Daktronics, Inc. Announces Second Quarter Fiscal 2021 Results
BROOKINGS, S.D., Dec. 02, 2020 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2021 second quarter results. Daktronics reported fiscal 2021 second quarter net sales of $127.4 million, operating income of $6.7 million, net income of $3.4 million, and earnings per diluted share of $0.08. This compares to net sales of $174.9 million, operating income of $4.8 million, net income of $7.3 million, and $0.16 per diluted share, for the second quarter of fiscal 2020. Fiscal 2021 second quarter orders were $135.7 million, compared to $151.1 million for the second quarter of fiscal 2020. Product order backlog at the end of the fiscal 2021 second quarter was $201 million, compared to $182 million a year earlier and $192 million at the end of the first quarter of fiscal 2021.(1)
For the six months ended October 31, 2020, net sales were $271.0 million, operating income was $16.2 million, net income was $10.9 million, and earnings per diluted share was $0.24 per diluted share. This compares to net sales of $355.2 million, operating income of $12.4 million, net income of $14.3 million, and $0.32 per diluted share for the same period in fiscal 2020.
Fiscal 2021 is a 52-week year and fiscal 2020 was a 53-week year; therefore, the six months ended October 31, 2020 contains operating results for 26 weeks while the six months ended November 2, 2019 contained operating results for 27 weeks. Sales, orders, and other results of operations were impacted due to the additional week of operations.
Cash generated by operating activities in the first six months of fiscal 2021 was $40.0 million, compared to cash consumed of $10.3 million in the first six months of fiscal 2020. Cash generated by operating activities is primarily derived from cash received from customers, offset by cash payments for inventories, subcontractors, employee related costs, and operating expense outflows. Year-to-date cash provided from operations differed as compared to last year primarily due to focus on customer collections, decreasing inventory levels, lowering personnel and operating expense outflows as we manage operations through the uncertain COVID times. Cash generation and use can vary based on order timing and levels, varying contractual payment terms from customers, and payments for inventory to meet delivery and installation schedules. Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a positive $34.5 million for the first six months of fiscal 2021, as compared to a negative $19.9 million for the same period of fiscal 2020. Net investment in property and equipment was $5.4 million for the first six months of fiscal 2021, as compared to $9.6 million for the first six months of fiscal 2020. Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2021 were $74.4 million, which compares to $32.9 million at the end of the second quarter of fiscal 2020 and $41.6 million at the end of fiscal 2020. Borrowings on the line of credit were $15.0 million at the end of the second quarter of fiscal 2021 up from $0 at the end of the second quarter of fiscal 2020 and consistent with the $15.0 million at the end of fiscal 2020.
Orders for the second quarter of fiscal 2021 decreased 10.2 percent as compared to the second quarter of fiscal 2020 and decreased 23.9 percent as compared to the first six months of fiscal 2020. Each business unit's order volume was lower in fiscal 2021 due to lower market activity from the resulting economic and business impacts of the COVID-19 pandemic and related timing of large contract orders which cause lumpiness.
Net sales decreased by 27.2 percent in the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020 and 23.7 percent as compared to the first six months of fiscal 2020. Net sales decreased in all business units for the same reasons causing order booking declines and due to varied timing in the related conversion to sales based on customer project schedules.
Gross profit as a percentage of net sales was 26.2 percent for the second quarter of fiscal 2021 as compared to 22.9 percent a year earlier. The improved gross profit rate is a result of the mix of service agreement sales in second quarter fiscal 2021 as compared to the second quarter of fiscal 2020, we believe this higher gross profit level will not be sustained in future quarters. In addition, during the second quarter of fiscal 2020, we experienced higher project delivery costs and tariff related expenses, decreasing the gross profit rate in that period.
Operating expenses for the second quarter of fiscal 2021 were $26.7 million, compared to $35.3 million for the second quarter of fiscal 2020, or a decrease of 24.4 percent. This decline is attributed to our focus on managing our expenses to expected order volumes. Declines in overall operating expenses were attributed to lower personnel related costs offset by severance costs for reductions in force, reduced third-party contractor use, lower travel and entertainment activities, and lowered marketing and convention events. Operating income as a percent of sales for the quarter was 5.2 percent as compared to 2.8 percent during the second quarter of fiscal 2020.
