Daktronics, Inc. Announces 2024 Fiscal Second Quarter Results

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Dec 5, 2023

Andrew Siegel Appointed New Lead Independent Director

BROOKINGS, S.D., Dec. 05, 2023 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported results for its fiscal 2024 second quarter which ended October 28, 2023.

Q2 FY2024 financial highlights:

Sales of $199.4 million, a 6.4 percent increase from the second quarter of fiscal 2023
Gross profit as a percentage of net sales of 27.2 percent as compared to 16.9 percent in the second quarter of fiscal 2023
Operating income of $19.4 million as compared to $1.5 million in the second quarter of fiscal 2023
Product order backlog was $306.9 million⁽¹⁾at October 28, 2023 compared to $400.7 million at the end of the fourth quarter of fiscal 2023 and $463.1 million in the year-earlier period.

"Our second quarter performance reflect strong gross profit margin expansion and cash flow generation, contributing to a record first half year of financial results. I attribute our success to our teams strong execution across all business areas and pricing strategies that we undertook over the past several quarters. In addition, our backlog reduction reflects our efforts to reduce lead times and the more stable operating environment, allowing more consistent output," stated Reece Kurtenbach, Daktronics' Chairman, President and Chief Executive Officer."

Andrew Siegel Appointed New Lead Independent Director
Daktronics, Inc. also announced the appointment of Andrew Siegel as Lead Independent Director, succeeding Kevin McDermott who has served as Lead Director since June 2020.

“Kevin provided outstanding leadership to the Board as our Lead Independent Director during a challenging time, including the pandemic business climate, post-pandemic supply-chain crisis, and our recent successful financing," Kurtenbach said. "We thank Kevin for his significant leadership and commitment to Daktronics. We appreciate that his contributions will continue as Chair of the Audit Committee.”

Andrew Siegel joined the Board in July 2022 part of the Company’s ongoing Board refreshment process. He currently manages Prairieland Holdco LLC, which entered into a Cooperation Agreement with the Company at that time, and co-manages, with Lawrence B. Benenson, TLI Bedrock, LLC, a private multi-strategy investment firm.

Mr. Siegel commented, “As an investment firm we were drawn to Daktronics because of its values and culture, its leadership position in its industry, and the exciting prospects as technology continues to enable new applications and markets for the Company’s products, systems and services. As a member of the Board, I am thrilled to have supported the Company’s achievements over the past several quarters, and look forward to working diligently with my fellow directors toward Daktronics strategic vision of profitable growth.”

Second Quarter Income Statement Highlights
Orders for the second quarter of fiscal 2024 were similar to the second quarter of fiscal 2023 though the order volume from our business units differed from that of the year earlier period. Higher orders from customers in the International and Transportation business units offset decreases in the Spectacular and Out-of-Home markets in our Commercial business unit.

Net sales for the second quarter of fiscal 2024 increased by 6.4 percent as compared to the second quarter of fiscal 2023. Sales growth was driven by fulfilling orders in backlog, especially in the High School Park and Recreation, Commercial, and Transportation business units. The increase is attributable to a stable operating environment, increased manufacturing capacity and realization of price increases.

Gross profit as a percentage of net sales increased to 27.2 percent for the second quarter of fiscal 2024 as compared to 16.9 percent a year earlier. The gross profit improvement is due to strategic pricing, our ability to efficiently generate more sales volume over our cost structure and due to the more stable operating environment.

Operating expenses increased 15.2 percent to $34.8 million in the second quarter of fiscal 2024 as compared to $30.2 million for the second quarter of fiscal 2023. This increase primarily attributable to increases in employee compensation and benefits.

Operating income percent for the second quarter of fiscal 2024 was 9.7 percent, compared to 0.8 percent for the second quarter of fiscal 2023 due to the combined factors discussed above.

The increase in interest (expense) income, net for the second quarter of fiscal 2024 compared to the same period one year ago was primarily due to the closing in May 2023 on the financing transactions at higher values and interest rates than were in effect under our previous line of credit during the 2023 second quarter.

For the three months ended October 28, 2023, we recorded a $10.7 million expense for the non-cash change in fair value of the convertible note payable which is accounted for under the fair value option.

The effective tax rate of 64.8 percent resulted in $4.0 million of income tax expense for the second quarter of fiscal 2024. Income before tax includes the impacts of the change in the convertible note fair value; however, these changes are not deductible resulting in the high effective tax rate. The $14.0 million tax expense for the second quarter of fiscal 2023 was primarily a result of a $13.0 million valuation allowance recorded against our net deferred tax assets. Absent any major tax changes, we expect our full year effective tax rate to be in the mid-twenties before the impacts of fair value accounting for the convertible note.

