,037

Cost of sales

129,935

126,705

245,876

254,787

Gross profit

42,757

42,604

81,004

87,250

Operating expenses:

Selling

16,125

15,350

32,503

30,289

General and administrative

8,574

8,868

17,111

17,803

Product design and development

9,039

8,948

18,331

17,995

33,738

33,166

67,945

66,087

Operating income

9,019

9,438

13,059

21,163

Nonoperating income (expense):

Interest income

188

151

385

362

Interest expense

(2

)

(47

)

(41

)

(133

)

Other (expense) income, net

(66

)

(87

)

(220

)

58

Income before income taxes

9,139

9,455

13,183

21,450

Income tax expense

533

2,323

3

5,889

Net income

$

8,606

$

7,132

$

13,180

$

15,561

Weighted average shares outstanding:

Basic

44,780

44,412

44,717

44,345

Diluted

44,950

44,679

44,994

44,696

Earnings per share:

Basic

$

0.19

$

0.16

$

0.29

$

0.35

Diluted

$

0.19

$

0.16

$

0.29

$

0.35

Cash dividends declared per share

$

0.07

$

0.07

$

0.14

$

0.14



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

October 27,
2018

April 28,
2018

(unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

35,557

$

29,727

Restricted cash

26

28

Marketable securities

31,721

34,522

Accounts receivable, net

92,194

77,387

Inventories

69,529

75,335

Contract assets

30,633

30,968

Current maturities of long-term receivables

1,305

1,752

Prepaid expenses and other current assets

8,172

9,029

Income tax receivables

6,015

5,385

Total current assets

275,152

264,133

Property and equipment, net

69,470

68,059

Long-term receivables, less current maturities

1,348

1,641

Goodwill

8,053

8,264

Intangibles, net

6,101

3,682

Investment in affiliates and other assets

5,623

5,091

Deferred income taxes

7,939

7,930

Total non-current assets

98,534

94,667

TOTAL ASSETS

$

373,686

$

358,800



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

October 27,
2018

April 28,
2018

(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

46,764

$

48,845

Contract liabilities

47,198

39,379

Accrued expenses

29,717

27,445

Warranty obligations

13,009

13,891

Current portion of other long-term obligations

1,106

1,088

Income taxes payable

272

660

Total current liabilities

138,066

131,308

Long-term warranty obligations

15,709

16,062

Long-term contract liabilities

8,520

7,475

Other long-term obligations, less current portion

2,420

2,285

Long-term income taxes payable

3,623

3,440

Deferred income taxes

611

614

Total long-term liabilities

30,883

29,876

TOTAL LIABILITIES

168,949

161,184

SHAREHOLDERS' EQUITY:

Common stock

55,608

54,731

Additional paid-in capital

41,345

40,328

Retained earnings

114,033

107,105

Treasury stock, at cost

(1,834

)

(1,834

)

Accumulated other comprehensive loss

(4,415

)

(2,714

)

TOTAL SHAREHOLDERS' EQUITY

204,737

197,616

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

373,686

$

358,800



Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

Six Months Ended

October 27,
2018

October 28,
2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

13,180

$

15,561

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

9,300

8,902

Gain on sale of property, equipment and other assets

(93

)

(1,221

)

Share-based compensation

1,263

1,341

Contingent consideration adjustment

(956

)

Equity in loss of affiliate

265

191

Provision for doubtful accounts

51

(21

)

Deferred income taxes, net

(85

)

81

Change in operating assets and liabilities

(368

)

(15,496

)

Net cash provided by operating activities

22,557

9,338

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(9,833

)

(7,735

)

Proceeds from sales of property, equipment and other assets

182

2,000

Purchases of marketable securities

(9,209

)

Proceeds from sales or maturities of marketable securities

12,034

10,802

Purchases of equity investment

(854

)

(607

)

Acquisitions, net of cash acquired

(2,250

)

Net cash (used in) provided by investing activities

(9,930

)

4,460

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

57

511

Principal payments on long-term obligations

(431

)

(1,027

)

Dividends paid

(6,252

)

(6,197

)

Tax payments related to RSU issuances

(246

)

(311

)

Net cash used in financing activities

(6,872

)

(7,024

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

73

113

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

5,828

6,887

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period

29,755

32,839

End of period

$

35,583

$

39,726


Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)

Three Months Ended

Six Months Ended

October 27,
2018

October 28,
2017

Dollar
Change

Percent
Change

October 27,
2018

October 28,
2017

Dollar
Change

Percent
Change

Net Sales:

Commercial

$

46,069

$

34,377

$

11,692

34.0

%

$

76,638

$

67,240

$

9,398

14.0

%

Live Events

55,099

68,653

(13,554

)

(19.7

)

104,571

146,265

(41,694

)

(28.5

)

High School Park and Recreation

31,580

29,660

1,920

6.5

59,700

58,139

1,561

2.7

Transportation

18,077

16,476

1,601

9.7

35,234

35,388

(154

)

(0.4

)

International

21,867

20,143

1,724

8.6

50,737

35,005

15,732

44.9

$

172,692

$

169,309

$

3,383

2.0

%

$

326,880

$

342,037

$

(15,157

)

(4.4

)%

Orders:

Commercial

$

46,731

$

39,134

$

7,597

19.4

%

$

82,523

$

69,071

$

13,452

19.5

%

Live Events

43,641

43,730

(89

)

(0.2

)

83,036

105,335

(22,299

)

(21.2

)

High School Park and Recreation

18,445

14,737

3,708

25.2

56,894

46,917

9,977

21.3

Transportation

21,279

14,245

7,034

49.4

43,195

23,514

19,681

83.7

International

21,260

30,414

(9,154

)

(30.1

)

45,318

50,504

(5,186

)

(10.3

)

$

151,356

$

142,260

$

9,096

6.4

%

$

310,966

$

295,341

$

15,625

5.3

%


Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)

Six Months Ended

October 27,
2018

October 28,
2017

Net cash provided by operating activities

$

22,557

$

9,338

Purchases of property and equipment

(9,833

)

(7,735

)

Proceeds from sales of property and equipment

182

2,000

Free cash flow

$

12,906

$

3,603

*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.