Daktronics, Inc. Form 10-Q Summary
Business context and reporting period
Daktronics designs and manufactures electronic scoreboards, programmable displays and large-screen video systems for commercial, live-event, high-school and recreation, transportation, and international customers. The filing covers the quarter and nine months ended January 30, 2021, compared with February 1, 2020. The request metadata identifies “2019 Q3,” but the filing itself is for fiscal 2021 third quarter. Fiscal 2021 includes 39 weeks in the nine-month period versus 40 weeks in the prior-year comparable period.
Financial performance and key metrics
| Metric | Three months ended Jan. 30, 2021 | Three months ended Feb. 1, 2020 | Nine months ended Jan. 30, 2021 | Nine months ended Feb. 1, 2020 |
|---|---|---|---|---|
| Net sales | $94.1 million | $127.7 million | $365.2 million | $482.8 million |
| Gross profit | $23.9 million | $24.5 million | $93.0 million | $110.1 million |
| Gross margin | 25.4% | 19.2% | 25.5% | 22.8% |
| Operating income (loss) | $(0.2) million | $(9.2) million | $16.0 million | $3.3 million |
| Net income (loss) | $(0.2) million | $(12.7) million | $10.7 million | $1.6 million |
| Diluted EPS | $0.00 | $(0.28) | $0.24 | $0.03 |
| Operating cash flow | Not separately provided | Not separately provided | $48.2 million | $6.2 million |
Quarterly operating margin was approximately negative 0.3%, versus negative 7.2% in the prior-year quarter. Nine-month operating margin was approximately 4.4%, versus 0.7% previously. The quarterly effective tax rate was 82.0%; the nine-month rate was 21.3%.
- Quarterly sales declined 26.3%, primarily because COVID-19 reduced customer spending and delayed projects. Live Events declined 42.5%, International declined 33.5%, Commercial declined 18.4%, Transportation declined 15.4%, and High School Park and Recreation declined 0.9%.
- Nine-month sales declined 24.4%; on a weekly average basis, sales declined approximately 22% because the current period contained one fewer week.
- Quarterly gross margin benefited from product and service mix, lower service activity, cost reductions, and a $2.1 million reversal of a patent-litigation reserve. Excluding the reversal, quarterly gross margin was approximately 23.2%.
- Quarterly contribution margin, a non-GAAP measure, was $11.9 million, or 12.7% of sales, compared with $4.0 million, or 3.1%, in the prior-year quarter. Nine-month contribution margin was $56.8 million, or 15.6%, compared with $59.0 million, or 12.2%.
Cash flow, liquidity, debt, and balance sheet
- Cash, cash equivalents, and restricted cash totaled $80.8 million at January 30, 2021, compared with $40.4 million at May 2, 2020. Cash and cash equivalents were $76.9 million, and restricted cash was $3.9 million.
- Operating cash flow was $48.2 million for the first nine months, supported by working-capital releases, including reductions in inventory, accounts receivable, and contract assets.
- Capital expenditures were $6.9 million, compared with $13.6 million in the prior-year period. Management projected approximately $10 million of fiscal 2021 capital expenditures.
- The company drew $15.0 million under its revolving credit facility. The facility totals $35.0 million, matures November 15, 2022, and had approximately $13.3 million remaining available after outstanding borrowings and letters of credit.
- The company was in compliance with its loan covenants. The most sensitive covenant requires interest-bearing debt to EBITDA of less than 2.5, along with a liquidity covenant and other customary requirements.
- Working capital was $132.7 million at January 30, 2021, compared with $106.0 million at May 2, 2020. Total shareholders’ equity was $192.6 million.
- Dividends and share repurchases were suspended. No shares were repurchased and no dividends were paid during the first nine months of fiscal 2021.
Material changes, outlook, risks, and unusual items
- COVID-19 caused customer project delays, lower orders, reduced travel and on-site service activity, furloughs, workforce reductions, and continuing uncertainty across all business units. Management could not predict the pandemic’s magnitude or duration.
- Orders declined 35.6% in the quarter and 27.2% for the nine months. Product backlog was approximately $195 million at January 30, 2021, compared with $187 million at February 1, 2020 and $201 million at the prior quarter-end.
- Management expects near-term operating results to remain challenged and continues to reduce costs, staffing, capital spending, and discretionary expenditures. Long-term growth expectations remain tied to LED adoption, replacement cycles, digital advertising, transportation infrastructure, and demand for upgraded display systems.
- The company received COVID-related governmental wage subsidies of $1.6 million for the nine-month period and deferred $5.1 million of employer Social Security taxes; half is due December 31, 2021 and the remainder December 31, 2022.
- The company recorded $2.8 million of severance costs from reductions in force and a $2.1 million benefit from reversal of a patent-litigation reserve after an appellate court ruling in the company’s favor.
- Equity-method affiliate losses increased to $1.7 million from $0.4 million in the prior-year period. The allowance for doubtful accounts increased to $4.2 million from $2.8 million at fiscal year-end.
- Outstanding performance-related instruments included approximately $6.7 million of letters of credit, $3.6 million of bank guarantees, and $38.9 million of surety bonds. The company reported no known material indemnification claims and no material probable losses from other unresolved litigation.
- Key risks include prolonged pandemic effects, customer credit deterioration, project cancellations or deferrals, supply-chain disruption and single-source suppliers, foreign-currency volatility, tariffs, warranty obligations, performance guarantees, covenant compliance, and the seasonal and project-based nature of revenue.
Important facts for investors to verify
- Confirm the intended period because the supplied metadata says “2019 Q3,” while the filing covers the quarter ended January 30, 2021.
- Assess whether improved gross margin is sustainable after excluding the $2.1 million litigation reversal and unusually low service activity.
- Monitor COVID-related order trends, backlog conversion, customer cancellations, and the timing of large projects.
- Review liquidity after considering the $15.0 million credit draw, $13.3 million of remaining facility availability, deferred payroll taxes, guarantees, and covenant requirements.
- Evaluate whether operating cash flow benefited from temporary working-capital reductions that may not recur.
- Track the resumption or continued suspension of dividends and share repurchases, along with planned fiscal 2021 capital expenditures.