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Daktronics, Inc. Announces Second Quarter Fiscal 2018 Results

BROOKINGS, S.D., Nov. 21, 2017 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ:DAKT) today reported fiscal 2018 second quarter net sales of $169.3 million, operating income of $9.4 million, and net income of $7.1 million, or $0.16 per diluted share, compared to net sales of $170.0 million, operating income of $12.7 million, and net income of $9.0 million, or $0.20 per diluted share, for the second quarter of fiscal 2017. Fiscal 2018 second quarter orders were $142.3 million, compared to $116.9 million for the second quarter of fiscal 2017. Backlog at the end of the fiscal 2018 second quarter was $155 million, compared to a backlog of $142 million a year earlier and $184 million at the end of the first quarter of fiscal 2018.(1)

Net sales, operating income, net income, and earnings per share for the six months ended October 28, 2017, were $342.0 million, $21.2 million, $15.6 million, and $0.35 per diluted share, respectively. This compares to $327.1 million, $20.6 million, $14.6 million, and $0.33 per diluted share, respectively, for the same period in fiscal 2017.

Cash provided by operating activities in the first six months of fiscal 2018 was $9.3 million, compared with cash provided by operating activities of $15.0 million in the same period last year. Free cash flow, defined as cash provided from or used in operating activities less net investment in property and equipment, was a positive $3.6 million for the first six months of fiscal 2018, as compared to a positive free cash flow of $10.5 million for the same period of fiscal 2017. Net investment in property and equipment was $5.7 million for the first six months of fiscal 2018, as compared to $4.6 million for the first six months of fiscal 2017. Cash, restricted cash, and marketable securities at the end of the second quarter of fiscal 2018 were $61.5 million, which compares to $52.2 million at the end of the second quarter of fiscal 2017 and $65.6 million at the end of fiscal 2017.

Orders for the second quarter of fiscal 2018 increased 21.7 percent as compared to the second quarter of fiscal 2017. Orders increased in the Commercial, Live Events and International business units and decreased in the High School Park and Recreation and Transportation business units. The timing of orders for large projects varies according to the needs of the customer and contributed to the increase in order volume.

Net sales were similar for the second quarter of fiscal 2018 as compared to the second quarter of fiscal 2017. Net sales increased in the Live Events business unit, decreased in the Commercial and International business units, and remained relatively flat in the High School Park and Recreation and Transportation business units. The increase in Live Events business unit was due to continued demand for upgraded or new solutions throughout venues for professional sports and colleges and universities. The decrease in the Commercial business unit was primarily due to lower order volumes in our on-premise and spectacular niches. The decline in net sales in the International business unit was primarily due to variability of project schedules.

Other financial comparables include, gross profit, as a percentage of net sales, was 25.2 percent for the second quarter of fiscal 2018 as compared to 26.1 percent a year earlier. The decrease in gross profit percentage was primarily due to an increase in warranty charges. Operating expenses for the second quarter of 2018 was $33.2 million, compared to $31.6 million for the second quarter of fiscal 2017. The increase in total operating expenses was primarily attributable to an increase in product development activities. Operating income as a percent of sales for the quarter decreased to 5.6 percent as compared to the second quarter of fiscal 2017 operating income of 7.5 percent.

Reece Kurtenbach, chairman, president and chief executive officer stated, “We capitalized on the strong backlog and pipeline of order opportunities coming into the second quarter of fiscal 2018. The second quarter is traditionally one of our busiest quarters. We were able to work through our backlog with a smooth flow through our factories, which facilitated successful on-site installations and commissioning of systems. We were pleased with our second quarter sales and operational performance; however, profitability levels were impacted by an increase in warranty and maintenance agreement expenses. During the quarter, we chose to provide additional coverage on product defects related to the issues previously discussed in fiscal 2016. As expected, operating margin was impacted due to the planned increase in product development expenses for activities to accelerate the release of new and enhanced customer solutions. Orders increased during the quarter as compared to a year earlier is not unusual due to the lumpy nature of our business. Projects in major league baseball stadiums and the billboard niche contributed to this increase.”

Outlook
Kurtenbach added, “We remain optimistic about the continued growth in the video display business over the long-term. The use of digital canvases remains a cost viable method for businesses and organizations to entertain and inform audiences of their messages and brands. To serve these businesses, we invest in developing solutions and services to help our customers achieve their goals while managing the business for long-term profitable growth.”

Webcast Information
The company will host a conference call and webcast to discuss its financial results today at 10:00 a.m. (CST). This call will be broadcast live at http://investor.daktronics.com and 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, fluctuations in margins, the introduction of new products and technology, the impact of adverse weather conditions, and other risks noted in the company's SEC filings, including its Annual Report on Form 10-K for its 2017 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 Anderson, Chief Financial Officer
(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,
2017
October 29,
2016
October 28,
2017
October 29,
2016
Net sales $169,309 $169,992 $342,037 $327,138
Cost of goods sold 126,705 125,684 254,787 243,763
Gross profit 42,604 44,308 87,250 83,375
Operating expenses:
Selling expense 15,350 15,891 30,289 31,150
General and administrative 8,868 8,625 17,803 17,408
Product design and development 8,948 7,126 17,995 14,169
33,166 31,642 66,087 62,727
Operating income 9,438 12,666 21,163 20,648
Nonoperating income (expense):
Interest income 151 171 362 376
Interest expense (47) (76) (133) (118)
Other (expense) income, net (87) 149 58 55
Income before income taxes 9,455 12,910 21,450 20,961
Income tax expense 2,323 3,889 5,889 6,401
Net income $7,132 $9,021 $15,561 $14,560
Weighted average shares outstanding:
Basic 44,412 43,988 44,345 44,051
Diluted 44,679 44,098 44,696 44,168
Earnings per share:
Basic $0.16 $0.21 $0.35 $0.33
Diluted $0.16 $0.20 $0.35 $0.33
Cash dividends declared per share $0.07 $0.07 $0.14 $0.17


