Daktronics, Inc. Announces Fourth Quarter and Fiscal 2008 Results

Daktronics, Inc. (Nasdaq: DAKT) today reported fiscal 2008 fourth quarter net sales of $129.1 million and net income of $5.7 million, or $0.14 per diluted share, compared to net sales of $110.8 million and net income of $3.5 million, or $0.09 per diluted share, for the fourth quarter of fiscal 2007. Backlog at the end of the 2008 fourth quarter was approximately $175 million, compared with a backlog of approximately $127 million a year earlier, and $138 million at the end of the third quarter of fiscal 2008. Net sales for the fiscal year ended April 26, 2008 totaled $499.7 million, up over 15 percent from sales of $433.2 million in 2007. Net income for fiscal 2008 was $26.2 million, a 7 percent increase from net income of $24.4 million in 2007. Earnings per diluted share, for the year ended April 26, 2008, were $0.63, as compared to $0.59 per diluted share for fiscal 2007. "We ended the year better than we expected, and have built momentum as we enter fiscal 2009,” said Jim Morgan, president and chief executive officer. "We finished our year with positive trends in, orders, free cash flow and operating expenses that set the stage for fiscal year 2009. We begin fiscal 2009 with a strong backlog, which does not include a large sports project that was awarded to us in April but is subject to contract execution. We focused hard on operating expense containment and curbing capital expenditures to offset the lower operating margins for fiscal 2008, which helped us achieve solid free cash flow.” Morgan continued, "Our international orders were especially strong for the quarter, exceeding $27 million. These orders demonstrate our ability to become a significant player in Europe and Asia, made possible by the investments we made over the past four fiscal years. We believe our international business unit can expand orders by more than 20 percent in the upcoming year, but they will be subject to volatility from quarter to quarter.” Daktronics’ billboard segment of its commercial business unit saw substantial growth in orders in the fourth quarter of fiscal 2008, with orders exceeding $30 million for the first time. This performance exceeded the previous record of $22 million. Morgan said, "We remain pleased with the performance of the billboard market. The level of interest at all levels of outdoor advertisers remains strong despite the current economic concerns in the industry.” "Within our live events business unit we continue to have success with large projects, as previously announced, and expect a fairly strong first half of fiscal 2009 based on orders and the pipeline,” said Morgan. "We believe that this will drive sales growth in excess of 20 percent for fiscal 2009. That growth depends on our success in booking a number of large projects. Keeping in mind the impact that the larger projects can have on gross profit levels, we are expecting that gross margin levels in this business unit will be flat in fiscal 2009, compared to fiscal 2008.” The company’s schools and theaters business unit achieved order growth of more than 35 percent for the year, which exceeds the goals we had for this business unit at the beginning of the year. Morgan added, "With our new video display and sound system offerings for the high school marketplace, we believe that the order growth of this business unit will expand at more than 15 percent into fiscal 2009.” Morgan concluded, "We have a number of initiatives going into fiscal 2009 in manufacturing and product development which are intended to drive higher quality, easier built and even more capable products over fiscal year 2009, which we believe will add leverage to our business for the long-term. This includes investments in common components and increased standardization which can facilitate more streamlined manufacturing and systems support. It’s all centered on our long-term goal to become a world-class manufacturing operation that produces the best products at the right price levels for the marketplace. We are also in the process of restructuring our service organization and expect to see benefits in the form of margin improvement before the end of fiscal 2009.” "As we ended the first half of fiscal 2008 and saw that we would not achieve our operating margin goals for the year, we became more aggressive about reducing capital expenditures,” said Bill Retterath, chief financial officer. "We were able to execute this change in strategy without inhibiting our growth plans for the year.” Daktronics ended