8-K
Daktronics Inc /Sd/ (DAKT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 26, 2020
Daktronics, Inc.
(Exact Name of Registrant as Specified in Charter)
| South Dakota | 0-23246 | 46-0306862 |
|---|---|---|
| (State or Other Jurisdiction of | (Commission | (I.R.S. Employer |
| Incorporation) | File Number) | Identification No.) |
201 Daktronics Drive
Brookings, SD 57006
(Address of Principal Executive Offices, and Zip Code)
(605) 692-0200
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, No Par Value | DAKT | NASDAQ Global Select Market |
| Preferred Stock Purchase Rights | DAKT | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On February 26, 2020 Daktronics Inc. (the “Registrant”) issued a press release announcing its financial results for the three and nine months ended February 1, 2020 of fiscal 2020. A copy of the press release is filed herewith as Exhibit 99.1 and is incorporated herein by reference.
The information furnished in this report, including the exhibit shall not be incorporated by reference into Daktronics’ filings with the Securities and Exchange Commission under the Securities Act of 1933 and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Securities Act of 1934.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits:
(d) Exhibits. The following exhibit is furnished as part of this Report:
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| DAKTRONICS, INC. | ||
|---|---|---|
| By: /s/ Sheila M. Anderson | ||
| Sheila M. Anderson, Chief Financial Officer | ||
| Date: | February 26, 2020 |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release dated February 26, 2020 issued by Registrant regarding third quarter fiscal 2020 results. |
Exhibit
Daktronics, Inc. Announces Third Quarter Fiscal 2020 Results
Brookings, S.D., February 26, 2020 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ - DAKT) today reported fiscal 2020 third quarter net sales of $127.7 million, operating loss of $9.2 million, and net loss of $12.7 million, or $0.28 per diluted share, compared to net sales of $115.1 million, operating loss of $7.5 million, and net loss of $3.3 million, or $0.07 per diluted share, for the third quarter of fiscal 2019. Fiscal 2020 third quarter orders were $135.0 million, compared to $135.4 million for the third quarter of fiscal 2019. Product order backlog at the end of the fiscal 2020 third quarter was $187 million, compared to $168 million a year earlier and $182 million at the end of the second quarter of fiscal 2020.^(1)^
For the nine months ended February 1, 2020, net sales were $482.8 million, operating income was $3.3 million, and net income was $1.6 million, or $0.03 per diluted share. This compares to net sales of $441.9 million, operating income of $5.5 million, and net income of $9.9 million, or $0.22 per diluted share for the same period in fiscal 2019.
Fiscal 2020 is a 53-week year; therefore, the nine months ended February 1, 2020 contains operating results for 40 weeks while the nine months ended January 26, 2019 contains operating results for 39 weeks. Sales, orders and other results of operations were impacted due to the additional week of operations.
Cash provided by operating activities in the first nine months of fiscal 2020 was $6.2 million, compared with cash provided by operating activities of $32.2 million in the same period last year. Free cash flow, defined as cash provided by or used in operating activities less net investment in property and equipment, was a negative $7.2 million for the first nine months of fiscal 2020, as compared to a positive $18.4 million for the same period of fiscal 2019. Net investment in property and equipment was $13.4 million for the first nine months of fiscal 2020, as compared to $13.8 million for the first nine months of fiscal 2019. Cash, restricted cash, and marketable securities at the end of the third quarter of fiscal 2020 were $42.1 million, which compares to $70.9 million at the end of the third quarter of fiscal 2019 and $62.1 million at the end of fiscal 2019.
Orders for the third quarter of fiscal 2020 were relatively flat as compared to the third quarter of fiscal 2019. Orders increased in the High School Park and Recreation and Transportation business units, decreased in the Commercial and Live Events business units, and remained relatively flat in the International business unit. The volatility of order timing for large projects and global accounts varies according to the needs of the customer and is the primary cause of the change in order volume.
Net sales increased by 10.9 percent in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019. Net sales increased in the Live Events and International business units, decreased in the Commercial and Transportation business units, and remained relatively flat in the High School Park and Recreation business unit. The higher level of backlog at the beginning of the quarter and customer delivery schedules translated to the increase in sales for the quarter.
Gross profit as a percentage of net sales was 19.2 percent for the third quarter of fiscal 2020 as compared to 21.6 percent a year earlier. Operating expenses for the third quarter of fiscal 2020 were $33.6 million, compared to $32.4 million for the third quarter of fiscal 2019. Operating loss as a percent of sales for the quarter was 7.2 percent as compared to 6.5 percent during the third quarter of fiscal 2019.
