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Daktronics, Inc. Announces Third Quarter Fiscal 2018 Results

BROOKINGS, S.D., Feb. 20, 2018 (GLOBE NEWSWIRE) -- Daktronics, Inc. (DAKT) today reported fiscal 2018 third quarter 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, compared to net sales of $115.7 million, operating loss of $6.9 million, and net loss of $5.1 million, or $0.12 per diluted share, for the third quarter of fiscal 2017. Fiscal 2018 third quarter orders were $126.2 million, compared to $143.3 million for the third quarter of fiscal 2017. Backlog at the end of the fiscal 2018 third quarter was $151 million, compared to a backlog of $170 million a year earlier and $155 million at the end of the second quarter of fiscal 2018.(1)

(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 29, 2017.

In December 2017, the U.S. enacted the Tax Cuts and Jobs Act that provided significant changes to the U.S. tax code. As a result, we have recorded a provisional reduction to our net deferred tax asset and impacts of deemed repatriation of foreign earnings of $4.3 million. This resulted in a corresponding increase to income tax expense and an impact to earnings per share of approximately $0.10 for the quarter ended January 27, 2018. We have accounted for the impacts of the Act to the extent a reasonable estimate could be made and will continue to refine our estimates throughout the measurement period or until the accounting is complete. We expect our effective tax rate for the fourth quarter to be approximately 30% and looking ahead to fiscal 2019, we estimate an effective tax rate of approximately 21%.

Net sales, operating income, net income, and earnings per share for the nine months ended January 27, 2018, were $472.4 million, $17.8 million, $9.4 million, and $0.21 per diluted share, respectively. This compares to $442.9 million, $13.7 million, $9.4 million, and $0.21 per diluted share, respectively, for the same period in fiscal 2017.

Cash provided by operating activities in the first nine months of fiscal 2018 was $27.0 million, compared with cash provided by operating activities of $45.4 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 $18.2 million for the first nine months of fiscal 2018, as compared to a positive free cash flow of $38.8 million for the same period of fiscal 2017. Net investment in property and equipment was $8.8 million for the first nine months of fiscal 2018, as compared to $6.5 million for the first nine months of fiscal 2017. Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2018 were $73.0 million, which compares to $76.6 million at the end of the third quarter of fiscal 2017 and $65.6 million at the end of fiscal 2017.

Orders for the third quarter of fiscal 2018 decreased 12 percent as compared to the third quarter of fiscal 2017. Orders increased in the International business unit and decreased in the Commercial, Live Events, High School Park and Recreation and Transportation business units. The timing of orders for large projects varies according to the needs of the customer and contributed to the decrease in order volume.

Net sales increased by 12.6 percent in the third quarter of fiscal 2018 as compared to the third quarter of fiscal 2017. Net sales increased in the Live Events, Transportation, and International business units, decreased in the High School Park and Recreation business unit, and remained relatively flat in the Commercial business unit. The increase in Live Events business unit was primarily impacted by projects for professional and spring baseball facilities renovation and construction project timeliness. The increase in the Transportation business unit was primarily due to higher delivery needs from state transportation authorities during the quarter this year as compared to last year. The increase in net sales in the International business unit was due to increased Out-of-Home market demand and timing of projects. The decrease in the High School Park and Recreation business unit was primarily due to the lower mix of large video project sales as compared to the same period last year.

Gross profit, as a percentage of net sales, was 21.9 percent for the third quarter of fiscal 2018 as compared to 20.1 percent a year earlier. The increase in gross profit percentage was primarily due to higher sales volumes and improved productivity. Operating expenses for the third quarter of 2018 were $31.9 million, compared to $30.2 million for the third quarter of fiscal 2017. The increase in total operating expenses was primarily attributable to an increase in product development activities. Operating loss as a percent of sales for the quarter decreased to 2.6 percent as compared to the third quarter of fiscal 2017 operating loss of 6.0 percent.

Reece Kurtenbach, chairman, president and chief executive officer stated, “We are having a successful year through the third quarter. Our sales, gross profit, and operating income have all increased year over year. The 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. We were able to capitalize on our backlog and other order opportunities which is reflected in our increase in sales, and gross profit; however, we experienced an operating loss for the quarter. Operating expenses continued to be impacted by the planned increase in product development expenses for activities to accelerate the release of new and enhanced customer solutions. Orders decreasing during the quarter as compared to a year earlier is not unusual due to the lumpy nature of our business.”

