• Daktronics, Inc. Announces 2025 Fiscal Second Quarter Results

    Source: Nasdaq GlobeNewswire / 04 Dec 2024 07:30:00   America/New_York

    BROOKINGS, S.D., Dec. 04, 2024 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ-DAKT), the leading U.S.-based designer and manufacturer of best-in-class dynamic video communication displays and control systems for customers worldwide, today reported results for its fiscal 2025 second quarter which ended October 26, 2024.

    Fiscal Q2 2025 financial highlights include:

    • Sales of $208.3 million, a 4.5 percent increase from the second quarter of fiscal 2024, and fiscal year-to-date sales of $434.4 million, up 0.6 percent compared with the same period last fiscal year
    • Gross profit as a percentage of net sales of 26.8 percent, compared to 27.2 percent for the second quarter of fiscal 2024, and the seventh sequential quarter with over a 24.5 percent gross profit, demonstrating the effectiveness of management's business improvement initiatives
    • Operating income of $15.8 million, compared to $19.4 million for the second quarter of fiscal 2024; operating income adjusted for consultant related expenses associated with business transformation initiatives was $19.1 million(1)
    • Record cash flows from operations of $43.3 million for the fiscal second quarter and $62.8 million for the first six months of fiscal 2025
    • Product order backlog of $236.0 million(2) at October 26, 2024, compared to $267.2 million at the end of the first quarter of fiscal 2025 and $306.9 million at the end of the second quarter of fiscal 2024
    • Product and service orders of $177.6 million(2) for the quarter, a decrease of 3.3 percent from the second quarter of 2024 and $353.8 million on a year-to-date basis, a year-to-date increase of 3.3 percent
    • Net income for the quarter was $21.4 million, excluding the non-operating non-cash debt fair value adjustment and operating adjustment for consultant related expenses associated with business transformation initiatives, adjusted net income(1) was $13.9 million for the quarter

    Reece Kurtenbach, Daktronicsʹ Chairman, President and Chief Executive Officer, commented, “We delivered strong second fiscal quarter results and made steady progress on our recently announced strategic and digital transformation initiatives. We generated record cash flow from operations of $43.3 million, as our order backlog continued to be reduced in level and in relation to steady sales, reaching total cash flow from operations of $62.8 million for the first half of the year. We completed innovative and visually striking installations at the L.A. Clippers' Intuit Dome, the Miami HEAT's Kaseya Center that have both drawn attention in trade and social media. We also served other customers with the completion and update to the latest digital technologies at numerous college and high school sporting facilities and commercial locations.”

    (1) Adjusted operating income and adjusted net income is not a measure defined by accounting principles generally accepted in the United States of America ("GAAP"), to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting this non-GAAP financial measurement provides investors with a consistent way to analyze our performance. For more information, see the supplemental calculation contained later in this release.
    (2) Orders and backlog metrics are not measures defined by 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 27, 2024.

    Update on Business and Digital Transformation
    Kurtenbach added, “We continue to execute on our business transformation plan, the goal of which is to grow revenue faster than the Company’s addressable market, expand operating margins, and generate returns on capital in the mid-to-high-teens and consistently above the Company’s cost of capital. During the quarter we made significant progress in a number of areas, including enterprise management tools, new show control capability, and upgrades to service and systems maintenance solutions, which are set to go live in the second half of the fiscal year.”

    Key components of this program include:

    1. Carefully allocating resources to end market segments, prioritizing investments in areas where Daktronics has clear advantages and opportunities for above market growth at acceptable margins
    2. Aligning product delivery with differing customer needs through a tiered product offering strategy with pricing aligned with value delivered
    3. Achieving higher profit by reducing product input costs and focusing on efficiency improvements in manufacturing operations
    4. Maximizing balance sheet efficiencies
    5. Refining our critical business and financial management practices, including product pricing, business planning, and incentive compensation to fully support our performance objectives.

    Update on CFO Search
    As previously disclosed on October 21, 2024, the Board of Directors (the “Board”) has initiated a search for a new Chief Financial Officer. The Board is continuing to make progress on this search effort and will provide an additional update when the Company has more to announce.

