BROOKINGS, S.D., Nov. 24, 2015 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ:DAKT) today reported fiscal 2016 second quarter net sales of $157.7 million, operating income of $5.6 million, and net income of $3.2 million, or $0.07 per diluted share, compared to net sales of $173.1 million, operating income of $12.2 million, and net income of $7.7 million, or $0.18 per diluted share, for the second quarter of fiscal 2015.  Fiscal 2016 second quarter orders were $135.6 million, compared to $149.1 million for the second quarter of fiscal 2015.  Backlog at the end of the fiscal 2016 second quarter was $184.2 million, compared with a backlog of $146.1 million a year earlier and $205.5 million at the end of the first quarter of fiscal 2016. 

Net sales, operating income, net income, and earnings per share for the six months ended October 31, 2015, were $307.9 million, $11.7 million, $6.9 million, and $0.16 per diluted share, respectively.  This compares to $339.7 million, $25.9 million, $16.5 million, and $0.38 per diluted share, respectively, for the same period in fiscal 2015.  Fiscal 2016 is a 52-week year, and fiscal 2015 was a 53-week year.  The extra week of fiscal 2015 fell within the first quarter, resulting in a 26-week versus a 27-week year-to-date comparison.

Free cash flow, defined as cash provided from or used in operating activities less capital expenditures, was a negative $19.6 million for the first six months of fiscal 2016, as compared to a positive free cash flow of $27.6 million for the same period of fiscal 2015.    Net investment in property and equipment was $10.4 million for the first six months of fiscal 2016, as compared to $8.7 million for the first six months of fiscal 2015.  Cash and marketable securities at the end of the second quarter of fiscal 2016 were $52.6 million, which compares to $83.7 million at the end of the second quarter of fiscal 2015 and $83.1 million at the end of fiscal 2015.  

Overall order bookings decreased 9.1 percent in the second quarter of fiscal 2016 as compared to the second quarter of fiscal 2015.  Variability in the timing of orders from the awards of large projects and from large accounts is inherent in our business.  Live Events orders increased due to notable awards from the Miami Dolphins, the University of Mississippi, and Las Vegas Arena.   Transportation business unit orders also increased with a notable project award from the New York City Metropolitan Transit Authority.  Commercial on-premise orders increased with demand in petroleum market applications. Variability of timing of large orders caused the decrease in orders in the International business unit and in the billboard and spectacular niches of the Commercial business unit.  High School Park and Recreation business unit orders were down due to decreases in standard scoring systems demand and lower average selling prices in video-related orders in the quarter as compared to last year.

Sales decreased by 8.9 percent in the second quarter of fiscal 2016 as compared to the second quarter of fiscal 2015.  The Live Events and Commercial business units had the greatest impact on the quarterly sales comparisons.  In Live Events, while we generated revenue on the completion of a record number of center-hung (arena) systems during the quarter, we chose to delay production on some orders in backlog to take advantage of newly released product enhancements.  Last year, our production volumes and mix weighed more heavily toward college football and outdoor professional stadiums installations.  Commercial sales declined primarily due to the timing variability in the spectaculars niche, which is based on large individual projects, and due to declines in billboard shipments this quarter as compared to last.

Gross profit percentage for the quarter declined primarily due to an additional warranty charge and lower sales margins in our Commercial business unit.  During the quarter, we adjusted our warranty reserves by approximately $2 million due to a product issue primarily affecting out-of-home applications.  Sales margins in the Commercial business unit also declined during the quarter due to market drivers on pricing.  The overall gross profit decline was partially offset by improvements in gross profit percentages in our Live Events business due to a change in mix of business between comparative quarters and the non-recurrence of costs we incurred last year due to capacity constraints.

Operating expenses increased by approximately 4 percent due to higher levels of product design activity to develop new and enhanced solutions for our markets and increased personnel costs.

Free cash flow remained negative at the end of the quarter due to the increased use of cash in operations through the first six months of the fiscal year.  Cash outflow from operations included additional inventory of piece part purchases and production of subassemblies for projected future deliveries and cash receipt timing differences in our large project-based business.

Reece Kurtenbach, chairman, president and chief executive officer stated, "Our second quarter profitability was impacted by the timing of the conversion of orders to sales and high warranty costs.  Since we could maintain our delivery promises to customers, we chose to delay production during the quarter to take advantage of new designs with enhanced reliability features and expected lower production costs.  We also committed resources to evaluate, plan, and execute on improving our customers' experience, which increased warranty expenses as we are committed to being a long-term world-class supplier.

"Our design and development teams continued development through the quarter across various products and technologies including a line of ultra-high resolution indoor products, a new family of outdoor products, and various developments for our global transportation markets."

