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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.