Outlook
Kurtenbach added, “We remain optimistic about the continued growth in the video display business over the long-term. The demand for digital canvases remains strong as a desirable method for businesses and organizations to entertain and inform audiences of their messages and brands. To serve these businesses, we continue to invest in developing a robust pipeline of innovative new products and technologies.”

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 2017 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 27,
2018
  January 28,
2017
  January 27,
2018
  January 28,
2017
                 
Net sales   $ 130,316     $ 115,719     $ 472,353     $ 442,857  
Cost of goods sold   101,749     92,403     356,536     336,166  
Gross profit   28,567     23,316     115,817     106,691  
                 
Operating expenses:                
Selling expense   15,271     14,678     45,560     45,828  
General and administrative   8,335     8,599     26,138     26,007  
Product design and development   8,299     6,973     26,294     21,142  
    31,905     30,250     97,992     92,977  
Operating (loss) income   (3,338 )   (6,934 )   17,825     13,714  
                 
Nonoperating income (expense):                
Interest income   158     183     520     559  
Interest expense   (40 )   (56 )   (173 )   (174 )
Other (expense) income, net   (487 )   (305 )   (429 )   (250 )
                 
(Loss) income before income taxes   (3,707 )   (7,112 )   17,743     13,849  
Income tax expense (benefit)   2,482     (1,985 )   8,371     4,416  
Net (loss) income   $ (6,189 )   $ (5,127 )   $ 9,372     $ 9,433  
                 
Weighted average shares outstanding:                
Basic   44,518     44,102     44,403     44,071  
Diluted   44,518     44,102     44,798     44,206  
                 
(Loss) earnings per share:                
Basic   $ (0.14 )   $ (0.12 )   $ 0.21     $ 0.21  
Diluted   $ (0.14 )   $ (0.12 )   $ 0.21     $ 0.21  
                 
Cash dividends declared per share   $ 0.07     $ 0.07     $ 0.21     $ 0.24  
                                 


 
Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
 
  January 27,
2018
  April 29,
 2017
  (unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 49,042     $ 32,623  
Restricted cash 28     216  
Marketable securities 23,937     32,713  
Accounts receivable, net 76,104     78,846  
Inventories, net 70,451     66,486  
Costs and estimated earnings in excess of billings 32,449     36,403  
Current maturities of long-term receivables 2,199     2,274  
Prepaid expenses and other assets 7,333     7,553  
Income tax receivables 2,726     611  
Total current assets 264,269     257,725  
       
Long-term receivables, less current maturities 1,948     2,616  
Goodwill 8,469     7,812  
Intangibles, net 4,174     4,705  
Investment in affiliates and other assets 4,888     4,534  
Deferred income taxes 7,983     11,292  
  27,462     30,959  
PROPERTY AND EQUIPMENT:      
Land 2,172     2,099  
Buildings 67,340     65,935  
Machinery and equipment 88,143     84,189  
Office furniture and equipment 5,799     5,604  
Computer software and hardware 51,980     51,523  
Equipment held for rental 287     374  
Demonstration equipment 7,044     7,109  
Transportation equipment 7,647     7,108  
  230,412     223,941  
Less accumulated depreciation 166,117     157,192  
  64,295     66,749  
TOTAL ASSETS $ 356,026     $ 355,433  
       


 
Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
 
  January 27,
2018
  April 29,
2017
  (unaudited)    
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable $ 40,309     $ 51,499  
Accrued expenses 27,578     25,033  
Warranty obligations 13,291     13,578  
Billings in excess of costs and estimated earnings 14,424     10,897  
Customer deposits (billed or collected) 10,288     14,498  
Deferred revenue (billed or collected) 13,906     12,137  
Current portion of other long-term obligations 1,000     1,409  
Income taxes payable 532     1,544  
Total current liabilities 121,328     130,595  
       
