Daktronics, Inc. Announces Third Quarter Fiscal 2022 Results

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Mar 10, 2022

BROOKINGS, S.D., March 10, 2022 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported its results for fiscal 2022 third quarter which ended January 29, 2022.

Q3 FY2022 financial highlights:

Net sales of $139.6 million as a result of record orders and eased pandemic related site restrictions
Operating loss of $5.7 million realized due to inflation in materials and freight costs, increased personnel spend, and a warranty charge
Record level of orders of $214.8 million
Product order backlog of $353 million(1), driven by record order volume and muted conversion to sales due to supply chain challenges

Reece Kurtenbach, chairman, president and chief executive officer stated, "Demand for our products and solutions were at record levels, reflecting the economic recovery from the global pandemic, the increasing adoption and use of audiovisual communication systems, and our reputation as a leading provider. We continue to navigate the parts and labor cost and availability headwinds. Sales volumes and gross profit levels were muted because of the supply chain disruptions, expediting and other efforts to react to schedule changes, and inflationary changes. To offset these cost trends, we began implementing price increases across the business for deliveries into next fiscal year."

Outlook
Kurtenbach added, "We expect dynamic and volatile supply chain and labor conditions to persist through the calendar year. As the environment evolves, we plan to adjust and adapt our pricing, production schedules and capacity levels to best serve our customers and improve profitability. Over the long-term, we believe the audiovisual industry is poised for growth. We are actively investing in new technologies and markets to make Daktronics and our solutions the preferred choice; positioning the business for long-term growth and increasing value for our stakeholders."

Third Quarter and Year to Date Results

Orders for the third quarter of fiscal 2022 increased 147.2 percent as compared to the third quarter of fiscal 2021. Each business unit's order volume grew through the first nine months of fiscal 2022 reflecting the recovery from the impact of the global pandemic among our customers.

Net sales increased by 48.2 percent in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021. Net sales for the nine months ended January 29, 2022 increased by 22.9 percent as compared to the same period one year ago. Sales growth was driven by increased orders. Material supply and labor shortages are creating an increase in lead times and extending the timing of converting some orders to sales in the near-term. This has contributed to a larger than typical backlog.

Gross profit as a percentage of net sales was 16.0 percent for the third quarter of fiscal 2022 as compared to 25.4 percent a year earlier and 19.3 percent for the nine months ended January 29, 2022, as compared to 25.5 percent for the nine months ended a year earlier. The decline in gross profit percentage in fiscal 2022 is primarily related to the ongoing supply chain disruptions and inflationary challenges in materials, freight, and personnel related costs, the difference in sales mix between periods, a warranty charge, and other factors experienced during fiscal 2021. Factors impacting gross profit in the third quarter of fiscal 2021 included a positive $2.1 million or 2.2 percent gross profit impact from a litigation claim reversal and adjustments to operations because of the COVID-19 pandemic.

Operating expenses for the third quarter of fiscal 2022 were $28.0 million, compared to $24.2 million for the third quarter of fiscal 2021 or an increase of 15.7 percent and $82.4 million for the nine months ended January 29, 2022, as compared to $77.0 million for the same nine month period in fiscal 2021. The increases were primarily personnel related expenses.

Operating loss as a percent of sales for the quarter was 4.1 percent as compared to an operating loss as a percent of sales of 0.3 percent during the third quarter of fiscal 2021 and operating income as a percentage of sales of 1.0 percent for the nine months ended January 29, 2022, as compared to 4.4 percent for the nine months ended a year prior.

The effective tax rate for the third quarter of fiscal 2022 was 32.2 percent compared to 82.0 percent for the third quarter of fiscal 2021. The effective tax rate for the nine months ended January 29, 2022, was 9.4 percent compared to an effective tax rate of 21.3 percent for the same nine month period in fiscal 2021. The difference in tax rates is primarily driven by an increase in estimated permanent tax costs proportionate to a decrease in estimated pre-tax earnings in the third quarter of fiscal 2022 compared to no change in the estimated tax rate for the third quarter of fiscal 2021. Additionally, there were return-to-provision adjustments made in each respective quarter impacting the rate.

Cash, restricted cash and marketable securities at the end of the third quarter of fiscal 2022 were $35.8 million, which compares to $81.0 million at the end of the third quarter of fiscal 2021 and $80.4 million at the end of fiscal 2021. There were no advances under the loan portion of the line of credit compared to $15.0 million outstanding at the end of the third quarter of fiscal 2021. Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a negative $34.7 million for the first nine months of fiscal 2022, as compared to a positive free cash flow of $41.8 million for the same period in fiscal 2021. The change in cash use was created by growing operating assets for the growth of order activity and because of increased investments of capital assets for capacity, loans to affiliates and the share repurchase program. Net investment in property and equipment was $9.2 million for the first nine months of fiscal 2022, as compared to $6.5 million for the first nine months of fiscal 2021.

(1) Backlog is not a measure defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. For more information related to backlog, see Part I, Item 1. Business of our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

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 and orders, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, increased regulation and other risks described in the company's SEC filings, including its Annual Report on Form 10-K for its 2021 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.

