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Daktronics, Inc. Announces Third Quarter Fiscal 2019 Results

BROOKINGS, S.D., Feb. 20, 2019 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2019 third quarter net sales of $115.1 million, operating loss of $7.5 million, and net loss of $3.3 million, or $0.07 per diluted share, compared to net sales of $130.3 million, operating loss of $3.3 million, and net loss of $6.2 million, or $0.14 per diluted share, for the third quarter of fiscal 2018. Fiscal 2019 third quarter orders were $135.4 million, compared to $126.2 million for the third quarter of fiscal 2018. Product order backlog at the end of the fiscal 2019 third quarter was $168 million, compared to a backlog of $151 million a year earlier and $150 million at the end of the second quarter of fiscal 2019.(1)

Net sales, operating income, net income, and earnings per share for the nine months ended January 26, 2019, were $441.9 million, $5.5 million, $9.9 million, and $0.22 per diluted share, respectively. This compares to $472.4 million, $17.8 million, $9.4 million, and $0.21 per diluted share, respectively, for the same period in fiscal 2018.

Cash provided by operating activities in the first nine months of fiscal 2019 was $32.2 million, compared with cash provided by operating activities of $27.0 million in the same period last year. Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a positive $18.4 million for the first nine months of fiscal 2019, as compared to a positive free cash flow of $18.2 million for the same period of fiscal 2018. Net investment in property and equipment was $13.8 million for the first nine months of fiscal 2019, as compared to $8.8 million for the first nine months of fiscal 2018. Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2019 were $70.9 million, which compares to $73.0 million at the end of the third quarter of fiscal 2018 and $64.3 million at the end of fiscal 2018.

Orders for the third quarter of fiscal 2019 increased 7.4 percent as compared to the third quarter of fiscal 2018. Orders increased in the Commercial, Live Events, and High School Park and Recreation business units, and decreased in the Transportation and International business units.

Net sales decreased by 11.7 percent in the third quarter of fiscal 2019 as compared to the third quarter of fiscal 2018. Net sales increased in the Commercial, High School Park and Recreation, and Transportation business units, and decreased in the Live Events and International business units. The increase in High School Park and Recreation business unit was primarily due to increased shipments of customized scoring systems and message centers as a result of increased market activity and the timing of customer demand. Transportation sales increased primarily due to the variability of large order production timing caused by customer project schedules and an increase in demand for intelligent transportation systems. Live Events sales decreased primarily due to the decrease of orders on a year to date basis. International sales decreased as we had completed a number of Out-of-Home projects in the third quarter of fiscal 2018, with no similar sized projects in the third quarter of fiscal 2019.

Gross profit, as a percentage of net sales, decreased to 21.6 percent for the third quarter of fiscal 2019 as compared to 21.9 percent a year earlier. Warranty as a percent of sales for the quarter decreased to 1.6 percent as compared to the third quarter of fiscal 2018 warranty as a percent of sales of 2.9 percent. Operating expenses for the third quarter of fiscal 2019 were $32.4 million, compared to $31.9 million for the third quarter of fiscal 2018. Operating loss as a percent of sales for the quarter decreased to 6.5 percent as compared to the third quarter of fiscal 2018 operating loss of 2.6 percent. The tax benefit of $4.1 million for the third quarter of fiscal 2019 is primarily the result of the release of $2.8 million in unrecognized tax benefits related to a lapse of statute and the release of $0.5 million for a valuation allowance reversal related to foreign net operating loss carryforwards. During the third quarter of fiscal 2018, we accounted for the revaluation of our deferred tax benefits due to the enactment of new U.S. tax laws creating a charge of $3.7 million.

Reece Kurtenbach, chairman, president and chief executive officer stated, “Our third quarter is historically lighter for sales and profits due to the seasonality of our sports business, construction cycles, and the decrease in production days due to holidays in the quarter. We control costs where we can during this period; however, much of our costs are fixed in nature not allowing for large changes in expense structure during the quarter. In addition, we had approximately $1.8 million of expenses for discrete project and litigation claims contributing to the quarter’s operating loss. Our order bookings remain strong for the quarter and are up for the year. Commercial orders for the quarter and year-to-date are up nicely for demand for spectacular and out-of-home solutions. Live Events for the quarter was up nicely as we booked a large major league baseball order and a number of orders for summer and fall installations. We continued to develop and release new technologies and products including high resolution applications and control system offerings.

(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, “We remain optimistic about our long-term outlook. Our innovative product and technology portfolio positions us to capitalize on the growing market demand for digital canvases. The current global tariff and trade environment has created cost headwinds on commodity and components used in the production of our solutions. However, over the long-term, we believe the situation will stabilize and we will continue to work to minimize the impact. Our teams continue to develop 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

Nine Months Ended

January 26,
2019

January 27,
2018

January 26,
2019

January 27,
2018

Net sales

$

115,069

$

130,316

$

441,949

$

472,353

Cost of sales

90,200

101,749

336,076

356,536

Gross profit

24,869

28,567

105,873

115,817

Operating expenses:

Selling

15,537

15,271

48,040

45,560

General and administrative

8,574

8,335

25,685

26,138

Product design and development

8,280

8,299

26,611

26,294

32,391

31,905

100,336

97,992

Operating (loss) income

(7,522

)

(3,338

)

5,537

17,825

Nonoperating income (expense):

Interest income

328

158

713

520

Interest expense

(45

)

(40

)

(86

)

(173

)

Other (expense) income, net

(203

)

(487

)

(423

)

(429

)

(Loss) income before income taxes

(7,442

)

(3,707

)

5,741

17,743

Income tax (benefit) expense

(4,123

)

2,482

(4,120

)

