Daktronics, Inc. Announces First Quarter 2023 Results

BROOKINGS, S.D., Aug. 31, 2022 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported results for fiscal 2023 first quarter which ended July 30, 2022.

Q1 FY2023 financial highlights:

• Net sales of $171.9 million, the highest quarterly conversion rate since the pandemic began
• Operating loss of $5.5 million attributable to inflation and extraordinary supply chain challenges
• Orders(1) of $170.2 million driven by increased activity in the Commercial market
• Product order backlog remains at historically high levels of $469.1 million(1)

Reece Kurtenbach, chairman, president and chief executive officer stated, "Our markets continue to be active and show growing demand. Order bookings in the first quarter were strong for shopping centers, casinos, and out-of-home advertising display systems in the Commercial business and in multiple sports venues in Live Events. While orders were down in High School Park and Recreation and Transportation as compared to last year's first quarter, quoting activity remains strong. International markets have seen some softening in demand due to the inflationary environment and geopolitical events. We were pleased we were able to increase our sales output during the first quarter, even though our capacity was constrained due to significant and unusual part shortages, a challenging labor environment, operating disruptions from COVID-19 related absences, and shutdown of our facilities in Shanghai, China due to a government mandated COVID-19 zero tolerance policy."

OutlookKurtenbach added, "We anticipate a dynamic and volatile supply chain and tight labor market to persist throughout this fiscal year. This environment constrains our capacity and efficiency even though customer demand remains strong. To adapt to this situation, we are carefully aligning orders to our capacity to best serve our customers and improve profitability. We are carefully adjusting our production schedules, inventory levels, pricing, and capital investments to increase our capacity and predictability. As we work through the near-term challenges, we continue to strategically invest in new technologies and solutions, resilient supply chains, and serving our existing customers and growing key markets. These strategies position us for long-term growth and increasing value for stakeholders, while prudently managing costs."

First QuarterOrders for the first quarter of fiscal 2023 decreased 6.3 percent as compared to the first quarter of fiscal 2022. During fiscal 2022, we recorded a record level of orders due to pent up demand during the COVID-19 pandemic and customers placing orders sooner to secure capacity. Orders for fiscal 2023 first quarter remain strong across segments with some softening in International due to inflationary pressures and geopolitical events and some losses in the market because of pricing increases or long lead times.

Net sales for the first quarter of fiscal 2023 increased by 18.8 percent as compared to the first quarter of fiscal 2022. Sales growth was driven by the increased conversion of backlog to sales even while we experienced multiple material supply chain disruptions, labor shortages, and a shutdown of our facilities in Shanghai, China for a significant portion of the quarter. Supply chain disruptions like these are creating an increase in lead times by extending the timing of converting orders to sales. This coupled with strong demand has contributed to a larger than typical backlog.

Gross profit as a percentage of net sales was 15.0 percent for the first quarter of fiscal 2023 as compared to 22.2 percent a year earlier. This comparative decline in gross profit percentage was impacted by inflationary challenges in materials, freight, and personnel related costs. In addition, extraordinary supply chain disruptions, including the Shanghai factory closure, created intermittent work stoppages and factory inefficiencies, adding additional costs to meet customer commitments.

Operating expenses for the first quarter of fiscal 2023 were $31.3 million compared to $26.5 million for the first quarter of fiscal 2022 or an increase of 18.0 percent. The increases were primarily personnel related expenses, convention and travel related expenses, and approximately $1.0 million for professional fees related to shareholder engagement.

Operating margin for the first quarter of fiscal 2023 was a negative 3.2 percent, compared to a positive 3.9 percent for the first quarter of fiscal 2022.

The effective tax rate for first quarter fiscal 2023 was 15.8 percent compared to 25.2 percent for the first quarter of fiscal 2022.

Cash, restricted cash and marketable securities at the end of fiscal 2023 first quarter were $9.0 million, which compares to $77.2 million at the end of fiscal 2022 first quarter. We also had $24.1 million drawn on the line of credit. The change in cash was created by strategic inventory stocking and growth in accounts receivable, as well as in capital assets to increase manufacturing capacity. Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a negative $33.1 million for the first quarter of fiscal 2023, as compared to a negative free cash flow of $2.2 million for the same period in fiscal 2022. Net investment in property and equipment was $10.3 million for the first quarter fiscal 2023, as compared to $1.1 million for the first quarter fiscal 2022.

About DaktronicsDaktronics 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 StatementCautionary 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 2022 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 OfficerTel (605) 692-0200[email protected]

(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 30, 2022.