    Outlook
    Daktronics enters the third quarter of fiscal 2025 with order growth of 3.3 percent year-over-year, and continues to expect order volume to increase for the full fiscal year. The first half of the fiscal year is typically the highest-volume sales of the year, and are expected to be at normal "seasonal" levels for the remainder of fiscal 2025. Management continues to refine and execute its digital and strategic transformation initiatives and will continue to make disciplined investments through the rest of the fiscal year to strengthen Daktronics' business foundation for future profitability and sustainable returns.

    Second Quarter Results
    Orders for the second quarter of fiscal 2025 decreased by 3.3 percent from the second quarter of fiscal 2024. Order volume for the quarter declined primarily due to an order decrease in the Live Events, Transportation and International business units. Variability in orders between periods is natural in these large project business areas and the time of year for sports projects. These declines were offset by large project bookings in the Spectacular niche, end of calendar year purchases by business unit relating to increasing adoption of video displays in this market. Orders for the first half of the year increased 3.3 percent.

    Net sales for the second quarter of fiscal 2025 increased by 4.5 percent as compared to the second quarter of fiscal 2024. The sales increase was driven by comparatively higher volumes in the Commercial, Live Events and Transportation business units offset by lower sales levels in the High School Park and Recreation and International business units. This mix difference is the result of variability of orders described above and because during fiscal 2024, the operating environment and supply chain stabilized. Daktronics was able to capitalize on its operational capacity investments to fill order backlog and return to more shorter delivery lead times, especially in the High School Park and Recreation market.

    Gross profit as a percentage of net sales decreased slightly to 26.8 percent for the second quarter of fiscal 2025 as compared to 27.2 percent a year earlier. The decrease is partially attributable to a change in sales mix between periods.

    Operating expenses increased to $40.1 million in the second quarter of fiscal 2025 as compared to $34.8 million for the second quarter of fiscal 2024. Increased operating expenses reflect investments in staffing resources to support information technology and digital transformation programs as well as sales team expansion to support opportunities for future growth. During the second quarter of fiscal 2025, the Company incurred $3.3 million of consultant related expenses associated with the previously announced strategic and digital transformation initiatives.

    The above changes resulted in an operating income percent for the second quarter of fiscal 2025 of 7.6 percent. Adjusted for consultant related expenses, operating income was 9.2 percent(1) as compared to 9.7 percent for the second quarter of fiscal 2024.

    The increase in interest income, net for the second quarter of fiscal 2025 compared to the same period one year ago was primarily due to interest income earned on cash balances.

    For the quarter ended October 26, 2024, the Company recorded $10.3 million of income for the non-cash change in fair value of a convertible note payable, which is accounted for under the fair value option.

    The effective income tax rate for the second quarter of fiscal 2025 produced an effective tax rate of 15.0 percent primarily due to the reduction of the convertible note fair value adjustment to expense that is not deductible for tax purposes in proportion to the period's increase in pre-tax income. The effective tax rate for the second quarter of fiscal 2024 was 64.8 percent due to an increase in the fair value adjustment.

    Balance Sheet and Cash Flow
    Cash, restricted cash and marketable securities totaled $134.4 million at October 26, 2024, and $65.4 million of total current and long-term debt was outstanding as of that date, which includes $38.1 million of face value and $27.8 million of adjustments to fair value, and is net of $0.5 million of debt issuance costs. There were no draw-downs on the asset-based revolving credit facility during the first six months of fiscal 2025, and $40.8 million was available to draw at October 26, 2024. In the first six months of fiscal 2025, Daktronics generated $62.8 million of cash from operations and used $10.5 million for purchases of property and equipment. At the end of the fiscal 2025 second quarter, the working capital ratio was 2.3 to 1. Inventory levels dropped 11.9 percent since the end of the 2024 fiscal year on April 27, 2024. Management’s focus remains on managing working capital through expected growth of the Company.