The effective tax rate for the third quarter of fiscal 2020 was negative 37.9 percent compared to an effective tax rate of 55.4 percent for the third quarter of fiscal 2019. The quarterly change in the effective tax rate was caused by discrete one-time impacts of $3.3 million recognized in the third quarter of fiscal 2019 and the change in the estimated effective tax rate for fiscal 2020. The estimated effective tax rate for fiscal 2020 of 51.6 percent is the result of the expected net taxes and credits being higher as a proportion of expected pre-tax earnings.
Sheila Anderson, chief financial officer and treasurer noted, "Our third quarter sales and profit levels are lighter than other quarters due to the seasonality of our sports business, construction cycles, and the reduced number of production days due to holidays in the quarter. Gross profit as a percent of sales decreased for the quarter primarily due to adverse impacts of a project with cost overruns, tariff related expenses, and change in project mix. We recognized more sales relating to multimillion-dollar projects which generally earn lower gross margins due to increased competitive bidding. Our overall warranty as a percentage of sales was 1.3% for the quarter as compared to 1.6% for the third quarter of fiscal 2019. Operating expenses increased in dollars primarily due to personnel related costs.
Year-to-date cash provided from operations differed as compared to last year primarily due to short-term and seasonal changes in cash outflows and inflows to deliver orders and due to lower net income. Cash can vary based on order timing and levels, varying contractual payment terms from customers, and payments for inventory to meet delivery and installation schedules. Cash and marketable securities have decreased on a year-to-date basis due to these differences and continued investment in capital improvements and dividend payments. We expect a total of $23 million in capital improvements for expansion of production and information system capabilities for the fiscal year."
Reece Kurtenbach, chairman, president and chief executive officer stated, "We successfully grew sales and held operating expenses as a percent of sales this quarter, though not sufficiently to cover fixed ongoing costs and strategic investments. We remain confident in our strategies to improve operations, which will lead to long-term profitable growth."
Outlook
Kurtenbach added, "Sales opportunities in the marketplace are growing, resulting in an increase in active project bids this year as compared to last year in all of our business units. We are optimistic in our ability to convert these bids into orders and grow our business in the coming year. In the near-term, orders and sales timing may be impacted by the coronavirus situation ("COVID-19") potentially causing customer order delays and supply chain disruptions.
The dynamic audio-visual communication systems market is expected to grow over the long-term for both traditional and narrow-pixel pitch (NPP) applications. We are seeing growth in our current markets, as well as access to new markets with increased capabilities of NPP displays. To capitalize on this opportunity, we continue to invest in new technologies and market development. Our teams are engaging in operational improvements to reduce the effort and fulfillment costs and are working on initiatives to enhance the quality of the experience for both customers and employees. These activities strengthen our abilities and support our optimism that we will continue to grow, profitably, over the coming years."
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 2019 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.
-- END --
| For more information contact: |
|---|
| INVESTOR RELATIONS: |
| Sheila M. Anderson, Chief Financial Officer |
| Tel (605) 692-0200 |
| [email protected] |
(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 April 27, 2019.
| Daktronics, Inc. and Subsidiaries<br><br>Consolidated Statements of Operations<br><br>(in thousands, except per share amounts)<br><br>(unaudited) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | |||||||||||
| February 1, <br>2020 | January 26, <br>2019 | February 1, <br>2020 | January 26, <br>2019 | |||||||||