The effective tax rate expense for the second quarter of fiscal 2021 was 41.1 percent compared to an effective tax rate benefit of 63.8 percent for the second quarter of fiscal 2020. Our fiscal 2021 year-to-date effective rate expense was 26.2 percent compared to fiscal 2020 year-to-date effective benefit of 14.6 percent. The change in the effective tax rate year-over-year was driven primarily by a decrease in tax credits and other permanent differences as a percentage of estimated current fiscal year pre-tax income.
Reece Kurtenbach, chairman, president and chief executive officer stated, "For the first half of the year, we have managed operating expenses and working capital to align with expected declines in orders and sales as our customers adjust to the economic and business implications of COVID-19. Even with these impacts, we had customers place multimillion-dollar orders for sporting event venues, out of home digital advertising billboards, and transportation applications this quarter. We have carefully reduced and continue to strategically make choices on levels of investments in capital assets and development initiatives. We also continued the suspension of dividend and share repurchases to help us maintain stability in liquidity and our cash position."
OutlookKurtenbach added, "We believe the audiovisual industry fundamentals will drive long-term growth for our business, but the near-term outlook shows contraction and greater volatility overall. We are focused on promoting our value to new and existing markets, while managing our cost structure to meet the uncertain demand. Even though we face a challenging fiscal 2021, we are working to emerge as a stronger organization and to be positioned to capitalize on the recovery from this pandemic."
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 2020 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) Backlog is not a measure defined by U.S. generally accepted accounting principles ("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 2, 2020.
| For more information contact: |
| INVESTOR RELATIONS: |
| Sheila M. Anderson, Chief Financial Officer |
| Tel (605) 692-0200 |
| [email protected] |
| Daktronics, Inc. and SubsidiariesConsolidated Statements of Operations(in thousands, except per share amounts)(unaudited) | |||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||
| October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | ||||||||||||
| Net sales | $ | 127,367 | $ | 174,911 | $ | 271,011 | $ | 355,167 | |||||||
| Cost of sales | 94,053 | 134,824 | 201,936 | 269,575 | |||||||||||
| Gross profit | 33,314 | 40,087 | 69,075 | 85,592 | |||||||||||
| Operating expenses: | |||||||||||||||
| Selling | 12,654 | 16,177 | 24,210 | 34,474 | |||||||||||
| General and administrative | 7,264 | 8,965 | 14,388 | 18,058 | |||||||||||
| Product design and development | 6,737 | 10,121 | 14,269 | 20,621 | |||||||||||
| 26,655 | 35,263 | 52,867 | 73,153 | ||||||||||||
| Operating income | 6,659 | 4,824 | 16,208 | 12,439 | |||||||||||
| Nonoperating (expense) income: | |||||||||||||||
| Interest income | 66 | 162 | 151 | 431 | |||||||||||
| Interest expense | (84 | ) | (31 | ) | (157 | ) | (66 | ) | |||||||
| Other (expense) income, net | (837 | ) | (514 | ) | (1,464 | ) | (321 | ) | |||||||
| Income before income taxes | 5,804 | 4,441 | 14,738 | 12,483 | |||||||||||
| Income tax expense (benefit) | 2,388 | (2,833 | ) | 3,855 | (1,821 | ) | |||||||||
| Net income | $ | 3,416 | $ | 7,274 | $ | 10,883 | $ | 14,304 | |||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 44,893 | 45,115 | 44,808 | 45,114 | |||||||||||