Balance Sheet and Cash Flow
At the end of the fiscal 2024 second quarter, our working capital ratio was 2.0 to 1. Inventory levels dropped slightly since the end of the fiscal year ended April 29, 2023. Our focus remains on managing working capital through expected growth of the company. Cash, restricted cash and marketable securities totaled $73.5 million, and $56.6 million of long-term debt was outstanding. The long-term debt includes the face value of the debt of $39.6 million, $17.9 million adjustment to fair value, and $0.9 million of debt issuance costs, net. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees and letters of credit outstanding under a previous credit agreement. There were no draw-downs on our line of credit during the first six months of fiscal 2024. In the first six months of fiscal 2024, we generated $44.3 million from operations and used $9.2 million for purchases of property and equipment.

Fiscal Year 2024 and Beyond Priorities and Strategies
Kurtenbach added, “As we look ahead, we expect growth in the global use of sophisticated audio-visual communication systems in both traditional and in new applications. Our attention remains focused on our multi-year journey to capture the market's expected growth and broaden our leading market position by offering best in class technology, capabilities and services to both our traditional customer base as well as new and adjacent markets."

Looking forward, our focus is to:

Grow our business profitably while generating cash through working capital management, strategic pricing adjustments, product mix enhancements and careful expense management
Improve operational efficiency to lower costs, reduce lead times and improve the customer experience
Develop additional markets for new customers and channels while continuing to grow in the markets where the company been a leader to date
Implement robust integrated business planning systems to generate data-based insights for improved decision making
Investing in high-return projects and technologies, including digital technologies for both internal and customer facing uses
Monitor and then adjust as necessary to the ever-evolving geopolitical and global economic environment to maintain profitability and cash generation

Webcast Information
The company will host a conference call and webcast to discuss its financial results today at 10:00 am (Central Time). This call will be broadcast live at http://investor.daktronics.com and be 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 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 2023 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.

⁽¹⁾Orders and backlog are not measures defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and 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 April 29, 2023. this release does not include a reconciliation of orders or backlog, as it would be impractical to do so without unreasonable effort.

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


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

	Three Months Ended						Six Months Ended
	October 28, 2023			October 29, 2022			October 28, 2023			October 29, 2022
Net sales	$	199,369		$	187,439		$	431,900		$	359,359
Cost of sales		145,170			155,735			306,554			301,861
Gross profit		54,199			31,704			125,346			57,498

Operating expenses:
Selling		14,653			14,525			27,582			28,958
General and administrative		10,889			8,687			20,488			18,128
Product design and development		9,221			6,966			17,624			14,405
		34,763			30,178			65,694			61,491
Operating income (loss)		19,436			1,526			59,652			(3,993	)

Nonoperating (expense) income:
Interest (expense) income, net		(1,326	)		(263	)		(2,207	)		(323	)
Change in fair value of convertible note		(10,650	)		—			(17,910	)		—
Other expense and debt issuance costs write-off, net		(1,303	)		(208	)		(5,282	)		(955	)

Income (loss) before income taxes		6,157			1,055			34,253			(5,271	)
Income tax expense		3,992			14,039			12,892			13,039
Net income (loss)	$	2,165		$	(12,984	)	$	21,361		$	(18,310	)

Weighted average shares outstanding:
Basic		46,030			45,317			45,838			45,258
Diluted		46,705			45,317			46,454			45,258

Earnings (loss) per share:
Basic	$	0.05		$	(0.29	)	$	0.47		$	(0.40	)
Diluted	$	0.05		$	(0.29	)	$	0.46		$	(0.40	)

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

	October 28, 2023		April 29, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	64,740	$	23,982
Restricted cash		8,246		708
Marketable securities		546		534
Accounts receivable, net		115,052		109,979
Inventories		141,646		149,448
Contract assets		45,210		46,789
Current maturities of long-term receivables		766		1,215
Prepaid expenses and other current assets		10,137		9,676
Income tax receivables		—		326
Total current assets		386,343		342,657

Property and equipment, net		72,619		72,147
Long-term receivables, less current maturities		151		264
Goodwill		3,198		3,239
Intangibles, net		970		1,136
Debt issuance costs, net		3,150		3,866
Investment in affiliates and other assets		27,705		27,928
Deferred income taxes		16,812		16,867
TOTAL ASSETS	$	510,948	$	468,104

Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (continued) (in thousands) (unaudited)
	October 28, 2023			April 29, 2023
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	1,500		$	—
Accounts payable		53,645			67,522
Contract liabilities		78,293			91,549
Accrued expenses		39,773			36,005
Warranty obligations		13,378			12,228
Income taxes payable		3,347			2,859
Total current liabilities		189,936			210,163

Long-term warranty obligations		21,435			20,313
Long-term contract liabilities		15,390			13,096
Other long-term obligations		5,686			5,709
Long-term debt, net		55,087			17,750
Deferred income taxes		193			195
Total long-term liabilities		97,791			57,063

SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, authorized 50,000 shares; no shares issued and outstanding		—			—
Common Stock, no par value, authorized 115,000,000 shares; 46,022,885 and 45,488,595 shares issued at October 28, 2023 and April 29, 2023, respectively		64,643			63,023
Additional paid-in capital		51,047			50,259
Retained earnings		124,771			103,410
Treasury Stock, at cost, 1,907,445 shares at October 28, 2023 and April 29, 2023, respectively		(10,285	)		(10,285	)
Accumulated other comprehensive loss		(6,955	)		(5,529	)
TOTAL SHAREHOLDERS' EQUITY		223,221			200,878
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	510,948		$	468,104

