Daktronics, Inc. Announces Second Quarter Fiscal 2017 Results

BROOKINGS, S.D., Nov. 22, 2016 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ:DAKT) today reported fiscal 2017 second quarter net sales of $170.0 million, operating income of $12.7 million, and net income of $9.0 million, or $0.20 per diluted share, compared to 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, for the second quarter of fiscal 2016.  Fiscal 2017 second quarter orders were $116.9 million, compared to $135.6 million for the second quarter of fiscal 2016.  Backlog at the end of the fiscal 2017 second quarter was $142 million, compared with a backlog of $184 million a year earlier and $198 million at the end of the first quarter of fiscal 2017. 

Net sales, operating income, net income, and earnings per share for the six months ended October 29, 2016, were $327.1 million, $20.6 million, $14.6 million, and $0.33 per diluted share, respectively.  This compares to $307.9 million, $11.7 million, $6.9 million, and $0.16 per diluted share, respectively, for the same period in fiscal 2016. 

Cash flow provided by operating activities in the first six months of fiscal 2017 was $15.0 million, compared with cash used of $9.0 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 $10.5 million for the first six months of fiscal 2017, as compared to a negative free cash flow of $19.4 million for the same period of fiscal 2016.  Net investment in property and equipment was $4.6 million for the first six months of fiscal 2017, as compared to $10.4 million for the first six months of fiscal 2016. We repurchased approximately 0.3 million shares of common stock at an average price of $6.42 per share for a total use of cash of $1.8 million during the first six months of fiscal 2017.  Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2017 were $52.2 million, which compares to $52.6 million at the end of the second quarter of fiscal 2016 and $53.2 million at the end of fiscal 2016.  

Orders for the second quarter of fiscal 2017 decreased 13.8 percent as compared to the second quarter of fiscal 2016. Orders increased in our Commercial, International, and High School Park and Recreation business units and decreased in our Live Events and Transportation business units.  Commercial business unit orders were up compared to last year primarily due to the award of several large projects in the spectacular niche and an increase in business in our on-premise and billboard niches.  International business unit orders increased primarily due to a spectacular niche project awarded in Europe, billboard niche and sports stadium project awards in Australia.  High School Park and Recreation orders increased due to strong market demand for video sporting applications which have larger average sale prices compared to scoring or message centers in this business unit.  Live Events orders were down compared to last year due to order timing differences of large projects.

Net sales increased by 7.8 percent in the second quarter of fiscal 2017 as compared to the second quarter of fiscal 2016.  High School Park and Recreation, Live Events, Transportation and International business unit's sales all increased quarter over quarter primarily because of higher production rates of large projects due to natural large project volatility and an increase in customer demand as noted above.  Commercial business unit sales were relatively flat.

Gross profit percentage for the quarter increased as compared to last year due to a combination of lower warranty charges, lower production costs, and sales mix.

Operating expenses increased by 5.8 percent in the second quarter of fiscal 2017 as compared to the second quarter of fiscal 2016.  The increase in selling expense was primarily related to a bad debt charge which increased our percentage of selling expense to sales by 0.4 percent, and for the addition of a full quarter of expenses from ADFLOW, the company we acquired late in fiscal 2016.  General and administrative expense increased in professional fees, information technology maintenance, and personnel expenses.  Product development expenses increased primarily for personnel related expenses.

Operating income as a percent of sales for the quarter increased to 7.5 percent as compared to the second quarter of fiscal 2016 of 3.6 percent.

Reece Kurtenbach, chairman, president and chief executive officer stated, "We are pleased with our second quarter of fiscal 2017 financial performance.  We achieved higher net sales and experienced improved profitability during the second quarter of fiscal 2017 compared to the second quarter of fiscal 2016.  Our sales levels improved with the timing of large project delivery and we saw increases in demand in the Commercial and International businesses.  Our High School Park and Recreation business unit is having a great year, with orders up more than 25 percent during the quarter.  A year ago, we were working through a warranty issue that took time, attention, and financial resources away from improving our business.  This year, we have been able to return our focus to product development activities.

OutlookKurtenbach added, "The pipeline of order opportunities in the worldwide marketplace remains strong.  While orders and backlog as compared to last year at this time are slightly down, we are optimistic about continued growth through the activity and interest in the worldwide marketplace for desired usage of digital technology.  However, we recognize that there is uncertainty in the global macroeconomic picture; therefore, we are carefully managing our costs through continuous improvement and execution of our processes.