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

	Three Months Ended
	July 30,2022				July 31,2021
Net sales	$	171,920			$	144,732
Cost of sales		146,126				112,544
Gross profit		25,794				32,188
Operating expenses:
Selling		14,433				11,795
General and administrative		9,441				7,571
Product design and development		7,439				7,162
		31,313				26,528
Operating (loss)income		(5,519	)			5,660
Nonoperating (expense) income:
Interest (expense) income, net		(60	)			137
Other expense, net		(747	)			(868	)
(Loss) income before income taxes		(6,326	)			4,929
Income tax (benefit) expense		(1,000	)			1,244
Net (loss) income	$	(5,326	)		$	3,685
Weighted average shares outstanding:
Basic		45,097				45,139
Diluted		45,097				45,419
(Loss) earnings per share:
Basic	$	(0.12	)		$	0.08
Diluted	$	(0.12	)		$	0.08

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

	July 30,2022			April 30,2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,279		$	17,143
Restricted cash		750			865
Marketable securities		3,023			4,020
Accounts receivable, net		113,189			101,099
Inventories		157,170			134,392
Contract assets		45,204			41,687
Current maturities of long-term receivables		1,617			2,798
Prepaid expenses and other current assets		11,550			14,963
Income tax receivables		2,322			603
Total current assets		343,104			317,570
Property and equipment, net		72,395			66,765
Long-term receivables, less current maturities		1,117			1,490
Goodwill		7,857			7,927
Intangibles, net		1,387			1,472
Investment in affiliates and other assets		34,145			32,321
Deferred income taxes		13,303			13,331
TOTAL ASSETS	$	473,308		$	440,876

Daktronics, Inc. and SubsidiariesConsolidated Balance Sheets (continued)(in thousands)(unaudited)

	July 30,2022				April 30,2022
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	82,470			$	76,313
Contract liabilities		96,404				90,393
Accrued expenses		33,978				34,959
Warranty obligations		11,510				11,621
Income taxes payable		264				408
Total current liabilities		224,626				213,694
Long-term warranty obligations		17,900				17,257
Long-term contract liabilities		11,764				10,998
Other long-term obligations		7,901				7,076
Line of Credit		24,128				—
Deferred income taxes		287				287
Total long-term liabilities		61,980				35,618
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; 46,942,070 and 46,733,544 shares issued at July 30, 2022 and April 30, 2022, respectively		62,388				61,794
Additional paid-in capital		48,883				48,372
Retained earnings		91,282				96,608
Treasury Stock, at cost, 1,907,445 shares at July 30, 2022 and April 30, 2022, respectively		(10,285	)			(10,285	)
Accumulated other comprehensive loss		(5,566	)			(4,925	)
TOTAL SHAREHOLDERS' EQUITY		186,702				191,564
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	473,308			$	440,876

Daktronics, Inc. and SubsidiariesConsolidated Statements of Cash Flows(in thousands)(unaudited)

	Three Months Ended
	July 30,2022				July 31,2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(5,326	)		$	3,685
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		4,025				4,052
Gain on sale of property, equipment and other assets		(361	)			(106	)
Share-based compensation		511				518
Equity in loss of affiliates		890				746
Provision for doubtful accounts, net of recovery		177				(421	)
Deferred income taxes, net		12				(32	)
Change in operating assets and liabilities		(22,743	)			(9,461	)
Net cash (used in) operating activities		(22,815	)			(1,019	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(10,655	)			(1,283	)
Proceeds from sales of property, equipment and other assets		365				149
Proceeds from sales or maturities of marketable securities		999				—
Purchases of equity and loans to equity investees		(1,081	)			(718	)
Net cash (used in) investing activities		(10,372	)			(1,852	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable		92,098				—
Payments on notes payable		(67,970	)			—
Principal payments on long-term obligations		—				(200	)
Net cash provided by (used in) financing activities		24,128				(200	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		80				(132	)
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(8,979	)			(3,203	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		18,008				80,402
End of period	$	9,029			$	77,199

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

	Three Months Ended
(in thousands)	July 30, 2022			July 31, 2021			DollarChange				PercentChange
Net Sales:
Commercial	$	40,118		$	32,781		$	7,337			22.4	%
Live Events		56,383			52,387			3,996			7.6
High School Park and Recreation		35,809			27,894			7,915			28.4
Transportation		19,540			12,558			6,982			55.6
International		20,070			19,112			958			5.0
	$	171,920		$	144,732		$	27,188			18.8	%
Orders:
Commercial	$	47,678		$	38,329		$	9,349			24.4	%
Live Events		51,753			49,686			2,067			4.2
High School Park and Recreation		37,579			45,711			(8,132	)		(17.8	)
Transportation		15,704			21,345			(5,641	)		(26.4	)
International		17,509			26,675			(9,166	)		(34.4	)
	$	170,223		$	181,746		$	(11,523	)		(6.3	)%

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

	Three Months Ended
	July 30,2022				July 31,2021
Net cash (used in) operating activities	$	(22,815	)		$	(1,019	)
Purchases of property and equipment		(10,655	)			(1,283	)
Proceeds from sales of property and equipment		365				149
Free cash flow	$	(33,105	)		$	(2,153	)

*

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.

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