Daktronics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Six Months Ended
	October 28, 2023			October 29, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21,361		$	(18,310	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		9,494			8,225
Loss (gain) on sale of property, equipment and other assets		101			(412	)
Share-based compensation		1,091			985
Equity in loss of affiliates		1,461			1,701
Provision for doubtful accounts, net		240			573
Deferred income taxes, net		20			13,037
Non-cash impairment charges		654			—
Change in fair value of convertible note		17,910			—
Debt issuance costs write-off		3,353			—
Change in operating assets and liabilities		(11,374	)		(27,737	)
Net cash provided by (used in) operating activities		44,311			(21,938	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(9,226	)		(16,237	)
Proceeds from sales of property, equipment and other assets		52			432
Proceeds from sales or maturities of marketable securities		—			3,495
Purchases of equity and loans to equity investees		(2,899	)		(2,882	)
Net cash used in investing activities		(12,073	)		(15,192	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable		40,000			190,608
Payments on notes payable		(18,125	)		(164,190	)
Principal payments on long-term obligations		(204	)		—
Debt issuance costs		(6,454	)		—
Proceeds from exercise of stock options		1,005			—
Tax payments related to RSU issuances		(303	)		(140	)
Net cash provided by financing activities		15,919			26,278

EFFECT OF EXCHANGE RATE CHANGES ON CASH		139			(13	)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		48,296			(10,865	)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		24,690			18,008
End of period	$	72,986		$	7,143

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

	Three Months Ended										Six Months Ended
*(in thousands)*	October 28, 2023		October 29, 2022		Dollar Change			Percent Change			October 28, 2023		October 29, 2022		Dollar Change			Percent Change
Net Sales:
Commercial	$	42,453	$	37,047	$	5,406		14.6		%	$	89,336	$	77,165	$	12,171		15.8		%
Live Events		68,210		69,239		(1,029	)	(1.5	)			160,209		125,622		34,587		27.5
High School Park and Recreation		48,942		42,006		6,936		16.5				105,176		77,815		27,361		35.2
Transportation		20,243		16,679		3,564		21.4				41,612		36,219		5,393		14.9
International		19,521		22,468		(2,947	)	(13.1	)			35,567		42,538		(6,971	)	(16.4	)
	$	199,369	$	187,439	$	11,930		6.4		%	$	431,900	$	359,359	$	72,541		20.2		%
Orders:⁽¹⁾
Commercial	$	34,209	$	42,711	$	(8,502	)	(19.9	)	%	$	66,643	$	90,389	$	(23,746	)	(26.3	)	%
Live Events		79,016		80,999		(1,983	)	(2.4	)			131,219		132,752		(1,533	)	(1.2	)
High School Park and Recreation		32,800		31,898		902		2.8				68,539		69,477		(938	)	(1.4	)
Transportation		21,500		16,583		4,917		29.7				40,485		32,287		8,198		25.4
International		16,168		10,616		5,552		52.3				35,437		28,125		7,312		26.0
	$	183,693	$	182,807	$	886		0.5		%	$	342,323	$	353,030	$	(10,707	)	(3.0)		%

Reconciliation of Free Cash Flow^* (in thousands) (unaudited)
	Six Months Ended
	October 28, 2023			October 29, 2022
Net cash provided by (used in) operating activities	$	44,311		$	(21,938	)
Purchases of property and equipment		(9,226	)		(16,237	)
Proceeds from sales of property and equipment		52			432
Free cash flow	$	35,137		$	(37,743	)

* 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.

Reconciliation of Adjusted Net Income (loss)* (in thousands) (unaudited)

	Three Months Ended					Six Months Ended
	October 28, 2023		October 29, 2022			October 28, 2023		October 29, 2022
Net income (loss)	$	2,165	$	(12,984	)	$	21,361	$	(18,310	)
Change in fair value of convertible note		10,650		—			17,910		—

Debt issuance costs expensed due to fair value of convertible note, net of taxes		—		—			2,092		—
Adjusted net income (loss)	$	12,815	$	(12,984	)	$	41,363	$	(18,310	)

* Adjusted net income. We disclose adjusted net income as a non-GAAP financial measurement in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting this non-GAAP financial measurements provides investors with a consistent way to analyze our performance.

Reconciliation of Long-term Debt (in thousands) (unaudited)

Long-term debt consists of the following:

	October 28, 2023			April 29, 2023
Prior line of credit	$	—		$	17,750
Mortgage		14,625			—
Convertible note		25,000			—
Long-term debt, gross		39,625			17,750
Debt issuance costs, net		(948	)		—
Change in fair value of convertible note		17,910			—
Current portion		(1,500	)		—
Long-term debt, net	$	55,087		$	17,750

Source: Daktronics, Inc.