| Diluted | 44,977 | 45,267 | 44,947 | 45,361 | |||||||||||
| Earnings per share: | |||||||||||||||
| Basic | $ | 0.08 | $ | 0.16 | $ | 0.24 | $ | 0.32 | |||||||
| Diluted | $ | 0.08 | $ | 0.16 | $ | 0.24 | $ | 0.32 | |||||||
| Cash dividends declared per share | $ | — | $ | 0.05 | $ | — | $ | 0.10 | |||||||
| Daktronics, Inc. and SubsidiariesConsolidated Balance Sheets(in thousands) | |||||||
| October 31, 2020 | May 2, 2020 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 69,836 | $ | 40,398 | |||
| Restricted cash | 3,617 | 14 | |||||
| Marketable securities | 983 | 1,230 | |||||
| Accounts receivable, net | 74,682 | 72,577 | |||||
| Inventories | 71,428 | 86,803 | |||||
| Contract assets | 26,707 | 35,467 | |||||
| Current maturities of long-term receivables | 2,439 | 3,519 | |||||
| Prepaid expenses and other current assets | 7,650 | 9,629 | |||||
| Income tax receivables | 129 | 548 | |||||
| Property and equipment and other assets available for sale | 1,953 | 1,817 | |||||
| Total current assets | 259,424 | 252,002 | |||||
| Property and equipment, net | 64,475 | 67,484 | |||||
| Long-term receivables, less current maturities | 594 | 1,114 | |||||
| Goodwill | 8,050 | 7,743 | |||||
| Intangibles, net | 2,702 | 3,354 | |||||
| Investment in affiliates and other assets | 24,943 | 27,683 | |||||
| Deferred income taxes | 13,323 | 13,271 | |||||
| Total non-current assets | 114,087 | 120,649 | |||||
| TOTAL ASSETS | $ | 373,511 | $ | 372,651 | |||
| Daktronics, Inc. and SubsidiariesConsolidated Balance Sheets (continued)(in thousands) | |||||||
| October 31, 2020 | May 2, 2020 | ||||||
| (unaudited) | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable | $ | 37,274 | $ | 47,834 | |||
| Contract liabilities | 47,107 | 50,897 | |||||
| Accrued expenses | 32,681 | 36,626 | |||||
| Warranty obligations | 10,383 | 9,764 | |||||
| Income taxes payable | 2,949 | 844 | |||||
| Total current liabilities | 130,394 | 145,965 | |||||
| Long-term warranty obligations | 16,217 | 15,860 | |||||
| Long-term contract liabilities | 10,741 | 10,707 | |||||
| Other long-term obligations | 24,586 | 22,105 | |||||
| Long-term income taxes payable | 697 | 582 | |||||
| Deferred income taxes | 471 | 452 | |||||
| Total long-term liabilities | 52,712 | 49,706 | |||||
| TOTAL LIABILITIES | 183,106 | 195,671 | |||||
| SHAREHOLDERS' EQUITY: | |||||||
| Common stock | 60,010 | 60,010 | |||||
| Additional paid-in capital | 45,575 | 44,627 | |||||
| Retained earnings | 95,973 | 85,090 | |||||
| Treasury stock, at cost | (7,297 | ) | (7,470 | ) | |||
| Accumulated other comprehensive loss | (3,856 | ) | (5,277 | ) | |||
| TOTAL SHAREHOLDERS' EQUITY | 190,405 | 176,980 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 373,511 | $ | 372,651 | |||
| Daktronics, Inc. and SubsidiariesConsolidated Statements of Cash Flows(in thousands)(unaudited) | |||||||
| Six Months Ended | |||||||
| October 31, 2020 | November 2, 2019 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
| Net income | $ | 10,883 | $ | 14,304 | |||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
| Depreciation and amortization | 8,564 | 8,724 | |||||
| (Gain) loss on sale of property, equipment and other assets | (162 | ) | 30 | ||||
| Share-based compensation | 1,047 | 1,184 | |||||
| Equity in loss of affiliates | 1,145 | 241 | |||||
| Provision for doubtful accounts | 153 | (535 | ) | ||||
| Deferred income taxes, net | 2 | (64 | ) | ||||
| Change in operating assets and liabilities | 18,343 | (34,156 | ) | ||||
