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 cash26  28 
Marketable securities37,596  34,522 
Accounts receivable, net77,743  77,387 
Inventories72,187  75,335 
Contract assets26,542  30,968 
Current maturities of long-term receivables1,998  1,752 
Prepaid expenses and other current assets7,566  9,029 
Income tax receivables5,772  5,385 
Property and equipment and other assets available for sale1,893   
Total current assets264,604  264,133 
    
Property and equipment, net65,765  68,059 
Long-term receivables, less current maturities1,247  1,641 
Goodwill7,968  8,264 
Intangibles, net5,429  3,682 
Investment in affiliates and other assets5,422  5,091 
Deferred income taxes8,317  7,930 
Total non-current assets94,148  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 liabilities48,745  39,379 
Accrued expenses30,784  27,445 
Warranty obligations11,283  13,891 
Current portion of other long-term obligations1,199  1,088 
Income taxes payable1,894  660 
Total current liabilities129,022  131,308 
    
Long-term warranty obligations15,370  16,062 
Long-term contract liabilities9,814  7,475 
Other long-term obligations, less current portion1,955  2,285 
Long-term income taxes payable843  3,440 
Deferred income taxes597  614 
Total long-term liabilities28,579  29,876 
TOTAL LIABILITIES157,601  161,184 
    
SHAREHOLDERS' EQUITY:   
Common stock57,699  54,731 
Additional paid-in capital41,949  40,328 
Retained earnings107,563  107,105 
Treasury stock, at cost(1,834) (1,834)
Accumulated other comprehensive loss(4,226) (2,714)
TOTAL SHAREHOLDERS' EQUITY201,151  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 Events29,995  45,167  (15,172) (33.6) 134,566  191,432  (56,866) (29.7)
  High School Park and Recreation14,798  11,463  3,335  29.1  74,498  69,602  4,896  7.0 
  Transportation15,390  11,189  4,201  37.5  50,624  46,577  4,047  8.7 
  International17,727  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 Events45,767  39,911  5,856  14.7  128,803  145,246  (16,443) (11.3)
  High School Park and Recreation17,034  13,451  3,583  26.6  73,928  60,368  13,560  22.5 
  Transportation11,541  14,641  (3,100) (21.2) 54,736  38,155  16,581  43.5 
  International19,973  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 equipment255  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.