the year with less than $35 million in capital expenditures and through aggressive attention to managing net operating assets we were able to generate approximately $60 million of operating cash flow and approximately $32 million of free cash flow, including proceeds from the sale of equity investments. Retterath added, "We are also very pleased with the sequential decline in fourth quarter operating expenses, driven by the reduction in selling and general and administrative expenses. We expect a slight increase in first quarter of fiscal 2009 operating expenses as compared to the most recent quarter as we add to our work force from the pool of recent college graduates who are critical to our long-term success and a limited number of other strategic hires. General and administrative expenses are expected to rise throughout the year but end significantly below the sales percentage growth. Selling expenses will increase at a similar rate as general and administrative expenses for the year. Selling expenses will not increase as fast as net sales due to the reorganization of our field service force, which includes the transfer of personnel from sales to service roles which had been included in cost of sales, as previously disclosed.” Business Outlook The company is providing financial guidance for fiscal year 2009. Daktronics expects that net sales will increase by more than 20 percent over fiscal 2008 and operating margin will range from 8.0 percent to 9.5 percent. The growth of net sales depends on a number of large contracts, particularly in our live events and international business units, which could cause this growth level to change. Operating margin may vary, primarily as a result of fluctuations in gross profit levels. This guidance is subject to a number of factors that could cause it to vary and we refer investors to our filings with the Securities and Exchange Commission for a more complete list of the risk factors we face. Webcast Information The company will host a conference call and webcast to discuss its financial results today at 10:00 am (Central Time). This call will be broadcast live at http://investor.daktronics.com and 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 Sport, Business, Schools and Theaters and Transportation segments. For more information, visit the company’s World Wide Web site at: http://www.daktronics.com, e-mail the company at investor@daktronics.com, call (605) 697-4000 or toll-free (800) 843-5843 in the United States or write to the company at 331 32nd Ave. PO 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 are 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 expectation, including, but not limited to, changes in economic and market conditions, management of growth, timing and magnitude of future contracts, and other risks noted in the company’s SEC filings, including its Annual Report on Form 10-K for its 2007 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. Daktronics, Inc. and Subsidiaries Consolidated Statements of Income (in thousands, except per share amounts) (unaudited)     Three Months Ended   Twelve Months Ended April 26,   April 28, April 26,   April 28, 2008 2007 2008 2007 Net sales $ 129,117 $ 110,787 $ 499,677 $ 433,201 Cost of goods sold   92,788   78,408   352,087   306,604 Gross profit 36,329 32,379 147,590 126,597   Operating expenses: Selling 16,094 15,381 62,479 54,047 General and administrative 6,736 6,421 26,040 20,008 Product design and development   5,863   4,461   20,828   15,627   28,693   26,263   109,347   89,682 Operating income 7,636 6,116 38,243 36,915   Nonoperating income (expense): Interest income 462 351 1,757 1,811 Interest expense (158 ) (411 ) (1,423 ) (725 ) Other income (expense), net   (460 )   (615 )   1,049   (1,219 )   Income before income taxes 7,480 5,441 39,626 36,782 Income tax expense   1,770   1,920   13,413   12,355 Net income $ 5,710 $ 3,521 $ 26,213 $ 24,427   Weighted average shares outstanding: Basic   40,180   39,463   39,918   39,223 Diluted   41,158   41,348   41,337   41,311   Earnings per share: Basic $ 0.14 $ 0.09 $ 0.66 $ 0.62 Diluted $ 0.14 $ 0.09 $ 0.63 $ 0.59   Cash dividend paid per share $ - $ - $ 0.07 $ 0.06 Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands)     April 26,   2008 April 28, (unaudited) 2007 ASSETS   CURRENT ASSETS: Cash, cash equivalents and restricted cash $ 9,782 $ 2,590 Accounts receivable, less allowance for doubtful accounts 56,516 56,692 Inventories 50,525 45,835 Costs and estimated earnings in excess of billings 27,126 22,314 Current maturities