Daktronics Inc.

12/01/2021 | Press release | Distributed by Public on 12/01/2021 06:36

Daktronics, Inc. Announces Second Quarter Fiscal 2022 Results

BROOKINGS, S.D., Dec. 01, 2021 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported results for fiscal 2022 second quarter which ended October 30, 2021.

Q2 FY2022 financial highlights:

  • Net sales increased to $164.5 million as compared to Q2 FY2021 net sales of $127.4 million as a result of strong demand and eased pandemic related site restrictions.
  • Operating income decreased to $4.4 million as compared to Q2 FY2021 operating income of $6.7 million due to inflation in materials and freight costs and increased personnel spend compared to prior year.
  • Net income of $2.4 million, and earnings per diluted share of $0.05 compared to net income of $3.4 million, and $0.08 earnings per diluted share, for Q2 FY2021.
  • Second quarter orders of $163.7 million, grew 20.7% year-over-year, driven by increased market activity as the pandemic restrictions eased and economic conditions improved, including record bookings in Commercial and High School Park and Recreation business units.
  • Product order backlog of $282 million compared to $201 million a year earlier.(1) The increase was driven by strong order volume offset by muted conversion to sales due to supply chain challenges.
  • Balance sheet remains strong. There were no advances under the loan portion of the line of credit compared to $15 million borrowed at the end of Q2 FY2021.

Reece Kurtenbach, chairman, president and chief executive officer stated, "Market demand continued to return to pre-pandemic levels and our order bookings grew through the first half of the year. Our operating expenses have increased as we adjust our capacity to support increased demand levels and convert our record high backlog to sales. At the same time, material, labor, and freight availability constraints are creating headwinds in lead times and are causing inflationary cost pressures."

Outlook
Kurtenbach added, "We expect dynamic supply chain conditions to persist through next calendar year. As we continue to work through supply chain challenges, inflationary pressures, and evolving pandemic impacts, we expect volatility in our pricing, order and revenue cycles, and production costs in the near term. Over the long-term, we believe the fundamentals of the audiovisual industry are strong and are poised for continued growth. To position us to benefit from both near term growth and long-term trends, we are actively investing in capacity, in new technologies, and in different markets to make Daktronics and our solutions the preferred choice for new and existing customers."

Second Quarter and Year to Date Results
Orders for the second quarter of fiscal 2022 increased 20.7 percent as compared to the second quarter of fiscal 2021. Each business unit's order volume grew through the first half of fiscal 2022 reflecting the recovery from the impact of the global pandemic among our customers. Commercial business unit orders increase is due to strong demand from customers using systems for on-premise promotion and out-of-home advertising. High School Park and Recreation continued growth for the year and quarter is driven by the adoption of video displays for sporting and educational use. Transportation order levels increased as project planning and approval activities resumed and moved forward for displays used in intelligent transportation systems and mass transit venues. The International business unit orders for the quarter were less than last year, same quarter, but improved through the first half of the year. The pandemic recovery in regions around the world has varied. While some countries have eased travel restrictions and we have seen business in those locations increase, other countries still continue to deal with the ongoing challenges of the pandemic. Live Events business unit orders were similar to last year second quarter and increased on a year to date basis.

Net sales increased by 29.1 percent in the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021. Net sales for the six months ended Oct. 30, 2021 increased by 14.1 percent as compared to the same period one year ago. 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 created a larger than typical backlog, which we expect to fulfill in future quarters.

Gross profit as a percentage of net sales was 19.6 percent for the second quarter of fiscal 2022 as compared to 26.2 percent a year earlier and 20.8 percent for the six months ended Oct. 30, 2021 as compared to 25.5 percent for the six months ended a year earlier. The decrease in gross profit is primarily related to increased input costs including material, freight, and tariff costs and increased personnel spend compared to prior year during the pandemic. In addition, during the second quarter of fiscal 2022 we had more large project sales which generally have lower gross profit because of the competitive nature of large projects.

Operating expenses for the second quarter of fiscal 2022 were $27.9 million, compared to $26.7 million for the second quarter of fiscal 2021 or an increase of 4.5 percent and $54.4 million for the six months ended Oct. 30, 2021 as compared to $52.9 million for the six months ended a year prior. The increases were primarily associated with increases in personnel related expenses.

Operating income as a percent of sales for the quarter was 2.7 percent as compared to an operating income as a percent of sales of 5.2 percent during the second quarter of fiscal 2021 and 3.2 percent for six months ended Oct. 30, 2021 as compared to 6.0 percent for the six months ended a year prior.

The effective tax rate expense for the second quarter of fiscal 2022 was 29.6 percent compared to an effective tax rate expense of 41.1 percent for the second quarter of fiscal 2021. The effective tax rate expense for the six months ended Oct. 30, 2021 was 27.0 percent compared to an effective tax rate expense of 26.2 percent for the six months ended a year prior. The difference in tax rates is primarily driven by a decrease in estimated tax credits proportionate to an increase in estimated pre-tax earnings in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2022.

Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2022 were $61.6 million, which compares to $74.4 million at the end of the second 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 million borrowed at the end of the second 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 $12.3 million for the first six months of fiscal 2022, as compared to a positive free cash flow of $34.5 million for the same period in fiscal 2021. Cash provided from or used in operating activities differed as compared to last year due to an increase in accounts receivable and inventory required to support the increased order volume. Net investment in property and equipment was $3.7 million for fiscal 2022, as compared to $5.4 million for 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 [email protected], 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
[email protected]

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

Three Months Ended Six Months Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Net sales $ 164,477 $ 127,367 $ 309,209 $ 271,011
Cost of sales 132,213 94,053 244,757 201,936
Gross profit 32,264 33,314 64,452 69,075
Operating expenses:
Selling 12,482 12,654 24,277 24,210
General and administrative 8,201 7,264 15,772 14,388
Product design and development 7,196 6,737 14,358 14,269
27,879 26,655 54,407 52,867
Operating income 4,385 6,659 10,045 16,208
Nonoperating (expense) income:
Interest (expense) income, net (59 ) (18 ) 78 (6 )
Other (expense) income, net (952 ) (837 ) (1,820 ) (1,464 )
Income before income taxes 3,374 5,804 8,303 14,738
Income tax expense 1,000 2,388 2,244 3,855
Net income $ 2,374 $ 3,416 $ 6,059 $ 10,883
Weighted average shares outstanding:
Basic 45,350 44,893 45,271 44,808
Diluted 45,499 44,977 45,490 44,947
Earnings per share:
Basic $ 0.05 $ 0.08 $ 0.13 $ 0.24
Diluted $ 0.05 $ 0.08 $ 0.13 $ 0.24

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

October 30, May 1,
2021 2021
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,727 $ 77,590
Restricted cash 1,877 2,812
Accounts receivable, net 95,156 67,808
Inventories 94,790 74,356
Contract assets 40,231 32,799
Current maturities of long-term receivables 2,167 1,462
Prepaid expenses and other current assets 10,897 7,445
Income tax receivables 322 731
Total current assets 305,167 265,003
Property and equipment, net 56,084 58,682
Long-term receivables, less current maturities 6,357 1,635
Goodwill 8,293 8,414
Intangibles, net 1,706 2,083
Investment in affiliates and other assets 28,259 27,403
Deferred income taxes 11,940 11,944
Total non-current assets 112,639 110,161
TOTAL ASSETS $ 417,806 $ 375,164

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

October 30, May 1,
2021 2021
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 65,963 $ 40,251
Contract liabilities 70,158 64,495
Accrued expenses 32,683 30,672
Warranty obligations 10,285 10,464
Income taxes payable 850 738
Total current liabilities 179,939 146,620
Long-term warranty obligations 15,493 15,496
Long-term contract liabilities 10,707 10,720
Other long-term obligations 9,809 7,816
Long-term income taxes payable 682 548
Deferred income taxes 373 410
Total long-term liabilities 37,064 34,990
TOTAL LIABILITIES 217,003 181,610
SHAREHOLDERS' EQUITY:
Common stock 61,175 60,575
Additional paid-in capital 47,412 46,595
Retained earnings 102,075 96,016
Treasury stock, at cost (7,101 ) (7,297 )
Accumulated other comprehensive loss (2,758 ) (2,335 )
TOTAL SHAREHOLDERS' EQUITY 200,803 193,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 417,806 $ 375,164

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

Six Months Ended
October 30, October 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,059 $ 10,883
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 7,789 8,564
Gain on sale of property, equipment and other assets (676 ) (162 )
Share-based compensation 1,012 1,047
Equity in loss of investees 1,565 1,145
Provision for doubtful accounts (588 ) 153
Deferred income taxes, net (41 ) 2
Change in operating assets and liabilities (23,654 ) 18,343
Net cash (used in) provided by operating activities (8,534 ) 39,975
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,507 ) (5,776 )
Proceeds from sales of property, equipment and other assets 760 341
Proceeds from sales or maturities of marketable securities - 247
Purchases of and loans to equity investees (6,129 ) (903 )
Net cash used in investing activities (9,876 ) (6,091 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations (200 ) (220 )
Proceed from exercise of stock options 3 -
Tax payments related to RSU issuances (199 ) (125 )
Net cash used in financing activities (396 ) (345 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 8 (498 )
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (18,798 ) 33,041
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 80,402 40,412
End of period $ 61,604 $ 73,453

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

Three Months Ended Six Months Ended
October 30, October 31, Dollar Percent October 30, October 31, Dollar Percent
2021 2020 Change Change 2021 2020 Change Change
Net Sales:
Commercial $ 34,463 $ 30,356 $ 4,107 13.5 % $ 67,244 $ 64,862 $ 2,382 3.7 %
Live Events 59,396 37,822 21,574 57.0 111,783 89,296 22,487 25.2
High School Park and Recreation 32,747 27,578 5,169 18.7 60,641 56,521 4,120 7.3
Transportation 14,053 15,323 (1,270 ) (8.3 ) 26,611 29,821 (3,210 ) (10.8 )
International 23,818 16,288 7,530 46.2 42,930 30,511 12,419 40.7
$ 164,477 $ 127,367 $ 37,110 29.1 % $ 309,209 $ 271,011 $ 38,198 14.1 %
Orders:
Commercial $ 58,358 $ 32,590 $ 25,768 79.1 % $ 96,687 $ 58,123 $ 38,564 66.3 %
Live Events 40,501 40,684 (183 ) (0.4 ) 90,187 82,544 7,643 9.3
High School Park and Recreation 25,651 20,117 5,534 27.5 71,362 48,216 23,146 48.0
Transportation 14,699 11,633 3,066 26.4 36,044 24,722 11,322 45.8
International 24,498 30,642 (6,144 ) (20.1 ) 51,173 44,214 6,959 15.7
$ 163,707 $ 135,666 $ 28,041 20.7 % $ 345,453 $ 257,819 $ 87,634 34.0 %

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

Six Months Ended
October 30, October 31,
2021 2020
Net cash (used in) provided by operating activities $ (8,534 ) $ 39,975
Purchases of property and equipment (4,507 ) (5,776 )
Proceeds from sales of property and equipment 760 341
Free cash flow $ (12,281 ) $ 34,540

*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.