Daktronics, Inc. Announces Second Quarter Fiscal 2016 Results

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Nov 24, 2015

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."


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)

  Three Months Ended Six Months Ended
  October 31,
 November 1,
 October 31,
 November 1,
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,
 May 2,
Cash, cash equivalents and restricted cash$27,655  $57,780 
Marketable securities24,935  25,346 
Accounts receivable, net90,938  80,857 
Inventories, net69,441  64,389 
Costs and estimated earnings in excess of billings28,906  35,068 
Current maturities of long-term receivables3,143  3,784 
Prepaid expenses and other assets6,160  6,663 
Deferred income taxes10,452  10,640 
Income tax receivables6,635  5,543 
Total current assets268,265  290,070 
Long-term receivables, less current maturities5,160  6,090 
Goodwill5,371  5,269 
Intangibles, net1,721  1,824 
Investment in affiliates and other assets2,456  2,680 
Deferred income taxes721  702 
 15,429  16,565 
Land2,139  2,147 
Buildings64,948  64,186 
Machinery and equipment85,113  80,664 
Office furniture and equipment15,827  15,823 
Computer software and hardware53,618  51,083 
Equipment held for rental803  803 
Demonstration equipment7,543  7,299 
Transportation equipment6,266  6,012 
 236,257  228,017 
Less accumulated depreciation161,513  155,173 
 74,744  72,844 
TOTAL ASSETS$358,438  $379,479 

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

 October 31,
 May 2,
Accounts payable44,182  52,747 
Accrued expenses25,992  26,063 
Warranty obligations13,486  11,838 
Billings in excess of costs and estimated earnings12,583  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 obligations499  587 
Income taxes payable257  636 
Total current liabilities121,603  142,020 
Long-term warranty obligations14,978  14,643 
Long-term deferred revenue (billed or collected)3,958  3,914 
Other long-term obligations, less current maturities2,229  3,190 
Long-term income tax payable2,934  2,734 
Deferred income taxes1,389  939 
Total long-term liabilities25,488  25,420 
TOTAL LIABILITIES147,091  167,440 
Common stock49,570  48,960 
Additional paid-in capital33,971  32,693 
Retained earnings130,954  132,771 
Treasury stock, at cost(9) (9)
Accumulated other comprehensive loss(3,139) (2,376)

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

  Six Months Ended
  October 31,
 November 1,
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 
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)
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)
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)

 Three Months Ended Six Months Ended
 October 31,
 November 1,
 October 31,
 November 1,
Net Sales:               
Commercial$40,066  $43,928  $(3,862) (8.8)% $83,276  $83,710  $(434) (0.5)%
Live Events50,761  62,641  $(11,880) (19.0)% 98,683  138,315  $(39,632) (28.7)%
High School Park and Recreation24,253  24,243  $10  % 43,212  44,354  $(1,142) (2.6)%
Transportation13,294  12,015  $1,279  10.6% 27,061  25,328  $1,733  6.8%
International29,294  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)%
Commercial$30,203  $44,503  $(14,300) (32.1)% $65,160  $86,276  $(21,116) (24.5)%
Live Events64,267  46,216  $18,051  39.1% 125,007  103,421  $21,586  20.9%
High School Park and Recreation12,555  13,520  $(965) (7.1)% 40,429  43,214  $(2,785) (6.4)%
Transportation16,697  12,161  $4,536  37.3% 30,334  23,463  $6,871  29.3%
International11,873  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)

 Six Months Ended
 October 31,
 November 1,
Net cash (used in) provided by operating activities$(9,224) $36,334 
Purchases of property and equipment(10,491) (12,699)
Proceeds from sales of property and equipment105  4,001 
Free cash flow$(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.


Sheila Anderson, Chief Financial Officer
(605) 692-0200