Daktronics, Inc. Announces 2024 Fiscal Third Quarter Results
Daktronics, Inc. (NASDAQ: DAKT) reported Q3 FY2024 results with $534.4 million in year-to-date orders, a 6.6% increase from last year. Sales were $170.3 million, a 7.9% decrease from FY2023. Operating income rose by 12.9% to $8.0 million. Product backlog was $328.3 million. The company expects Q4 sales to increase sequentially but decrease YoY. Gross margin is expected to be similar to 2023 Q4.
Daktronics, Inc.'s fiscal 2024 third-quarter report indicates a mixed financial performance. A significant detail is the 6.6% year-to-date increase in product and service orders , suggesting a growing demand for the company's offerings. This could be indicative of a positive market response to their products and may signal future revenue growth. However, the 7.9% decrease in sales compared to the previous year raises concerns. This decline might be attributed to the normalization of sales post-pandemic, as the company had previously experienced a surge due to high backorder fulfillment.
The increase in gross profit margin to 24.5% reflects improved efficiency and strategic pricing, which is encouraging for profitability. The operating income growth of 12.9% is notable, especially considering the traditionally weaker third quarter. However, investors should be cautious about the decrease in the product order backlog , which might suggest a potential slowdown in future revenues if new orders do not continue to outpace fulfillment.
From a cash flow perspective, the generation of $53.8 million from operations is strong and the working capital ratio of 2.2 to 1 demonstrates the company's ability to cover short-term liabilities. Yet, the long-term debt of $50.0 million warrants monitoring, especially considering the fair value adjustments and the impact on the company's financial leverage.
Examining Daktronics' growth in product and service orders, particularly the 29.4% increase in the third quarter , reflects a robust demand in the company's domestic end markets. This growth, especially in the Live Events and Transportation sectors, is a positive sign of the company's competitive positioning and its ability to capture market share. The mention of expansion into military end markets and the use of narrow pixel pitch technology suggests strategic moves to diversify and penetrate new markets, which could open additional revenue streams.
The decrease in international orders, however, signals potential challenges in global markets that could be due to geopolitical tensions, economic uncertainties, or competitive dynamics. This underscores the importance of maintaining a diverse portfolio and the ability to pivot between domestic and international markets.
The emphasis on operational efficiency and working capital management indicates a strategic focus on maintaining a strong balance sheet and improving profitability metrics, which are critical for sustaining growth and investor confidence in the long term.
The financial results of Daktronics need to be contextualized within the broader economic environment. The increase in operating income during a seasonally low period is commendable and could be reflective of broader economic recovery post-pandemic. However, the reduction in the backlog and the expected seasonality in sales for the fiscal fourth quarter suggest that the company is not immune to macroeconomic trends, such as fluctuating demand and supply chain stability.
The effective tax rate of 15.0% for the third quarter, influenced by non-taxable fair value adjustments, provides a temporary boost to net income but is expected to normalize in the mid-twenties. Investors should consider this in their valuation models as it could affect the company's future tax liabilities and net income. The interest expense income change also points to the impact of rising interest rates on corporate finance costs, which is particularly relevant in the current environment of monetary policy tightening.
02/28/2024 - 07:30 AM
BROOKINGS, S.D., Feb. 28, 2024 (GLOBE NEWSWIRE) -- Daktronics, Inc. (NASDAQ-DAKT), a leading global designer and manufacturer of best-in-class dynamic video communication displays and control systems for customers worldwide, today reported results for its fiscal 2024 third quarter which ended January 27, 2024.
Q3 FY2024 financial highlights:
Year-to-date product and service orders were $534.4 million (1) , an increase of 6.6 percent as compared to $501.4 million in the same period of fiscal 2023; during the third quarter of fiscal 2024, new product and service orders were $192.1 million , a 29.4 percent increase from $148.4 million in the year-earlier period Sales of $170.3 million , a 7.9 percent decrease from the third quarter of fiscal 2023; the year-ago period's record revenue was driven by high backorder fulfillment as a result of recovery from pandemic-related supply chain challenges and labor availability Gross profit as a percentage of net sales of 24.5 percent as compared to 22.6 percent in the third quarter of fiscal 2023 Operating income of $8.0 million , a 12.9 percent increase as compared to $7.1 million in the third quarter of fiscal 2023 Product order backlog was $328.3 million (1) at January 27, 2024 compared to $400.7 million at the end of the fourth quarter of fiscal 2023 and $429.1 million at the end of the third quarter of fiscal 2023 as past periods' overbuilt backlog continues to be worked down through reductions in manufacturing lead times "Our teams’ strong execution of the manufacturing, operating, sourcing and pricing improvements that we put in place over the past two years drove efficiencies and raised the baseline profitability of the business. As a result, we delivered positive operating income in a seasonally low-volume period that is historically a loss quarter despite lower volume compared to last year’s high level of backorder fulfillment. This performance, plus careful working capital management, generated $8.0 million in operating income. Our orders are up 6.6 percent year-to-date on strong third quarter growth of 29.4 percent, reflecting strengthening demand in each of our domestic end markets,” stated Reece Kurtenbach, Daktronicsʹ Chairman, President and Chief Executive Officer.