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

Daktronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

	Three Months Ended						Nine Months Ended
	January 29,			January 30,			January 29,			January 30,
	2022			2021			2022			2021
Net sales	$	139,558		$	94,139		$	448,767		$	365,150
Cost of sales		117,250			70,198			362,007			272,134
Gross profit		22,308			23,941			86,760			93,016

Operating expenses:
Selling		12,735			12,004			37,012			36,214
General and administrative		8,328			6,389			24,100			20,777
Product design and development		6,925			5,784			21,283			20,053
		27,988			24,177			82,395			77,044
Operating (loss)income		(5,680	)		(236	)		4,365			15,972

Nonoperating (expense) income:
Interest income (expense), net		56			(40	)		134			(46	)
Other (expense) income, net		(793	)		(913	)		(2,613	)		(2,377	)

(Loss) income before income taxes		(6,417	)		(1,189	)		1,886			13,549
Income tax (benefit) expense		(2,067	)		(975	)		177			2,880
Net (loss) income	$	(4,350	)	$	(214	)	$	1,709		$	10,669

Weighted average shares outstanding:
Basic		45,223			45,064			45,263			44,908
Diluted		45,223			45,064			45,442			45,061

(Loss) earnings per share:
Basic	$	(0.10	)	$	(0.00	)	$	0.04		$	0.24
Diluted	$	(0.10	)	$	(0.00	)	$	0.04		$	0.24

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

	January 29,		May 1,
	2022		2021
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	30,883	$	77,590
Restricted cash		836		2,812
Marketable securities		4,035		—
Accounts receivable, net		96,710		67,808
Inventories		111,110		74,356
Contract assets		39,874		32,799
Current maturities of long-term receivables		1,550		1,462
Prepaid expenses and other current assets		12,903		7,445
Income tax receivables		2,426		731
Total current assets		300,327		265,003

Property and equipment, net		58,262		58,682
Long-term receivables, less current maturities		7,655		1,635
Goodwill		8,099		8,414
Intangibles, net		1,579		2,083
Investment in affiliates and other assets		27,398		27,403
Deferred income taxes		11,731		11,944
Total non-current assets		114,724		110,161
TOTAL ASSETS	$	415,051	$	375,164

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

	January 29,			May 1,
	2022			2021
	(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	62,835		$	40,251
Contract liabilities		79,591			64,495
Accrued expenses		32,031			30,672
Warranty obligations		11,378			10,464
Income taxes payable		545			738
Total current liabilities		186,380			146,620

Long-term warranty obligations		15,793			15,496
Long-term contract liabilities		10,738			10,720
Other long-term obligations		7,460			7,816
Long-term income taxes payable		478			548
Deferred income taxes		363			410
Total long-term liabilities		34,832			34,990
TOTAL LIABILITIES		221,212			181,610

SHAREHOLDERS' EQUITY:
Common stock		61,794			60,575
Additional paid-in capital		47,903			46,595
Retained earnings		97,725			96,016
Treasury stock, at cost		(10,101	)		(7,297	)
Accumulated other comprehensive loss		(3,482	)		(2,335	)
TOTAL SHAREHOLDERS' EQUITY		193,839			193,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	415,051		$	375,164

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

	Nine Months Ended
	January 29,			January 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,709		$	10,669
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		11,544			12,848
Gain on sale of property, equipment and other assets		(737	)		(244	)
Share-based compensation		1,503			1,563
Equity in loss of investees		1,966			1,740
Provision for doubtful accounts		(600	)		1,551
Deferred income taxes, net		151			(21	)
Change in operating assets and liabilities		(41,000	)		20,115
Net cash (used in) provided by operating activities		(25,464	)		48,221

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(10,024	)		(6,935	)
Proceeds from sales of property, equipment and other assets		838			470
Purchases of marketable securities		(4,045	)		—
Proceeds from sales or maturities of marketable securities		—			982
Purchases of and loans to equity investees		(6,695	)		(1,328	)
Net cash used in investing activities		(19,926	)		(6,811	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations		(200	)		(431	)
Payments for common shares repurchased		(3,000	)		—
Proceed from exercise of stock options		8			—
Tax payments related to RSU issuances		(199	)		(125	)
Net cash used in financing activities		(3,391	)		(556	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		98			(505	)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(48,683	)		40,349

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		80,402			40,412
End of period	$	31,719		$	80,761

Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)

	Three Months Ended									Nine Months Ended
	January 29,		January 30,		Dollar		Percent			January 29,		January 30,		Dollar		Percent
	2022		2021		Change		Change			2022		2021		Change		Change
Net Sales:
Commercial	$	40,095	$	30,085	$	10,010		33.3	%	$	107,339	$	94,947	$	12,392		13.1	%
Live Events		39,057		23,330		15,727		67.4			150,840		112,626		38,214		33.9
High School Park and Recreation		23,721		14,644		9,077		62.0			84,362		71,165		13,197		18.5
Transportation		15,823		11,769		4,054		34.4			42,434		41,590		844		2.0
International		20,862		14,311		6,551		45.8			63,792		44,822		18,970		42.3
	$	139,558	$	94,139	$	45,419		48.2	%	$	448,767	$	365,150	$	83,617		22.9	%
Orders:
Commercial	$	47,012	$	34,806	$	12,206		35.1	%	$	143,699	$	92,929	$	50,770		54.6	%
Live Events		79,478		11,075		68,403		617.6			169,665		93,619		76,046		81.2
High School Park and Recreation		35,884		16,366		19,518		119.3			107,246		64,582		42,664		66.1
Transportation		20,810		12,991		7,819		60.2			56,854		37,713		19,141		50.8
International		31,605		11,650		19,955		171.3			82,778		55,864		26,914		48.2
	$	214,789	$	86,888	$	127,901		147.2	%	$	560,242	$	344,707	$	215,535		62.5	%

Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)

	Nine Months Ended
	January 29,			January 30,
	2022			2021
Net cash (used in) provided by operating activities	$	(25,464	)	$	48,221
Purchases of property and equipment		(10,024	)		(6,935	)
Proceeds from sales of property and equipment		838			470
Free cash flow	$	(34,650	)	$	41,756

*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 accounting principles generally accepted in the United States of America ("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.

Source: Daktronics, Inc.