| Net sales | $ | 127,657 | $ | 115,069 | $ | 482,824 | $ | 441,949 | ||||
| Cost of sales | 103,175 | 90,200 | 372,750 | 336,076 | ||||||||
| Gross profit | 24,482 | 24,869 | 110,074 | 105,873 | ||||||||
| Operating expenses: | ||||||||||||
| Selling | 16,552 | 15,537 | 51,026 | 48,040 | ||||||||
| General and administrative | 8,640 | 8,574 | 26,698 | 25,685 | ||||||||
| Product design and development | 8,442 | 8,280 | 29,063 | 26,611 | ||||||||
| 33,634 | 32,391 | 106,787 | 100,336 | |||||||||
| Operating (loss) income | (9,152 | ) | (7,522 | ) | 3,287 | 5,537 | ||||||
| Nonoperating (expense) income: | ||||||||||||
| Interest income | 233 | 328 | 664 | 713 | ||||||||
| Interest expense | 13 | (45 | ) | (53 | ) | (86 | ) | |||||
| Other income (expense), net | (331 | ) | (203 | ) | (652 | ) | (423 | ) | ||||
| (Loss) income before income taxes | (9,237 | ) | (7,442 | ) | 3,246 | 5,741 | ||||||
| Income tax expense (benefit) | 3,497 | (4,123 | ) | 1,676 | (4,120 | ) | ||||||
| Net (loss) income | $ | (12,734 | ) | $ | (3,319 | ) | $ | 1,570 | $ | 9,861 | ||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 45,189 | 45,018 | 45,139 | 44,834 | ||||||||
| Diluted | 45,189 | 45,018 | 45,412 | 45,139 | ||||||||
| (Loss) earnings per share: | ||||||||||||
| Basic | $ | (0.28 | ) | $ | (0.07 | ) | $ | 0.03 | $ | 0.22 | ||
| Diluted | $ | (0.28 | ) | $ | (0.07 | ) | $ | 0.03 | $ | 0.22 | ||
| Cash dividends declared per share | $ | 0.05 | $ | 0.07 | $ | 0.15 | $ | 0.21 |
| Daktronics, Inc. and Subsidiaries<br><br>Consolidated Balance Sheets<br><br>(in thousands) | ||||
|---|---|---|---|---|
| February 1, <br>2020 | April 27, <br>2019 | |||
| (unaudited) | ||||
| ASSETS | ||||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 40,316 | $ | 35,383 |
| Restricted cash | 60 | 359 | ||
| Marketable securities | 1,727 | 26,344 | ||
| Accounts receivable, net | 80,143 | 65,487 | ||
| Inventories | 80,206 | 78,832 | ||
| Contract assets | 35,242 | 33,704 | ||
| Current maturities of long-term receivables | 5,208 | 2,300 | ||
| Prepaid expenses and other current assets | 8,093 | 8,319 | ||
| Income tax receivables | 203 | 1,087 | ||
| Property and equipment and other assets available for sale | 1,838 | 1,858 | ||
| Total current assets | 253,036 | 253,673 | ||
| Property and equipment, net | 66,368 | 65,314 | ||
| Long-term receivables, less current maturities | 1,650 | 1,214 | ||
| Goodwill | 7,934 | 7,889 | ||
| Intangibles, net | 3,817 | 4,906 | ||
| Investment in affiliates and other assets | 14,568 | 5,052 | ||
| Deferred income taxes | 11,352 | 11,168 | ||
| Total non-current assets | 105,689 | 95,543 | ||
| TOTAL ASSETS | $ | 358,725 | $ | 349,216 |
| Daktronics, Inc. and Subsidiaries<br><br>Consolidated Balance Sheets (continued)<br><br>(in thousands) | ||||||
|---|---|---|---|---|---|---|
| February 1, <br>2020 | April 27, <br>2019 | |||||
| (unaudited) | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| CURRENT LIABILITIES: | ||||||
| Accounts payable | $ | 44,846 | $ | 44,873 | ||
| Contract liabilities | 49,870 | 47,178 | ||||
| Accrued expenses | 34,588 | 32,061 | ||||
| Warranty obligations | 9,545 | 9,492 | ||||
| Income taxes payable | 949 | 468 | ||||
| Total current liabilities | 139,798 | 134,072 | ||||
| Long-term warranty obligations | 16,170 | 14,978 | ||||
| Long-term contract liabilities | 10,676 | 10,053 | ||||
| Other long-term obligations | 8,000 | 1,339 | ||||
| Long-term income taxes payable | 576 | 578 | ||||
| Deferred income taxes | 530 | 533 | ||||
| Total long-term liabilities | 35,952 | 27,481 | ||||
| TOTAL LIABILITIES | 175,750 | 161,553 | ||||
| SHAREHOLDERS' EQUITY: | ||||||
| Common stock | 59,276 | 57,699 | ||||
| Additional paid-in capital | 44,096 | 42,561 | ||||
| Retained earnings | 88,407 | 93,593 | ||||
| Treasury stock, at cost | (4,163 | ) | (1,834 | ) | ||
| Accumulated other comprehensive loss | (4,641 | ) | (4,356 | ) | ||
| TOTAL SHAREHOLDERS' EQUITY | 182,975 | 187,663 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 358,725 | $ | 349,216 |
| Daktronics, Inc. and Subsidiaries<br><br>Consolidated Statements of Cash Flows<br><br>(in thousands)<br><br>(unaudited) | ||||||
|---|---|---|---|---|---|---|
| Nine Months Ended | ||||||
