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Daktronics, Inc. Announces Third Quarter Fiscal 2020 Results

BROOKINGS, S.D., Feb. 26, 2020 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2020 third quarter net sales of $127.7 million, operating loss of $9.2 million, and net loss of $12.7 million, or $0.28 per diluted share, compared to 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, for the third quarter of fiscal 2019. Fiscal 2020 third quarter orders were $135.0 million, compared to $135.4 million for the third quarter of fiscal 2019. Product order backlog at the end of the fiscal 2020 third quarter was $187 million, compared to $168 million a year earlier and $182 million at the end of the second quarter of fiscal 2020.(1)

For the nine months ended February 1, 2020, net sales were $482.8 million, operating income was $3.3 million, and net income was $1.6 million, or $0.03 per diluted share. This compares to net sales of $441.9 million, operating income of $5.5 million, and net income of $9.9 million, or $0.22 per diluted share for the same period in fiscal 2019.

Fiscal 2020 is a 53-week year; therefore, the nine months ended February 1, 2020 contains operating results for 40 weeks while the nine months ended January 26, 2019 contains operating results for 39 weeks. Sales, orders and other results of operations were impacted due to the additional week of operations.

Cash provided by operating activities in the first nine months of fiscal 2020 was $6.2 million, compared with cash provided by operating activities of $32.2 million in the same period last year. Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a negative $7.2 million for the first nine months of fiscal 2020, as compared to a positive $18.4 million for the same period of fiscal 2019. Net investment in property and equipment was $13.4 million for the first nine months of fiscal 2020, as compared to $13.8 million for the first nine months of fiscal 2019. Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2020 were $42.1 million, which compares to $70.9 million at the end of the third quarter of fiscal 2019 and $62.1 million at the end of fiscal 2019.

Orders for the third quarter of fiscal 2020 were relatively flat as compared to the third quarter of fiscal 2019. Orders increased in the High School Park and Recreation and Transportation business units, decreased in the Commercial and Live Events business units, and remained relatively flat in the International business unit. 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.

Net sales increased by 10.9 percent in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019. Net sales increased in the Live Events and International business units, decreased in the Commercial and Transportation business units, and remained relatively flat in the High School Park and Recreation business unit. The higher level of backlog at the beginning of the quarter and customer delivery schedules translated to the increase in sales for the quarter.

Gross profit as a percentage of net sales was 19.2 percent for the third quarter of fiscal 2020 as compared to 21.6 percent a year earlier. Operating expenses for the third quarter of fiscal 2020 were $33.6 million, compared to $32.4 million for the third quarter of fiscal 2019. Operating loss as a percent of sales for the quarter was 7.2 percent as compared to 6.5 percent during the third quarter of fiscal 2019.

The effective tax rate for the third quarter of fiscal 2020 was negative 37.9 percent compared to an effective tax rate of 55.4 percent for the third quarter of fiscal 2019. The quarterly change in the effective tax rate was caused by discrete one-time impacts of $3.3 million recognized in the third quarter of fiscal 2019 and the change in the estimated effective tax rate for fiscal 2020. The estimated effective tax rate for fiscal 2020 of 51.6 percent is the result of the expected net taxes and credits being higher as a proportion of expected pre-tax earnings.

Sheila Anderson, chief financial officer and treasurer noted, "Our third quarter sales and profit levels are lighter than other quarters due to the seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays in the quarter. Gross profit as a percent of sales decreased for the quarter primarily due to adverse impacts of a project with cost overruns, tariff related expenses, and change in project mix. We recognized more sales relating to multimillion-dollar projects which generally earn lower gross margins due to increased competitive bidding. Our overall warranty as a percentage of sales was 1.3% for the quarter as compared to 1.6% for the third quarter of fiscal 2019. Operating expenses increased in dollars primarily due to personnel related costs.