    As previously announced on November 11, 2024, the Company delivered to Alta Fox Opportunities Fund, LP ("Alta Fox") notice of the conversion of an initial $7.0 million in face value of the $25.0 million senior second lien secured promissory note (the "Convertible Note") held by Alta Fox into shares of the Company's common stock, with a conversion date of December 3, 2024. The Company intends to convert the remainder of the Convertible Note over the next several months, in tranches of up to $7.0 million in face value every 30 days, as provided for in the Convertible Note. The Company will issue and deliver shares when Alta Fox certifies the delivery of shares will not cause its ownership to exceed the "Maximum Percentage". On November 25, 2024, the Company received from Alta Fox a written notice to increase the Maximum Percentage to 14.99 percent. This increase from the in-effect 3.00 percent maximum ownership takes effect 61 days after receipt of notice. The Board’s decision to initiate the conversion of the Convertible Note is consistent with the Company’s ongoing focus on balance sheet optimization and cost efficiency and will save the Company approximately $5.2 million in interest expense over the remaining term of the Convertible Note.

    To help offset the share dilution that will result from the conversion of the Convertible Note into common stock, the Company intends to execute on its existing share repurchase authorization as soon as practicable.

    Webcast Information
    The Company will host a conference call and webcast to discuss its financial results today at 10:00 a.m. (Central Time). This call will be broadcast live at http://investor.daktronics.com where related presentation materials will also be posted prior to the conference call. A webcast will be 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.

    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 2024 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 Officer
    Tel (605) 692-0200
    Investor@daktronics.com

    Alliance Advisors IR
    Carolyn Capaccio / Jody Burfening
    DAKTIRTeam@lhai.com

    Daktronics, Inc. and Subsidiaries
    Consolidated Statements of Operations
    (in thousands, except per share amounts)
    (unaudited)
        
     Three Months Ended Six Months Ended
     October 26,
    2024    		 October 28,
    2023    		 October 26,
    2024    		 October 28,
    2023
    Net sales$208,331  $199,369  $434,419  $431,900 
    Cost of sales 152,468   145,170   318,858   306,554 
    Gross profit 55,863   54,199   115,561   125,346 
            
    Operating expenses:       
    Selling 14,704   14,653   30,340   27,582 
    General and administrative 15,550   10,889   27,273   20,488 
    Product design and development 9,839   9,221   19,462   17,624 
      40,093   34,763   77,075   65,694 
    Operating income 15,770   19,436   38,486   59,652 
            
    Nonoperating (expense) income:       
    Interest (expense) income, net 273   (1,326)  202   (2,207)
    Change in fair value of convertible note 10,304   (10,650)  (11,286)  (17,910)
    Other expense and debt issuance costs write-off, net (1,164)  (1,303)  (1,999)  (5,282)
            
    Income before income taxes 25,183   6,157   25,403   34,253 
    Income tax expense 3,777   3,992   8,943   12,892 
    Net income$21,406  $2,165  $16,460  $21,361 
            
    Weighted average shares outstanding:       
    Basic 46,796   46,030   46,576   45,838 
    Diluted 51,715   46,705   47,507   46,454 
            
    Earnings per share:       
    Basic$0.46  $0.05  $0.35  $0.47 
    Diluted$0.22  $0.05  $0.35  $0.46 
                    


    Daktronics, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (in thousands)
    (unaudited)
        
     October 26,
    2024    		 April 27,
    2024
    ASSETS   
    CURRENT ASSETS:   
    Cash and cash equivalents$134,352  $81,299 
    Restricted cash —   379 
    Accounts receivable, net 111,307   117,186 
    Inventories 121,582   138,008 
    Contract assets 44,955   55,800 
    Current maturities of long-term receivables 1,272   298 
    Prepaid expenses and other current assets 9,180   8,531 
    Income tax receivables 144   448 
    Total current assets 422,792   401,949 
        
    Property and equipment, net 73,815   71,752 
    Long-term receivables, less current maturities 2,537   562 
    Goodwill 3,194   3,226 
    Intangibles, net 696   840 
    Debt issuance costs, net 1,910   2,530 
    Investment in affiliates and other assets 21,084   21,163 
    Deferred income taxes 25,858   25,862 
    TOTAL ASSETS$551,886  $527,884 
            