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

October 28,
2017
April 29,
2017
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$39,699 $32,623
Restricted cash27 216
Marketable securities21,787 32,713
Accounts receivable, net108,719 78,846
Inventories, net70,436 66,486
Costs and estimated earnings in excess of billings31,302 36,403
Current maturities of long-term receivables1,964 2,274
Prepaid expenses and other assets7,566 7,553
Income tax receivables1,725 611
Total current assets283,225 257,725
Long-term receivables, less current maturities2,208 2,616
Goodwill8,190 7,812
Intangibles, net4,338 4,705
Investment in affiliates and other assets4,730 4,534
Deferred income taxes11,287 11,292
30,753 30,959
PROPERTY AND EQUIPMENT:
Land2,134 2,099
Buildings66,863 65,935
Machinery and equipment86,875 84,189
Office furniture and equipment5,642 5,604
Computer software and hardware53,316 51,523
Equipment held for rental287 374
Demonstration equipment7,143 7,109
Transportation equipment7,508 7,108
229,768 223,941
Less accumulated depreciation164,549 157,192
65,219 66,749
TOTAL ASSETS$379,197 $355,433



Daktronics, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
October 28,
2017
April 29,
2017
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$49,005 $51,499
Accrued expenses27,399 25,033
Warranty obligations15,400 13,578
Billings in excess of costs and estimated earnings16,561 10,897
Customer deposits (billed or collected)14,349 14,498
Deferred revenue (billed or collected)14,046 12,137
Current portion of other long-term obligations913 1,409
Income taxes payable1,334 1,544
Total current liabilities139,007 130,595
Long-term warranty obligations15,740 14,321
Long-term deferred revenue (billed or collected)6,835 5,434
Other long-term obligations2,333 2,848
Long-term income tax payable3,306 3,113
Deferred income taxes937 836
Total long-term liabilities29,151 26,552
TOTAL LIABILITIES168,158 157,147
SHAREHOLDERS' EQUITY:
Common stock53,862 52,530
Additional paid-in capital39,034 38,004
Retained earnings123,330 113,967
Treasury stock, at cost(1,834) (1,834)
Accumulated other comprehensive loss(3,353) (4,381)
TOTAL SHAREHOLDERS' EQUITY211,039 198,286
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$379,197 $355,433



Daktronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
October 28,
2017
October 29,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,561 $14,560
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 8,902 9,242
Impairment of intangible assets 830
(Gain) loss on sale of property, equipment and other assets (1,221) 33
Share-based compensation 1,341 1,484
Equity in loss of affiliate 191
Provision for doubtful accounts (21) 962
Deferred income taxes, net 81 (48)
Change in operating assets and liabilities (15,496) (12,049)
Net cash provided by operating activities 9,338 15,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,735) (4,625)
Proceeds from sale of property, equipment and other assets 2,000 72
Purchases of marketable securities (4,583)
Proceeds from sales or maturities of marketable securities 10,802 11,328
Purchases of equity investment (607) (562)
Net cash provided by investing activities 4,460 1,630
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (6)
Proceeds from exercise of stock options 511 102
Principal payments on long-term obligations (1,027) (904)
Dividends paid (6,197) (7,482)
Payments for common shares repurchased (1,825)
Tax payments related to RSU issuances (311) (213)
Net cash used in financing activities (7,024) (10,328)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 113 (591)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 6,887 5,725
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 32,839 28,526
End of period $39,726 $34,251


Daktronics, Inc. and Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
October 28,
2017
October 29,
2016
Dollar
Change
Percent
Change
October 28,
2017
October 29,
2016
Dollar
Change
Percent
Change
Net Sales:
Commercial$34,377 $39,923 $(5,546) (13.9)% $67,240 $76,177 $(8,937) (11.7)%
Live Events68,653 55,363 13,290 24.0 146,265 115,996 $30,269 26.1%
High School Park and Recreation29,660 28,707 953 3.3 58,139 56,324 $1,815 3.2%
Transportation16,476 16,101 375 2.3 35,388 30,387 $5,001 16.5%
International20,143 29,898 (9,755) (32.6) 35,005 48,254 $(13,249) (27.5)%
$169,309 $169,992 $(683) (0.4)% $342,037 $327,138 $14,899 4.6%
Orders:
Commercial$39,134 $36,663 $2,471 6.7% $69,071 $81,731 $(12,660) (15.5)%
Live Events43,730 31,050 12,680 40.8 105,335 83,930 $21,405 25.5%
High School Park and Recreation14,737 15,764 (1,027) (6.5) 46,917 46,877 $40 0.1%
Transportation14,245 14,754 (509) (3.4) 23,514 26,669 $(3,155) (11.8)%
International30,414 18,643 11,771 63.1 50,504 52,835 $(2,331) (4.4)%
$142,260 $116,874 $25,386 21.7% $295,341 $292,042 $3,299 1.1%


Reconciliation of Free Cash Flow*
(in thousands)
(unaudited)
Six Months Ended
October 28,
2017
October 29,
2016
Net cash provided by operating activities$9,338 $15,014
Purchases of property and equipment(7,735) (4,625)
Proceeds from sales of property and equipment2,000 72
Free cash flow$3,603 $10,461
*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.

Source:Daktronics, Inc.