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
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 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)
692-0200Investor@daktronics.com
(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. |
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