| Net cash provided by (used in) operating activities | 39,975 | (10,272 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
| Purchases of property and equipment | (5,776 | ) | (9,768 | ) | |||
| Proceeds from sales of property, equipment and other assets | 341 | 149 | |||||
| Proceeds from sales or maturities of marketable securities | 247 | 22,775 | |||||
| Purchases of and loans to equity investment | (903 | ) | (896 | ) | |||
| Net cash (used in) provided by investing activities | (6,091 | ) | 12,260 | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
| Principal payments on long-term obligations | (220 | ) | (1,931 | ) | |||
| Dividends paid | — | (4,500 | ) | ||||
| Payments for common shares repurchased | — | (1,682 | ) | ||||
| Tax payments related to RSU issuances | (125 | ) | (199 | ) | |||
| Net cash used in financing activities | (345 | ) | (8,312 | ) | |||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (498 | ) | (94 | ) | |||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 33,041 | (6,418 | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
| Beginning of period | 40,412 | 35,742 | |||||
| End of period | $ | 73,453 | $ | 29,324 | |||
| Daktronics, Inc. and SubsidiariesNet Sales and Orders by Business Unit(in thousands)(unaudited) | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| October 31, 2020 | November 2, 2019 | DollarChange | PercentChange | October 31, 2020 | November 2, 2019 | DollarChange | PercentChange | ||||||||||||||||||||||
| Net Sales: | |||||||||||||||||||||||||||||
| Commercial | $ | 30,356 | $ | 39,651 | $ | (9,295 | ) | (23.4 | )% | $ | 64,862 | $ | 83,686 | $ | (18,824 | ) | (22.5 | )% | |||||||||||
| Live Events | 37,822 | 59,319 | (21,497 | ) | (36.2 | ) | 89,296 | 118,625 | (29,329 | ) | (24.7 | ) | |||||||||||||||||
| High School Park and Recreation | 27,578 | 30,193 | (2,615 | ) | (8.7 | ) | 56,521 | 60,658 | (4,137 | ) | (6.8 | ) | |||||||||||||||||
| Transportation | 15,323 | 20,330 | (5,007 | ) | (24.6 | ) | 29,821 | 39,348 | (9,527 | ) | (24.2 | ) | |||||||||||||||||
| International | 16,288 | 25,418 | (9,130 | ) | (35.9 | ) | 30,511 | 52,850 | (22,339 | ) | (42.3 | ) | |||||||||||||||||
| $ | 127,367 | $ | 174,911 | $ | (47,544 | ) | (27.2 | )% | $ | 271,011 | $ | 355,167 | $ | (84,156 | ) | (23.7 | )% | ||||||||||||
| Orders: | |||||||||||||||||||||||||||||
| Commercial | $ | 32,590 | $ | 43,513 | $ | (10,923 | ) | (25.1 | )% | $ | 58,123 | $ | 82,161 | $ | (24,038 | ) | (29.3 | )% | |||||||||||
| Live Events | 40,684 | 41,008 | (324 | ) | (0.8 | ) | 82,544 | 107,977 | (25,433 | ) | (23.6 | ) | |||||||||||||||||
| High School Park and Recreation | 20,117 | 22,853 | (2,736 | ) | (12.0 | ) | 48,216 | 53,405 | (5,189 | ) | (9.7 | ) | |||||||||||||||||
| Transportation | 11,633 | 16,992 | (5,359 | ) | (31.5 | ) | 24,722 | 39,207 | (14,485 | ) | (36.9 | ) | |||||||||||||||||
| International | 30,642 | 26,756 | 3,886 | 14.5 | 44,214 | 55,835 | (11,621 | ) | (20.8 | ) | |||||||||||||||||||
| $ | 135,666 | $ | 151,122 | $ | (15,456 | ) | (10.2 | )% | $ | 257,819 | $ | 338,585 | $ | (80,766 | ) | (23.9 | )% | ||||||||||||
| Reconciliation of Free Cash Flow*(in thousands)(unaudited) | |||||||
| Six Months Ended | |||||||
| October 31, 2020 | November 2, 2019 | ||||||
| Net cash provided by (used in) operating activities | $ | 39,975 | $ | (10,272 | ) | ||
| Purchases of property and equipment | (5,776 | ) | (9,768 | ) | |||
| Proceeds from sales of property and equipment | 341 | 149 | |||||
| Free cash flow | $ | 34,540 | $ | (19,891 | ) | ||
*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.