8,371

Net (loss) income

$

(3,319

)

$

(6,189

)

$

9,861

$

9,372

Weighted average shares outstanding:

Basic

45,018

44,518

44,834

44,403

Diluted

45,018

44,518

45,139

44,798

(Loss) earnings per share:

Basic

$

(0.07

)

$

(0.14

)

$

0.22

$

0.21

Diluted

$

(0.07

)

$

(0.14

)

$

0.22

$

0.21

Cash dividends declared per share

$

0.07

$

0.07

$

0.21

$

0.21



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

January 26,
2019

April 28,
2018

(unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

33,281

$

29,727

Restricted cash

26

28

Marketable securities

37,596

34,522

Accounts receivable, net

77,743

77,387

Inventories

72,187

75,335

Contract assets

26,542

30,968

Current maturities of long-term receivables

1,998

1,752

Prepaid expenses and other current assets

7,566

9,029

Income tax receivables

5,772

5,385

Property and equipment and other assets available for sale

1,893

Total current assets

264,604

264,133

Property and equipment, net

65,765

68,059

Long-term receivables, less current maturities

1,247

1,641

Goodwill

7,968

8,264

Intangibles, net

5,429

3,682

Investment in affiliates and other assets

5,422

5,091

Deferred income taxes

8,317

7,930

Total non-current assets

94,148

94,667

TOTAL ASSETS

$

358,752

$

358,800



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

January 26,
2019

April 28,
2018

(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

35,117

$

48,845

Contract liabilities

48,745

39,379

Accrued expenses

30,784

27,445

Warranty obligations

11,283

13,891

Current portion of other long-term obligations

1,199

1,088

Income taxes payable

1,894

660

Total current liabilities

129,022

131,308

Long-term warranty obligations

15,370

16,062

Long-term contract liabilities

9,814

7,475

Other long-term obligations, less current portion

1,955

2,285

Long-term income taxes payable

843

3,440

Deferred income taxes

597

614

Total long-term liabilities

28,579

29,876

TOTAL LIABILITIES

157,601

161,184

SHAREHOLDERS' EQUITY:

Common stock

57,699

54,731

Additional paid-in capital

41,949

40,328

Retained earnings

107,563

107,105

Treasury stock, at cost

(1,834

)

(1,834

)

Accumulated other comprehensive loss

(4,226

)

(2,714

)

TOTAL SHAREHOLDERS' EQUITY

201,151

197,616

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

358,752

$

358,800



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

Nine Months Ended

January 26,
2019

January 27,
2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

9,861

$

9,372

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

Depreciation and amortization

14,054

13,335

Gain on sale of property, equipment and other assets

(130

)

(1,211

)

Share-based compensation

1,867

1,978

Contingent consideration adjustment

(956

)

Equity in loss of affiliate

392

401

Provision for doubtful accounts

180

(55

)

Deferred income taxes, net

(445

)

3,429

Change in operating assets and liabilities

7,364

(296

)

Net cash provided by operating activities

32,187

26,953

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(14,081

)

(10,865

)

Proceeds from sales of property, equipment and other assets

255

2,107

Purchases of marketable securities

(25,337

)

(5,211

)

Proceeds from sales or maturities of marketable securities

22,341

13,751

Purchases of equity investment

(854

)

(1,027

)

Acquisitions, net of cash acquired

(2,250

)

Net cash used in investing activities

(19,926

)

(1,245

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

1,318

514

Principal payments on long-term obligations

(440

)

(1,036

)

Dividends paid

(9,403

)

(9,311

)

Tax payments related to RSU issuances

(246

)

(311

)

Net cash used in financing activities

(8,771

)

(10,144

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

62

667

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

3,552

16,231

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period

29,755

32,839

End of period

$

33,307

$

49,070



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

Three Months Ended

Nine Months Ended

January 26,
2019

January 27,
2018

Dollar
Change

Percent
Change

January 26,
2019

January 27,
2018

Dollar
Change

Percent
Change

Net Sales:

Commercial

$

37,159

$

35,483

$

1,676

4.7

%

$

113,797

$

102,723

$

11,074

10.8

%

Live Events

29,995

45,167

(15,172

)

(33.6

)

134,566

191,432

(56,866

)

(29.7

)

High School Park and Recreation

14,798

11,463

3,335

29.1

74,498

69,602

4,896

7.0

Transportation

15,390

11,189

4,201

37.5

50,624

46,577

4,047

8.7

International

17,727

27,014

(9,287

)

(34.4

)

68,464

62,019

6,445

10.4

$

115,069

$

130,316

$

(15,247

)

(11.7

)%

$

441,949

$

472,353

$

(30,404

)

(6.4

)%

Orders:

Commercial

$

41,114

$

28,745

$

12,369

43.0

%

$

123,637

$

97,816

$

25,821

26.4

%

Live Events

45,767

39,911

5,856

14.7

128,803

145,246

(16,443

)

(11.3

)

High School Park and Recreation

17,034

13,451

3,583

26.6

73,928

60,368

13,560

22.5

Transportation

11,541

14,641

(3,100

)

(21.2

)

54,736

38,155

16,581

43.5

International

19,973

29,405

(9,432

)

(32.1

)

65,291

79,909

(14,618

)

(18.3

)

$

135,429

$

126,153

$

9,276

7.4

%

$

446,395

$

421,494

$

24,901

5.9

%


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

Nine Months Ended

January 26,
2019

January 27,
2018

Net cash provided by operating activities

$

32,187

$

26,953

Purchases of property and equipment

(14,081

)

(10,865

)

Proceeds from sales of property and equipment

255

2,107

Free cash flow

$

18,361

$

18,195

*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.