"Year-to-date cash provided from operations differed as compared to last year primarily due to short-term and seasonal changes in cash outflows and inflows to deliver orders and due to lower net income. Cash can vary based on order timing and levels, varying contractual payment terms from customers, and payments for inventory to meet delivery and installation schedules. Cash and marketable securities have decreased on a year-to-date basis due to these differences and continued investment in capital improvements and dividend payments. We expect a total of $23 million in capital improvements for expansion of production and information system capabilities for the fiscal year."

Reece Kurtenbach, chairman, president and chief executive officer stated, "We successfully grew sales and held operating expenses as a percent of sales this quarter, though not sufficiently to cover fixed ongoing costs and strategic investments. We remain confident in our strategies to improve operations, which will lead to long-term profitable growth."

Outlook
Kurtenbach added, "Sales opportunities in the marketplace are growing, resulting in an increase in active project bids this year as compared to last year in all of our business units. We are optimistic in our ability to convert these bids into orders and grow our business in the coming year. In the near-term, orders and sales timing may be impacted by the coronavirus situation ("COVID-19") potentially causing customer order delays and supply chain disruptions.

The dynamic audio-visual communication systems market is expected to grow over the long-term for both traditional and narrow-pixel pitch (NPP) applications. We are seeing growth in our current markets, as well as access to new markets with increased capabilities of NPP displays. To capitalize on this opportunity, we continue to invest in new technologies and market development. Our teams are engaging in operational improvements to reduce the effort and fulfillment costs and are working on initiatives to enhance the quality of the experience for both customers and employees. These activities strengthen our abilities and support our optimism that we will continue to grow, profitably, over the coming years."

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

Nine Months Ended

February 1,
2020

January 26,
2019

February 1,
2020

January 26,
2019

Net sales

$

127,657

$

115,069

$

482,824

$

441,949

Cost of sales

103,175

90,200

372,750

336,076

Gross profit

24,482

24,869

110,074

105,873

Operating expenses:

Selling

16,552

15,537

51,026

48,040

General and administrative

8,640

8,574

26,698

25,685

Product design and development

8,442

8,280

29,063

26,611

33,634

32,391

106,787

100,336

Operating (loss) income

(9,152

)

(7,522

)

3,287

5,537

Nonoperating (expense) income:

Interest income

233

328

664

713

Interest expense

13

(45

)

(53

)

(86

)

Other income (expense), net

(331

)

(203

)

(652

)

(423

)

(Loss) income before income taxes

(9,237

)

(7,442

)

3,246

5,741

Income tax expense (benefit)

3,497

(4,123

)

1,676

(4,120

)

Net (loss) income

$

(12,734

)

$

(3,319

)

$

1,570

$

9,861

Weighted average shares outstanding:

Basic

45,189

45,018

45,139

44,834

Diluted

45,189

45,018

45,412

45,139

(Loss) earnings per share:

Basic

$

(0.28

)

$

(0.07

)

$

0.03

$

0.22

Diluted

$

(0.28

)

$

(0.07

)

$

0.03

$

0.22

Cash dividends declared per share

$

0.05

$

0.07

$

0.15

$

0.21


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

February 1,
2020

April 27,
2019

(unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

40,316

$

35,383

Restricted cash

60

359

Marketable securities

1,727

26,344

Accounts receivable, net

80,143

65,487

Inventories

80,206

78,832

Contract assets

35,242

33,704

Current maturities of long-term receivables

5,208

2,300

Prepaid expenses and other current assets

8,093

8,319

Income tax receivables

203

1,087

Property and equipment and other assets available for sale

1,838

1,858

Total current assets

253,036

253,673

Property and equipment, net

66,368

65,314

Long-term receivables, less current maturities

1,650

1,214

Goodwill

7,934

7,889

Intangibles, net

3,817

4,906

Investment in affiliates and other assets

14,568

5,052

Deferred income taxes

11,352

11,168

Total non-current assets

105,689

95,543

TOTAL ASSETS

$

358,725

$

349,216


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

February 1,
2020

April 27,
2019

(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

44,846

$

44,873

Contract liabilities

49,870

47,178

Accrued expenses

34,588

32,061

Warranty obligations

9,545

9,492

Income taxes payable

949

468

Total current liabilities

139,798

134,072

Long-term warranty obligations

16,170

14,978

Long-term contract liabilities

10,676

10,053

Other long-term obligations

8,000

1,339

Long-term income taxes payable

576

578

Deferred income taxes

530

533

Total long-term liabilities

35,952

27,481

TOTAL LIABILITIES

175,750

161,553

SHAREHOLDERS' EQUITY:

Common stock

59,276

57,699

Additional paid-in capital

44,096

42,561

Retained earnings

88,407

93,593

Treasury stock, at cost

(4,163

)

(1,834

)

Accumulated other comprehensive loss

(4,641

)

(4,356

)

TOTAL SHAREHOLDERS' EQUITY

182,975

187,663

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

358,725

$

349,216


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

Nine Months Ended

February 1,
2020

January 26,
2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

1,570

$

9,861

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

Depreciation and amortization

13,197

14,054

Loss on sale of property, equipment and other assets

(6

)

(130

)

Share-based compensation

1,734

1,867

Contingent consideration adjustment

(956

)

Equity in loss of affiliate

430

392

Provision for doubtful accounts

(477

)

180

Deferred income taxes, net

(223

)

(445

)

Change in operating assets and liabilities

(10,035

)

7,364

Net cash provided by operating activities

6,190

32,187

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(13,646

)

(14,081

)

Proceeds from sales of property, equipment and other assets

244

255

Purchases of marketable securities

(25,337

)

Proceeds from sales or maturities of marketable securities

24,665

22,341

Purchases of and loans to equity investment

(1,229

)

(854

)

Acquisitions, net of cash acquired

(2,250

)

Net cash provided by (used in) investing activities

10,034

(19,926

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

1,318

Principal payments on long-term obligations

(2,140

)

(440

)

Dividends paid

(6,756

)

(9,403

)

Payments for common shares repurchased

(2,329

)

Tax payments related to RSU issuances

(199

)

(246

)

Net cash used in financing activities

(11,424

)

(8,771

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

(166

)

62

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

4,634

3,552

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period

35,742

29,755

End of period

$

40,376

$

33,307


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

Three Months Ended

Nine Months Ended

February 1,
2020

January 26,
2019

Dollar
Change

Percent
Change

February 1,
2020

January 26,
2019

Dollar
Change

Percent
Change

Net Sales:

Commercial

$

36,880

$

37,159

$

(279

)

(0.8

)%

$

120,566

$

113,797

$

6,769

5.9

%

Live Events

40,571

29,995

10,576

35.3

159,196

134,566

24,630

18.3

High School Park and Recreation

14,775

14,798

(23

)

(0.2

)

75,433

74,498

935

1.3

Transportation

13,916

15,390

(1,474

)

(9.6

)

53,264

50,624

2,640

5.2

International

21,515

17,727

3,788

21.4

74,365

68,464

5,901

8.6

$

127,657

$

115,069

$

12,588

10.9

%

$

482,824

$

441,949

$

40,875

9.2

%

Orders:

Commercial

$

36,898

$

41,114

$

(4,216

)

(10.3

)%

$

119,059

$

123,637

$

(4,578

)

(3.7

)%

Live Events

41,484

45,767

(4,283

)

(9.4

)

149,461

128,803

20,658

16.0

High School Park and Recreation

20,447

17,034

3,413

20.0

73,852

73,928

(76

)

(0.1

)

Transportation

16,203

11,541

4,662

40.4

55,410

54,736

674

1.2

International

19,992

19,973

19

0.1

75,827

65,291

10,536

16.1

$

135,024

$

135,429

$

(405

)

(0.3

)%

$

473,609

$

446,395

$

27,214

6.1

%


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

Nine Months Ended

February 1,
2020

January 26,
2019

Net cash provided by operating activities

$

6,190

$

32,187

Purchases of property and equipment

(13,646

)

(14,081

)

Proceeds from sales of property and equipment

244

255

Free cash flow

$

(7,212

)

$

18,361

*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.

(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.