Our value statement sets us apart and we offer a broad range of solutions to meet our diverse customers' needs.  We are strategically investing in product design and development for a number of customer solution areas and we have a goal to accelerate development of world-class solutions to capture a broader customer base in the growing digital global market."

Webcast InformationThe 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 DaktronicsDaktronics 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 StatementCautionary 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 2016 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 29,  2016   October 31,  2015   October 29,  2016   October 31,  2015
                 
Net sales   $ 169,992     $ 157,668     $ 327,138     $ 307,889  
Cost of goods sold   125,684     122,155     243,763     236,875  
Gross profit   44,308     35,513     83,375     71,014  
                 
Operating expenses:                
Selling expense   15,891     14,825     31,150     29,089  
General and administrative   8,625     8,116     17,408     16,286  
Product design and development   7,126     6,975     14,169     13,943  
    31,642     29,916     62,727     59,318  
Operating income   12,666     5,597     20,648     11,696  
                 
Nonoperating income (expense):                
Interest income   171     266     376     564  
Interest expense   (76 )   (28 )   (118 )   (90 )
Other income (expense), net   149     (231 )   55     (674 )
                 
Income before income taxes   12,910     5,604     20,961     11,496  
Income tax expense   3,889     2,436     6,401     4,552  
Net income   $ 9,021     $ 3,168     $ 14,560     $ 6,944  
                 
Weighted average shares outstanding:                
Basic   43,988     43,934     44,051     43,890  
Diluted   44,098     44,113     44,168     44,255  
                 
Earnings per share:                
Basic   $ 0.21     $ 0.07     $ 0.33     $ 0.16  
Diluted   $ 0.20     $ 0.07     $ 0.33     $ 0.16  
                 
Cash dividends declared per share   $ 0.07     $ 0.10     $ 0.17     $ 0.20  

Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets(in thousands)
  October 29,  2016   April 30,  2016
  (unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $ 34,045     $ 28,328  
Restricted cash 205     198  
Marketable securities 17,904     24,672  
Accounts receivable, net 90,421     77,554  
Inventories, net 63,632     69,827  
Costs and estimated earnings in excess of billings 43,354     30,200  
Current maturities of long-term receivables 3,068     3,172  
Prepaid expenses and other assets 7,533     6,468  
Income tax receivables 229     4,812  
Total current assets 260,391     245,231  
       
Long-term receivables, less current maturities 3,202     3,866  
Goodwill 7,712     8,116  
Intangibles, net 5,718     7,721  
Investment in affiliates and other assets 2,136     2,414  
Deferred income taxes 9,412     9,437  
  28,180     31,554  
PROPERTY AND EQUIPMENT:      
Land 2,100     2,155  
Buildings 65,039     65,247  
Machinery and equipment 83,206     82,973  
Office furniture and equipment 5,570     14,746  
Computer software and hardware 49,894     48,917  
Equipment held for rental 374     374  
Demonstration equipment 7,714     8,026  
Transportation equipment 6,912     6,596  
  220,809     229,034  
Less accumulated depreciation 151,671     155,871  
  69,138     73,163  
TOTAL ASSETS $ 357,709     $ 349,948  
       

Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (continued)(in thousands)
  October 29,  2016   April 30,  2016
  (unaudited)    
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable 44,796     43,441  
Accrued expenses 25,270     23,532  
Warranty obligations 15,110     16,564  
Billings in excess of costs and estimated earnings 8,338     10,361  
Customer deposits (billed or collected) 14,020     16,012  
Deferred revenue (billed or collected) 12,514     10,712  
Current portion of other long-term obligations 442     585  
Income taxes payable 2,385     310  
Total current liabilities 122,875     121,517  
       
Long-term warranty obligations 14,740     13,932  
Long-term deferred revenue (billed or collected) 5,504     5,603  
Other long-term obligations, less current maturities 4,451     4,059  
Long-term income tax payable 3,184     3,016  
Deferred income taxes 708     754  
Total long-term liabilities 28,587     27,364  
TOTAL LIABILITIES 151,462     148,881  
       