Long-term warranty obligations 15,909     14,321  
Long-term deferred revenue (billed or collected) 6,916     5,434  
Other long-term obligations 2,795     2,848  
Long-term income tax payable 3,679     3,113  
Deferred income taxes 984     836  
Total long-term liabilities 30,283     26,552  
TOTAL LIABILITIES 151,611     157,147  
       
SHAREHOLDERS' EQUITY:      
Common stock 54,725     52,530  
Additional paid-in capital 39,671     38,004  
Retained earnings 114,028     113,967  
Treasury stock, at cost (1,834 )   (1,834 )
Accumulated other comprehensive loss (2,175 )   (4,381 )
TOTAL SHAREHOLDERS' EQUITY 204,415     198,286  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 356,026     $ 355,433  
               


 
Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
    Nine Months Ended
    January 27,
2018
  January 28,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 9,372     $ 9,433  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   13,335     13,941  
Impairment of intangible assets       830  
(Gain) loss on sale of property, equipment and other assets   (1,211 )   23  
Share-based compensation   1,978     2,204  
Equity in loss of affiliate   401     78  
Provision for doubtful accounts   (55 )   898  
Deferred income taxes, net   3,429     (286 )
Change in operating assets and liabilities   (296 )   18,266  
Net cash provided by operating activities   26,953     45,387  
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment   (10,865 )   (6,709 )
Proceeds from sale of property, equipment and other assets   2,107     166  
Purchases of marketable securities   (5,211 )   (18,098 )
Proceeds from sales or maturities of marketable securities   13,751     14,594  
Purchases of equity investment   (1,027 )   (1,374 )
Net cash used in investing activities   (1,245 )   (11,421 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on notes payable       (8 )
Proceeds from exercise of stock options   514     343  
Principal payments on long-term obligations   (1,036 )   (912 )
Dividends paid   (9,311 )   (10,566 )
Payments for common shares repurchased       (1,825 )
Tax payments related to RSU issuances   (311 )   (261 )
Net cash used in financing activities   (10,144 )   (13,229 )
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH   667     (680 )
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   16,231     20,057  
         
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:        
Beginning of period   32,839     28,526  
End of period   $ 49,070     $ 48,583  
         


 
Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
 
  Three Months Ended   Nine Months Ended
  January 27,
2018
  January 28,
2017
  Dollar
Change
  Percent
Change
  January 27,
2018
  January 28,
2017
  Dollar
Change
  Percent
Change
Net Sales:                              
Commercial $ 35,483     $ 36,165     $ (682 )   (1.9 )%   $ 102,723     $ 112,342     $ (9,619 )   (8.6 )%
Live Events 45,167     41,036     4,131     10.1     191,432     157,032     $ 34,400     21.9 %
High School Park and Recreation 11,463     12,653     (1,190 )   (9.4 )   69,602     68,977     $ 625     0.9 %
Transportation 11,189     9,130     2,059     22.6     46,577     39,517     $ 7,060     17.9 %
International 27,014     16,735     10,279     61.4     62,019     64,989     $ (2,970 )   (4.6 )%
  $ 130,316     $ 115,719     $ 14,597     12.6 %   $ 472,353     $ 442,857     $ 29,496     6.7 %
Orders:                              
Commercial $ 28,745     $ 32,595     $ (3,850 )   (11.8 )%   $ 97,816     $ 114,326     $ (16,510 )   (14.4 )%
Live Events 39,911     51,590     (11,679 )   (22.6 )   145,246     135,520     $ 9,726     7.2 %
High School Park and Recreation 13,451     14,178     (727 )   (5.1 )   60,368     61,055     $ (687 )   (1.1 )%
Transportation 14,641     19,621     (4,980 )   (25.4 )   38,155     46,290     $ (8,135 )   (17.6 )%
International 29,405     25,329     4,076     16.1     79,909     78,164     $ 1,745     2.2 %
  $ 126,153     $ 143,313     $ (17,160 )   (12.0 )%   $ 421,494     $ 435,355     $ (13,861 )   (3.2 )%
                                                           


 
Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)
 
  Nine Months Ended
  January 27,
2018
  January 28,
2017
Net cash provided by operating activities $ 26,953     $ 45,387  
Purchases of property and equipment (10,865 )   (6,709 )
Proceeds from sales of property and equipment 2,107     166  
Free cash flow $ 18,195     $ 38,844  
 
*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.