Daktronics, Inc. Announces Third Quarter Fiscal 2017 Results

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Feb 21, 2017

BROOKINGS, S.D., Feb. 21, 2017 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ:DAKT) today reported fiscal 2017 third quarter net sales of $115.7 million, operating loss of $6.9 million, and net loss of $5.1 million, or $0.12 per diluted share, compared to net sales of $123.8 million, operating loss of $5.5 million, and net loss of $2.0 million, or $0.04 per diluted share, for the third quarter of fiscal 2016.  Fiscal 2017 third quarter orders were $143.3 million, compared to $116.9 million for the third quarter of fiscal 2016.  Backlog at the end of the fiscal 2017 third quarter was $170 million, compared with a backlog of $176 million a year earlier and $142 million at the end of the second quarter of fiscal 2017. 

Net sales, operating income, net income, and earnings per share for the nine months ended January 28, 2017, were $442.9 million, $13.7 million, $9.4 million, and $0.21 per diluted share, respectively.  This compares to $431.7 million, $6.2 million, $5.0 million, and $0.11 per diluted share, respectively, for the same period in fiscal 2016. 

Cash flow provided by operating activities in the first nine months of fiscal 2017 was $45.4 million, compared with cash provided by operating activities of $2.5 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 $38.8 million for the first nine months of fiscal 2017, as compared to a negative free cash flow of $10.8 million for the same period of fiscal 2016.  Net investment in property and equipment was $6.5 million for the first nine months of fiscal 2017, as compared to $13.3 million for the first nine 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 nine months of fiscal 2017.  Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2017 were $76.6 million, which compares to $56.3 million at the end of the third quarter of fiscal 2016 and $53.2 million at the end of fiscal 2016.  

Orders for the third quarter of fiscal 2017 increased 22.6 percent as compared to the third quarter of fiscal 2016.  Orders increased in the International, Live Events, Transportation and Commercial business units and decreased in the High School Park and Recreation business unit.  The timing of orders for large projects vary according to the needs of the customer.  That was the case in this quarter as large project order timing was the primary cause of the increase in order volume quarter over quarter.  International orders increased because of spectacular niche project awards in Europe, transportation type orders in the Middle East and sports stadium project awards in Australia. Transportation orders increased due to the award of a multi-million dollar project for an active traffic management system.  Live Events orders increased due to an increase in minor league baseball stadium projects, and timing of project awards in college and university venues and professional sport stadium venue projects for baseball and football this year.  Commercial orders increases are attributable to the digital billboard niche and on-premise niche offset by a decline in spectacular niche awards as compared to last year's third quarter.  High School Park and Recreation orders decreased during the quarter because there were fewer large sports video projects awarded during the third quarter of fiscal 2017 compared to the third quarter of fiscal 2016.

Net sales decreased by 6.5 percent in the third quarter of fiscal 2017 as compared to the third quarter of fiscal 2016.  Commercial and High School Park and Recreation business units sales increased quarter over quarter as a result of large project orders that were available for delivery during the third quarter of fiscal 2017.  Live Events, Transportation and International business unit sales all decreased quarter over quarter primarily due to lower customer delivery needs during the quarter this year as compared to last year.

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 9.7 percent in the third quarter of fiscal 2017 as compared to the third quarter of fiscal 2016.  The increase in selling expense was related to the addition of a full quarter of expenses from ADFLOW, the company we acquired late in fiscal 2016.  General and administrative expense increased in personnel expenses and professional fees.  Product development expenses increased primarily for personnel related expenses.

Operating loss as a percent of sales for the quarter increased to 6.0 percent as compared to the third quarter of fiscal 2016 operating loss of 4.5 percent.

Net loss in the third quarter of fiscal year 2016 was positively impacted by a $2.0 million tax benefit resulting from the retroactive United States reinstatement of the research and development credit.  In fiscal 2017, this benefit is being recognized on a quarterly basis.

