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.

Outlook
Kurtenbach 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 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 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				Percent Change
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) 692-0200
Investor@daktronics.com