Daktronics, Inc. Announces Second Quarter Fiscal 2017 Results

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Nov 22, 2016

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.

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)
  Three Months Ended Six Months Ended
  October 29,
 October 31,
 October 29,
 October 31,
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,
 April 30,
Cash and cash equivalents$34,045  $28,328 
Restricted cash205  198 
Marketable securities17,904  24,672 
Accounts receivable, net90,421  77,554 
Inventories, net63,632  69,827 
Costs and estimated earnings in excess of billings43,354  30,200 
Current maturities of long-term receivables3,068  3,172 
Prepaid expenses and other assets7,533  6,468 
Income tax receivables229  4,812 
Total current assets260,391  245,231 
Long-term receivables, less current maturities3,202  3,866 
Goodwill7,712  8,116 
Intangibles, net5,718  7,721 
Investment in affiliates and other assets2,136  2,414 
Deferred income taxes9,412  9,437 
 28,180  31,554 
Land2,100  2,155 
Buildings65,039  65,247 
Machinery and equipment83,206  82,973 
Office furniture and equipment5,570  14,746 
Computer software and hardware49,894  48,917 
Equipment held for rental374  374 
Demonstration equipment7,714  8,026 
Transportation equipment6,912  6,596 
 220,809  229,034 
Less accumulated depreciation151,671  155,871 
 69,138  73,163 
TOTAL ASSETS$357,709  $349,948 

Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
 October 29,
 April 30,
Accounts payable44,796  43,441 
Accrued expenses25,270  23,532 
Warranty obligations15,110  16,564 
Billings in excess of costs and estimated earnings8,338  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 obligations442  585 
Income taxes payable2,385  310 
Total current liabilities122,875  121,517 
Long-term warranty obligations14,740  13,932 
Long-term deferred revenue (billed or collected)5,504  5,603 
Other long-term obligations, less current maturities4,451  4,059 
Long-term income tax payable3,184  3,016 
Deferred income taxes708  754 
Total long-term liabilities28,587  27,364 
TOTAL LIABILITIES151,462  148,881 
Common stock51,449  51,347 
Additional paid-in capital36,622  35,351 
Retained earnings124,353  117,276 
Treasury stock, at cost(1,834) (9)
Accumulated other comprehensive loss(4,343) (2,898)

Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
  Six Months Ended
  October 29,
 October 31,
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)
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)
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)
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)
 Three Months Ended Six Months Ended
 October 29,
 October 31,
 October 29,
 October 31,
Net Sales:               
Commercial$39,923  $40,066  $(143) (0.4)% $76,177  $83,276  $(7,099) (8.5)%
Live Events55,363  50,761  $4,602  9.1% 115,996  98,683  $17,313  17.5%
High School Park and Recreation28,707  24,253  $4,454  18.4% 56,324  43,212  $13,112  30.3%
Transportation16,101  13,294  $2,807  21.1% 30,387  27,061  $3,326  12.3%
International29,898  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%
Commercial$36,663  $30,203  $6,460  21.4% $81,731  $65,160  $16,571  25.4%
Live Events31,050  64,267  $(33,217) (51.7)% 83,930  125,007  $(41,077) (32.9)%
High School Park and Recreation15,764  12,555  $3,209  25.6% 46,877  40,429  $6,448  15.9%
Transportation14,754  16,697  $(1,943) (11.6)% 26,669  30,334  $(3,665) (12.1)%
International18,643  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)
 Six Months Ended
 October 29,
 October 31,
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 equipment72  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:

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