Outlook

Reece Kurtenbach added, "Although the financial performance for the first half of the year did not meet our expectations, we remain committed to achieving our financial goals over the long-term.  Our backlog and market demand remains strong.  Our order pipeline in the International, Live Events, and Transportation business units remains very active.  Our order activity in the Commercial and High School Park and Recreation business units tends to be lower during our third quarter; however, we expect to see the typical increases for next spring and summer deliveries.

"Looking longer-term, we remain optimistic about future global sales opportunities and expansion in our business.  Digital technology opportunities continue to develop.  Our on-premise and out-of-home customers continue to turn to digital messaging solutions to advertise or communicate information to their audiences.  Transportation solution customers turn to our displays to effectively communicate information to travelers or manage traffic flow across constrained travel infrastructure.  Developers and venue owners in the Live Events, International, and spectacular niches continue to incorporate unique display systems at their facilities to help attract large, sustained audiences.

"To match the projected demand, we continue to focus on developing customer-centric solutions, using our industry knowledge to leverage our development, customer support, manufacturing, and process expertise.  Improved profitability and product performance remain the focus of new solutions and enhanced product lines.  We continue to drive our key initiatives forward to increase profitability by reducing costs as we improve our processes, products, and 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, 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 2015 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.

Daktronics Inc. and Subsidiaries Consolidated Statements of Operations(in thousands, except per share amounts)(unaudited)
    Three Months Ended   Six Months Ended
    October 31,  2015   November 1,  2014   October 31,  2015   November 1,  2014
                 
Net sales   $ 157,668     $ 173,115     $ 307,889     $ 339,733  
Cost of goods sold   122,155     132,238     236,875     255,453  
Gross profit   35,513     40,877     71,014     84,280  
                 
Operating expenses:                
Selling expense   14,825     14,665     29,089     29,711  
General and administrative   8,116     7,820     16,286     15,757  
Product design and development   6,975     6,150     13,943     12,953  
    29,916     28,635     59,318     58,421  
Operating income   5,597     12,242     11,696     25,859  
                 
Nonoperating (expense) income:                
Interest income   266     275     564     575  
Interest expense   (28 )   (56 )   (90 )   (124 )
Other (expense) income, net   (231 )   (225 )   (674 )   (397 )
                 
Income before income taxes   5,604     12,236     11,496     25,913  
Income tax expense   2,436     4,499     4,552     9,431  
Net income   $ 3,168     $ 7,737     $ 6,944     $ 16,482  
                 
Weighted average shares outstanding:                
Basic   43,934     43,405     43,890     43,350  
Diluted   44,113     43,798     44,255     43,926  
                 
Earnings per share:                
Basic   $ 0.07     $ 0.18     $ 0.16     $ 0.38  
Diluted   $ 0.07     $ 0.18     $ 0.16     $ 0.38  
                 
Cash dividend declared per share   $ 0.10     $ 0.10     $ 0.20     $ 0.20  

Daktronics Inc. and Subsidiaries Consolidated Balance Sheets(in thousands)  
  October 31,  2015   May 2,  2015
  (unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash, cash equivalents and restricted cash $ 27,655     $ 57,780  
Marketable securities 24,935     25,346  
Accounts receivable, net 90,938     80,857  
Inventories, net 69,441     64,389  
Costs and estimated earnings in excess of billings 28,906     35,068  
Current maturities of long-term receivables 3,143     3,784  
Prepaid expenses and other assets 6,160     6,663  
Deferred income taxes 10,452     10,640  
Income tax receivables 6,635     5,543  
Total current assets 268,265     290,070  
       
Long-term receivables, less current maturities 5,160     6,090  
Goodwill 5,371     5,269  
Intangibles, net 1,721     1,824  
Investment in affiliates and other assets 2,456     2,680  
Deferred income taxes 721     702  
  15,429     16,565  
PROPERTY AND EQUIPMENT:      
Land 2,139     2,147  
Buildings 64,948     64,186  
Machinery and equipment 85,113     80,664  
Office furniture and equipment 15,827     15,823  
Computer software and hardware 53,618     51,083  
Equipment held for rental 803     803  
Demonstration equipment 7,543     7,299  
Transportation equipment 6,266     6,012  
  236,257     228,017  
Less accumulated depreciation 161,513     155,173  
  74,744     72,844  
TOTAL ASSETS $ 358,438     $ 379,479  
       

Daktronics Inc. and Subsidiaries Consolidated Balance Sheets (continued)(in thousands)
  October 31,  2015   May 2,  2015
  (unaudited)    
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable 44,182     52,747  
Accrued expenses 25,992     26,063  
Warranty obligations 13,486     11,838  
Billings in excess of costs and estimated earnings 12,583     23,797  
Customer deposits (billed or collected) 13,103     16,828  
Deferred revenue (billed or collected) 11,501     9,524  
Current portion of other long-term obligations 499     587  
Income taxes payable 257     636  
Total current liabilities 121,603     142,020  
       