SHAREHOLDERS' EQUITY:      
Common stock 51,449     51,347  
Additional paid-in capital 36,622     35,351  
Retained earnings 124,353     117,276  
Treasury stock, at cost (1,834 )   (9 )
Accumulated other comprehensive loss (4,343 )   (2,898 )
TOTAL SHAREHOLDERS' EQUITY 206,247     201,067  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 357,709     $ 349,948  
       

Daktronics, Inc. and Subsidiaries Consolidated Statements of Cash Flows(in thousands)(unaudited)
    Six Months Ended
    October 29,  2016   October 31,  2015
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 14,560     $ 6,944  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation and amortization   9,242     8,314  
Impairment loss of intangible assets   830      
Loss (gain) on sale of property, equipment and other assets   33     (50 )
Share-based compensation   1,484     1,503  
Provision for doubtful accounts   962     209  
Deferred income taxes, net   (48 )   573  
Change in operating assets and liabilities   (12,057 )   (26,487 )
Net cash provided by (used in) operating activities   15,006     (8,994 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property and equipment   (4,625 )   (10,491 )
Proceeds from sale of property, equipment and other assets   72     105  
Purchases of marketable securities   (4,583 )   (13,780 )
Proceeds from sales or maturities of marketable securities   11,328     14,133  
Acquisitions, net of cash acquired   (562 )   (1,936 )
Net cash provided by (used in) investing activities   1,630     (11,969 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Payments on notes payable   (6 )   (27 )
Proceeds from exercise of stock options   102     610  
Principal payments on long-term obligations   (904 )   (16 )
Dividends paid   (7,482 )   (8,760 )
Payments for common shares repurchased   (1,825 )    
Tax payments related to RSU issuances   (213 )   (227 )
Net cash used in financing activities   (10,328 )   (8,420 )
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (591 )   (441 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   5,717     (29,824 )
         
CASH AND CASH EQUIVALENTS:        
Beginning of period   28,328     57,284  
End of period   $ 34,045     $ 27,460  
         

Daktronics, Inc. and Subsidiaries Net Sales and Orders by Business Unit(in thousands)(unaudited)
  Three Months Ended   Six Months Ended
  October 29,  2016   October 31,  2015   Dollar Change   Percent Change   October 29,  2016   October 31,  2015   Dollar Change   PercentChange
Net Sales:                              
Commercial $ 39,923     $ 40,066     $ (143 )   (0.4 )%   $ 76,177     $ 83,276     $ (7,099 )   (8.5 )%
Live Events 55,363     50,761     $ 4,602     9.1 %   115,996     98,683     $ 17,313     17.5 %
High School Park and Recreation 28,707     24,253     $ 4,454     18.4 %   56,324     43,212     $ 13,112     30.3 %
Transportation 16,101     13,294     $ 2,807     21.1 %   30,387     27,061     $ 3,326     12.3 %
International 29,898     29,294     $ 604     2.1 %   48,254     55,657     $ (7,403 )   (13.3 )%
  $ 169,992     $ 157,668     $ 12,324     7.8 %   $ 327,138     $ 307,889     $ 19,249     6.3 %
Orders:                                                          
Commercial $ 36,663     $ 30,203     $ 6,460     21.4 %   $ 81,731     $ 65,160     $ 16,571     25.4 %
Live Events 31,050     64,267     $ (33,217 )   (51.7 )%   83,930     125,007     $ (41,077 )   (32.9 )%
High School Park and Recreation 15,764     12,555     $ 3,209     25.6 %   46,877     40,429     $ 6,448     15.9 %
Transportation 14,754     16,697     $ (1,943 )   (11.6 )%   26,669     30,334     $ (3,665 )   (12.1 )%
International 18,643     11,873     $ 6,770     57.0 %   52,835     39,737     $ 13,098     33.0 %
  $ 116,874     $ 135,595     $ (18,721 )   (13.8 )%   $ 292,042     $ 300,667     $ (8,625 )   (2.9 )%

Reconciliation of Free Cash Flow(in thousands)(unaudited)
  Six Months Ended
  October 29,  2016   October 31,  2015
Net cash provided by (used in) operating activities $ 15,006     $ (8,994 )
Purchases of property and equipment (4,625 )   (10,491 )
Proceeds from sales of property and equipment 72     105  
Free cash flow $ 10,453     $ (19,380 )

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.

 

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

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