| February 1, <br>2020 | January 26, <br>2019 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
| Net income | $ | 1,570 | $ | 9,861 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 13,197 | 14,054 | ||||
| Loss on sale of property, equipment and other assets | (6 | ) | (130 | ) | ||
| Share-based compensation | 1,734 | 1,867 | ||||
| Contingent consideration adjustment | — | (956 | ) | |||
| Equity in loss of affiliate | 430 | 392 | ||||
| Provision for doubtful accounts | (477 | ) | 180 | |||
| Deferred income taxes, net | (223 | ) | (445 | ) | ||
| Change in operating assets and liabilities | (10,035 | ) | 7,364 | |||
| Net cash provided by operating activities | 6,190 | 32,187 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
| Purchases of property and equipment | (13,646 | ) | (14,081 | ) | ||
| Proceeds from sales of property, equipment and other assets | 244 | 255 | ||||
| Purchases of marketable securities | — | (25,337 | ) | |||
| Proceeds from sales or maturities of marketable securities | 24,665 | 22,341 | ||||
| Purchases of and loans to equity investment | (1,229 | ) | (854 | ) | ||
| Acquisitions, net of cash acquired | — | (2,250 | ) | |||
| Net cash provided by (used in) investing activities | 10,034 | (19,926 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
| Proceeds from exercise of stock options | — | 1,318 | ||||
| Principal payments on long-term obligations | (2,140 | ) | (440 | ) | ||
| Dividends paid | (6,756 | ) | (9,403 | ) | ||
| Payments for common shares repurchased | (2,329 | ) | — | |||
| Tax payments related to RSU issuances | (199 | ) | (246 | ) | ||
| Net cash used in financing activities | (11,424 | ) | (8,771 | ) | ||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (166 | ) | 62 | |||
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 4,634 | 3,552 | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||
| Beginning of period | 35,742 | 29,755 | ||||
| End of period | $ | 40,376 | $ | 33,307 |
| Daktronics, Inc. and Subsidiaries<br><br>Net Sales and Orders by Business Unit<br><br>(in thousands)<br><br>(unaudited) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| February 1, <br>2020 | January 26, <br>2019 | Dollar Change | Percent Change | February 1, <br>2020 | January 26, <br>2019 | Dollar Change | Percent Change | |||||||||||
| Net Sales: | ||||||||||||||||||
| Commercial | $ | 36,880 | $ | 37,159 | $ | (279 | ) | (0.8 | )% | $ | 120,566 | $ | 113,797 | $ | 6,769 | 5.9 | % | |
| Live Events | 40,571 | 29,995 | 10,576 | 35.3 | 159,196 | 134,566 | 24,630 | 18.3 | ||||||||||
| High School Park and Recreation | 14,775 | 14,798 | (23 | ) | (0.2 | ) | 75,433 | 74,498 | 935 | 1.3 | ||||||||
| Transportation | 13,916 | 15,390 | (1,474 | ) | (9.6 | ) | 53,264 | 50,624 | 2,640 | 5.2 | ||||||||
| International | 21,515 | 17,727 | 3,788 | 21.4 | 74,365 | 68,464 | 5,901 | 8.6 | ||||||||||
| $ | 127,657 | $ | 115,069 | $ | 12,588 | 10.9 | % | $ | 482,824 | $ | 441,949 | $ | 40,875 | 9.2 | % | |||
| Orders: | ||||||||||||||||||
| Commercial | $ | 36,898 | $ | 41,114 | $ | (4,216 | ) | (10.3 | )% | $ | 119,059 | $ | 123,637 | $ | (4,578 | ) | (3.7 | )% |
| Live Events | 41,484 | 45,767 | (4,283 | ) | (9.4 | ) | 149,461 | 128,803 | 20,658 | 16.0 | ||||||||
| High School Park and Recreation | 20,447 | 17,034 | 3,413 | 20.0 | 73,852 | 73,928 | (76 | ) | (0.1 | ) | ||||||||
| Transportation | 16,203 | 11,541 | 4,662 | 40.4 | 55,410 | 54,736 | 674 | 1.2 | ||||||||||
| International | 19,992 | 19,973 | 19 | 0.1 | 75,827 | 65,291 | 10,536 | 16.1 | ||||||||||
| $ | 135,024 | $ | 135,429 | $ | (405 | ) | (0.3 | )% | $ | 473,609 | $ | 446,395 | $ | 27,214 | 6.1 | % | ||
| Reconciliation of Free Cash Flow*<br><br>(in thousands)<br><br>(unaudited) | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| Nine Months Ended | ||||||||||||||||||
| February 1, <br>2020 | January 26, <br>2019 | |||||||||||||||||
| Net cash provided by operating activities | $ | 6,190 | $ | 32,187 | ||||||||||||||
| Purchases of property and equipment | (13,646 | ) | (14,081 | ) | ||||||||||||||
| Proceeds from sales of property and equipment | 244 | 255 | ||||||||||||||||
| Free cash flow | $ | (7,212 | ) | $ | 18,361 |
*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.