FQ4 Outlook
Kurtenbach added, “Our year-to-date results reflect our strengthened performance and serve as evidence that we have successfully adapted to the business conditions that challenged Daktronics. Our focus for the remainder of the fiscal year is on capturing growth in our addressable end markets by expanding our share of customer spend, adding recurring control system and content development revenue where applicable, and winning new customers. We are also leveraging narrow pixel pitch and other technologies to deepen our penetration of current and enter potential new end markets, including military. Last, we continue to increase our nimbleness and flexibility in capacity allocation and utilization, qualifying each of our plants around the world for selected product manufacture and carefully assigning capacity, adjusting utilization where necessary.”
Third Quarter Performance
Net sales for the third quarter of fiscal 2024 decreased by 7.9 percent as compared to the third quarter of fiscal 2023. The third quarter of every year is characterized by seasonally lower volume, and the decrease is attributable to the year-ago period’s unseasonably record revenue driven by high backorder fulfillment resulting from recovery of pandemic-related supply chain challenges and labor availability. The sales decrease was driven by comparatively lower volumes in the Commercial and International business units, partially offset by order fulfillments in the Live Events, High School Park and Recreation, and Transportation business units.
Gross profit as a percentage of net sales increased to 24.5 percent for the third quarter of fiscal 2024 as compared to 22.6 percent a year earlier. The gross profit improvement is due to strategic pricing, greater efficiency of sales volume generation over the cost structure, and a more stable operating environment.
Operating expenses decreased 2.6 percent to $33.7 million in the third quarter of fiscal 2024 as compared to $34.6 million for the third quarter of fiscal 2023. This decrease is primarily attributable to recording a $4.6 million non-cash goodwill impairment charge during the third quarter of fiscal 2023 that was not repeated in the third quarter of fiscal 2024. This decrease is partially offset by the increases in personnel-related expenses.
Operating income percent for the third quarter of fiscal 2024 was 4.7 percent compared to 3.8 percent for the third quarter of fiscal 2023 due to the combined factors discussed above.
The increase in interest (expense) income, net for the third quarter of fiscal 2024 compared to the same period one year ago was primarily due to the closing in May 2023 on the financing transactions at higher values and interest rates than were in effect under our previous line of credit during the 2023 third quarter.
For the three months ended January 27, 2024, the Company recorded $6.3 million of income for the non-cash change in fair value of the convertible note payable, which is accounted for under the fair value option.
The effective tax rate of 15.0 percent resulted in $1.9 million of income tax expense for the third quarter of fiscal 2024. Income before tax includes the impacts of the change in the convertible note fair value; however, these changes are not taxable for tax purposes which impacts the effective tax rate. The reduction in the fair value adjustment during the third quarter of fiscal 2024 resulted in a lower than normal effective tax rate. Absent any major tax changes, we expect our full year effective tax rate to be in the mid-twenties before the impacts of fair value accounting for the convertible note.
Balance Sheet and Cash Flow $77.2 million at January 27, 2024, and $50.0 million of long-term debt was outstanding as of that date. The long-term debt includes the face value of the debt of $39.3 million , the $11.6 million adjustment to fair value, and $0.9 million of debt issuance costs, net. There were no draw-downs on our asset-based revolving credit facility during the first nine months of fiscal 2024 and $32.9 million available to draw at January 27, 2024. In the first nine months of fiscal 2024, we generated $53.8 million from operations and used $13.6 million for purchases of property and equipment. At the end of the fiscal 2024 third quarter, our working capital ratio was 2.2 to 1. Inventory levels dropped 6.2 percent since the end of the 2023 fiscal year on April 29, 2023 and dropped slightly since the end of the second fiscal quarter of 2024. Management’s focus remains on managing working capital through expected growth of the company.
Webcast Information 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
For more information contact: 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 29, 2023. this release does not include a reconciliation of orders or backlog, as it would be impractical to do so without unreasonable effort.