    Daktronics, Inc. and Subsidiaries
    Consolidated Balance Sheets (continued)
    (in thousands)
    (unaudited)
        
     October 26,
    2024    		 April 27,
    2024
    LIABILITIES AND SHAREHOLDERS' EQUITY   
    CURRENT LIABILITIES:   
    Current portion of long-term debt$1,500  $1,500 
    Accounts payable 57,463   60,757 
    Contract liabilities 62,458   65,524 
    Accrued expenses 42,811   43,028 
    Warranty obligations 15,334   16,540 
    Income taxes payable 531   4,947 
    Total current liabilities 180,097   192,296 
        
    Long-term warranty obligations 23,054   21,388 
    Long-term contract liabilities 18,330   16,342 
    Other long-term obligations 5,446   5,759 
    Long-term debt, net 63,887   53,164 
    Deferred income taxes 142   143 
    Total long-term liabilities 110,859   96,796 
        
    SHAREHOLDERS' EQUITY:   
    Preferred Shares, no par value, authorized 50 shares; no shares issued and outstanding —   — 
    Common Stock, no par value, authorized 115,000 shares; 48,810 and 48,121 shares issued at October 26, 2024 and April 27, 2024, respectively 70,282   65,525 
    Additional paid-in capital 52,505   52,046 
    Retained earnings 154,491   138,031 
    Treasury Stock, at cost, 1,907 shares at October 26, 2024 and April 27, 2024, respectively (10,285)  (10,285)
    Accumulated other comprehensive loss (6,063)  (6,525)
    TOTAL SHAREHOLDERS' EQUITY 260,930   238,792 
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$551,886  $527,884 
            


    Daktronics, Inc. and Subsidiaries
    Consolidated Statements of Cash Flows
    (in thousands)
    (unaudited)
      
     Six Months Ended
     October 26,
    2024    		 October 28,
    2023
    CASH FLOWS FROM OPERATING ACTIVITIES:   
    Net income$16,460  $21,361 
    Adjustments to reconcile net income to net cash provided by operating activities:   
    Depreciation and amortization 9,794   9,494 
    (Gain) loss on sale of property, equipment and other assets (40)  101 
    Share-based compensation 1,050   1,091 
    Equity in loss of affiliates 1,832   1,461 
    (Recoveries of) provision for doubtful accounts, net (152)  240 
    Deferred income taxes, net 13   20 
    Non-cash impairment charges —   654 
    Change in fair value of convertible note 11,286   17,910 
    Debt issuance costs write-off —   3,353 
    Change in operating assets and liabilities 22,577   (11,374)
     Net cash provided by operating activities 62,820   44,311 
        
    CASH FLOWS FROM INVESTING ACTIVITIES:   
    Purchases of property and equipment (10,466)  (9,226)
    Proceeds from sales of property, equipment and other assets 124   52 
    Purchases of equity and loans to equity investees (2,041)  (2,899)
     Net cash used in investing activities (12,383)  (12,073)
        
    CASH FLOWS FROM FINANCING ACTIVITIES:   
    Borrowings on notes payable —   40,000 
    Payments on notes payable (1,358)  (18,125)
    Principal payments on long-term obligations (206)  (204)
    Debt issuance costs —   (6,454)
    Proceeds from exercise of stock options 4,188   1,005 
    Tax payments related to RSU issuances (591)  (303)
     Net cash provided by financing activities 2,033   15,919 
        
    EFFECT OF EXCHANGE RATE CHANGES ON CASH 204   139 
            
    NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 52,674   48,296 
        
    CASH, CASH EQUIVALENTS AND RESTRICTED CASH:   
    Beginning of period 81,678   24,690 
    End of period$134,352  $72,986 
            


    Daktronics, Inc. and Subsidiaries
    Net Sales and Orders by Business Unit
    (in thousands)
    (unaudited)
        
