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): August 31, 2022
Daktronics, Inc.
(Exact Name of Registrant as Specified in Charter)
| South Dakota | 0-23246 | 46-0306862 |
|---|---|---|
| (State or Other Jurisdiction of<br><br>Incorporation) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>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:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | 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 ☐
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. ☐
Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On August 31, 2022 Daktronics Inc. (the “Registrant”) issued a press release announcing its financial results for the three months ended July 30, 2022 of fiscal 2023. 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: August 31, 2022 |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release dated August 31, 2022 issued by Registrant regarding first quarter fiscal 2023 results. |
| 104 | Cover page Interactive Data File (embedded within the Inline XBRL document) |
Document
Exhibit 99.1
Daktronics, Inc. Announces First Quarter 2023 Results
Brookings, S.D., August 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."
Outlook
Kurtenbach 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 Quarter
Orders 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.
(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.
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 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 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.
-- END --
For more information contact:
INVESTOR RELATIONS:
Sheila M. Anderson, Chief Financial Officer
Tel (605) 692-0200
Investor@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 Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||
|---|---|---|---|---|
| July 30,<br>2022 | July 31,<br>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 Subsidiaries
Consolidated Balance Sheets
(in thousands)
(unaudited)
| July 30,<br>2022 | April 30,<br>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 Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
(unaudited)
| July 30,<br>2022 | April 30,<br>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 Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended | ||||
|---|---|---|---|---|
| July 30,<br>2022 | July 31,<br>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 Subsidiaries
Net Sales and Orders by Business Unit
(in thousands)
(unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | July 30, 2022 | July 31, 2021 | Dollar Change | Percent Change | ||||
| 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,<br>2022 | July 31,<br>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.