Daktronics, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net sales $ 170,303 $ 184,975 $ 602,203 $ 544,334 Cost of sales 128,585 143,262 435,139 445,123 Gross profit 41,718 41,713 167,064 99,211 Operating expenses: Selling 14,258 12,908 41,840 41,866 General and administrative 10,589 9,861 31,077 27,989 Product design and development 8,835 7,250 26,459 21,655 Goodwill impairment — 4,576 — 4,576 33,682 34,595 99,376 96,086 Operating income 8,036 7,118 67,688 3,125 Nonoperating (expense) income: Interest (expense) income, net (745 ) (398 ) (2,952 ) (721 ) Change in fair value of convertible note 6,340 — (11,570 ) — Other expense and debt issuance costs write-off, net (1,000 ) (1,380 ) (6,282 ) (2,335 ) Income before income taxes 12,631 5,340 46,884 69 Income tax expense 1,889 1,627 14,781 14,666 Net income (loss) $ 10,742 $ 3,713 $ 32,103 $ (14,597 ) Weighted average shares outstanding: Basic 46,173 45,387 45,975 45,320 Diluted 50,837 45,448 46,608 45,320 Earnings (loss) per share: Basic $ 0.23 $ 0.08 $ 0.70 $ (0.32 ) Diluted $ 0.09 $ 0.08 $ 0.69 $ (0.32 )
Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands) (unaudited) January 27, 2024 April 29, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 76,764 $ 23,982 Restricted cash 429 708 Marketable securities — 534 Accounts receivable, net 100,601 109,979 Inventories 140,251 149,448 Contract assets 47,857 46,789 Current maturities of long-term receivables 271 1,215 Prepaid expenses and other current assets 7,853 9,676 Income tax receivables 1,504 326 Total current assets 375,530 342,657 Property and equipment, net 72,406 72,147 Long-term receivables, less current maturities 95 264 Goodwill 3,263 3,239 Intangibles, net 923 1,136 Debt issuance costs, net 2,840 3,866 Investment in affiliates and other assets 27,314 27,928 Deferred income taxes 16,835 16,867 TOTAL ASSETS $ 499,206 $ 468,104
Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (continued)(in thousands) (unaudited) January 27, 2024 April 29, 2023 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 1,500 $ — Accounts payable 49,489 67,522 Contract liabilities 68,936 91,549 Accrued expenses 36,824 36,005 Warranty obligations 12,884 12,228 Income taxes payable 628 2,859 Total current liabilities 170,261 210,163 Long-term warranty obligations 21,806 20,313 Long-term contract liabilities 16,347 13,096 Other long-term obligations 5,882 5,709 Long-term debt, net 48,466 17,750 Deferred income taxes 198 195 Total long-term liabilities 92,699 57,063 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; 46,189,311 and 45,488,595 shares issued at January 27, 2024 and April 29, 2023, respectively 65,371 63,023 Additional paid-in capital 51,554 50,259 Retained earnings 135,513 103,410 Treasury Stock, at cost, 1,907,445 shares at January 27, 2024 and April 29, 2023, respectively (10,285 ) (10,285 ) Accumulated other comprehensive loss (5,907 ) (5,529 ) TOTAL SHAREHOLDERS' EQUITY 236,246 200,878 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 499,206 $ 468,104
Daktronics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine Months Ended January 27, 2024 January 28, 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 32,103 $ (14,597 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 14,370 12,543 Loss (gain) on sale of property, equipment and other assets 98 (588 ) Share-based compensation 1,598 1,487 Equity in loss of affiliates 2,330 2,596 Provision for doubtful accounts, net 659 674 Deferred income taxes, net 23 13,028 Non-cash impairment charges 1,091 4,576 Change in fair value of convertible note 11,570 — Debt issuance costs write-off 3,353 — Change in operating assets and liabilities (13,406 ) (29,206 ) Net cash provided by (used in) operating activities 53,789 (9,487 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (13,628 ) (21,809 ) Proceeds from sales of property, equipment and other assets 107 612 Proceeds from sales or maturities of marketable securities 550 3,490 Purchases of equity and loans to equity investees (4,084 ) (3,240 ) Net cash used in investing activities (17,055 ) (20,947 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable 40,485 283,115 Payments on notes payable (18,500 ) (259,477 ) Principal payments on long-term obligations (307 ) — Debt issuance costs (6,833 ) — Proceeds from exercise of stock options 1,147 — Tax payments related to RSU issuances (303 ) (140 ) Net cash provided by financing activities 15,689 23,498 EFFECT OF EXCHANGE RATE CHANGES ON CASH 80 (342 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 52,503 (7,278 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH: Beginning of period 24,690 18,008 End of period $ 77,193 $ 10,730