     Three Months Ended Six Months Ended
     October October Dollar  Percent  October October Dollar  Percent 
    (in thousands)26, 2024 28, 2023 Change Change 26, 2024 28, 2023 Change Change
    Net Sales:               
    Commercial$43,439 $42,453 $986  2.3% $77,638 $89,336 $(11,698) (13.1)%
    Live Events 77,207  68,210  8,997  13.2   185,815  160,209  25,606  16.0 
    High School Park and Recreation 48,071  48,942  (871) (1.8)  96,077  105,176  (9,099) (8.7)
    Transportation 21,478  20,243  1,235  6.1   43,968  41,612  2,356  5.7 
    International 18,136  19,521  (1,385) (7.1)  30,921  35,567  (4,646) (13.1)
     $208,331 $199,369 $8,962  4.5% $434,419 $431,900 $2,519  0.6%
    Orders:               
    Commercial$44,548 $34,209 $10,339  30.2% $86,670 $66,643 $20,027  30.1%
    Live Events 70,524  79,016  (8,492) (10.7)  121,423  131,219  (9,796) (7.5)
    High School Park and Recreation 35,838  32,800  3,038  9.3   82,285  68,539  13,746  20.1 
    Transportation 12,222  21,500  (9,278) (43.2)  34,981  40,485  (5,504) (13.6)
    International 14,458  16,168  (1,710) (10.6)  28,401  35,437  (7,036) (19.9)
     $177,590 $183,693 $(6,103) (3.3)% $353,760 $342,323 $11,437  3.3%
                             


    Reconciliation of Free Cash Flow*
    (in thousands)
    (unaudited)
      
     Six Months Ended
     October 26,
    2024    		 October 28,
    2023
    Net cash provided by operating activities$62,820  $44,311 
    Purchases of property and equipment (10,466)  (9,226)
    Proceeds from sales of property and equipment 124   52 
    Free cash flow$52,478  $35,137 


    *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.
      


    Reconciliation of Adjusted Operating Income*
    (in thousands)
    (unaudited)
        
     Three Months Ended Six Months Ended
     October 26,
    2024    		 October 28,
    2023    		 October 26,
    2024    		 October 28,
    2023
    Operating income (GAAP Measure)$15,770  $19,436  $38,486  $59,652 
    Consultant related expenses associated with business transformation initiatives 3,344   —   4,299   — 
    Adjusted operating income (non-GAAP measure)$19,114  $19,436  $42,785  $59,652 


    *In evaluating its business, Daktronics considers and uses adjusted operating income as a key measure of its operating performance. The term adjusted operating income is not defined under 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. We define non-GAAP adjusted operating income as operating income plus consulting related expenses related to our business transformation initiatives. Management believes non-GAAP adjusted operating income is a useful indicator of our financial performance and our ability to generate cash flows from operations. Our definition of non-GAAP adjusted operating income may not be comparable to similarly titled definitions used by other companies. The table above reconciles non-GAAP adjusted operating income to comparable GAAP financial measures.
      


    Reconciliation of Adjusted Net Income*
    (in thousands)
    (unaudited)
        
     Three Months Ended Six Months Ended
     October 26,
    2024    		 October 28,
    2023    		 October 26,
    2024    		 October 28,
    2023
    Net income$21,406  $2,165  $16,460  $21,361 
    Consultant related expenses associated with business transformation initiatives, net of taxes 2,842   —   2,786   — 
    Change in fair value of convertible note (10,304)  10,650   11,286   17,910 
    Debt issuance costs expensed due to fair value of convertible note, net of taxes —   —   —   2,092 
    Adjusted net income$13,944  $12,815  $30,532  $41,363 


    *Adjusted net income. We disclose adjusted net income as a non-GAAP financial measurement in order to report our results exclusive of items that are non-recurring or not core to our operating business. We believe presenting this non-GAAP financial measurement provides investors with a consistent way to analyze our performance.
      


    Reconciliation of Long-term Debt
    (in thousands)
    (unaudited)
     
    Long-term debt consists of the following:
        
     October 26,
    2024    		 April 27,
    2024
    Mortgage$13,125  $13,875 
    Convertible note 25,000   25,000 
    Long-term debt, gross 38,125   38,875 
    Debt issuance costs, net (574)  (761)
    Change in fair value of convertible note 27,836   16,550 
    Current portion (1,500)  (1,500)
    Long-term debt, net$63,887  $53,164 

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