of long-term receivables 7,435 6,831 Prepaid expenses and other 4,796 5,044 Deferred income taxes 9,517 7,761 Income taxes receivable -- 731 Rental equipment available for sale   --     188   Total current assets   165,697     147,986     Advertising rights, net 3,457 3,830 Long-term receivables, less current maturities 16,837 11,211 Investments in affiliates 2,998 8,762 Goodwill 4,722 4,408 Intangible and other assets 3,102 3,391 Deferred income taxes   143     136     31,259     31,738   PROPERTY AND EQUIPMENT: Land 3,190 3,275 Buildings 49,464 36,822 Machinery and equipment 44,743 38,420 Office furniture and equipment 45,482 37,520 Equipment held for rental 2,658 2,600 Demonstration equipment 7,516 5,939 Transportation equipment   6,106     6,669   159,159 131,245 Less accumulated depreciation   (61,636 )   (45,119 )   97,523     86,126   TOTAL ASSETS $ 294,479   $ 265,850   Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (continued) (in thousands)     April 26, 2008 April 28, (Unaudited) 2007 LIABILITIES AND SHAREHOLDERS’ EQUITY   CURRENT LIABILITIES: Notes payable, bank $ -- $ 24,615 Accounts payable 31,540 26,094 Accrued expenses and warranty obligations 26,100 21,849 Current maturities of long-term debt and marketing obligations 910 1,002 Billings in excess of costs and estimated earnings 24,560 18,293 Customer deposits 12,113 5,857 Deferred revenue 6,980 5,333 Income taxes payable   949     39   Total current liabilities   103,152     103,082     Long-term debt, less current maturities 55 592 Long-term marketing obligations, less current maturities 646 473 Long-term warranty obligations and other payables 3,766 5,366 Deferred income taxes   3,607     2,629     8,074     9,060   TOTAL LIABILITIES 111,226 112,142   SHAREHOLDERS’ EQUITY: Common stock 25,638 21,954 Additional paid-in capital 10,398 7,431 Retained earnings 147,912 124,469 Treasury stock, at cost (9 ) (9 ) Accumulated other comprehensive loss   (686 )   (137 ) TOTAL SHAREHOLDERS’ EQUITY   183,253     153,708   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 294,479   $ 265,850   Daktronics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (unaudited)   Years Ended April 26,   April 28, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 26,213 $ 24,427 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,806 13,298 Amortization 315 503 (Gain) loss on sale of property and equipment (7 ) (148 ) Gain on sale of equity investment (2,878 ) -- Stock-based compensation 2,628 2,095 Equity in earnings and losses of affiliates 2,402 2,027 Provision for doubtful accounts 145 239 Deferred income taxes, net (785 ) (422 ) Change in operating assets and liabilities   10,994   (27,413 ) Net cash provided by operating activities   59,833   14,606   CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (33,916 ) (58,743 ) Cash consideration paid for equity method investments (750 ) (13,779 ) Proceeds from sale of equity investment 7,000 -- Sales of marketable securities, net -- 8,309 Proceeds from sale of property and equipment   523   215 Net cash used in investing activities   (27,143 )   (63,998 )   CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable 139,462 74,584 Payments on notes payable (164,077 ) (49,969 ) Proceeds from exercise of stock options and warrants 2,335 1,565 Excess tax benefits from stock-based compensation 339 1,411 Principal payments on long-term debt (563 ) (102 ) Dividend paid   (2,770 )   (2,339 ) Net cash (used in) provided by in financing activities   (25,274 )   25,150   EFFECT OF EXCHANGE RATE CHANGES ON CASH   (681)   (89 )   INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,735 (24,331 )   CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD   2,590   26,921   CASH AND CASH EQUIVALENTS END OF PERIOD $ 9,325 $ 2,590 Daktronics, Inc. and Subsidiaries Sales and Orders By Segment (in thousands) (unaudited)     Three Months Ended   Twelve Months Ended April 26,   April 28, April 26,   April 28, 2008 2007 2008 2007 Net sales Commercial $ 46,020 $ 40,993 $ 180,938 $ 137,619 Live Events 40,718 39,024 168,640 177,195 Schools & Theatres 11,815 12,063 60,919 50,846 Transportation 10,476 11,592 37,355 30,414 International   20,088   7,115   51,825   37,127 Total Net Sales $ 129,117 $ 110,787 $ 499,677 $ 433,201   Orders Commercial $ 56,299 $ 46,256 $ 183,555 $ 158,896 Live Events 54,308 60,241 201,775 189,859 Schools & Theatres 15,308 12,690 63,286 45,828 Transportation 10,231 10,768 34,500 33,065 International   27,250   8,828   63,303   32,792 Total Orders $ 163,396 $ 138,783 $ 546,419 $ 460,440