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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 sales

134,824

129,935

269,575

245,876

Gross profit

40,087

42,757

85,592

81,004

Operating expenses:

Selling

16,177

16,125

34,474

32,503

General and administrative

8,965

8,574

18,058

17,111

Product design and development

10,121

9,039

20,621

18,331

35,263

33,738

73,153

67,945

Operating income

4,824

9,019

12,439

13,059

Nonoperating (expense) income:

Interest income

162

188

431

385

Interest expense

(31

)

(2

)

(66

)

(41

)

Other income (expense), net

(514

)

(66

)

(321

)

(220

)

Income before income taxes

4,441

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:

Basic

45,115

44,780

45,114

44,717

Diluted

45,267

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 cash

59

359

Marketable securities

3,618

26,344

Accounts receivable, net

103,417

65,487

Inventories

79,237

78,832

Contract assets

34,395

33,704

Current maturities of long-term receivables

4,567

2,300

Prepaid expenses and other current assets

9,943

8,319

Income tax receivables

4,301

1,087

Property and equipment and other assets available for sale

1,860

1,858

Total current assets

270,662

253,673

Property and equipment, net

67,163

65,314

Long-term receivables, less current maturities

1,758

1,214

Goodwill

7,974

7,889

Intangibles, net

4,204

4,906

Investment in affiliates and other assets

15,458

5,052

Deferred income taxes

11,190

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 liabilities

48,387

47,178

Accrued expenses

36,817

32,061

Warranty obligations

9,837

9,492

Income taxes payable

638

468

Total current liabilities

144,111

134,072

Long-term warranty obligations

16,148

14,978

Long-term contract liabilities

10,578

10,053

Other long-term obligations

8,295

1,339

Long-term income taxes payable

735

578

Deferred income taxes

531

533

Total long-term liabilities

36,287

27,481

TOTAL LIABILITIES

180,398

161,553

SHAREHOLDERS' EQUITY:

Common stock

59,276

57,699

Additional paid-in capital

43,546

42,561

Retained earnings

103,397

93,593

Treasury stock, at cost

(3,516

)

(1,834

)

Accumulated other comprehensive loss

(4,692

)

(4,356

)

TOTAL SHAREHOLDERS' EQUITY

198,011

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 amortization

8,724

9,300

Gain (loss) on sale of property, equipment and other assets

30

(93

)

Share-based compensation

1,184

1,263

Contingent consideration adjustment

(956

)

Equity in loss of affiliate

241

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 assets

149

182

Purchases of marketable securities

(9,209

)

Proceeds from sales or maturities of marketable securities

22,775

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 activities

12,260

(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 period

35,742

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 Events

59,319

55,099

4,220

7.7

118,625

104,571

14,054

13.4

High School Park and Recreation

30,193

31,580

(1,387

)

(4.4

)

60,658

59,700

958

1.6

Transportation

20,330

18,077

2,253

12.5

39,348

35,234

4,114

11.7

International

25,418

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 Events

41,008

43,641

(2,633

)

(6.0

)

107,977

83,036

24,941

30.0

High School Park and Recreation

22,853

18,445

4,408

23.9

53,405

56,894

(3,489

)

(6.1

)

Transportation

16,992

21,279

(4,287

)

(20.1

)

39,207

43,195

(3,988

)

(9.2

)

International

26,756

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 equipment

149

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.