Reece Kurtenbach, chairman, president and chief executive officer stated, "We are having a successful year through the third quarter.  Our order volume has increased year over year.  Some significant awards during the third quarter of fiscal 2017 included Nevada Department of Transportation's Project NEON, University of Wisconsin, London's Piccadilly Circus, and LA Memorial Coliseum.  This demonstrates the strength of our broad solution offerings and value offered to customers in our global markets.  While our Live Events orders are down year over year, our overall win ratio remained consistent indicating the market had lighter activity during fiscal 2017.  We expect Live Events activity to increase in the coming quarters.  Our third quarter is historically lighter for sales and profits due to the seasonality of our sports business, construction cycles, and the decrease in production days due to holidays.  This trend continued which resulted in lower sales and an operating loss for the quarter; however, we were pleased that our gross margins improved.  On a year-to-date basis, our operating profit has improved."

Kurtenbach added, "We remain confident in our ability to profitability capitalize on global market growth opportunities.  Our value statement sets us apart from others and meets our diverse customers' needs across all business units.  The pipeline of order opportunities remains strong. We are optimistic about our long-term growth as we see increasing activity and interest in the worldwide marketplace for digital display technology.  To capitalize on this opportunity, we are increasing the velocity in product development.  While these efforts will increase development expenses, we believe it's necessary to drive forward exceptional solutions to capture global market share and deliver value to our customers."

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 Nine Months Ended
  January 28,
 January 30,
 January 28,
 January 30,
Net sales $115,719  $123,816  $442,857  $431,705 
Cost of goods sold 92,403  101,787  336,166  338,662 
Gross profit 23,316  22,029  106,691  93,043 
Operating expenses:        
Selling expense 14,678  13,784  45,828  42,873 
General and administrative 8,599  7,908  26,007  24,194 
Product design and development 6,973  5,883  21,142  19,826 
  30,250  27,575  92,977  86,893 
Operating (loss) income (6,934) (5,546) 13,714  6,150 
Nonoperating income (expense):        
Interest income 183  230  559  794 
Interest expense (56) (113) (174) (203)
Other (expense) income, net (305) 7  (250) (667)
(Loss) income before income taxes   (7,112) (5,422) 13,849  6,074 
Income tax (benefit) expense (1,985) (3,469) 4,416  1,083 
Net (loss) income $(5,127) $(1,953) $9,433  $4,991 
Weighted average shares outstanding:        
Basic 44,102  44,021  44,071  43,933 
Diluted 44,102  44,021  44,206  44,357 
Earnings per share:        
Basic $(0.12) $(0.04) $0.21  $0.11 
Diluted $(0.12) $(0.04) $0.21  $0.11 
Cash dividends declared per share $0.07  $0.10  $0.24  $0.30 

Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
 January 28,
 April 30,
Cash and cash equivalents$48,377  $28,328 
Restricted cash206  198 
Marketable securities28,034  24,672 
Accounts receivable, net71,637  77,554 
Inventories, net61,922  69,827 
Costs and estimated earnings in excess of billings  33,204  30,200 
Current maturities of long-term receivables2,229  3,172 
Prepaid expenses and other assets5,968  6,468 
Income tax receivables255  4,812 
Total current assets251,832  245,231 
Long-term receivables, less current maturities2,876  3,866 
Goodwill7,866  8,116 
Intangibles, net5,334  7,721 
Investment in affiliates and other assets3,570  2,414 
Deferred income taxes9,677  9,437 
 29,323  31,554 
Land2,093  2,155 
Buildings65,219  65,247 
Machinery and equipment83,508  82,973 
Office furniture and equipment5,578  14,746 
Computer software and hardware50,642  48,917 
Equipment held for rental374  374 
Demonstration equipment7,770  8,026 
Transportation equipment6,863  6,596 
 222,047  229,034 
Less accumulated depreciation155,096  155,871 
 66,951  73,163 
TOTAL ASSETS$348,106  $349,948 

Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
 January 28,
 April 30,
Accounts payable38,688  43,441 
Accrued expenses25,560  23,532 
Warranty obligations14,847  16,564 
Billings in excess of costs and estimated earnings12,080  10,361 
Customer deposits (billed or collected)14,483  16,012 
Deferred revenue (billed or collected)12,282  10,712 
Current portion of other long-term obligations453  585 
Income taxes payable1,788  310 
Total current liabilities120,181  121,517 
Long-term warranty obligations14,640  13,932 
Long-term deferred revenue (billed or collected)5,424  5,603 
Other long-term obligations, less current maturities  4,099  4,059 
Long-term income tax payable3,063  3,016 
Deferred income taxes985  754 
Total long-term liabilities28,211  27,364 
TOTAL LIABILITIES148,392  148,881 
Common stock52,530  51,347 
Additional paid-in capital37,294  35,351 
Retained earnings116,143  117,276 
Treasury stock, at cost(1,834) (9)
Accumulated other comprehensive loss(4,419) (2,898)

Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
  Nine Months Ended
  January 28,
 January 30,
Net income $9,433  $4,991 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Depreciation and amortization 13,941  12,562 
Impairment of intangible assets 830   
Loss (gain) on sale of property, equipment and other assets 23  (50)
Share-based compensation 2,204  2,244 
Gain on sale of equity investee   (119)
Provision for doubtful accounts 898  (110)
Deferred income taxes, net (286) 860 
Change in operating assets and liabilities 18,336  (17,878)
  Net cash provided by operating activities 45,379  2,500 
Purchases of property and equipment (6,709) (13,389)
Proceeds from sale of property, equipment and other assets 166  111 
Purchases of marketable securities (18,098) (18,273)
Proceeds from sales or maturities of marketable securities 14,594  19,069 
Acquisitions, net of cash acquired (1,374) (2,183)
Proceeds from sale of equity method investment   377 
  Net cash used in investing activities (11,421) (14,288)
Payments on notes payable (8) (33)
Proceeds from exercise of stock options 343  610 
Principal payments on long-term obligations (912) (15)
Dividends paid (10,566) (13,158)
Payments for common shares repurchased (1,825)  
Tax payments related to RSU issuances (261) (303)
  Net cash used in financing activities (13,229) (12,899)
Beginning of period 28,328  57,284 
End of period $48,377  $31,677 

Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
 Three Months Ended Nine Months Ended
 January 28,
 January 30,
 January 28,
 January 30,
Net Sales:               
Commercial$36,165  $29,385  $6,780  23.1% $112,342  $112,661  $(319) (0.3)%
Live Events41,036  51,067  $  (10,031)    (19.6)% 157,032  149,750  $7,282  4.9%
High School Park and Recreation12,653  10,940  $1,713  15.7% 68,977  54,152  $14,825  27.4%
Transportation9,130  11,698  $(2,568) (22.0)% 39,517  38,759  $758  2.0%
International16,735  20,726  $(3,991) (19.3)% 64,989  76,383  $  (11,394)   (14.9)%
 $115,719  $123,816  $(8,097) (6.5)% $442,857  $431,705  $11,152  2.6%
Commercial$32,595  $29,922  $2,673  8.9% $114,326  $95,082  $19,244  20.2%
Live Events51,590  43,075  $8,515  19.8% 135,520  168,082  $(32,562) (19.4)%
High School Park and Recreation  14,178  15,131  $(953) (6.3)% 61,055  55,560  $5,495  9.9%
Transportation19,621  12,401  $7,220  58.2% 46,290  42,735  $3,555  8.3%
International25,329  16,368  $8,961  54.7% 78,164  56,105  $22,059  39.3%
 $143,313  $116,897  $26,416  22.6% $435,355  $417,564  $17,791  4.3%

Reconciliation of Free Cash Flow*
(in thousands)
 Nine Months Ended
 January 28,
 January 30,
Net cash provided by operating activities$45,379  $2,500 
Purchases of property and equipment(6,709) (13,389)
Proceeds from sales of property and equipment  166  111 
Free cash flow$38,836  $(10,778)

*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