Daktronics, Inc. and Subsidiaries Net Sales and Orders by Business Unit (in thousands) (unaudited) Three Months Ended Nine Months Ended (in thousands) January January Dollar Percent January January Dollar Percent Net Sales: Commercial $ 33,292 $ 49,967 $ (16,675 ) (33.4 )% $ 122,628 $ 127,132 $ (4,504 ) (3.5 )% Live Events 73,393 67,748 5,645 8.3 233,602 193,370 40,232 20.8 High School Park and Recreation 28,764 28,312 452 1.6 133,940 106,127 27,813 26.2 Transportation 19,605 17,578 2,027 11.5 61,217 53,797 7,420 13.8 International 15,249 21,370 (6,121 ) (28.6 ) 50,816 63,908 (13,092 ) (20.5 ) $ 170,303 $ 184,975 $ (14,672 ) (7.9 )% $ 602,203 $ 544,334 $ 57,869 10.6 % Orders: (1) Commercial $ 34,524 $ 28,737 $ 5,787 20.1 % $ 101,167 $ 119,126 $ (17,959 ) (15.1 )% Live Events 95,217 61,011 34,206 56.1 226,436 193,763 32,673 16.9 High School Park and Recreation 35,385 28,097 7,288 25.9 103,924 97,574 6,350 6.5 Transportation 18,924 13,525 5,399 39.9 59,409 45,812 13,597 29.7 International 8,013 17,005 (8,992 ) (52.9 ) 43,450 45,130 (1,680 ) (3.7 ) $ 192,063 $ 148,375 $ 43,688 29.4 % $ 534,386 $ 501,405 $ 32,981 6.6 %
Reconciliation of Free Cash Flow* (in thousands) (unaudited) Nine Months Ended January 27, 2024 January 28, 2023 Net cash provided by (used in) operating activities $ 53,789 $ (9,487 ) Purchases of property and equipment (13,628 ) (21,809 ) Proceeds from sales of property and equipment 107 612 Free cash flow $ 40,268 $ (30,684 )
* 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. Daktronics' free cash flow may not have the same meaning or be calculated in the same way as the same or similar terms used by other companies.
Reconciliation of Adjusted Operating Income* (in thousands) (unaudited) Three Months Ended Nine Months Ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Operating income (GAAP Measure) $ 8,036 $ 7,118 $ 67,688 $ 3,125 Plus goodwill impairment — 4,576 — 4,576 Adjusted operating income (non-GAAP measure) $ 8,036 $ 11,694 $ 67,688 $ 7,701
* 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 asset impairments. 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 (loss)* (in thousands) (unaudited) Three Months Ended Nine Months Ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net income (loss) $ 10,742 $ 3,713 $ 32,103 $ (14,597 ) Change in fair value of convertible note (6,340 ) — 11,570 — Debt issuance costs expensed due to fair value of convertible note, net of taxes — — 2,297 — Adjusted net income (loss) $ 4,402 $ 3,713 $ 45,970 $ (14,597 )
* 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 measurements 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: January 27, 2024 April 29, 2023 ABL credit facility/prior line of credit $ — $ 17,750 Mortgage 14,250 — Convertible note 25,000 — Long-term debt, gross 39,250 17,750 Debt issuance costs, net (854 ) — Change in fair value of convertible note 11,570 — Current portion (1,500 ) — Long-term debt, net $ 48,466 $ 17,750
What were Daktronics' year-to-date product and service orders for Q3 FY2024?
Daktronics reported year-to-date product and service orders of $534.4 million for the third quarter of fiscal year 2024, representing a 6.6% increase from the same period in fiscal 2023.
What was the percentage decrease in sales for Daktronics in Q3 FY2024 compared to FY2023?
In the third quarter of fiscal year 2024, Daktronics experienced a 7.9% decrease in sales compared to the same period in fiscal year 2023.
How much was Daktronics' operating income in Q3 FY2024, and what was the percentage increase?
Daktronics reported an operating income of $8.0 million in the third quarter of fiscal year 2024, reflecting a 12.9% increase from the third quarter of fiscal year 2023.
What was Daktronics' product order backlog at the end of January 27, 2024?
Daktronics' product order backlog was $328.3 million as of January 27, 2024, compared to $400.7 million at the end of the fourth quarter of fiscal year 2023.
What is Daktronics' outlook for the fiscal fourth quarter of 2024?
Daktronics expects the fiscal fourth quarter of 2024 to follow pre-pandemic patterns, with net sales increasing sequentially compared to Q3 but decreasing from the year-ago period.