Long-term warranty obligations 14,978     14,643  
Long-term deferred revenue (billed or collected) 3,958     3,914  
Other long-term obligations, less current maturities 2,229     3,190  
Long-term income tax payable 2,934     2,734  
Deferred income taxes 1,389     939  
Total long-term liabilities 25,488     25,420  
TOTAL LIABILITIES 147,091     167,440  
       
SHAREHOLDERS' EQUITY:      
Common stock 49,570     48,960  
Additional paid-in capital 33,971     32,693  
Retained earnings 130,954     132,771  
Treasury stock, at cost (9 )   (9 )
Accumulated other comprehensive loss (3,139 )   (2,376 )
TOTAL SHAREHOLDERS' EQUITY 211,347     212,039  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 358,438     $ 379,479  
       

Daktronics Inc. and Subsidiaries Consolidated Statements of Cash Flows(in thousands)(unaudited)
    Six Months Ended
    October 31,  2015   November 1,  2014
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 6,944     $ 16,482  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation   8,186     7,377  
Amortization   70     124  
Amortization of premium/discount on marketable securities   58     91  
Gain on sale of property, equipment and other assets   (50 )   (1,202 )
Share-based compensation   1,503     1,564  
Excess tax benefits from share-based compensation   (3 )   (31 )
Provision for doubtful accounts   209     (136 )
Deferred income taxes, net   573     301  
Change in operating assets and liabilities   (26,714 )   11,764  
Net cash (used in) provided by operating activities   (9,224 )   36,334  
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment   (10,491 )   (12,699 )
Proceeds from sale of property, equipment and other assets   105     4,001  
Purchases of marketable securities   (13,780 )   (6,451 )
Proceeds from sales or maturities of marketable securities   14,133     6,316  
Acquisitions, net of cash acquired   (1,936 )   (5,915 )
Net cash used in investing activities   (11,969 )   (14,748 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on notes payable   (27 )   (229 )
Proceeds from exercise of stock options   610     1,010  
Excess tax benefits from share-based compensation   3     31  
Principal payments on long-term obligations   (16 )   (930 )
Dividends paid   (8,760 )   (8,656 )
Net cash used in financing activities   (8,190 )   (8,774 )
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (441 )   (431 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (29,824 )   12,381  
         
CASH AND CASH EQUIVALENTS:        
Beginning of period   57,284     45,054  
End of period   $ 27,460     $ 57,435  
         

Daktronics Inc. and Subsidiaries Net Sales and Orders by Business Unit(in thousands)(unaudited)
  Three Months Ended   Six Months Ended
  October 31,  2015   November 1,  2014   Dollar Change   Percent Change   October 31,  2015   November 1,  2014   Dollar Change   Percent Change
Net Sales:                              
Commercial $ 40,066     $ 43,928     $ (3,862 )   (8.8 )%   $ 83,276     $ 83,710     $ (434 )   (0.5 )%
Live Events 50,761     62,641     $ (11,880 )   (19.0 )%   98,683     138,315     $ (39,632 )   (28.7 )%
High School Park and Recreation 24,253     24,243     $ 10     %   43,212     44,354     $ (1,142 )   (2.6 )%
Transportation 13,294     12,015     $ 1,279     10.6 %   27,061     25,328     $ 1,733     6.8 %
International 29,294     30,288     $ (994 )   (3.3 )%   55,657     48,026     $ 7,631     15.9 %
  $ 157,668     $ 173,115     $ (15,447 )   (8.9 )%   $ 307,889     $ 339,733     $ (31,844 )   (9.4 )%
Orders:                              
Commercial $ 30,203     $ 44,503     $ (14,300 )   (32.1 )%   $ 65,160     $ 86,276     $ (21,116 )   (24.5 )%
Live Events 64,267     46,216     $ 18,051     39.1 %   125,007     103,421     $ 21,586     20.9 %
High School Park and Recreation 12,555     13,520     $ (965 )   (7.1 )%   40,429     43,214     $ (2,785 )   (6.4 )%
Transportation 16,697     12,161     $ 4,536     37.3 %   30,334     23,463     $ 6,871     29.3 %
International 11,873     32,702     $ (20,829 )   (63.7 )%   39,737     53,407     $ (13,670 )   (25.6 )%
  $ 135,595     $ 149,102     $ (13,507 )   (9.1 )%   $ 300,667     $ 309,781     $ (9,114 )   (2.9 )%

Reconciliation of Free Cash Flow(in thousands)(unaudited)
  Six Months Ended
  October 31,  2015   November 1,  2014
Net cash (used in) provided by operating activities $ (9,224 )   $ 36,334  
Purchases of property and equipment (10,491 )   (12,699 )
Proceeds from sales of property and equipment 105     4,001  
Free cash flow $ (19,610 )   $ 27,636  

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.

 

INVESTOR RELATIONS:Sheila Anderson, Chief Financial Officer(605) 692-0200Investor@daktronics.com

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