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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.